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

November 13, 2009 | About:
10qk

10qk

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Atlantic American Corp. (AAME) filed Quarterly Report for the period ended 2009-09-30.

Atlantic American Corporation is a holding company that operates through its subsidiaries in well-defined specialty markets of the life, health, property and casualty insurance industries. Atlantic American Corp. has a market cap of $28 million; its shares were traded at around $1.2536 with a P/E ratio of 15.6 and P/S ratio of 0.3. Atlantic American Corp. had an annual average earning growth of 10.9% over the past 5 years.

Highlight of Business Operations:

On a consolidated basis, the Company had a net loss of $2.1 million, or $0.10 per diluted share, for the three month period ended September 30, 2009, compared to a net loss of $0.2 million, or $0.03 per diluted share, for the three month period ended September 30, 2008. The Company had a net loss of $1.8 million, or $0.10 per diluted share, for the nine month period ended September 30, 2009, compared to a net loss of $1.1 million, or $0.11 per diluted share, for the nine month period ended September 30, 2008. The net loss in the three month and nine month periods ended September 30, 2009 was primarily attributable to a $1.8 million increase in the Companys deferred tax asset valuation allowance. The change in deferred tax asset valuation allowance was due to reassessment of the realization of certain capital loss carryforward benefits. The Company does not currently anticipate having sufficient future capital gains to offset these capital losses. The net loss in the nine month period ended September 30, 2008 was due to the $2.2 million loss from discontinued operations. Income from continuing operations before taxes was $0.2 million in the three month period ended September 30, 2009, compared to a loss from continuing operations before taxes of $0.1 million in the three month period ended September 30, 2008. Income from continuing operations before taxes for the nine month period ended September 30, 2009 was $0.4 million compared to $1.7 million for the nine month period ended September 30, 2008. The decrease in income from continuing operations before taxes in the nine month period ended September 30, 2009 was primarily due to several large automobile claims incurred in the Companys property and casualty operations which did not occur in the comparable period of 2008, as well as higher overall loss ratios in the Companys life and health operations. The property and casualty losses were partially offset by a reduction in the accrual for profit sharing commissions. Also contributing to the decrease in income from continuing operations was a non-recurring charge of $0.4 million, which resulted from the termination and settlement of the Companys supplemental executive retirement plan (SERP). Partially offsetting the 2009 decrease in income from continuing operations were several non-recurring charges included in income from continuing operations for the nine month period ended September 30, 2008. During the three month period ended September 30, 2008, the Company recorded a realized loss of $0.4 million due to an other than temporary impairment in its investment in equity securities of Wachovia Corporation. Also, in connection with the marketing and sale of the regional property and casualty companies, the compensation committee of the board of directors, in the third quarter of 2008, approved $0.7 million in discretionary bonus payments to certain officers of the Company. Further, during the first quarter of 2008, the Company incurred a $0.3 million goodwill impairment charge. Premium revenue for the three month period ended September 30, 2009 decreased $0.1 million, or 0.2%, to $22.8 million. For the nine month period ended September 30, 2009, premium revenue increased $0.3 million, or 0.4%, to $68.5 million. The decrease in premiums in the three month period ended September 30, 2009 was due to the continued softness in the property and casualty markets. The increase in premiums in the nine month period ended September 30, 2009 was attributable to new business generated by the Companys life and health operations as a result of increased marketing initiatives. Offsetting the increase in life and health premiums in the three month and nine month periods ended September 30, 2009 was a continued decline in property and casualty premiums.

Commissions and other expenses increased $0.2 million, or 4.6%, during the three month period ended September 30, 2009, and $0.8 million, or 6.0%, during the nine month period ended September 30, 2009, over the comparable periods in 2008. The increase in commissions and other expenses for the three month and nine month periods ended September 30, 2009 was primarily attributable to commission costs associated with increased premiums. First year premiums for the Life and Medicare supplement lines of business increased in the three month and nine month periods ended September 30, 2009 over the comparable periods in 2008. Also contributing to the increase in commissions and other expenses for the three month and nine month periods ended September 30, 2009 were increases in advertising and agency related expenses which resulted from the companys marketing initiatives. As a percentage of premiums, these expenses were 31.9% for the three month period ended September 30, 2009 and 31.8% for the nine month period ended September 30, 2009 compared to 31.9% for the three month period ended September 30, 2008 and 30.8% for the nine month period ended September 30, 2008. The increase in the expense ratio for the nine month period ended September 30, 2009 was primarily due to the increases in advertising and agency related expenses discussed previously.

The Company had a small net realized investment gain during the nine month period ended September 30, 2009, compared to net realized investment losses of $0.3 million in the nine month period ended September 30, 2008. During the nine month period ending September 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. There were no impairments recorded during the three month period ended September 30, 2009. During the three month and nine month periods ended September 30, 2008, the Company recorded a realized loss of $0.4 million due to an other than temporary impairment in its investment in equity securities of Wachovia Corporation. Management continually evaluates the Companys investment portfolio and, as needed, makes adjustments for impairments and/or will divest investments. (See Item 3 of this Quarterly Report on Form 10-Q for a discussion of market risks).

Interest expense decreased $0.1 million, or 14.6%, during the three month period ended September 30, 2009, and $0.4 million, or 16.8%, during the nine month period ended September 30, 2009, from the comparable periods in 2008. The decrease in interest expense for the three month and nine month periods ended September 30, 2009 was due to a decrease in the London Interbank Offered Rate (LIBOR), as the interest rates on the Companys trust preferred obligations and outstanding bank debt are based on LIBOR. In addition, on April 1, 2008, the Company repaid the outstanding balance of $3.8 million under the Companys credit agreement (the Credit Agreement) with Wachovia Bank, National Association (Wachovia), which decreased interest expense by reducing the Companys average debt level for the nine month period ended September 30, 2009 as compared to the same period in 2008. Partially offsetting the decrease in interest expense for the three month and nine month periods ended September 30, 2009 were net settlement payments to Wachovia under the Companys zero cost rate collar due to the LIBOR rates remaining below the contractual floor rate of 4.77%.

Other expenses (commissions, underwriting expenses, and other expenses) decreased $1.0 million, or 9.9%, during the three month period ended September 30, 2009, and $1.6 million, or 5.3%, during the nine month period ended September 30, 2009 from the comparable periods in 2008. The decrease in other expenses for the three month and nine month periods ended September 30, 2009 was primarily due to $0.7 million in discretionary bonus payments to certain officers of the Company in the third quarter of 2008 in connection with the marketing and sale of the regional property and casualty companies and a reduction in profit sharing commissions at American Southern. During the three month period ended September 30, 2009, profit sharing commissions at American Southern decreased $0.3 million from the three month period ended September 30, 2008, due primarily to higher loss ratios. For the nine month period ended September 30, 2009 profit sharing commissions decreased $1.1 million from the comparable period in 2008. The majority of American Southerns business is structured in a way that agents are rewarded 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 and nine month periods ended September 30, 2009, American Southerns commission expense decreased from the comparable periods of 2008 solely due to the decline in premiums described above. Also contributing to the decrease in other expenses was a $0.3 million goodwill impairment charge recorded in the three month period ended March 31, 2008 which did not recur in the nine month period ended September 30, 2009 as well as the elimination of the SERP expense due to its termination in the three month period ended June 30, 2009. Partially offsetting the decrease in other expenses for the nine month period ended September 30, 2009 was a non-recurring charge of $0.4 million, which resulted from the termination and settlement of the Companys SERP. In addition, during the nine month period ended September 30, 2009, the Companys life and health operations experienced increases in advertising and agency related expenses due to marketing initiatives. On a consolidated basis, as a percentage of earned premiums, other expenses deRead the The complete Report

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