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Atlantic American Corp. Reports Operating Results (10-Q)

August 06, 2010 | About:
10qk

10qk

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Atlantic American Corp. (AAME) filed Quarterly Report for the period ended 2010-06-30.

Atlantic American Corp. has a market cap of $27.1 million; its shares were traded at around $1.22 with and P/S ratio of 0.3.

Highlight of Business Operations:

On a consolidated basis, the Company had net income of $0.1 million, or nil per diluted share, for the three month period ended June 30, 2010, compared to net income of $12,000, or a loss of $0.01 per diluted share, for the three month period ended June 30, 2009. The Company had net income of $0.5 million, or $0.01 per diluted share, for the six month period ended June 30, 2010, compared to net income of $0.3 million, or nil per diluted share, for the six month period ended June 30, 2009. Premium revenue for the three month period ended June 30, 2010 increased $1.4 million, or 6.3%, to $24.4 million. For the six month period ended June 30, 2010, premium revenue increased $2.0 million, or 4.4%, to $47.7 million. The increase in premiums was primarily attributable to new business generated by the Companys life and health operations as a result of increased marketing initiatives. Partially offsetting the increase in the life and health premiums during the three month and six month periods ended June 30, 2010 was a decline in property and casualty premiums. The increase in net income during the three month and six month periods ended June 30, 2010 was primarily due to a decrease in compensation accruals.

Ceded premiums decreased $0.3 million, or 18.6%, during the three month period ended June 30, 2010, and $0.7 million, or 20.0%, during the six month period ended June 30, 2010, from the comparable periods in 2009. The decrease in ceded premiums during the three month and six month periods ended June 30, 2010 was primarily due to the decline in written premiums and lower cession rates resulting from a new reinsurance agreement which incepted in the fourth quarter of 2009.

The Company had net realized investment gains of $13,000 during the six month period ended June 30, 2010, compared to net realized investment losses of $13,000 in the six month period ended June 30, 2009. The Company recorded a realized loss of $0.1 million due to other than temporary impairments in its investment in redeemable preferred securities of General Motors Corporation and certain other invested assets in the three month period ended June 30, 2009. There were no impairments recorded during the six month period ended June 30, 2010. Management continually evaluates the Companys investment portfolio and, as may be determined to be appropriate, makes adjustments for impairments and/or will divest investments.

Other expenses (commissions, underwriting expenses, and other expenses) decreased $1.1 million, or 10.8%, during the three month period ended June 30, 2010, and $1.4 million, or 7.3%, during the six month period ended June 30, 2010, from the comparable periods in 2009. The decrease in other expenses for the three month and six month periods ended June 30, 2010 was primarily attributable to a $0.6 million decrease in compensation accruals and a reduction in profit sharing commissions at American Southern. During the three month period ended June 30, 2010, profit sharing commissions at American Southern decreased $0.5 million from the three month period ended June 30, 2009 due to the inversely higher loss ratios. For the six month period ended June 30, 2010, profit sharing commissions decreased $0.9 million from the comparable period of 2009. The majority of American Southerns business is structured in a way that agents are compensated based upon the loss ratios of the business they submit to the company. In periods where the loss ratio increases, commissions and underwriting expenses will decrease, and conversely, in periods where the loss ratio decreases, commissions and underwriting expenses will increase. In addition, during the three month period ended June 30, 2010, the Company terminated its qualified pension plan and distributed the accumulated benefits to participating employees. In connection with the termination and final settlement of the qualified pension plan, the Company incurred a non-recurring charge of $0.3 million. In the three month period ended June 30, 2009, the Company incurred a similar non-recurring charge of $0.4 million due to the termination of its SERP. On a consolidated basis, as a percentage of earned premiums, other expenses decreased to 36.7% in the three month period ended June 30, 2010 from 43.7% in the three month period ended June 30, 2009. For the six month period ended June 30, 2010, this ratio decreased to 38.3% from 43.1% in the comparable period in 2009. The decrease in the expense ratio for the three month and six month periods ended June 30, 2010 was primarily due to the decrease in compensation accruals and the reduction in profit sharing commissions described above. Also contributing to the decrease in the expense ratio was the increase in earned premiums coupled with a relatively consistent level of fixed expenses.

At June 30, 2010, the Company had 70,000 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 Companys Chairman Emeritus. The outstanding shares 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 Companys common stock at the option of the board of directors of the Company) and are cumulative. In certain circumstances, the shares of the Series D Preferred Stock may be convertible into an aggregate of approximately 1,754,000 shares of the Companys common stock, subject to certain adjustments and provided that such adjustments do not result in the Company issuing more than approximately 2,703,000 shares of common stock without obtaining prior shareholder approval; and are redeemable solely at the Companys option. The Series D Preferred Stock is not currently convertible. At June 30, 2010, the Company had accrued, but unpaid, dividends on the Series D Preferred Stock totaling $0.3 million.

Net cash provided by operating activities was $0.5 million in the six month period ended June 30, 2010, compared to net cash used in operating activities of $5.5 million in the six month period ended June 30, 2009. Cash and short-term investments increased from $20.1 million at December 31, 2009 to $47.2 million at June 30, 2010. The increase in cash and short-term investments during the six month period ended June 30, 2010 was primarily due to a large number of called securities exceeding investment purchases. During the six month period ended June 30, 2009, the Company distributed accumulated benefits of $2.8 million resulting from the termination of its SERP and paid a $1.8 million final settlement to Columbia Mutual Insurance Company in connection with the 2008 sale of its regional property and casualty operations.

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