Report of Independent Registered Public Accounting Firm
Administrative Committee and Participants
Atlantic American Corporation 401(k) Retirement Savings Plan
Opinion on the Financial Statements
We have audited the accompanying statements of net assets available for benefits of Atlantic American Corporation 401(k) Retirement Savings Plan (the Plan) as of December 31, 2022 and 2021, the related statement of
changes in net assets available for benefits for the year ended December 31, 2022, and the related notes and schedule (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present
fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2022 and 2021 and the changes in net assets available for benefits for the year ended December 31, 2022 in conformity with accounting principles
generally accepted in the United States of America.
Basis of Opinion
These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Plan in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of
material misstatement, whether due to error or fraud. The Plan is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of
internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Plan’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to 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 audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Report on Supplemental Information
The supplemental information in the accompanying schedule of assets (held at end of year) as of December 31, 2022 has been subjected to audit procedures performed in conjunction with the audit of the Plan’s financial
statements. The supplemental schedule is the responsibility of the Plan’s management. Our audit procedures included determining whether the supplemental schedule reconciles to the financial statements or the underlying accounting and other records,
as applicable, and performing procedures to test the completeness and accuracy of the information presented in the supplemental schedule. In forming our opinion on the supplemental schedule, we evaluated whether the supplemental schedule, including
its form and content, is presented in conformity with the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. In our opinion,
the supplemental information is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole.
/s/ FORVIS, LLP (Formerly, Dixon Hughes Goodman LLP)
We have served as the Plan’s auditor since 2019.
Atlanta, GA
June 23, 2023
See accompanying notes to financial statements.
See accompanying notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
December 31, 2022 and 2021
NOTE 1—DESCRIPTION OF THE PLAN
The following description of the Atlantic American Corporation 401(k) Retirement Savings Plan (the “Plan”) provides only general information. Participating members (“Participants”) should refer to the Plan document
for a more complete description of the Plan’s provisions. Information with regard to eligibility, contributions, distributions, vesting, withdrawals, restoration, loans, fund redistribution, and definitions of all terms are contained in that
document. The Administrative Committee, consisting of employees of the plan sponsor, is responsible for oversight of the Plan.
General: The Plan is a defined contribution plan available to all U.S. employees of Atlantic American Corporation and
its subsidiaries (collectively, the “Company”) except collective bargaining employees, nonresident aliens, and leased employees. Employees eligible to participate are automatically enrolled effective on the date of employment. The Plan is subject
to the provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).
Participating Companies: As of December 31, 2022, the Company had five wholly-owned insurance subsidiaries, Bankers
Fidelity Life Insurance Company and its wholly owned subsidiaries, Bankers Fidelity Assurance Company and Atlantic Capital Life Assurance Company, American Southern Insurance Company and its wholly owned subsidiary, American Safety Insurance
Company, in addition to one non-insurance company, xCalibre Risk Services, Inc. All employees of these subsidiaries were eligible to participate in the Plan.
Plan Administration: The trustee of the Plan (the “Trustee”) has custodial responsibility for the Plan’s assets,
including the authority and power to, among other things, invest the principal and income of the Plan’s assets.
Contributions: Eligible employees automatically become a participant and are enrolled into the Plan at a 6% deferral
rate on their date of hire. At any time, a participant may cease his or her contribution or change his or her deferral percentage in 1% increments up to 75% of his or her annual compensation, as defined by the Plan, subject to certain
limitations under the Internal Revenue Code (the “Code”), and elect to contribute into any of the investment funds offered by the Plan. Participant pre-tax limitation was limited to $20,500 for 2022.
Participants may also contribute amounts representing distributions from other qualified benefit plans. These contributions, if any, are classified as rollover contributions in the Statement of Changes in Net Assets
Available for Benefits. Participants direct the investment of their contributions into various investment options offered by the Plan. Participants who have attained age 50 before the end of the Plan year are eligible to make catch-up
contributions to the Plan. The maximum individual catch-up contribution amount was $6,500 for 2022.
On January 1, 2009, the Company adopted safe harbor plan provisions such that the Plan would operate on a safe harbor basis. Safe harbor contributions are fully vested immediately. The Company provides a matching
employer contribution equal to a certain percentage of each participant’s contributions. The Company may also make employer profit-sharing contributions, at its discretion, which will be allocated among all eligible participants in the Plan
whether they make contributions or not. The employer profit-sharing contributions totaled $126,300 for the year ended December 31, 2022. For the year ended December 31, 2022, the Company’s employer matching contribution equaled 35% of up to the
first 6% of a participant’s pre-tax contribution. In addition to the matching contribution, the Company also made a non-elective contribution to all participants of 3% of compensation (up to a maximum of $305,000), which totaled $443,153 for the
year ended December 31, 2022. The 2022 employer profit-sharing contributions and non-elective contributions are presented as contribution receivable from employer in the Statements of Net Assets Available for Benefits. All employer matching
contributions are made in cash.
Vesting: Participants are always 100% vested in their own contributions including pre-tax contributions, Roth
contributions, after-tax voluntary contributions, rollover contributions, safe harbor matching contributions and any discretionary profit-sharing contributions. Further, all contributions are invested at the direction of the participant.
Participants’ “vested percentage” attributable to certain employer contributions is based on years of continuous service determined under the following schedule.
Years of service:
|
Less than one
|
|
|
0
|
%
|
|
One
|
|
|
20
|
%
|
|
Two
|
|
|
40
|
%
|
|
Three
|
|
|
60
|
%
|
|
Four
|
|
|
80
|
%
|
|
Five
|
|
|
100
|
%
|
Participants must have worked at least 1,000 hours in a calendar year for that year to count towards vesting. In addition, participants become fully vested upon retirement, death, or disability.
Benefits: Upon termination of service due to death, disability, retirement, or separation from service, a participant
or his or her beneficiary with a vested balance greater than $5,000 may elect to receive an amount equal to the value of the participant’s vested interest in his or her account, or such amounts may remain in the Plan but contributions cease. The
form of payment, selected by the participant or his or her beneficiary, is either a lump-sum distribution or a direct rollover into a qualified retirement plan or individual retirement account. A vested balance less than $5,000 is automatically
distributed to the terminated participant or his or her beneficiary in the quarterly period following termination, unless otherwise directed.
Participant Accounts: Individual accounts are maintained for each of the Plan’s participants and reflect the
participant’s contributions, employer contributions, and the participant’s share of the Plan’s investment income (loss). Allocations of income (loss) are based on the proportion that each participant’s account balance bears to the total of all
participant account balances and their investment elections.
Investment Options: Participants may direct their contributions and any related earnings into several investment
options in 1% increments. Participants may change their investment elections at any time, subject to certain fund restrictions. During 2022, there were 2 fund changes made.
Effective 2020 within the Plan, new contributions to the Atlantic American Common Stock fund were not allowed. Those participants who were invested in the Atlantic American Common Stock fund were able, and existing participants continue to be
able, to sell or liquidate units of the Atlantic American Common Stock fund and reinvest in existing investments offered in the Plan. There were no significant changes made to the available investment alternatives during 2021.
Forfeitures: Amounts forfeited from non-vested accounts, if any, are generally used to pay for Plan expenses or
reduce future employer contributions. Forfeitures of $8,102 were used to offset administrative expenses charged to the Plan in 2022. At December 31, 2022 and 2021, there were $29,848 and $16,611, respectively, of forfeiture funds available to be
used in the future.
Notes Receivable from Participants: Participants may borrow from their fund accounts a minimum of $1,000 up to a
maximum equal to the lesser of $50,000 or 50% of their vested account balance. Participants may elect to have their loans disbursed from specific investment funds. Loan terms range from six months to five years or within a reasonable time if
used for the purchase of a primary residence. The loans are secured by the vested value of the participants’ account balances and bear interest at the prime rate of interest on the date of the loan plus 1% bearing interest at rates from 4.25% -
8.00%. Principal and interest are paid ratably through payroll deductions.
Specified Hardship Withdrawals: Upon written application to the Trustee by a participant for a specified hardship
withdrawal, the participant may withdraw from his or her fund accounts. Such withdrawal may be made only upon the express determination that it is necessary to prevent a severe financial hardship to such participant and specific to the following
events: expenses for medical care; costs directly related to the purchase of a principal residence; payment of tuition and related educational fees; and to prevent eviction from a principal residence or foreclosure on the mortgage of a principal
residence. A participant who has made a specified hardship withdrawal may include any amounts necessary to pay federal, state or local income taxes or penalties reasonably anticipated to result from the distribution and shall make no more than one withdrawal during any calendar quarter.
Administrative Expenses: The Company pays certain administrative expenses of the Plan. Trustee and recordkeeping
fees are shared between the Company and the Plan. Each participant account is charged a $50 quarterly Trustee and recordkeeping fee while the Company also pays a standard annual fee for Trustee and record keeping. Fees resulting from individual
participant transactions, such as loan origination and benefit payments, or certain investment elections, are paid by the participant and are included in the fees amount on the Statement of Changes in Net Assets Available for Benefits.
NOTE 2—ACCOUNTING POLICIES
Basis of Accounting and Use of Estimates: The financial statements of the Plan are prepared under the accrual method
of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the financial statements and accompanying notes. Actual results could differ materially from those estimates.
Notes Receivable from Participants: Participant loans are classified as notes receivable from participants and are
measured at the unpaid principal balance plus unpaid accrued interest. The Plan classifies all notes receivable from participants with no payments received for six (6) months as “in default.” Defaulted notes receivable from participants are
deemed distributed and recorded as benefits paid to the participants in the Statement of Changes in Net Assets Available for Benefits.
Investment Valuation and Income Recognition: The Plan’s investments are reported at estimated fair value. Where
available, quoted market prices are used to value investments. Shares of registered investment companies are valued at the net asset value (“NAV”) of shares held by the Plan at year-end. The Plan’s employer common stock fund is a unitized stock
fund valued at the net asset value of the fund. The fund mainly consists of the employer stock which is valued at the closing price reported on the active market on which the stock is traded and the value of cash held for liquidity purposes. The
Plan’s interest in common/collective trusts is valued at the net asset value based on information reported by the investment advisor/trustee using the audited financial statements. The net asset value, as provided by the investment
advisor/trustee, is used as a practical expedient to estimate fair value, and is based on the estimated fair value of the underlying investments held by the fund less the estimated fair value of its liabilities. The common/collective trusts do
not have a finite life, unfunded commitments or significant restriction on redemptions and participant transactions may occur daily.
Purchases and sales of securities are recorded on a trade date basis. Dividends are recorded on the ex-dividend date. Interest income is recorded on an accrual basis.
Investment securities, in general, are exposed to various risks, including interest rate, credit, and overall market volatility risks. Due to the level of risk associated with certain investment securities, it is
reasonably possible that changes in the values of investment securities will occur in the near term, and such changes could materially affect the amounts reported in the Statements of Net Assets Available for Benefits.
The following describes the fair value hierarchy and provides information as to the extent to which the Plan uses fair value to measure 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 1 |
Observable inputs that reflect quoted prices for identical assets or liabilities in active markets that the Plan has the ability to access at the measurement date. The Plan assets identified as Level 1 instruments include investments in
registered investment companies.
|
| Level 2 |
Observable inputs, other than quoted prices included in Level 1, for the asset or liability or prices for similar assets or liabilities. The Plan assets identified as Level 2 instruments include investments in the employer common stock
fund.
|
| Level 3 |
Valuations 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 not readily
observable from objective sources and provided primarily from the sponsors of the underlying funds. The use of different criteria or assumptions regarding data may yield different valuations.
|
Net Appreciation (Depreciation): Net realized gains (losses) and unrealized appreciation (depreciation) are recorded
in the accompanying Statement of Changes in Net Assets Available for Benefits as net appreciation (depreciation) in fair market value of investments.
Payment of Benefits: Distributions to participants are recorded when payment is made.
NOTE 3—INVESTMENTS
As of December 31, 2022, assets carried at fair value were measured on a recurring basis as summarized below:
| |
|
Quoted Prices in
Active Markets
for Identical Assets
|
|
|
Significant
Other Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
|
|
| |
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Employer common stock fund
|
|
$
|
-
|
|
|
$
|
830,401
|
|
|
$
|
-
|
|
|
$
|
830,401
|
|
|
Registered investment companies
|
|
|
18,273,258
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18,273,258
|
|
|
Total investments in the fair value hierarchy
|
|
$
|
18,273,258
|
|
|
$
|
830,401
|
|
|
$
|
-
|
|
|
|
19,103,659
|
|
|
Common/collective trusts measured at NAV*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,149,607
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,253,266
|
|
As of December 31, 2021, assets carried at fair value were measured on a recurring basis as summarized below:
| |
|
Quoted Prices in
Active Markets
for Identical Assets
|
|
|
Significant
Other Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
|
|
| |
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Employer common stock fund
|
|
$
|
-
|
|
|
$
|
935,030
|
|
|
$
|
-
|
|
|
$
|
935,030
|
|
|
Registered investment companies
|
|
|
25,653,339
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,653,339
|
|
|
Total investments in the fair value hierarchy
|
|
$
|
25,653,339
|
|
|
$
|
935,030
|
|
|
$
|
-
|
|
|
|
26,588,369
|
|
|
Common/collective trusts measured at NAV*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,676,485
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
29,264,854
|
|
| * |
Certain investments that are measured at fair value using the NAV per share practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in these tables are intended to permit
reconciliation of the fair value hierarchy to the amounts presented in the Statements of Net Assets Available for Benefits.
|
Plan management periodically evaluates the significance of transfers between levels, if any, based upon the nature of the financial instrument and size of the transfer relative to total net assets available for
benefits. For the year ended December 31, 2022, there were no material transfers between levels 1, 2, or 3.
NOTE 4—TAX STATUS
The Plan uses a Prototype Plan sponsored by the Trustee. The Trustee received an opinion letter from the Internal Revenue Service (“IRS”), dated June 30, 2020, which states that the Prototype Plan satisfies the
applicable provisions of the Code. The Plan itself has not received a determination letter from the IRS. However, the Plan’s management believes that the Plan is currently designed and being operated in compliance with the applicable requirements
of the Code. Therefore, no provision for income tax has been included in the Plan’s financial statements.
GAAP requires Plan management to evaluate tax positions taken by the plan and recognize a tax liability (or asset) if the organization has taken an uncertain position that more likely than not would not be sustained
upon examination by the IRS. The Plan administrator has analyzed the tax positions taken by the Plan, and has concluded that as of December 31, 2022 and 2021, there are no uncertain positions taken or expected to be taken that would require
recognition of the liability (or asset) or disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions and the Plan could be subject to income tax if certain issues were found by the IRS that could result
in the disqualification of the Plan’s tax-exempt status; however, there are currently no audits for any tax periods in progress.
NOTE 5—PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of
Plan termination, participants will become fully vested in their accounts as of the termination date.
NOTE 6—PARTY-IN-INTEREST TRANSACTIONS
The Plan held 325,252 shares and 333,861 shares of Atlantic American Corporation (the plan sponsor) common stock as of December 31, 2022 and 2021, respectively, in the Atlantic American Corporation Common Stock Fund.
The fund invests in Atlantic American Corporation common stock and money market funds and had an estimated fair value of $830,401 and $935,030, at December 31, 2022 and 2021, respectively.
Certain investments totaling $3,149,607 and $2,676,485, held by the Plan at December 31, 2022 and 2021, respectively, are managed by the Trustee and/or its affiliates. These investments, as well as notes receivable
from participants, qualify as party-in-interest transactions.
ATLANTIC AMERICAN CORPORATION
401(k) RETIREMENT SAVINGS PLAN
PLAN NUMBER 001
58-1027114
We consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 33-90890) of Atlantic American Corporation of our report dated June 23, 2023, with respect to the financial statements and supplemental schedule of
Atlantic American Corporation 401(k) Retirement Savings Plan included in this Annual Report on Form 11-K for the year ended December 31, 2022.