Atlantic American Corp.
Annual Report 2018

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, 2018or 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, 2018, the last business day of the registrant’smost recently completed second fiscal quarter, was $11,087,680. 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 15, 2019 there were 20,154,832 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 2019 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 3 Policyholder and Claims Services 4 Reserves 5 Reinsurance 6 Competition 7 Ratings 8 Regulation 8 NAIC Ratios 8 Risk-Based Capital 9 Information Technology and Cybersecurity 9 Investments 10 Employees 11 Financial Information by Industry Segment 11 Available Information 11 Executive Officers of the Registrant 11 Forward-Looking Statements 11 Item 1A.Risk Factors 12 Item 1B.Unresolved Staff Comments 12 Item 2.Properties 12 Item 3.Legal Proceedings 13 Item 4.Mine Safety Disclosures 13 PART II Item 5.Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of EquitySecurities 14 Item 6.Selected Financial Data 15 Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations 15 Item 7A.Quantitative and Qualitative Disclosures About Market Risk 24 Item 8.Financial Statements and Supplementary Data 25 Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 59 Item 9A.Controls and Procedures 59 Item 9B.Other Information 59 PART III Item 10.Directors, Executive Officers and Corporate Governance 60 Item 11.Executive Compensation 60 Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters 60 Item 13.Certain Relationships and Related Transactions, and Director Independence 60 Item 14.Principal Accountant Fees and Services 60 PART IV Item 15.Exhibits, Financial Statement Schedules 61 Item 16.Form 10-K Summary 62 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, 20182017 (In thousands)Automobile liability$28,840 $29,370 Automobile physical damage 11,922 9,972 General liability 2,920 2,953 Surety 7,170 8,441 Other lines 2,955 2,925 Total$53,807 $53,661 Year Ended December 31, 20182017 (In thousands)Life insurance$8,921 $9,574 Medicare supplement 102,658 93,652 Other accident and health 7,545 6,440 Total health insurance 110,203 100,092 Total$119,124 $109,666 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 93% ofBankers Fidelity’s net earned premiums in 2018 while life insurance, including both whole and term life insurance policies,accounted for the balance. In terms of the number of policies written in 2018, 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 individual and group policies providing for the paymentof standard benefits in connection with the treatment of diagnosed cancer and other critical illnesses, as well as a number ofother policies providing 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 acquires its clientele through three distribution channels spread across 46 different states and two businessdivisions, all of which utilize commissioned, independent agents. The three distribution channels include traditional independentagents, brokers typically interested in a specific product of Bankers Fidelity and brokers who focus on sales within thegroup/employer benefits arena of BankersWorksite, all of which are responsible for their own marketing and sales activities.Contracting as independent agents enables Bankers Fidelity to effectively expand or contract its sales force without incurringsignificant expense.Bankers Fidelity had 7,290 licensed agents contracted in both senior market and worksite divisions as of December 31, 2018.During 2018, approximately 2,297 of these licensed agents wrote policies on behalf of Bankers Fidelity.Bankers Fidelity’s marketing and distribution strategy revolves around five pillars: Diversification, Differentiation, Quality,Retention and Profitability.Diversification. Through unique product offerings such as the Vantage Recovery®, short-term care product and a groupwhole life product featuring a chronic illness rider, the Company is able to offer its distributors an array of products to sell thatstand out from the competition. As the Company continues to expand its geographical footprint with agents and products, one ofits main objectives is to have a healthy mix of all of its product lines nationwide.Differentiation. Bankers Fidelity prides itself on the quality of Customer Service it offers to policyholders and agents. Adedicated agent support team is available to the field to support them on administration, underwriting, sales training, productquestions and a plethora of other services which differentiates the Company from other carriers. Additionally, a customer loyaltyteam is available solely to serve insureds for any of their insurance needs. Unlike larger carriers, Bankers Fidelity prides itself onbeing agile which helps to quickly execute senior management’s initiatives.Quality. Bankers Fidelity is focused on being a niche carrier that delivers superior service, quality products and innovativesolutions. Sophisticated technology and reporting allows the home office teams to work with the sales force to deliver a tailoredexperience and phenomenal customer service.Retention. Through seasonal campaigns and customer outreach, the Company is focused on client retention and servicing itspolicyholder’s through various stages in their life. By providing its agents with an innovative product portfolio they are able tomeet the needs of our policyholders at all stages of their lives.Profitability. In an effort to be sustainable in the marketplace as a long-term partner, senior management is focused ondiversification, differentiation, quality and retention to ultimately service its policyholders and agents and provide security tohome office employees.UnderwritingProperty 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.3TABLE OF CONTENTSLife 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 CONTENTSReservesReserves are set by line of business within each of the subsidiaries. At December 31, 2018, approximately 68% of the reservesrelated to property and casualty losses and approximately 32% 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”) reserves for the early periods of loss emergencebecause such a low percentage of ultimate losses are reported in that time frame. Accordingly, for any given accident year, the rateat which losses on long-tail lines of business emerge in the early periods is generally not as reliable an indication of ultimate lossesas it would be for shorter-tail lines of business. The estimation of reserves for these lines of business in the early periods of lossemergence is therefore largely influenced by statistical analyses and application of prior accident years’ loss ratios, afterconsidering changes to earned pricing, loss costs, mix of business, ceded reinsurance and other factors that are expected to affectthe estimated ultimate losses. For later periods of loss emergence, methods which incorporate a development pattern assumptionare given more weight in estimating ultimate losses. For short-tail lines of business, the emergence of paid loss and case reserves ismore credible in the early periods and is more likely to be indicative of ultimate losses. The method used to set reserves for theselines of business is based upon utilization of a historical development pattern for reported losses. IBNR reserves for the current yearare set as the difference between the estimated fully developed ultimate losses for each year, less the established, related casereserves and cumulative related payments. IBNR reserves for prior accident years are similarly determined, again relying on anindicated, historical development pattern for reported losses.Based on the results of regular reserve estimate reviews, the Company determines the appropriate reserve adjustment, if any, torecord in each period. If necessary, recorded reserve estimates are changed after consideration of numerous factors, including, butnot limited to, the magnitude of the difference between the actuarial indication and the recorded reserves, improvement ordeterioration of actuarial indication in the period, the maturity of the accident year, trends observed over the recent past and thelevel of volatility within a particular line of business. In general, changes are made more quickly to recognize changes in estimatesto ultimate losses in mature accident years and less volatile lines of business.Estimating case reserves and ultimate losses involves various considerations which differ according to the line of business. Inaddition, changes in legislative and regulatory environments may impact loss estimates. General liability claims may have a longpattern of loss emergence. Given the broad nature of potential general liability coverages, investigative time periods may beextended and questions of coverage may exist. Such5TABLE OF CONTENTSuncertainties create greater imprecision in estimating required levels of loss reserves. The property and automobile lines ofbusiness generally have less variable reserve estimates than other lines. This is largely due to the coverages having relativelyshorter periods of loss emergence. Estimates, however, can still vary due to a number of factors, including interpretations offrequency and severity trends. Severity trends can be impacted by changes in internal claim handling and reserving practices inaddition to changes in the external environment. These changes in claim practices increase the uncertainty in the interpretation ofcase 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, 2018 actuarial review indicated that reserves could be as much as 6.6% lower or asmuch as 10.2% 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.Property and Casualty OperationsAmerican Southern maintains loss reserves representing estimates of amounts necessary for payment of losses and lossadjustment expense (“LAE”), and which are not discounted. IBNR reserves are also maintained for future development. These lossreserves are estimates, based on known facts and circumstances at a given date, of amounts the Company expects to pay onincurred claims. All balances are reviewed periodically by the Company’s independent consulting actuary. Reserves for LAE areintended to cover the ultimate costs of settling claims, including investigation and defense of any lawsuits resulting from suchclaims. Loss reserves for reported claims are based on a case-by-case evaluation of the type of claim involved, the circumstancessurrounding the claim, and the policy provisions relating to the type of loss along with anticipated future development. The LAEfor claims reported and claims not reported is based on historical statistical data and anticipated future development. Inflation andother factors which may affect claim payments are implicitly reflected in the reserving process through analysis and considerationof cost trends and reviews of historical 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.Life and Health OperationsBankers Fidelity establishes liabilities for future policy benefits to meet projected future obligations under outstandingpolicies. These reserves are calculated to satisfy policy and contract obligations as they mature. The amount of reserves forinsurance policies is calculated using assumptions for interest rates, mortality and morbidity rates, expenses, and withdrawals.Reserves are adjusted periodically based on published actuarial tables with modifications to reflect actual experience. The use ofsignificantly different assumptions, or actual results that differ significantly from our estimates, could materially adversely affectour liquidity, results of operations or financial condition.See Note 5 of Notes to Consolidated Financial Statements for more information on insurance reserves and policyholder funds.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 of6TABLE OF CONTENTSinsurance does not legally discharge the insurer from primary liability for the full amount of the policies written by it, and theceding company will incur a loss if the reinsurer fails to meet its obligations 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 31,2018, $12.3 million of the $232.2 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, 2018, the 2018 retention threshold was $15.0 million ofannualized premium; accordingly $20.8 million of the company’s $35.8 million of new annualized Medicare supplement premiumwas ceded.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 remains highly competitive and includes a large number of insurance companies, manyof which are new entrants to the business of providing Medicare supplement and other accident and health insurance products.Bankers Fidelity has established itself as a trusted carrier of choice for its customers providing quality and sustainability for nearly65 years.In order to compete, Bankers Fidelity actively seeks opportunities in niche markets, developing long-term relationships with aselect number of independent marketing organizations. Additionally, Bankers Fidelity actively promotes BankersWorksite, thegroup benefits division, as well as selective association partnerships. It competes with other insurers to attract and retain theallegiance of its independent agents through commission and sales incentive arrangements, accessibility and marketing assistance,lead programs, reputation and market expertise. Bankers Fidelity successfully competes in its chosen markets by establishingrelationships with independent agents and providing proprietary marketing initiatives as well as providing outstanding service topolicyholders.7TABLE OF CONTENTSRatingsRatings 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 or revoked at any time, follow a graduated scale of ratingcategories and notches ranging from A++ (Superior) to F (in liquidation). A.M. Best’s ratings are based on a detailed analysis of thestatutory financial condition and operations 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, 2018, the Company was in compliance with all such requirements, and securities with anamortized cost of $10.5 million were on deposit either directly with various state authorities or with third parties pursuant tovarious 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.8TABLE OF CONTENTSThe NAIC conducts annual reviews of the financial data of insurance companies primarily through the application of financialratios prepared on a statutory basis. Annual statements are required to be submitted to state insurance departments to assist them inmonitoring insurance companies in their state and to allow such states to determine a desirable range for each such ratio with whichcompanies should comply.The NAIC developed the Insurance Regulatory Information System (“IRIS”) to help state regulators identify companies thatmay require regulatory attention. Financial examiners review annual financial statements and the results of key financial ratiosbased on year-end data with the goal of identifying insurers that appear to require immediate regulatory attention. Each ratio has anestablished “usual range” of results. A ratio result falling outside the usual range, however, is not necessarily considered adverse;rather, unusual values are used as part of the regulatory early monitoring system. Furthermore, in some years, it may not be unusualfor financially sound companies to have several ratios with results outside the usual ranges. Generally, an insurance company maybecome subject to regulatory scrutiny or, depending on the company’s financial condition, regulatory action if certain of its keyIRIS ratios fall outside the usual ranges and the insurer’s financial condition is trending downward.For the year ended December 31, 2018, Bankers Fidelity had two ratios outside the usual range, primarily as a result of adecline in net income and net change in surplus before considering paid in amounts. Accordingly, the gross change in surplus afterconsidering paid in amounts fell in the usual range. American Southern had no IRIS ratios outside the usual ranges. Managementdoes not anticipate regulatory action as a result of the 2018 IRIS ratio results for the insurance subsidiaries.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 31,2018, the Company’s insurance subsidiaries, RBC levels exceeded the required regulatory levels.Information Technology and CybersecurityThe Company’s operations rely on the secure processing, storage, and transmission of confidential and personal identifiableinformation within technology platforms. Cybersecurity is a high priority and the Company has made significant investments inorder to prevent, detect, and respond to cyber threats. In recent years, the Company has enhanced intrusion protection anddetection technology, infrastructure and application firewalls, and network monitoring. The Company has also installed advancedendpoint threat protection technology and implemented a mandatory security awareness training program for all employees.Employees are also subject to periodic phishing tests.The Company has a sophisticated technology environment that supports the replication of data across multiple secure datacenters. This includes a comprehensive disaster recovery plan that is continually tested to ensure capabilities to resume business inthe event of a disaster. The Company’s technology environment is managed by an experienced team of professionals who followan extensive set of policies and procedures related to data security. Through recurring internal and external audits, controls areregularly reviewed, tested, and enhanced to ensure best practices. The Company has augmented the information security programthrough a partnership with a leading global cybersecurity provider to review and implement additional services such as SecurityEvent Monitoring, Advanced Endpoint Threat Detection, Incident Management Retainer Services, and Strategic Advisory Servicesfocused on Chief Information Security Officer (CISO) duties such as counter-threat intelligence.The information security program also includes a cybersecurity Incident Response Plan (“IRP”) that was established to helpprotect the integrity, availability and confidentiality of information, prevent loss of service, and comply with legal requirements.The IRP specifies the process for identifying and reporting an incident, initial investigation, risk classification, documentation andcommunication of incidents, responder procedures, incident reporting, and ongoing training. Additionally, the IRP specifies thenotification to directors, officers, and other corporate insiders to not trade the Company’s securities while in possession ofpotentially material nonpublic information about the incident.9 Year Ended December 31, 20182017 (Dollars in thousands)Average investments(1)$252,480 $247,739 Net investment income 9,549 8,496 Average yield on investments 3.8% 3.4%Realized investment gains, net 5,154 9,168 TABLE OF CONTENTSThe Audit Committee of the Board of Directors has oversight of the Company’s information security program. The Company’ssenior officers, including its Chief Information Officer, are responsible for the operation of the information security program andregularly communicate with the Audit Committee on the state of the program.The Company also maintains insurance coverage for Privacy Wrongful Acts and Network Security Wrongful Acts whichincludes Breach Response Services (Call Center Services, Credit Monitoring, Identity Theft Resolution Services and Notice toaffected individuals). The Company has additional coverage for supplemental privacy coverage costs including BreachConsultation Services, PR costs, Network Extortion, Notification Costs outside the US, Data Forensic Costs and Regulatory Finesand Penalties.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, 20182017 AmountPercentAmountPercent (Dollars in thousands)Fixed maturities: U.S. Treasury securities and obligations of U.S. Government agencies andauthorities$27,422 11.3%$31,155 12.6%States, municipalities and political subdivisions 8,364 3.5 10,809 4.4 Public utilities 13,524 5.6 14,935 6.0 All other corporate bonds 160,884 66.5 158,017 63.8 Redeemable preferred stock 192 0.1 192 0.1 Total fixed maturities(1) 210,386 87.0 215,108 86.9 Common and non-redeemable preferred stocks(2) 20,758 8.6 23,355 9.4 Policy loans(3) 2,085 0.9 2,146 0.9 Other invested assets(4) 7,424 3.0 5,626 2.3 Real estate 38 0.0 38 0.0 Investments in unconsolidated trusts 1,238 0.5 1,238 0.5 Total investments$241,929 100.0%$247,511 100.0%(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 $219.9 million as of December 31,2018 and $212.5 million as of December 31, 2017.(2)Equity securities are carried on the balance sheet at estimated fair value. Total adjusted cost of equity securities was $10.5 million as ofDecember 31, 2018 and $10.9 million as of December 31, 2017.(3)Policy loans are valued at unpaid principal balances.(4)Other invested assets are accounted for using the equity method. Total adjusted cost of other invested assets was $7.4 million as of December31, 2018 and $5.6 million as of December 31, 2017.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.10TABLE OF CONTENTSManagement’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 161 people at December 31, 2018. Of the 161 people employed at December 31,2018, 155 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 Note15 of Notes to Consolidated Financial Statements.Available InformationThe Company files annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments tothose reports and other information with the Securities and Exchange Commission (the “SEC”). The public can read and obtaincopies of those materials by visiting the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The publicmay obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintainsa website that contains reports, proxy and information statements and other information regarding issuers like the Company thatfile electronically with the SEC. The address of the SEC’s web site is www.sec.gov. In addition, as soon as reasonably practicableafter such materials are filed with or furnished to the SEC by the Company, the Company makes copies available to the public, freeof charge, on or through its web site at www.atlam.com. Neither the Company’s website, nor the information appearing on thewebsite, is included, incorporated into, or a part of, this report.Executive Officers of the RegistrantThe table below and the information following the table set forth, for each executive officer of the Company as of December31, 2018, 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. 56 Chairman of the Board, President & CEO 1992 J. Ross Franklin 41 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 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 the11TABLE OF CONTENTSsafe harbor provisions of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Exchange Act of 1933,and Section 21E of the Securities Act of 1934, and include estimates and assumptions related to, among other things, generaleconomic, competitive, operational and legislative developments. Forward-looking statements are subject to changes anduncertainties which are, in many instances, beyond the Company’s control and have been made based upon management’s currentexpectations and beliefs concerning future developments and their potential effect upon the Company. There can be no assurancethat future developments will be in accordance with management’s expectations or that the effect of future developments on theCompany will be those anticipated by management. Actual results could differ materially from those expected by the Company,depending on the occurrence or outcome of various factors. These factors include, among others: significant changes in generaleconomic conditions; the possible occurrence of terrorist attacks; unexpected developments in the health care or insuranceindustries affecting providers or individuals, including the cost or availability of services, or the tax consequences related thereto;disruption to the financial markets; unanticipated increases in the rate, number and amounts of claims outstanding; the level ofperformance of reinsurance companies under reinsurance contracts and the availability, pricing and adequacy of reinsurance toprotect the Company against losses; changes in the stock markets, interest rates or other financial markets, including the potentialeffect on the Company’s statutory capital levels; the uncertain effect on the Company of regulatory and market-driven changes inpractices relating to the payment of incentive compensation to brokers, agents and other producers; the incidence and severity ofcatastrophes, both natural and man-made; stronger than anticipated competitive activity; unfavorable judicial or legislativedevelopments; the potential effect of regulatory developments, including those which could increase the Company’s businesscosts and required capital levels; the Company’s ability to distribute its products through distribution channels, both current andfuture; the uncertain effect of emerging claim and coverage issues; the effect of assessments and other surcharges for guaranty fundsand other mandatory pooling arrangements; and risks related to cybersecurity matters, such as breaches of our computer network orthe loss of unauthorized access to the data we maintain. Many of such factors are beyond the Company’s ability to control orpredict. As a result, the Company’s actual financial condition and results of operations could differ materially from those expressedin any forward-looking statements made by the Company. Undue reliance should not be placed upon forward-looking statements.The Company does not intend to publicly update any forward-looking statements that may be made from time to time by, or onbehalf of, the Company.Item 1A.Risk FactorsAs a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K (a“smaller reporting company”), we have elected to comply with certain scaled disclosure reporting obligations, and therefore 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.12TABLE OF CONTENTSItem 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.13TABLE OF CONTENTSPART IIItem 5.Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity SecuritiesThe Company’s common stock is quoted on the Nasdaq Global Market (Symbol: AAME). As of March 15, 2019, there were2,572 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,HighLow2018 1st quarter$3.90 $3.10 2nd quarter 3.45 2.30 3rd quarter 3.20 2.20 4th quarter 3.80 2.24 2017 1st quarter$4.35 $3.40 2nd quarter 4.03 3.50 3rd quarter 3.75 3.15 4th quarter 4.00 3.00 In each year since 2012, the Company has paid an annual cash dividend of $0.02 per share. In addition, on March 26, 2019,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 March 15, 2019. 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, 2018, the Parent held unrestricted cash and investment balances of approximately $17.3 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 2019,dividend payments to the Parent by the insurance subsidiaries in excess of $4.3 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 monthly basisduring the three month period ended December 31, 2018.PeriodTotalNumber ofSharesPurchasedAveragePrice Paidper ShareTotalNumber ofSharesPurchasedas Part ofPubliclyAnnouncedPlans orProgramsMaximumNumber ofShares thatMay Yet bePurchasedUnder thePlans orProgramsOctober 1 – October 31, 2018 18,386 $2.85 18,386 380,645 November 1 – November 30, 2018 14,093 3.11 14,093 366,552 December 1 – December 31, 2018 15,213 2.52 15,213 351,339 Total 47,692 $2.82 47,692 14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, 2018 and 2017. 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 30% of the Company’s total liabilities at December 31, 2018. Thisliability includes estimates for: 1) unpaid losses on claims reported prior to December 31, 2018, 2) future development on thosereported claims, 3) unpaid ultimate losses on claims incurred prior to December 31, 2018 but not yet reported and 4) unpaid lossadjustment expenses for reported and unreported claims incurred prior to December 31, 2018. 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, 2018 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.15TABLE OF CONTENTSFuture policy benefits comprised 37% of the Company’s total liabilities at December 31, 2018. 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 11% of the Company’s total assets at December 31, 2018. 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 12% of the Company’s total assets at December 31, 2018. 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 74% of the Company’s total assets at December 31, 2018. 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 $1.1 million at December 31, 2018. 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 a fixed maturity investment may decline to a value below its amortized purchase price and remain at such value for anextended period of time. When a fixed maturity investment’s indicated fair value has declined below its cost basis for a period oftime, the Company evaluates such investment for an other than temporary impairment. The evaluation for an other than temporaryimpairment is a quantitative and qualitative process, which is subject to risks and uncertainties in the determination of whetherdeclines in the fair value of investments are other than temporary. Potential risks and uncertainties include, among other things,changes in general economic conditions, an issuer’s financial condition or near term recovery prospects and the effects of changesin interest rates. In evaluating a potential impairment, the Company considers, among other factors, management’s intent andability to hold the securities until price recovery, the nature of the investment and the expectation of prospects for the issuer and itsindustry, the status of an issuer’s continued satisfaction of its obligations in accordance with their contractual terms, andmanagement’s expectation as to the issuer’s ability and intent to continue to do so, as well as ratings actions that may affect theissuer’s credit status. If an other than temporary impairment is deemed to exist, then the Company will write down the amortizedcost basis of the investment to its estimated fair value. While any such write down does not impact the reported value of theinvestment in the Company’s balance sheet, it is reflected as a realized investment loss in the Company’s net income or othercomprehensive income, depending upon the nature of the loss, in the period incurred.16 Year Ended December 31, 20182017 (In thousands)Revenue Property and Casualty: American Southern$59,254 $59,485 Life and Health: Bankers Fidelity 127,005 117,495 Corporate and Other (706) 4,134 Total revenue$185,553 $181,114 Income (loss) before income taxes Property and Casualty: American Southern$5,661 $8,567 Life and Health: Bankers Fidelity 896 (268)Corporate and Other (7,528) (2,943)Income (loss) before income taxes$(971)$5,356 Net income (loss)$(704)$4,528 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 15 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).17 Year Ended December 31, 20182017 (In thousands)Reconciliation of Non-GAAP Financial Measure Net income (loss)$(704)$4,528 Income tax expense (benefit) (267) 828 Realized investment gains, net (5,154) (9,168)Unrealized losses on equity securities, net 2,194 — Non-GAAP operating loss$(3,931)$(3,812)TABLE OF CONTENTSA reconciliation of net income (loss) to operating income (loss) is as follows:On a consolidated basis, the Company had a net loss of $0.7 million, or $0.05 per diluted share, in 2018, compared to netincome of $4.5 million, or $0.20 per diluted share, in 2017. Operating loss was $3.9 million in 2018 as compared to $3.8 million in2017. The increase in operating loss was primarily due to unfavorable loss experience in both the property and casualty and the lifeand health operations. Partially offsetting the unfavorable loss experience was a lower ratio of underwriting expenses incurredrelative to earned premiums. Also offsetting the change in operating loss was an increase in investment income attributable togains from the equity in earnings from investments in real estate partnerships.Total revenue was $185.6 million in 2018 as compared to $181.1 million in 2017. Premium revenue increased to $172.9million in 2018 from $163.3 million in 2017. 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 $5.2million in 2018 as compared to $9.2 million in 2017. The magnitude of realized investment gains and losses in any year is afunction of the timing of trades of investments relative to the markets themselves as well as the recognition of any other thantemporary impairments on investments.A more detailed analysis of the operating companies and other corporate activities follows.18 Year Ended December 31, 20182017 (Dollars in thousands)Gross written premiums$59,485 $58,149 Ceded premiums (5,075) (4,787)Net written premiums$54,410 $53,362 Net earned premiums$53,807 $53,661 Net losses and loss adjustment expenses 38,829 34,486 Underwriting expenses 14,764 16,432 Underwriting income$214 $2,743 Loss ratio 72.2% 64.3%Expense ratio 27.4 30.6 Combined ratio 99.6% 94.9% Year Ended December 31, 20182017 (In thousands)Automobile liability$28,840 $29,370 Automobile physical damage 11,922 9,972 General liability 2,920 2,953 Surety 7,170 8,441 Other lines 2,955 2,925 Total$53,807 $53,661 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 $1.3 million, or 2.3%, during 2018 as compared to 2017. The increasein gross written premiums was primarily attributable to the addition of a new agency and an increase in premiums written in theautomobile physical damage line of business. Also contributing to the increase in gross written premiums was an increase in retropremiums from a certain agency in the automobile liability line of business. Partially offsetting the increase in gross writtenpremiums was a decline in premiums written in the surety line of business as a result of increased competition.Ceded premiums increased $0.3 million, or 6.0%, during 2018 as compared to 2017. The increase in ceded premiums wasprimarily due to an increase in earned premiums in certain accounts within the automobile physical damage line of business, whichis subject to reinsurance.The following table summarizes, for the periods indicated, American Southern’s net earned premiums by line of business:Net earned premiums increased $0.1 million, or 0.3%, during 2018 as compared to 2017. The increase in net earned premiumswas primarily attributable to an increase in automobile physical damage net earned premiums resulting from the addition of a newagency and increased business writings discussed previously. Premiums are earned ratably over their respective policy terms, andtherefore premiums earned in the current year are related to policies written during both the current year and immediatelypreceding 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 a19TABLE OF CONTENTScombined ratio of over 100% indicates an underwriting loss. The combined ratio is divided into two components, the loss ratio (theratio of losses and loss adjustment expenses incurred to premiums earned) and the expense ratio (the ratio of expenses incurred topremiums earned).Net losses and loss adjustment expenses at American Southern increased $4.3 million, or 12.6%, during 2018 as compared to2017. As a percentage of premiums, net losses and loss adjustment expenses were 72.2% in 2018 as compared to 64.3% in 2017.The increase in the loss ratio was primarily due to an increase in the frequency and severity of claims relating to automobileliability and automobile physical damage lines of business. Partially offsetting the increase in the loss ratio was more favorableloss experience in the general liability and surety lines of business during 2018 as compared to 2017.Underwriting expenses decreased $1.7 million, or 10.2%, during 2018 as compared to 2017. As a percentage of premiums,underwriting expenses were 27.4% in 2018 as compared to 30.6% in 2017. The decrease in the expense ratio was primarily due toAmerican Southern’s use of a variable commission structure with certain agents, which compensates the participating agents inrelation to the loss ratios of the business they write. In 2018, variable commissions at American Southern decreased $1.1 million ascompared to 2017 due to less 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, 2018, the range ofestimates developed in connection with the loss reserves for American Southern indicated that reserves could be as much as 7.3 %lower or as much as 12.9% 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, 2018 and 2017 were $0.9million and $2.5 million, respectively. To the extent reserve redundancies vary between years, there is an incremental impact onthe results of operations of American Southern and the Company. The indicated redundancy in 2018 was $1.6 million less than in2017. After considering the impact on contingent commissions and other related accruals, the $1.6 million decrease in theredundancy resulted in an estimated decrease in income from operations before tax of approximately $1.0 million in 2018 ascompared to 2017. 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 2018, approximately 47% 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 51% in 2017. 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.20 Year Ended December 31, 20182017 (Dollars in thousands)Medicare supplement$164,074 $126,154 Other health products 7,545 6,440 Life insurance 8,964 9,657 Gross earned premiums 180,583 142,251 Ceded premiums (61,459) (32,585)Net earned premiums 119,124 109,666 Insurance benefits and losses 93,821 83,029 Underwriting expenses 32,288 34,734 Total expenses 126,109 117,763 Underwriting loss$(6,985)$(8,097)Loss ratio 78.8% 75.7%Expense ratio 27.1 31.7 Combined ratio 105.9% 107.4%TABLE OF CONTENTSBankers FidelityThe following summarizes, for the periods indicated, Bankers Fidelity’s premiums, losses and expenses:Net earned premium revenue at Bankers Fidelity increased $9.5 million, or 8.6%, during 2018 as compared to 2017. Grossearned premiums from the Medicare supplement line of business increased $37.9 million, or 30.1%, in 2018 as compared to 2017,due primarily to successful execution of new business generating strategies with both new and existing agents. Other healthproduct premiums increased $1.1 million, or 17.2%, during 2018 as compared to 2017, primarily as a result of new sales of thecompany’s hospital indemnity, disability income and group health products. Gross earned premiums from the life insurance line ofbusiness decreased $0.7 million, or 7.2%, in 2018 from 2017 due to the redemption and settlement of existing policy obligationsexceeding the level of new sales activity. Premiums ceded increased $28.9 million, or 88.6%, in 2018 from 2017. The increase inceded premiums was due to a significant increase in Medicare supplement premiums subject to the reinsurance agreement.Benefits and losses increased $10.8 million, or 13.0%, during 2018 as compared to 2017. As a percentage of premiums,benefits and losses were 78.8% in 2018 as compared to 75.7% in 2017. The increase in the loss ratio was primarily attributable tounfavorable loss experience in the Medicare supplement line. Further, throughout 2017 and continuing into 2018, BankersFidelity experienced a higher than expected level of claims in the Medicare supplement line of business which had an unfavorableeffect on the company’s loss patterns and increased the resultant loss ratio.Underwriting expenses decreased $2.4 million, or 7.0%, during 2018 as compared to 2017. As a percentage of earnedpremiums, these expenses were 27.1% in 2018 as compared to 31.7% in 2017. The decrease in the expense ratio was primarily dueto the 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 an increase in the amount of reinsurance expense-reimbursement allowanceassociated with the Company’s reinsurance agreement, which reimbursed the Company for a portion of its indirect underwritingexpenses.Investment Income and Realized GainsInvestment income increased $1.1 million, or 12.4%, in 2018 as compared to 2017. The increase in investment income wasprimarily attributable to an increase in the equity in earnings from investments in real estate partnerships.The Company had net realized investment gains of $5.2 million in 2018 as compared to net realized investment gains of $9.2million in 2017. The net realized investment gains in 2018 and 2017 were primarily attributable to gains of $5.8 million and $6.0million, 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’s21TABLE OF CONTENTSinvestments in fixed maturities. Management continually evaluates the Company’s investment portfolio and, as may bedetermined to be appropriate, makes adjustments for impairments and/or will divest investments. See Note 2 of Notes toConsolidated Financial Statements.Unrealized Losses on Equity SecuritiesAs described in Note 1 of Notes to Consolidated Financial Statements, on January 1, 2018 the Company adopted ASU No.2016-01, which requires, among other things, investments in equity securities to be measured at fair value at the end of thereporting period, with any changes in fair value reported in net income during the period, with certain exceptions. As a result of theadoption of ASU No. 2016-01, the Company recognized net unrealized losses on equity securities still held of $2.2 million duringthe year ended December 31, 2018. In accordance with then-applicable accounting guidance, the Company recognized changes inthe fair value of equity securities then held through other comprehensive income during the year ended December 31, 2017.Interest ExpenseInterest expense increased $0.3 million, or 18.2%, in 2018 as compared to 2017 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 $4.7 million, or 8.3%, in 2018 ascompared to 2017. The decrease in other expenses was primarily attributable to a reinsurance expense-reimbursement allowanceassociated with the reinsurance agreement in Bankers Fidelity, which reimbursed a portion of the Company’s indirect underwritingexpenses. Also contributing to the decrease in other expenses was the $1.1 million decrease in variable commission accruals atAmerican Southern due to the unfavorable 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 30.0% in 2018 as compared with 34.6% in 2017. 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 2018 resulted fromprovision-to-filed return adjustments that are generally updated at the completion of the third quarter of each fiscal year and were$0.1 million in the year ended December 31, 2018.The primary differences between the effective tax rate and the federal statutory income tax rate for 2017 resulted from thedividends-received deduction (“DRD”), the small life insurance company deduction (“SLD”), which was subsequently repealed bytax reform enacted on December 22, 2017, and the remeasurement of deferred taxes. The current estimated DRD is adjusted asunderlying factors change and can vary from estimates based on, but not limited to, actual distributions from investments as well asthe amount of the Company’s taxable income. Under the then-applicable tax rules, the SLD varied in amount and was determinedat a rate of 60% of the tentative life insurance company taxable income (“LICTI”). The SLD for any taxable year was reduced (butnot below zero) by 15% of the tentative LICTI for such taxable year as it exceeded $3.0 million and was ultimately phased out at$15.0 million. The remeasurement of deferred taxes resulted 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.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, investment22TABLE OF CONTENTSincome and proceeds from the sale and maturity of its invested assets. The Company believes that, within each operating company,total invested assets will be sufficient to satisfy all policy liabilities and that cash inflows from investment earnings, futurepremium receipts and reinsurance collections will be adequate to fund the payment of claims and expenses as needed.Cash flows at the Parent are derived from dividends, management fees, and tax-sharing payments, as described below, from thesubsidiaries. The 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, 2018, the Parent had approximately $17.3 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, 2018, the Parent’s insurance subsidiaries had an aggregate statutory surplus of $77.7million. Dividends were paid to Atlantic American by its subsidiaries totaling $4.8 million and $4.9 million in 2018 and 2017,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 $8.0 million and $7.7 million in 2018 and 2017, respectively. In addition, theParent has a formal tax-sharing agreement with each of its insurance subsidiaries. A net total of $3.4 million and $2.7 million werepaid to the Parent under the tax sharing agreement in 2018 and 2017, respectively.The Company has two statutory trusts which exist for the exclusive purpose of issuing trust preferred securities representingundivided beneficial interests in the assets of the trusts and investing the gross proceeds of the trust preferred securities in JuniorSubordinated Debentures. The outstanding $18.0 million and $15.7 million of Junior Subordinated Debentures mature onDecember 4, 2032 and May 15, 2033, respectively, are callable quarterly, in whole or in part, only at the option of the Company,and have an interest rate of three-month LIBOR plus an applicable margin. The margin ranges from 4.00% to 4.10%. At December31, 2018, the effective interest rate was 6.72%. 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, 2018, 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, 2018and 2017. During each of 2018 and 2017, the Company paid Series D Preferred Stock dividends of $0.4 million.Cash and cash equivalents decreased from $24.5 million at December 31, 2017 to $12.6 million at December 31, 2018. Thedecrease in cash and cash equivalents during 2018 was primarily attributable to investment purchases exceeding the sale andmaturity of securities. Also contributing to the decrease were additions to property and equipment of $0.3 million, dividends paidon the Company’s common stock and Series D Preferred Stock of $0.8 million, and the net acquisition of treasury stock for $0.8million. Partially offsetting the decrease in cash and cash equivalents was the net cash provided by operations of $4.5 millionduring 2018.23TABLE OF CONTENTSThe Company believes that existing cash balances as well as the dividends, fees, and tax-sharing payments it expects toreceive from its subsidiaries and, if needed, additional borrowings from financial institutions, will enable the Company to meet itsliquidity requirements for the foreseeable future. Management is not aware of any current recommendations by regulatoryauthorities, which, if implemented, would have a material adverse effect on the Company’s liquidity, capital resources oroperations.New Accounting PronouncementsSee “Recently Issued Accounting Standards” in Note 1 of Notes to Consolidated Financial Statements.Impact of InflationInsurance premiums are established before the amount of losses and loss adjustment expenses, or the extent to which inflationmay affect such losses and expenses, are known. Consequently, the Company attempts, in establishing its premiums, to anticipatethe potential impact of inflation. If, for competitive reasons, premiums cannot be increased to anticipate inflation, this cost wouldbe absorbed by the Company. Inflation also affects the rate of investment return on the Company’s investment portfolio with acorresponding effect on investment income. To date, inflation has not had a material effect on the Company’s results of operationsin any of the periods presented.Off-Balance Sheet ArrangementsIn the normal course of business, the Company has structured borrowings that, in accordance with accounting principlesgenerally accepted in the United States of America, are recorded on the Company’s balance sheet at an amount that differs from theultimate contractual obligation. See Note 8 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.24TABLE OF CONTENTSItem 8.Financial Statements and Supplementary DataINDEX TO FINANCIAL STATEMENTS PageATLANTIC AMERICAN CORPORATION Reports of Independent Registered Public Accounting Firms 26 Consolidated Balance Sheets as of December 31, 2018 and 2017 28 Consolidated Statements of Operations for the years ended December 31, 2018 and 2017 29 Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2018 and 2017 30 Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2018 and 2017 31 Consolidated Statements of Cash Flows for the years ended December 31, 2018 and 2017 32 Notes to Consolidated Financial Statements 33 25TABLE OF CONTENTSREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMBoard of Directors and ShareholdersAtlantic American CorporationOpinion on the Financial StatementsWe have audited the accompanying consolidated balance sheet of Atlantic American Corporation (the “Company”) andsubsidiaries as of December 31, 2018, and the related consolidated statements of operations, comprehensive income, shareholders’equity and cash flows for the year ended December 31, 2018 and the related consolidated notes and schedules (collectively referredto as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financialposition of the Company and subsidiaries as of December 31, 2018, and the results of their operations and their cash flows for theyear ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.Adoption of New Accounting StandardAs discussed in Note 1 to the financial statements, the Company changed its method of accounting for certain equityinvestments as of January 1, 2018 due to the adoption of Accounting Standards Update No. 2016-01, Recognition andMeasurement of Financial Assets and Financial Liabilities.Basis for OpinionThese financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion onthe Company's financial statements based on our audit. We are a public accounting firm registered with the Public CompanyAccounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company inaccordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and ExchangeCommission and the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to erroror fraud.The Company is not required to have, nor were we engaged to perform, an audit of internal control over financial reporting. Aspart of our audit we are required to obtain an understanding of internal control over financial reporting, but not for the purpose ofexpressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express nosuch opinion.Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether dueto error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accountingprinciples used and significant estimates made by management, as well as evaluating the overall presentation of the financialstatements. We believe that our audit provides a reasonable basis for our opinion./s/ Dixon Hughes Goodman LLPWe have served as the Company’s auditor since 2018.Atlanta, GeorgiaApril 1, 201926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 sheet of Atlantic American Corporation (the “Company”) andsubsidiaries as of December 31, 2017, the related consolidated statements of operations, comprehensive income, shareholders’equity and cash flows for the year ended December 31, 2017, and the related notes and schedules (collectively referred to as the“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects,the financial position of the Company and subsidiaries at December 31, 2017 and the results of their operations and their cashflows for the year ended December 31, 2017, in conformity with accounting principles generally accepted in the United States ofAmerica.Basis of 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 audit. 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whetherdue 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 audit 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 audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements,whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a testbasis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluatingthe accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of theconsolidated financial statements. We believe that our audit provides a reasonable basis for our opinion./s/ BDO USA, LLPWe have served as the Company’s auditor since 2008.Atlanta, Georgia, United StatesMarch 26, 201827TABLE OF CONTENTSATLANTIC AMERICAN CORPORATIONCONSOLIDATED BALANCE SHEETS December 31, 20182017 (Dollars in thousands,except per share data)ASSETS Cash and cash equivalents$12,630 $24,547 Investments: Fixed maturities, available-for-sale, at fair value (amortized cost: $219,924 and $212,544) 210,386 215,108 Equity securities, at fair value (cost: $10,515 and $10,918) 20,758 23,355 Other invested assets (cost: $6,905 and $5,973) 7,424 5,626 Policy loans 2,085 2,146 Real estate 38 38 Investment in unconsolidated trusts 1,238 1,238 Total investments 241,929 247,511 Receivables: Reinsurance 26,110 17,613 Insurance premiums and other, net of allowance for doubtful accounts of $207 and $209 in 2018 and2017, respectively 15,223 13,241 Deferred income taxes, net 4,184 — Deferred acquisition costs 37,094 32,694 Other assets 4,560 5,089 Intangibles 2,544 2,544 Total assets$344,274 $343,239 LIABILITIES AND SHAREHOLDERS’ EQUITY Insurance reserves and policyholder funds Future policy benefits$90,257 $82,435 Unearned premiums 24,206 23,449 Losses and claims 72,612 65,689 Other policy liabilities 1,973 2,010 Total insurance reserves and policyholder funds 189,048 173,583 Accounts payable and accrued expenses 20,116 22,342 Deferred income taxes, net — 593 Junior subordinated debenture obligations, net 33,738 33,738 Total liabilities 242,902 230,256 Commitments and contingencies (Note 9) Shareholders’ equity: Preferred stock, $1 par, 4,000,000 shares authorized; Series D preferred, 55,000 shares issued andoutstanding; $5,500 redemption value 55 55 Common stock, $1 par, 50,000,000 shares authorized; 22,400,894 shares issued; 20,170,360 and20,449,531 shares outstanding in 2018 and 2017, respectively 22,401 22,401 Additional paid-in capital 57,414 57,495 Retained earnings 37,208 30,993 Accumulated other comprehensive income (loss) (7,535) 9,751 Unearned stock grant compensation (186) (579)Treasury stock, at cost, 2,230,534 and 1,951,363 shares in 2018 and 2017, respectively (7,985) (7,133)Total shareholders’ equity 101,372 112,983 Total liabilities and shareholders’ equity$344,274 $343,239 See the accompanying notes to the consolidated financial statements.28TABLE OF CONTENTSATLANTIC AMERICAN CORPORATIONCONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 20182017 (Dollars in thousands,except per share data)Revenue: Insurance premiums, net$172,931 $163,327 Net investment income 9,549 8,496 Realized investment gains, net 5,154 9,168 Unrealized losses on equity securities, net (2,194) — Other income 113 123 Total revenue 185,553 181,114 Benefits and expenses: Insurance benefits and losses incurred 132,650 117,515 Commissions and underwriting expenses 39,042 43,446 Interest expense 2,037 1,723 Other expense 12,795 13,074 Total benefits and expenses 186,524 175,758 Income (loss) before income taxes (971) 5,356 Income tax expense (benefit) (267) 828 Net income (loss) (704) 4,528 Preferred stock dividends (399) (399)Net income (loss) applicable to common shareholders$(1,103)$4,129 Earnings (loss) per common share (basic and diluted)$(.05)$.20 See the accompanying notes to the consolidated financial statements.29TABLE OF CONTENTSATLANTIC AMERICAN CORPORATIONCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Year Ended December 31, 20182017 (Dollars in thousands)Net income (loss)$(704)$4,528 Other comprehensive income (loss): Available-for-sale fixed maturity securities: Gross unrealized holding gain (loss) arising in the period (6,948) 15,200 Related income tax effect 1,459 (5,320)Subtotal (5,489) 9,880 Gross OTTI losses charged to realized gains 1,525 — Related income tax effect (320) — Subtotal 1,205 — Less: reclassification adjustment for net realized gains included in net income (6,679) (9,168)Related income tax effect 1,402 3,209 Subtotal (5,277) (5,959) Total other comprehensive income (loss), net of tax (9,561) 3,921 Total comprehensive income (loss)$(10,265)$8,449 See the accompanying notes to the consolidated financial statements.30TABLE OF CONTENTSATLANTIC AMERICAN CORPORATIONCONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY PreferredStockCommonStockAdditionalPaid-InCapitalRetainedEarningsAccumulatedOtherComprehensiveIncomeUnearnedStockGrantCompensationTreasuryStockTotal (Dollars in thousands)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 ($0.02per share) — — — (408) — — — (408)Dividends on preferred stock — — — (399) — — — (399)Restricted stock grants, net offorfeitures — — 363 — — (646) 283 — Amortization of unearnedcompensation — — — — — 495 — 495 Purchase of 188,066 shares for treasury — — — — — — (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 Cumulative effect of adoption ofaccounting guidance for equityfinancial instruments at January 1,2018 — — — 9,825 (9,825) — — — Reclassification of certain tax effectsfrom accumulated othercomprehensive income at January 1,2018 — — — (2,100) 2,100 — — — Net loss — — — (704) — — — (704)Other comprehensive loss, net of tax — — — — (9,561) — — (9,561)Dividends on common stock ($0.02per share) — — — (407) — — — (407)Dividends on preferred stock — — — (399) — — — (399)Restricted stock grants, net offorfeitures — — (96) — — 149 (53) — Amortization of unearnedcompensation — — — — — 244 — 244 Purchase of 193,103 shares for treasury — — — — — — (597) (597)Net shares acquired related to employeeshare-based compensation plans — — — — — — (223) (223)Issuance of 13,415 shares under stockplans — — 15 — — — 21 36 Balance, December 31, 2018$55 $22,401 $57,414 $37,208 $(7,535)$(186)$(7,985)$101,372 See the accompanying notes to the consolidated financial statements.31TABLE OF CONTENTSATLANTIC AMERICAN CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 20182017 (Dollars in thousands)Cash flows from operating activities: Net (loss) income$(704)$4,528 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Amortization of deferred acquisition costs 17,611 16,036 Acquisition costs deferred (22,011) (19,755)Realized investment gains, net (5,154) (9,168)Unrealized losses on equity securities, net 2,194 — Distributions received from equity method investees 10,777 9,535 Compensation expense related to share awards 244 495 Depreciation and amortization 987 1,438 Deferred income tax benefit (2,236) (1,358)Increase in receivables, net (10,221) (6,185)Increase in insurance reserves and policyholder funds 15,465 10,904 (Decrease) increase in other liabilities (2,226) 5,665 Other, net (266) 34 Net cash provided by operating activities 4,460 12,169 Cash flows from investing activities: Proceeds from investments sold 30,140 74,457 Proceeds from investments matured, called or redeemed 4,906 10,791 Investments purchased (49,552) (84,552)Additions to property and equipment (281) (103)Net cash (used in) provided by investing activities (14,787) 593 Cash flows from financing activities: Payment of dividends on Series D preferred stock (399) (399)Payment of dividends on common stock (407) (408)Proceeds from shares issued under stock plans 36 32 Treasury stock acquired — share repurchase authorization (597) (692)Treasury stock acquired — net employee share-based compensation (223) — Net cash used in financing activities (1,590) (1,467) Net (decrease) increase in cash (11,917) 11,295 Cash and cash equivalents at beginning of year 24,547 13,252 Cash and cash equivalents at end of year$12,630 $24,547 Supplemental cash flow information: Cash paid for interest$1,996 $1,705 Cash paid for income taxes$2,107 $1,400 See the accompanying notes to the 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, 2018, 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 fixed maturities, which include bonds and redeemable preferred stocks, are classified as“available-for-sale” and, accordingly, are carried at fair value with the after-tax difference from amortized cost, as adjusted ifapplicable, reflected in shareholders’ equity as a component of accumulated other33TABLE OF CONTENTScomprehensive income or loss. Effective January 1, 2018, upon adoption of new accounting guidance, the Company’s equitysecurities, which include common and non-redeemable preferred stocks, are carried at fair value with changes in fair value reportedin net income. Prior to January 1, 2018, changes in fair value were reported in other comprehensive income. The fair values of fixedmaturities and equity securities are largely determined by either independent methods prescribed by the NAIC, which do not differmaterially from publicly quoted market prices, when available, or independent broker quotations. The Company owns certain fixedmaturities that do not have publicly quoted market values, but had an estimated fair value as determined by management of $1,066and $1,369 at December 31, 2018 and 2017, respectively. Such values inherently involve a greater degree of judgment anduncertainty and therefore ultimately greater price volatility than the value of securities with publicly quoted market values. Policyloans are carried at unpaid principal balance and real estate is carried at historical cost. Other invested assets are comprised ofinvestments in limited partnerships, limited liability companies, and real estate joint ventures, and are accounted for using theequity method. If the value of a fixed maturity security or other invested asset declines below its cost or amortized cost, asapplicable, and the decline is considered to be other than temporary, a realized loss is recorded to reduce the carrying value of theinvestment to its estimated fair value, which becomes the new cost basis. The evaluation for an other than temporary impairment(“OTTI”) is a quantitative and qualitative process, which is subject to risks and uncertainties in the determination of whetherdeclines in the fair value of investments are other than temporary. Potential risks and uncertainties include, among other things,changes in general economic conditions, an issuer’s financial condition or near term recovery prospects and the effects of changesin interest rates. In evaluating a potential impairment, the Company considers, among other factors, management’s intent andability to hold the securities until price recovery, the nature of the investment and the expectation of prospects for the issuer and itsindustry, the status of an issuer’s continued satisfaction of its obligations in accordance with their contractual terms, andmanagement’s expectation as to the issuer’s ability and intent to continue to do so, as well as ratings actions that may affect theissuer’s credit status. Premiums and discounts related to investments are amortized or accreted over the life of the relatedinvestment as an adjustment to yield using the effective interest method. Dividends and interest income are recognized whenearned or declared. The cost of securities sold is based on specific identification. Unrealized gains (losses) in the value of fixedmaturities are accounted for as a direct increase (decrease) in accumulated other comprehensive income in shareholders’ equity, netof deferred tax and, accordingly, have no effect on net income.Income TaxesDeferred income taxes represent the expected future tax consequences when the reported amounts of assets and liabilities arerecovered or paid. They arise from differences between the financial reporting and tax basis of assets and liabilities and are adjustedfor changes in tax laws and tax rates as those changes are enacted. The provision for income taxes represents the total amount ofincome taxes due related to the current year, plus the change in deferred income taxes during the year. A valuation allowance isrecognized if, based on management’s assessment of the relevant facts, it is more likely than not that some portion of a deferred taxasset will not be realized.Earnings Per Common ShareBasic earnings per common share are based on the weighted average number of common 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.ReinsuranceThe Company enters into reinsurance agreements with other companies in the normal course of business. For each reinsuranceagreement, the Company determines if the agreement provides indemnification against loss34TABLE OF CONTENTSor liability relating to insurance risk in accordance with applicable accounting standards. Reinsurance premiums and benefits paidor provided are accounted for on bases consistent with those used in accounting for the original policies issued and the terms of thereinsurance contracts. Premiums, benefits and DAC are reported net of insurance ceded.Share-Based TransactionsFor employee and director share-based compensation awards, the Company determines a grant date fair value based on theprice of our publicly-traded common stock and recognize the related compensation expense, adjusted for actual forfeitures, in thestatement of income on a straight-line basis over the requisite service period for the entire award. For non-employee share-basedcompensation awards, the Company recognizes the impact during the period of performance, and the fair value of the award ismeasured as of the date performance is complete, which is the vesting date.Treasury StockTreasury stock is reflected as a reduction of shareholders’ equity at cost. The Company uses the first-in-first-out (FIFO)purchase cost to determine the cost of treasury stock that is reissued. The Company includes any gains and losses in additionalpaid-in capital when treasury stock is reissued.Recently Issued Accounting StandardsAdoption of New Accounting StandardsReclassification of Effect of Tax Rate Change from AOCI to Retained Earnings. In February 2018, the FinancialAccounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-02, Income Statement – ReportingComprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income(“ASU 2018-02”). The FASB issued this guidance for the effect on deferred tax assets and liabilities related to items recorded inaccumulated 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. The Companyrecorded the total effect of the change in enacted tax rates on deferred tax balances in the income tax expense component of netincome. ASU 2018-02 permits the Company to reclassify out of AOCI and into retained earnings the “stranded” tax effects thatresulted from recording the tax effects of unrealized investment gains at a 35% tax rate because the 14% reduction in tax rate wasrecognized in net income instead of other comprehensive income. The Company adopted ASU 2018-02 as of January 1, 2018. As aresult, on January 1, 2018, the Company reclassified $2,100 of stranded tax effects related to continuing operations whichincreased AOCI and reduced retained earnings.Classification of Certain Cash Receipts and Cash Payments. In August 2016, the FASB issued ASU No. 2016-15, Statementof Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 isintended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The issuesaddressed in ASU 2016-15 are: 1) debt prepayment or debt extinguishment costs, 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 in securitization transactions and 8) separatelyidentifiable cash flows and application of the predominance principle. The Company adopted ASU 2016-15 as of January 1, 2018,which impacted the classification of distributions from equity method investees. The Company made the election to use the natureof distributions approach. For the year ended December 31, 2018, the Company classified distributions from equity methodinvestees of $10,777 as cash flows from operating activities and reclassified $9,535 as cash flows from investing activities to cashflows from operating activities for the year ended December 31, 2017, in its consolidated statements of cash flows.Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities. In January 2016, theFASB issued ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10) (“ASU 2016-01”). ASU 2016-01 providesupdated guidance for the recognition and measurement of financial instruments. The guidance requires investments in equitysecurities to be measured at fair value with any changes in valuation reported in net income except for investments that areconsolidated or are accounted for under the35TABLE OF CONTENTSequity method of accounting. The guidance also requires a deferred tax asset resulting from net unrealized losses on available-for-sale (“AFS”) fixed maturities that are recognized in AOCI to be evaluated for recoverability in combination with the Company’sother deferred tax assets. Under previous guidance, the Company measured investments in equity securities at fair value with anychanges in fair value reported in other comprehensive income. The Company adopted ASU 2016-01 as of January 1, 2018. Theadoption of this guidance resulted in the recognition of $9,825 of net after tax unrealized gains on equity securities as acumulative effect adjustment that increased retained earnings as of January 1, 2018 and decreased AOCI by the same amount. TheCompany elected to report changes in the fair value of equity securities in a separate line item on the Company’s consolidatedstatements of operations. At December 31, 2017, equity securities were classified as AFS in the Company’s consolidated balancesheets. However, upon adoption, the updated guidance eliminated the AFS balance sheet classification for equity securities.Revenue from Contracts with Customers. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts withCustomers (Topic 606) (“ASU 2014-09”). ASU 2014-09, as modified, provides guidance for recognizing revenue which excludesinsurance contracts and financial instruments. Revenue is to be recognized when, or as, goods or services are transferred tocustomers in an amount that reflects the consideration that an entity is expected to be entitled in exchange for those goods orservices. The Company adopted ASU No. 2014-09 as of January 1, 2018. For the year ended December 31, 2018, approximately$113, or less than one-tenth of 1% of the Company’s total revenues, were within the scope of this updated guidance. The adoptionof this ASU did not have an impact on the Company’s consolidated financial statements.Future Adoption of New Accounting StandardsFair Value Measurement – Changes to the Disclosure Requirements for Fair Value Measurement. In August 2018, theFASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the DisclosureRequirements for Fair Value Measurement (“ASU 2018-13”). This guidance removes the following disclosure requirements fromTopic 820: (1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, (2) the policy fortiming of transfers between levels, and (3) the valuation processes for Level 3 fair value measurements. This disclosure alsoincludes the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservableinputs used to develop Level 3 fair value measurements. ASU 2018-13 is effective for interim and annual reporting periodsbeginning after December 15, 2019, although earlier adoption is permitted. The Company does not expect the adoption of thisASU to have a material impact on its consolidated financial statements.Accounting for Long-Duration Contracts. In August 2018, the FASB issued ASU No. 2018-12, Financial Services —Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts (“ASU 2018-12”). This guidance(1) improves the timeliness of recognizing changes in the liability for future policy benefits and modifies the rate used to discountfuture cash flows, (2) simplifies and improves the accounting for certain market-based options or guarantees associated withdeposit (or account balance) contracts, (3) simplifies the amortization of deferred acquisition costs, and (4) improves theeffectiveness of the required disclosures. ASU 2018-12 is effective for interim and annual reporting periods beginning afterDecember 15, 2020, although earlier adoption is permitted. The Company has not yet determined the method or timing foradoption or estimated the impact on the Company’s consolidated financial statements.Premium Amortization on Purchased Callable Debt Securities. In March 2017, the FASB issued ASU No. 2017-08,Receivables — Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable DebtSecurities (“ASU 2017-08”). This guidance shortens the amortization period for certain callable debt securities held at a premiumto the earliest call date. Under current GAAP, premiums and discounts on callable securities generally are amortized to the maturitydate. ASU 2017-08 is effective for interim and annual reporting periods beginning after December 15, 2018, although earlieradoption is permitted. The Company does not expect the adoption of this ASU to have a material impact on its consolidatedfinancial statements.Goodwill. In January 2017, the FASB issued ASU No. 2017-04, Intangibles — Goodwill and Other (Topic 350): Simplifyingthe Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 is intended to simplify the evaluation of goodwill. The updatedguidance requires recognition and measurement of goodwill impairment based on the excess of the carrying value of the reportingunit compared to its estimated fair value,36TABLE OF CONTENTSwith the amount of the impairment not to exceed the carrying value of the reporting unit’s goodwill. Under existing guidance, ifthe reporting unit’s carrying value exceeds its estimated fair value, the Company allocates the fair value of the reporting unit to allof the assets and liabilities of the reporting unit to determine an implied goodwill value. An impairment loss is then recognized forthe excess, if any, of the carrying value of the reporting unit’s goodwill compared to the implied goodwill value. The amendmentsin ASU 2017-04 are effective for interim and annual reporting periods beginning after December 15, 2019. The Company expectsto adopt the updated guidance January 1, 2020 on a prospective basis as required, although earlier adoption is permitted. TheCompany does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.Financial Instruments – Credit Losses. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments — CreditLosses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires entities tomeasure all expected credit losses for financial instruments held at the reporting date based on historical experience, currentconditions and reasonable and supportable forecasts. Under current GAAP, entities generally recognize credit losses when it isprobable that the loss has been incurred. ASU 2016-13 will remove all recognition thresholds and will require entities to recognizean allowance for credit losses equal to the difference between the amortized cost basis of a financial instrument and the amount ofamortized cost that the entity expects to collect over the instrument’s contractual life. ASU 2016-13 also amends the credit lossmeasurement guidance for AFS debt securities and beneficial interests in securitized financial assets. Credit losses on AFS debtsecurities carried at fair value will continue to be measured as OTTI when incurred; however, the losses will be recognized throughan allowance and no longer as an adjustment to the cost basis. Recoveries of OTTI will be recognized as reversals of valuationallowances 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.Leases. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). Under this guidance, anentity is required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information aboutleasing arrangements. ASU 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions.Under ASU 2016-02, lessees and lessors are required to disclose qualitative and quantitative information about leasingarrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising fromleases. Under the new guidance, lessees with operating leases will be required to recognize a liability for the present value of futureminimum lease payments with a corresponding asset for the right of use of the property. Under existing guidance, future minimumlease payments on operating leases are commitments that are not recognized as liabilities on the balance sheet. ASU 2016-02 iseffective for annual reporting periods beginning after December 15, 2018 and requires a modified retrospective adoption. Theadoption of the updated guidance will result in the recognition of a right-of-use asset and a lease liability of the same amount,which will be less than 2% of total assets and total liabilities, and is not expected to have a material effect on the Company’sresults of operations, financial position or liquidity.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 estimated fair value, gross unrealized gains, gross unrealized losses and cost or amortizedcost of the Company’s investments in fixed maturities and equity securities, aggregated by type and industry, as of December 31,2018 and December 31, 2017.Fixed maturities were comprised of the following: 2018 EstimatedFair ValueGrossUnrealizedGainsGrossUnrealizedLossesAmortizedCostFixed maturities: Bonds: U.S. Treasury securities and obligations of U.S. Governmentagencies and authorities$27,422 $36 $1,061 $28,447 Obligations of states and political subdivisions 8,364 347 72 8,089 Corporate securities: Utilities and telecom 19,642 873 431 19,200 Financial services 49,477 747 2,942 51,672 Other business – diversified 49,196 226 2,844 51,814 Other consumer – diversified 56,093 84 4,501 60,510 Total corporate securities 174,408 1,930 10,718 183,196 Redeemable preferred stocks: Other consumer – diversified 192 — — 192 Total redeemable preferred stocks 192 — — 192 Total fixed maturities$210,386 $2,313 $11,851 $219,924 2017 EstimatedFair ValueGrossUnrealizedGainsGrossUnrealizedLossesAmortizedCostFixed 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 Bonds having an amortized cost of $10,452 and $11,178 and included in the tables above were on deposit with insuranceregulatory authorities at December 31, 2018 and 2017, respectively, in accordance with statutory requirements.38TABLE OF CONTENTS 2018 EstimatedFair ValueGrossUnrealizedGainsGrossUnrealizedLossesCost orAmortizedCostEquity securities: Common and non-redeemable preferred stocks: Utilities and telecom 1,686 722 — 964 Financial services 4,552 172 — 4,380 Other business – diversified 306 259 — 47 Other consumer – diversified 14,214 9,090 — 5,124 Total equity securities$20,758 $10,243 $— $10,515 2017 EstimatedFair ValueGrossUnrealizedGainsGrossUnrealizedLossesCost orAmortizedCostEquity 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 The carrying value and amortized cost of the Company’s investments in fixed maturities at December 31, 2018 and 2017 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. 20182017 CarryingValueAmortizedCostCarryingValueAmortizedCostDue in one year or less$3,150 $3,150 $1,653 $1,655 Due after one year through five years 19,787 19,699 13,738 14,056 Due after five years through ten years 127,617 133,863 112,847 112,116 Due after ten years 43,823 46,338 67,328 64,928 Asset backed securities 16,009 16,874 19,542 19,789 Totals$210,386 $219,924 $215,108 $212,544 The following tables present the Company’s unrealized loss aging for securities by type and length of time the security was ina continuous unrealized loss position as of December 31, 2018 and 2017. 2018 Less than 12 months12 months or longerTotal Fair ValueUnrealizedLossesFair ValueUnrealizedLossesFair ValueUnrealizedLossesU.S. Treasury securities and obligations of U.S.Government agencies and authorities$— $— $24,786 $1,061 $24,786 $1,061 Obligations of states and political subdivisions — — 3,980 72 3,980 72 Corporate securities 49,633 1,592 97,012 9,126 146,645 10,718 Total temporarily impaired securities$49,633 $1,592 $125,778 $10,259 $175,411 $11,851 39TABLE OF CONTENTS 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 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.During the year ended December 31, 2018, the Company recorded OTTI charges related to certain fixed maturity securities of$1,525 as a charge to net income due to management’s intention to sell such securities. There were no OTTI charges recorded in2017.As of December 31, 2018 and 2017, there were one hundred forty and sixty-nine securities, respectively, in an unrealized lossposition which primarily included certain of the Company’s investments in fixed maturities within the financial services, otherdiversified business and other diversified consumer sectors. The increase in the number and value of securities in an unrealized lossposition during the year ended December 31, 2018, was primarily attributable to the rising interest rate environment. Other thansecurities for which an impairment charge has already been taken, the Company does not currently intend to sell nor does it expectto be required to sell any of the securities in an unrealized loss position. Based upon the Company’s expected continuation ofreceipt of contractually required principal and interest payments and its intent and ability to retain the securities until pricerecovery, as well as the Company’s evaluation of other relevant factors, including those described above, the Company has deemedthese securities to be temporarily impaired as of December 31, 2018.Investment income was earned from the following sources: 20182017Fixed maturities$8,432 $8,297 Equity securities 440 467 Other 677 (268)Net investment income$9,549 $8,496 A summary of realized investment gains (losses) follows: 2018 FixedMaturitiesEquitySecuritiesOtherInvestedAssetsTotalGains$884 $272 $5,827 $6,983 Losses (1,829) — — (1,829)Realized investment gains (losses), net$(945)$272 $5,827 $5,154 40TABLE OF CONTENTS 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 Proceeds from the sales of investments were as follows: 20182017Fixed maturities$30,078 $72,760 Equity securities — 1,579 Other investments 10,839 9,653 Total proceeds$40,917 $83,992 20182017Net gains (losses) recognized during the period on equity securities$(1,922)$ — Less: Net gains (losses) recognized during the period on equity securities sold during the period (272) — Net unrealized gains (losses) recognized during the reporting period on equity securities stillheld at the reporting date$(2,194)$— The Company’s bond portfolio included 94% investment grade securities, as defined by the NAIC, at December 31, 2018.Variable Interest EntitiesThe Company holds passive interests in a number of entities that are considered to be Variable Interest Entities (VIEs) underGAAP guidance. The Company’s VIE interests principally consist of interests in limited partnerships and limited liabilitycompanies formed for the purpose of achieving diversified equity returns. The Company’s VIE interests, carried as a part of otherinvested assets, totaled $7,424 and $5,626 at December 31, 2018 and 2017, respectively. The Company’s VIE interests, carried as apart of investment in unconsolidated subsidiaries, totaled $1,238 at December 31, 2018 and 2017.The Company does not have power over the activities that most significantly impact the economic performance of these VIEsand thus is not the primary beneficiary. Therefore, the Company has not consolidated these VIEs. The Company’s involvementwith each VIE is limited to its direct ownership interest in the VIE. The Company has no arrangements with any of the VIEs toprovide other financial support to or on behalf of the VIE. At December 31, 2018, the Company’s maximum loss exposure relativeto these investments was limited to the carrying value of the Company’s investment in the VIE.41TABLE OF CONTENTSNote 3.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 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 Companyhas the ability to access at the measurement date. The Company’s financial instruments valued using Level 1criteria include cash equivalents, U.S. Treasury securities 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 assetsor liabilities. The Company’s financial instruments valued using Level 2 criteria include significantly most of itsfixed maturities, which consist of U.S. Government securities, obligations of states and political subdivisions, andcertain corporate fixed maturities, as well as its non-redeemable preferred stocks. In determining fair valuemeasurements 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 forthe majority of the Company’s Level 2 fixed maturities and non-redeemable preferred stocks were determinedusing unadjusted prices received from pricing services that utilize a matrix pricing concept, which is amathematical technique used widely in the industry to value debt securities based on various relationships to otherbenchmark quoted prices.Level 3Valuations that are derived from techniques in which one or more of the significant inputs are unobservable(including assumptions about risk). Fair value is based on criteria that use assumptions or other data that are notreadily observable from objective sources. The Company’s financial instruments valued using Level 3 criteriaconsist of a limited number of fixed maturities. As of December 31, 2018 and December 31, 2017, the value of theCompany’s fixed maturities valued using Level 3 criteria was $1,066 and $1,369, respectively. The use of differentcriteria or assumptions regarding data may have yielded materially different valuations.Recurring Fair Value MeasurementsCash Equivalents. The carrying amount approximates fair value due to the short-term nature of the instruments.Fixed Maturities and Common and Non-Redeemable Preferred Stocks. The carrying amount is determined in accordance withmethods prescribed by the NAIC, which do not differ materially from publicly quoted market prices. Certain fixed maturities do nothave publicly quoted values and consist solely of issuances of pooled debt obligations of multiple, smaller financial servicescompanies. They are not actively traded and valuation techniques used to measure fair value are based on future estimated cashflows discounted at reasonable estimated rates of interest. Other qualitative and quantitative information received from the originalunderwriter of the pooled offerings is also considered, as applicable.Nonrecurring Fair Value MeasurementsNon-publicly Traded Invested Assets. The fair value of investments in certain limited partnerships which are included in otherinvested assets on the consolidated balance sheet were determined by officers of those limited partnerships.Policy Loans. Policy loans, which are categorized as Level 2 fair value measurements, are carried at the unpaid principal balances.42TABLE OF CONTENTSJunior Subordinated Debentures. The fair value is estimated based on the quoted market prices for similar issues and the currentrates offered for debt having similar returns and remaining maturities.As of December 31, 2018, 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$11,413 $197,907 $1,066(1) $210,386 Equity securities 16,398 4,360(1) — 20,758 Cash equivalents 8,250 — — 8,250 Total$36,061 $202,267 $1,066 $239,394 (1)All underlying securities are financial service industry related.As of December 31, 2017, financial instruments carried at fair value were measured on a recurring basis as summarized below:Assets:QuotedPrices inActiveMarketsforIdenticalAssets(Level 1)SignificantOtherObservableInputs(Level 2)SignificantUnobservableInputs(Level 3)TotalFixed maturities$— $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.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, 2017 to December 31, 2018. FixedMaturitiesBalance, January 1, 2017$1,264 Total unrealized gains included in other comprehensive income 105 Balance, December 31, 2017 1,369 Total realized gains included in earnings 208 Total unrealized losses included in other comprehensive loss (28)Settlements (483)Balance, December 31, 2018$1,066 The Company’s fixed maturities valued using Level 3 inputs consist solely of issuances of pooled debt obligations ofmultiple, smaller financial services companies that are not actively traded. There are no assumed prepayments and/or defaultprobability assumptions as a majority of these instruments contain certain U.S. government agency strips to support repayment ofthe principal. Other qualitative and quantitative information received from the original underwriter of the pooled offerings is alsoconsidered, as applicable.43TABLE OF CONTENTSThe 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, 2018 and 2017. 20182017 Level in FairValueHierarchy(1)CarryingAmountEstimatedFair ValueCarryingAmountEstimatedFair ValueAssets: Cash and cash equivalentsLevel 1$12,630 $12,630 $24,547 $24,547 Fixed maturities(1) 210,386 210,386 215,108 215,108 Equity securities(1) 20,758 20,758 23,355 23,355 Other invested assetsLevel 3 7,424 7,424 5,626 5,626 Policy loansLevel 2 2,085 2,085 2,146 2,146 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 the aforementioned information for a description of the fair value hierarchy as well as a disclosure of levels for classes of these financialassets.Note 4.Deferred Policy Acquisition CostsThe following table presents a rollforward of deferred policy acquisition costs by segment for the years ended December 31. 20182017 AmericanSouthernBankersFidelityAmericanSouthernBankersFidelityDeferred policy acquisition costs: Balance, beginning of year$2,075 $30,619 $2,183 $26,792 Capitalization 7,893 14,118 8,062 11,693 Amortization (7,921) (9,690) (8,170) (7,866)Balance, end of year$2,047 $35,047 $2,075 $30,619 Note 5.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, 2018 and 2017. Amount of InsuranceIn Force, Net 2018201720182017Future policy benefits Life insurance policies: Ordinary$54,599 $54,752 $218,371 $238,534 Mass market 1,364 1,693 1,677 2,070 Individual annuities 39 50 — — 56,002 56,495 $220,048 $240,604 Accident and health insurance policies 34,255 25,940 90,257 82,435 Unearned premiums 24,206 23,449 Losses, claims and loss adjustment expenses 72,612 65,689 Other policy liabilities 1,973 2,010 Total insurance reserves and policyholder funds$189,048 $173,583 44TABLE OF CONTENTSAnnualized premiums for accident and health insurance policies were $116,404 and $105,422 at December 31, 2018 and2017, 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 2018 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 IBNR claims based on past experience, and (c) estimates of loss adjustment expenses. The estimated liability isperiodically reviewed by management and updated, with changes to the estimated liability recorded in the statement of operationsin the year in which such changes are known.Activity in the liability for unpaid loss and claim reserves is summarized as follows: 20182017Balance at January 1$65,689 $62,562 Less: Reinsurance recoverable on unpaid losses (11,968) (10,796)Net balance at January 1 53,721 51,766 Incurred related to: Current year 128,242 114,099 Prior years 308(1) (1,765)(2)Total incurred 128,550 112,334 Paid related to: Current year 90,981 82,092 Prior years 33,032 28,287 Total paid 124,013 110,379 Net balance at December 31 58,258 53,721 Plus: Reinsurance recoverable on unpaid losses 14,354 11,968 Balance at December 31$72,612 $65,689 (1)Prior years’ development was primarily the result of unfavorable development in the loss and claim reserves for the Medicare supplement lineof business in Bankers Fidelity, somewhat offset by better than expected development on prior years loss and claim reserves for certain linesof business in American Southern.(2)Prior years’ development was primarily the result of better than expected development on prior years loss and claim reserves for certain linesof business in American Southern.Following is a reconciliation of total incurred losses to total insurance benefits and losses incurred: 20182017Total incurred losses$128,550 $112,334 Cash surrender value and matured endowments 1,316 1,442 Benefit reserve changes 2,784 3,739 Total insurance benefits and losses incurred$132,650 $117,515 45 Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of ReinsuranceAccidentYear20092010201120122013201420152016201720182009$29,866 $30,455 $30,481 $30,447 $30,438 $30,432 $30,431 $30,430 $30,430 $30,430 2010 29,127 34,328 34,323 34,303 34,282 34,272 34,268 34,265 34,264 2011 31,720 38,296 38,360 38,327 38,316 38,302 38,299 38,297 2012 42,267 50,996 51,021 50,998 50,989 50,987 50,985 2013 47,770 56,970 57,034 57,023 57,021 57,016 2014 48,024 56,938 56,981 56,981 56,976 2015 45,430 54,876 54,993 54,990 2016 49,165 59,747 63,226 2017 57,696 69,517 2018 66,565 $522,266 Liabilities for losses, claims and loss adjustment expenses, net of reinsurance$12,713 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 31,2018, 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 presented for the years endedDecember 31, 2015 and prior is presented as supplementary information and is unaudited.Medicare Supplement For the Years Ended December 31, As of December 31, 2018 Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of ReinsuranceIBNRReservesCumulativeNumber ofReportedClaimsAccidentYear20092010201120122013201420152016201720182009$31,124 $30,455 $30,481 $30,447 $30,438 $30,432 $30,431 $30,430 $30,430 $30,430 $— 560,430 2010 34,849 34,328 34,323 34,303 34,282 34,272 34,268 34,265 34,264 625,698 2011 38,188 38,296 38,360 38,327 38,316 38,302 38,299 38,297 — 664,056 2012 50,021 50,996 51,021 50,998 50,989 50,987 50,985 — 867,050 2013 56,974 56,970 57,034 57,023 57,021 57,016 — 957,362 2014 57,179 56,938 56,981 56,981 56,976 — 939,472 2015 55,482 54,939 54,993 54,990 — 898,370 2016 58,849 59,851 63,226 — 1,036,748 2017 67,960 69,655 130 1,510,485 2018 79,140 11,584 1,781,051 $534,979 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 ReinsuranceAccidentYear20092010201120122013201420152016201720182009$3,250 $5,208 $6,353 $7,502 $7,995 $8,123 $8,155 $8,154 $8,153 $8,153 2010 3,211 6,274 8,291 9,382 9,725 10,056 10,090 10,206 10,210 2011 4,205 7,934 9,858 12,071 13,039 13,106 13,199 13,330 2012 4,627 8,791 11,507 12,932 13,197 13,211 13,288 2013 5,144 12,193 16,782 19,407 20,382 20,982 2014 6,822 13,807 17,554 20,177 20,878 2015 6,226 11,878 14,938 17,612 2016 6,796 13,141 16,397 2017 7,401 16,317 2018 6,989 $144,156 Liabilities for losses, claims and loss adjustment expenses, net of reinsurance$33,944 TABLE OF CONTENTSAutomobile Liability For the Years Ended December 31, As of December 31, 2018 Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of ReinsuranceIBNRReservesCumulativeNumber ofReportedClaimsAccidentYear20092010201120122013201420152016201720182009$10,817 $8,891 $8,659 $8,558 $8,245 $8,123 $8,155 $8,154 $8,153 $8,153 $— 1,755 2010 10,752 10,818 10,547 9,937 10,068 10,185 10,202 10,201 10,209 — 1,947 2011 12,263 13,802 13,235 13,289 13,281 13,495 13,385 13,330 — 2,132 2012 12,980 15,007 14,108 13,707 13,313 13,343 13,357 12 2,343 2013 18,664 20,702 21,096 21,823 21,352 21,020 7 3,265 2014 20,812 21,881 22,041 22,353 21,682 134 3,541 2015 18,521 19,857 20,017 20,007 898 3,521 2016 20,549 21,275 21,846 2,043 3,822 2017 22,179 24,212 2,961 3,719 2018 24,284 7,466 3,205 $178,100 47 Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of ReinsuranceAccidentYear201420152016201720182014$6,437 $7,619 $7,570 $7,562 $7,561 2015 6,745 7,937 7,885 7,895 2016 5,804 6,353 6,349 2017 5,215 5,914 2018 6,344 $34,063 All outstanding liabilities before 2014, net of reinsurance — Liabilities for losses, claims and loss adjustment expenses, net of reinsurance$1,484 TABLE OF CONTENTSAutomobile Physical Damage For the Years Ended December 31, As of December 31, 2018 Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of ReinsuranceIBNRReservesCumulativeNumber ofReportedClaimsAccident Year201420152016201720182014$8,079 $7,657 $7,583 $7,562 $7,561 $— 1,635 2015 8,287 7,955 7,887 7,896 — 1,588 2016 6,877 6,386 6,352 1 1,267 2017 6,257 5,933 2 1,316 2018 7,805 145 1,343 $35,547 48 Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of ReinsuranceAccidentYear20092010201120122013201420152016201720182009$476 $941 $1,082 $1,410 $1,629 $1,662 $1,796 $1,816 $1,855 $1,921 2010 284 678 1,374 1,542 2,037 2,368 2,382 2,457 2,463 2011 295 412 582 835 1,161 1,169 1,278 1,285 2012 371 707 847 1,034 1,113 1,219 1,260 2013 104 339 579 811 791 803 2014 171 299 331 369 373 2015 98 259 464 664 2016 116 203 568 2017 75 136 2018 65 $9,538 All outstanding liabilities before 2009, net of reinsurance 402 Liabilities for losses, claims and loss adjustment expenses, net of reinsurance$3,094 TABLE OF CONTENTSGeneral Liability For the Years Ended December 31, As of December 31, 2018 Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of ReinsuranceIBNRReservesCumulativeNumber ofReportedClaimsAccidentYear20092010201120122013201420152016201720182009$3,392 $2,215 $1,944 $1,730 $1,702 $1,727 $1,828 $1,832 $1,888 $1,921 $0 290 2010 4,114 2,699 2,269 2,337 2,258 2,400 2,423 2,473 2,480 4 289 2011 3,022 1,723 1,452 1,338 1,174 1,242 1,327 1,335 12 204 2012 4,055 1,305 1,269 1,270 1,214 1,333 1,344 19 158 2013 3,461 728 926 817 865 820 4 187 2014 3,744 501 557 476 406 8 192 2015 4,421 1,037 1,227 1,044 143 144 2016 3,119 1,148 736 80 84 2017 1,490 488 184 72 2018 1,656 1,519 42 $12,230 49 Cumulative Paid Losses, Claims and Allocated Loss Adjustment Expenses, Net of ReinsuranceAccidentYear20092010201120122013201420152016201720182009$103 $1,595 $2,640 $3,205 $3,410 $3,760 $3,757 $4,663 $4,666 $4,590 2010 928 2,193 2,780 2,943 3,252 3,545 3,560 3,534 3,530 2011 1,031 3,207 4,622 4,748 4,939 5,022 5,109 5,111 2012 2,257 4,581 4,856 5,331 4,869 4,880 4,878 2013 323 1,010 1,369 2,763 2,789 2,749 2014 1,331 2,327 2,727 2,739 2,664 2015 641 856 1,127 1,125 2016 1,054 1,732 1,772 2017 1,971 3,255 2018 1,157 $30,831 All outstanding liabilities before 2009, net of reinsurance 3 Liabilities for losses, claims and loss adjustment expenses, net of reinsurance$3,212 TABLE OF CONTENTSSurety For the Years Ended December 31, As of December 31, 2018 Incurred Losses, Claims and Allocated Loss Adjustment Expenses, Net of ReinsuranceIBNRReservesCumulativeNumber ofReportedClaimsAccidentYear20092010201120122013201420152016201720182009$4,920 $5,025 $4,239 $3,951 $3,616 $4,636 $4,916 $4,664 $4,667 $4,590 $— 84 2010 3,995 4,624 3,618 3,396 3,607 3,549 3,563 3,534 3,530 — 95 2011 4,422 4,786 5,080 5,092 4,966 5,031 5,112 5,111 — 126 2012 4,979 4,767 5,396 5,345 4,869 4,880 4,892 2 89 2013 3,060 2,007 2,743 2,947 2,866 2,809 10 58 2014 3,214 3,130 2,990 2,760 2,685 4 53 2015 1,902 1,630 1,400 1,359 39 49 2016 3,314 1,812 1,865 27 46 2017 4,677 3,671 203 57 2018 3,528 1,872 59 $34,040 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 is50TABLE OF CONTENTSanalyzed by line of business, coverage and accident year. Qualitative factors are also considered in determining IBNR reserves andinclude such factors as judicial decisions, general economic trends such as inflation, changes in policy forms, and underwritingchanges. Reserves are reviewed quarterly and any indicated adjustments are made.Because 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, 2018.Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance(Unaudited)Reserve Line1stYear2ndYear3rdYear4thYear5th Year6th Year7th Year8th Year9th Year10thYearMedicare Supplement 83.5% 16.5% 0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Automobile Liability 31.5% 30.3% 17.2% 12.9% 4.4% 1.7% 0.5% 0.7% 0.0% 0.0%Automobile Physical Damage 86.2% 12.8% -0.5% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%General Liability 18.5% 19.3% 20.6% 16.2% 10.0% 5.0% 4.7% 1.5% 1.1% 3.4%Surety 34.6% 34.1% 15.3% 11.3% 0.9% 3.3% 0.5% 6.3% 0.0% -1.7%The reconciliation of the net incurred and paid claims development tables to the liability for losses, claims and lossadjustment expenses is as follows: December31,2018Net outstanding liabilities: Medicare Supplement$12,713 Automobile Liability 33,944 Automobile Physical Damage 1,484 General Liability 3,094 Surety 3,212 Other short-duration insurance lines 2,118 Liabilities for unpaid losses, claims and loss adjustment expenses, net of reinsurance 56,565 Reinsurance recoverable on unpaid losses: Medicare Supplement 7,926 Automobile Liability 4,777 Automobile Physical Damage 156 General Liability 1,495 Total reinsurance recoverable on unpaid losses 14,354 Unallocated claims adjustment expenses 1,693 Total gross liability for unpaid losses, claims and loss adjustment expenses$72,612 Note 6.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 96% of the Company’s reinsurance recoverables were due from a singlereinsurer as of December 31, 2018. Reinsurance recoverables of $24,983 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 reinsurancerecoverables, if appropriate.51TABLE OF CONTENTSThe effects of reinsurance on premiums written, premiums earned and insurance benefits and losses incurred were as follows: 20182017Direct premiums written$220,415 $181,568 Assumed premiums written 20,093 19,373 Ceded premiums written (66,845) (38,019)Net premiums written$173,663 $162,922 Direct premiums earned$219,785 $181,458 Assumed premiums earned 19,680 19,241 Ceded premiums earned (66,534) (37,372)Net premiums earned$172,931 $163,327 Provision for benefits and losses incurred$188,275 $147,444 Reinsurance loss recoveries (55,625) (29,929)Insurance benefits and losses incurred$132,650 $117,515 Components of reinsurance receivables at December 31, 2018 and 2017 were as follows: 20182017Recoverable on unpaid losses$14,354 $11,968 Recoverable on unpaid benefits 9,355 4,403 Recoverable on paid losses 992 — Ceded unearned premiums 1,185 874 Ceded advanced premiums 224 368 Total reinsurance receivables$26,110 $17,613 Note 7.Income TaxesTotal income taxes were allocated as follows: 20182017Total tax expense (benefit) on income$(267)$828 Tax expense (benefit) on components of shareholders’ equity: Net unrealized gains on investment securities (2,541) 2,111 Total tax expense (benefit)$(2,808)$2,939 A reconciliation of the differences between income taxes computed at the federal statutory income tax rate and the income taxexpense (benefit) is as follows: 20182017Federal income tax provision$(204)$1,875 Statutory rate 21% 35%Dividends-received deduction (39) (92)Small life insurance company deduction — (613)Other 75 72 Remeasurement of deferred taxes due to tax reform enactment — (395)Adjustment for prior years’ estimates to actual (99) (19)Income tax expense (benefit)$(267)$828 Effective tax rate 27.5% 15.5%52TABLE OF CONTENTSThe primary differences between the effective tax rate and the federal statutory income tax rate for 2018 resulted fromprovision-to-filed return adjustments that are generally updated at the completion of the third quarter of each fiscal year and were$99 in the year ended December 31, 2018.The primary differences between the effective tax rate and the federal statutory income tax rate for 2017 resulted from theDRD, the SLD, which was subsequently repealed by tax reform enacted on December 22, 2017, and the remeasurement of deferredtaxes. The current estimated DRD is adjusted as underlying factors change and can vary from estimates based on, but not limited to,actual distributions from investments as well as the amount of the Company’s taxable income. Under the then-applicable tax rules,the SLD varied in amount and was determined at a rate of 60% of the tentative LICTI. The SLD for any taxable year was reduced(but not below zero) by 15% of the tentative LICTI for such taxable year as it exceeded $3,000 and was ultimately phased out at$15,000. The remeasurement of deferred taxes resulted from legislated tax reform enacted on December 22, 2017. The tax reformreduced the federal tax rate applied to the Company’s deferred tax balances from 35% to 21% on enactment.Deferred tax liabilities and assets at December 31, 2018 and 2017 were comprised of the following: 20182017Deferred tax assets: Deferred acquisition costs$175 $— Insurance reserves 3,410 3,216 Impaired assets 1,142 869 Bad debts and other 332 380 Total deferred tax assets 5,059 4,465 Deferred tax liabilities: Deferred acquisition costs$— $(1,200)Deferred and uncollected premiums (360) (377)Net unrealized investment gains (148) (3,150)Other (367) (331)Total deferred tax liabilities (875) (5,058)Net deferred tax asset (liability)$4,184 $(593)The components of income tax expense (benefit) were: 20182017Current - Federal$1,969 $2,186 Deferred - Federal (2,236) (1,358)Total$(267)$828 The Company has formal tax-sharing agreements, and files a consolidated income tax return, with its subsidiaries. Tax yearsprior to 2015 have been audited by the Internal Revenue Service and are closed.53TABLE OF CONTENTSNote 8.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, 2018 and 2017, was asfollows: Atlantic AmericanStatutory Trust IAtlantic AmericanStatutory Trust IIJUNIOR SUBORDINATED DEBENTURES(1)(2) Balance December 31, 2018$18,042$23,196Less: Treasury debt(3)   —(7,500)Net balance December 31, 2018$18,042$15,696Net balance December 31, 2017$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)AtlanticAtlantic AmericanAmerican CorporationCorporation(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 9.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 $1,233 and $1,306 in 2018 and2017, respectively. The Company’s future minimum base lease obligations under non-cancelable operating leases are as follows:Year Ending December 31, 2019$815 2020 506 2021 544 Thereafter 3,240 Total$5,105 Note 10.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 2018, a total of 30,000 restrictedshares, with an estimated fair value of $87, were issued under the 2012 Plan and 64,000 restricted shares, with an estimated fairvalue of $236, were forfeited under such plan. In 2017, a total of 182,000 restricted shares, with an estimated fair value of $646,were issued under the 2012 Plan. The estimated fair value of the restricted shares issued under the 2012 Plan for 2018 and 2017 wasbased on the common stock price at date of grant. Stock grants are generally issued from treasury shares. Vesting of restricted sharesgenerally occurs after a one to three year period. The Company accounts for forfeitures as they occur. There were no stock optionsgranted or outstanding under the 2012 Plan in 2018 or 2017. Shares available for future grant at December 31, 2018 and 2017 were1,275,200 and 1,241,200, 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 2018 and 2017 was $233and $237, 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 2018 and 2017 of$491 and $450, 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 11.Preferred StockThe Company had 55,000 shares of Series D preferred stock (“Series D Preferred Stock”) outstanding at December 31, 2018and 2017, 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 par value of $1 per share and a redemption value of $100 pershare; accrue annual dividends at a rate of $7.25 per share (payable in cash or shares of the Company’s common stock at the optionof the board of directors of the Company) and are cumulative. In certain circumstances, the shares of the Series D Preferred Stockmay be convertible into an aggregate of approximately 1,378,000 shares of the Company’s common stock, subject to certainadjustments and provided that such adjustments do not result in the Company issuing more than approximately 2,703,000 sharesof common stock without obtaining prior shareholder approval; and are redeemable solely at the Company’s option. The Series DPreferred Stock is not currently convertible. The Company had accrued, but unpaid, dividends, on the Series D Preferred Stock of$18 at December 31, 2018 and 2017. During each of 2018 and 2017, the Company paid Series D Preferred Stock dividends of$399.Note 12.Earnings (Loss) Per Common ShareBasic earnings per share was computed by dividing net income available to common shareholders by the weighted averagenumber of common shares outstanding during the period. The computation of diluted earnings per share reflected the effect ofpotentially dilutive securities.A reconciliation of the numerator and denominator of the earnings (loss) per common share calculations is as follows: For the Year Ended December 31, 2018 IncomeShares(In thousands)Per ShareAmountBasic and Diluted Loss Per Common Share Net loss before preferred stock dividends$(704) 20,284 Less preferred stock dividends (399) — Net loss applicable to common shareholders$(1,103) 20,284 $(.05) 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 $.20 The assumed conversion of the Company’s Series D Preferred Stock was excluded from the earnings per common sharecalculation for 2018 and 2017 since its impact would have been antidilutive.Note 13.Statutory ReportingThe assets, liabilities and results of operations have been reported on the basis of GAAP, which varies in some respects fromstatutory accounting practices (“SAP”) prescribed or permitted by insurance regulatory authorities. The principal differencesbetween SAP and GAAP are that under SAP: (i) certain assets that are non-admitted assets are eliminated from the balance sheet; (ii)acquisition costs for policies are expensed as incurred, while they are deferred and amortized over the estimated life of the policiesunder GAAP; (iii) the provision that is made for deferred income taxes is different than under GAAP; (iv) the timing of establishingcertain reserves is different than under GAAP; and (v) certain valuation allowances attributable to certain investments are different.56TABLE OF CONTENTSThe Company meets the minimum capital requirements in the states in which it does business. The amount of reportedstatutory net income and surplus (shareholders’ equity) for the Parent’s insurance subsidiaries for the years ended December 31 wasas follows: 20182017Bankers Fidelity, net loss$(3,963)$(2,880)American Southern, net income 5,445 6,647 Statutory net income$1,482 $3,767 Bankers Fidelity, surplus$34,214 $34,135 American Southern, surplus 43,467 43,348 Statutory surplus$77,681 $77,483 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 $4,800 and $4,850 in 2018 and 2017, respectively, from its subsidiaries. In 2019,dividend payments to the Parent by the insurance subsidiaries in excess of $4,347 would require prior approval.Note 14.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, 2018, two members of the Company’s board of directors, including the Company’s chairman, presidentand chief executive 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, 2018 and 2017, the Company paid $781 and $866, 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 11). During the years ended December 31, 2018 and 2017, 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, 2018 and 2017, 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, 2018 and2017 was $13,226 and $14,407, respectively.During the years ended December 31, 2018 and 2017, the Company paid approximately $42 and $54, 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, 2018 and 2017, Gray paid the Company approximately $403 and $597, respectively, inemployer paid insurance premiums related to a group accident plan.57TABLE OF CONTENTSNote 15.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, 2018 AmericanSouthernBankersFidelityCorporate& OtherAdjustments& EliminationsConsolidatedInsurance premiums, net$53,807 $119,124 $— $— $172,931 Insurance benefits and losses incurred 38,829 93,821 — — 132,650 Expenses deferred (7,893) (14,118) — — (22,011)Amortization and depreciation expense 7,991 9,892 715 — 18,598 Other expenses 14,666 36,514 16,613 (10,506) 57,287 Total expenses 53,593 126,109 17,328 (10,506) 186,524 Underwriting income (loss) 214 (6,985) Net investment income 3,783 5,382 2,895 (2,511) 9,549 Other income 8 7 8,093 (7,995) 113 Operating income (loss) 4,005 (1,596) (6,340) — (3,931)Net realized gains 1,876 3,006 272 — 5,154 Unrealized losses on equity securities (220) (514) (1,460) — (2,194)Income (loss) before income taxes$5,661 $896 $(7,528)$— $(971)Total revenues$59,254 $127,005 $9,800 $(10,506)$185,553 Intangibles$1,350 $1,194 $— $— $2,544 Total assets$122,724 $195,663 $134,643 $(108,756)$344,274 For the Year Ended December 31, 2017 AmericanSouthernBankersFidelityCorporate& OtherAdjustments& EliminationsConsolidatedInsurance premiums, net$53,661 $109,666 $— $— $163,327 Insurance benefits and losses incurred 34,486 83,029 — — 117,515 Expenses deferred (8,062) (11,693) — — (19,755)Amortization and depreciation expense 8,543 8,232 712 — 17,487 Other expenses 15,951 38,195 16,191 (9,826) 60,511 Total expenses 50,918 117,763 16,903 (9,826) 175,758 Underwriting income (loss) 2,743 (8,097) Net 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 58TABLE OF CONTENTSItem 9.Changes in and Disagreements with Accountants on Accounting and Financial DisclosureOn September 13, 2018, the Audit Committee (the “Audit Committee”) of the Company’s Board of Directors approved theappointment of Dixon Hughes Goodman LLP (“Dixon Hughes”) as the Company’s independent registered public accounting firm,commencing with the quarter ended September 30, 2018 and for the fiscal year ended December 31, 2018. In connection with theselection of Dixon Hughes, on September 13, 2018 the Audit Committee approved terminating the engagement of BDO USA, LLP(“BDO”) as the Company’s independent registered public accounting firm.The audit reports of BDO on the Company’s consolidated financial statements as of and for the years ended December 31,2016 and 2017 did not contain any adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty,audit scope or accounting principles.During the fiscal years ended December 31, 2016 and 2017, and through the date hereof, there were no disagreements, withinthe meaning of Item 304(a)(1)(iv) of Regulation S-K, with BDO on any matter of accounting principles or practices, financialstatement disclosure, or auditing scope or procedures which, if not resolved to BDO’s satisfaction, would have caused BDO tomake reference to the subject matter in connection with its reports; and there were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.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 the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of theSecurities Exchange Act of 1934). Based on that evaluation, management, including the Chief Executive Officer and ChiefFinancial Officer, concluded that 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. The Company’s internal control over financial reporting system has been designed to providereasonable assurance regarding the reliability and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles. Management recognizes that there are inherent limitations in the effectiveness of anyinternal control system. Because of its inherent limitations, internal control over financial reporting may not prevent or detect allmisstatements. Furthermore, the application of any evaluations of effectiveness on future periods are subject to the risk thatcontrols may become inadequate because of changes in conditions, or that the degree of compliance with the policies orprocedures may deteriorate. Therefore, even those systems determined to be effective can provide only reasonable assurance withrespect to financial statement preparation and presentation.Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2018based 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, 2018.There were no changes in our internal control over financial reporting that occurred during the fourth quarter of 2018 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.59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 21, 2019, 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, 2018, 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 — $ — 1,275,200 Equity compensation plans not approved by security holders(1) — — — Total — $— 1,275,200 (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.60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, dated July 1, 1993, between the registrant and Atlantic American Life InsuranceCompany and Bankers Fidelity Life Insurance Company [incorporated by reference to Exhibit 10.41 to theregistrant’s Form 10-Q for the quarter ended September 30, 1993].10.02 - Tax Allocation Agreement, dated as of January 4, 2016, between the registrant and the registrant’s subsidiaries[incorporated by reference to Exhibit 10.02 to the registrant’s Form 10-K for the year ended December 31, 2017].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, dated as of November 1, 2007, between Georgia Casualty & Surety Company, Bankers FidelityLife Insurance Company, Atlantic American Corporation and Delta Life Insurance Company [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, dated as of March 31, 2008, between Georgia Casualty & Surety Company,Bankers Fidelity Life Insurance Company, Atlantic American Corporation and Delta Life Insurance Company[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 with Fixed Determination Date, dated as of June 14, 2017 by and betweenJohn G. Sample, Jr. and the registrant [incorporated by reference to Exhibit 10.07 to the registrant’s Form 10-K forthe year ended December 31, 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].16.1 - Letter from BDO USA, LLP regarding Change in Certifying Accountant.21.1 - Subsidiaries of the registrant [incorporated by reference to Exhibit 21.1 to the registrant’s Form 10-K for the yearended December 31, 2015].23.1 - Consent of Dixon Hughes Goodman LLP, Independent Registered Public Accounting Firm.23.2 - 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 2002.61TABLE OF CONTENTS31.2 - 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 2002.101.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.62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: April 1, 2019Pursuant 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)April 1, 2019HILTON H. HOWELL, JR. /s/ J. Ross FranklinVice President and Chief Financial Officer(Principal Financial and Accounting Officer)April 1, 2019J. ROSS FRANKLIN /s/ Robin R. HowellDirectorApril 1, 2019ROBIN R. HOWELL /s/ Mark E. PreisingerDirectorApril 1, 2019MARK E. PREISINGER /s/ Joseph M. ScheererDirectorApril 1, 2019JOSEPH M. SCHEERER /s/ Scott G. ThompsonDirectorApril 1, 2019SCOTT G. THOMPSON /s/ D. Keehln WheelerDirectorApril 1, 2019D. KEEHLN WHEELER63TABLE OF CONTENTSSchedule IIPage 1 of 3CONDENSED FINANCIAL INFORMATION OF REGISTRANTATLANTIC AMERICAN CORPORATION(Parent Company Only)BALANCE SHEETS ASSETS December 31, 20182017 (In thousands)Cash and cash equivalents$3,142 $9,732 Investments 14,154 16,097 Investment in subsidiaries 108,756 116,351 Investments in unconsolidated trusts 1,238 1,238 Deferred tax asset, net 3,524 — Income taxes receivable from subsidiaries 2,856 2,879 Other assets 3,311 3,762 Total assets$136,981 $150,059 LIABILITIES AND SHAREHOLDERS’ EQUITY Deferred tax liability, net$— $1,253 Other payables 1,871 2,085 Junior subordinated debentures 33,738 33,738 Total liabilities 35,609 37,076 Shareholders’ equity 101,372 112,983 Total liabilities and shareholders’ equity$136,981 $150,059 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, 20182017 (In thousands)REVENUE Fee income from subsidiaries$7,995 $7,702 Distributed earnings from subsidiaries 4,800 4,850 Unrealized losses on equity securities, net (1,460) — Other 752 4,130 Total revenue 12,087 16,682 GENERAL AND ADMINISTRATIVE EXPENSES 12,764 13,015 INTEREST EXPENSE 2,037 1,723 (2,714) 1,944 INCOME TAX BENEFIT(1) (3,544) (2,553) 830 4,497 EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES, NET (1,534) 31 NET INCOME (LOSS)$(704)$4,528 (1)Under the terms of a tax-sharing agreement, income tax provisions for the subsidiary companies are computed on a separate company basis.Accordingly, the Company’s income tax benefit results from the utilization of the Parent’s separate return loss to reduce the consolidatedtaxable income of the Company.See accompanying report of independent registered public accounting firm.II-2TABLE OF CONTENTSSchedule IIPage 3 of 3CONDENSED FINANCIAL INFORMATION OF REGISTRANTATLANTIC AMERICAN CORPORATION(Parent Company Only) STATEMENTS OF CASH FLOWS Year Ended December 31, 20182017 (In thousands)CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)$(704)$4,528 Adjustments to reconcile net income to net cash provided by operating activities: Realized investment gains, net (272) (3,891)Unrealized losses on equity securities, net 1,460 — Depreciation and amortization 715 712 Compensation expense related to share awards 244 495 Distributions received from equity method investees 183 4,513 Equity in undistributed earnings of consolidated subsidiaries 1,534 (31)Decrease in intercompany taxes 24 82 Deferred income tax benefit (2,236) (1,358)(Decrease) increase in other liabilities (214) 136 Other, net (190) 295 Net cash provided by operating activities 544 5,481 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from investments sold, called or matured 675 1,501 Investments purchased — — Capital contribution to subsidiaries (6,000) — Additions to property and equipment (219) (91)Net cash provided by investing activities (5,544) 1,410 CASH FLOWS FROM FINANCING ACTIVITIES: Payment of dividends on Series D preferred stock (399) (399)Payment of dividends on common stock (407) (408)Proceeds from shares issued under stock plans 36 32 Treasury stock acquired — share repurchase authorization (597) (692)Treasury stock acquired — net employee share-based compensation (223) — Net cash used in financing activities (1,590) (1,467) Net increase (decrease) in cash (6,590) 5,424 Cash and cash equivalents at beginning of year 9,732 4,308 Cash and cash equivalents at end of year$3,142 $9,732 Supplemental disclosure: Cash paid for interest$1,996 $1,705 Cash paid for income taxes$2,107 $1,400 Intercompany tax settlement from subsidiaries$3,439 $2,676 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, 2018: Bankers Fidelity$35,047 $113,515 $4,712 $1,973 American Southern 2,047 49,354 19,494 — $37,094 $162,869(1)$24,206 $1,973 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(2)$23,449 $2,010 (1)Includes future policy benefits of $90,257 and losses and claims of $72,612.(2)Includes future policy benefits of $82,435 and losses and claims of $65,689.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, 2018: Bankers Fidelity$119,124 $5,382 $93,821 $9,690 $22,598 $— American Southern 53,807 3,783 38,829 7,921 6,843 54,410 Corporate & other — 384 — — 6,822 — $172,931 $9,549 $132,650 $17,611 $36,263 $54,410 December 31, 2017: Bankers Fidelity$109,666 $4,257 $83,029 $7,866 $26,868 $— American Southern 53,661 3,307 34,486 8,170 8,262 53,362 Corporate & other — 143 — — 7,077 — $163,327 $7,707 $117,515 $16,036 $42,207 $53,362 See accompanying report of independent registered public accounting firm.III-2TABLE OF CONTENTSSchedule IVATLANTIC AMERICAN CORPORATION AND SUBSIDIARIESREINSURANCE INFORMATION DirectAmountCeded ToOtherCompaniesAssumedFrom OtherCompaniesNetAmountsPercentage ofAmountAssumedTo Net (Dollars in thousands)Year ended December 31, 2018: Life insurance in force$232,311 $(12,263)$— $220,048 Premiums — Bankers Fidelity$180,552 $(61,459)$31 $119,124 0.0%American Southern 39,233 (5,075) 19,649 53,807 36.5%Total premiums$219,785 $(66,534)$19,680 $172,931 11.4% 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%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 31,2018$2,047 $49,354 $19,494 $53,807 $3,783 $39,735 $(906)$7,921 $36,680 $54,410 December 31,2017$2,075 $47,997 $19,178 $53,661 $3,307 $37,016 $(2,530)$8,170 $33,459 $53,362 See accompanying report of independent registered public accounting firm.VI-1Exhibit 16.1Tel: 404-688-6841Fax: 404-688-1075www.bdo.com1100 Peachtree Street NE, Suite 700Atlanta, GA 30309-4516September 14, 2018Securities and Exchange Commission100 F Street N.E.Washington, D.C. 20549We have been furnished with a copy of the response to Item 4.01 of Form 8-K for the event that occurred on September 13, 2018, to be filed by our formerclient, Atlantic American Corporation.We agree with the statements made in response to that Item insofar as they relate to our Firm.Very truly yours,/s/ BDO USA, LLPBDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and formspart of the international BDO network of independent member firms.BDO is the brand name for the BDO network and for each of the BDO Member Firms.EXHIBIT 23.1CONSENT OF DIXON HUGHES GOODMAN LLPINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMBoard of Directors and ShareholdersAtlantic American Corporation We consent to the incorporation by reference in the registration statements (Nos. 333-183207 and 333-183210) on Form S-8of Atlantic American Corporation of our report dated April 1, 2019, with respect to the consolidated financial statements andschedules of Atlantic American Corporation as of and for the year ended December 31, 2018, which report appears in AtlanticAmerican Corporation’s Annual Report on Form 10-K./s/ Dixon Hughes Goodman LLPAtlanta, GeorgiaApril 1, 2019EXHIBIT 23.2CONSENT OF BDO USA LLPINDEPENDENT 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 appear in this Form 10-K./s/ BDO USA, LLPAtlanta, GeorgiaApril 1, 2019 Date: April 1, 2019/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: April 1, 2019/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: April 1, 2019 /s/ Hilton H. Howell, Jr. Hilton H. Howell, Jr. President and Chief Executive Officer Date: April 1, 2019 /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, 2018, 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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