Note 9. Fair Values of Financial Instruments

The estimated fair values have been determined by the Company using available market information from various market sources and appropriate valuation methodologies as of the respective dates. However, considerable judgment is necessary to interpret market data and to develop the estimates of fair value. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, the estimates presented herein are not necessarily indicative of the amounts which the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

The following table sets forth the carrying amount, estimated fair value and level within the fair value hierarchy of the Company’s financial instruments as of September 30, 2015 and December 31, 2014.

			September 30, 2015				December 31, 2014
	Level in Fair Value Hierarchy ⁽¹⁾		Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Assets:
Cash and cash equivalents	Level 1		$	14,637	$	14,637	$	16,375	$	16,375
Fixed maturities		⁽¹⁾		211,810		211,810		214,888		214,888
Equity securities		⁽¹⁾		19,988		19,988		18,924		18,924
Other invested assets	Level 3			2,372		2,372		2,995		2,995
Policy loans	Level 2			2,181		2,181		2,202		2,202
Real estate	Level 2			38		38		38		38
Investment in unconsolidated trusts	Level 2			1,238		1,238		1,238		1,238

Liabilities:
Junior Subordinated Debentures, net	Level 2			33,738		33,738		33,738		33,738

⁽¹⁾

See Note 8 for a description of the fair value hierarchy as well as a disclosure of levels for classes of these financial assets.

Note 10. Accumulated Other Comprehensive Income

The following table sets forth the balance of each component of accumulated other comprehensive income as of September 30, 2015 and December 31, 2014, and the changes in the balance of each component thereof during the nine month period ended September 30, 2015, net of taxes.

	Unrealized Gains on Available-for- Sale Securities
Balance, December 31, 2014	$	9,279
Other comprehensive loss before reclassifications		(1,153	)
Amounts reclassified from accumulated other comprehensive income		(3,319	)
Net current period other comprehensive loss		(4,472	)
Balance, September 30, 2015	$	4,807

-16-

Table of Contents

Item 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The following is management’s discussion and analysis of the financial condition and results of operations of Atlantic American Corporation (“Atlantic American” or the “Parent”) and its subsidiaries (collectively with the Parent, the “Company”) as of and for the three month and nine month periods ended September 30, 2015. This discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included elsewhere herein, as well as with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

Atlantic American is an insurance holding company whose operations are conducted primarily through its insurance subsidiaries: American Southern Insurance Company and American Safety Insurance Company (together known as “American Southern”) and Bankers Fidelity Life Insurance Company and Bankers Fidelity Assurance Company (together known as “Bankers Fidelity”). Each operating company is managed separately, offers different products and is evaluated on its individual performance.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ significantly from those estimates. The Company has identified certain estimates that involve a higher degree of judgment and are subject to a significant degree of variability. The Company’s critical accounting policies and the resultant estimates considered most significant by management are disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. During the nine month period ended September 30, 2015, there were no changes to the critical accounting policies or related estimates from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

Overall Corporate Results

The following presents the Company’s revenue, expenses and net income for the three month and nine month periods ended September 30, 2015 and the comparable periods in 2014:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
	(In thousands)
Insurance premiums	$	37,859	$	38,337	$	113,349	$	115,211
Investment income		2,456		2,678		7,547		7,875
Realized investment gains, net		7		848		5,106		1,441
Other income		37		793		78		875
Total revenue		40,359		42,656		126,080		125,402
Insurance benefits and losses incurred		24,637		27,094		76,261		80,991
Commissions and underwriting expenses		11,816		10,238		33,024		30,219
Other expense		3,180		3,349		10,167		9,375
Interest expense		361		388		1,064		1,251
Total benefits and expenses		39,994		41,069		120,516		121,836
Income before income taxes	$	365	$	1,587	$	5,564	$	3,566
Net income	$	238	$	1,451	$	4,274	$	3,148

-17-

Table of Contents

Management also considers and evaluates performance by analyzing the non-GAAP measure operating income, and believes it is a useful metric for investors, potential investors, securities analysts and others because it isolates the “core” operating results of the Company before considering certain items that are either beyond the control of management (such as taxes, which are subject to timing, regulatory and rate changes depending on the timing of the associated revenues and expenses) or are not expected to regularly impact the Company’s operational results (such as any realized investment gains, which are not a part of the Company’s primary operations and are, to an extent, subject to discretion in terms of timing of realization).

A reconciliation of net income to operating income (loss) for the three month and nine month periods ended September 30, 2015 and the comparable periods in 2014 is as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
Reconciliation of Net Income to non-GAAP Measurement	2015			2014			2015			2014
	(In thousands)
Net income	$	238		$	1,451		$	4,274		$	3,148
Income tax expense		127			136			1,290			418
Realized investment gains, net		(7	)		(848	)		(5,106	)		(1,441	)
Gain on purchase of debt securities ⁽¹⁾		-			(750	)		-			(750	)
Operating income (loss)	$	358		$	(11	)	$	458		$	1,375

⁽¹⁾

Gain from the purchase of $7.5 million of the Company’s junior subordinated deferrable interest debentures (“Junior Subordinated Debentures”). See Note 4 of the accompanying notes to the unaudited condensed consolidated financial statements.

On a consolidated basis, the Company had net income of $0.2 million, or $0.01 per diluted share, for the three month period ended September 30, 2015, compared to net income of $1.5 million, or $0.06 per diluted share, for the three month period ended September 30, 2014. The Company had net income of $4.3 million, or $0.19 per diluted share, for the nine month period ended September 30, 2015, compared to net income of $3.1 million, or $0.13 per diluted share, for the nine month period ended September 30, 2014. Premium revenue for the three month period ended September 30, 2015 decreased $0.5 million, or 1.2%, to $37.9 million from $38.3 million in the three month period ended September 30, 2014. For the nine month period ended September 30, 2015, premium revenue decreased $1.9 million, or 1.6%, to $113.3 million from $115.2 million in the comparable 2014 period. The decrease in premium revenue for the three month and nine month periods ended September 30, 2015 was due primarily to a decrease in Medicare supplement business in the life and health operations resulting from a decline in both first year and renewal premiums. The decrease in net income for the three month period ended September 30, 2015 was primarily attributable to both a decrease in realized investment gains and a $0.8 million gain from the purchase of the Company’s Junior Subordinated Debentures in the comparable 2014 period that did not recur in 2015. The increase in net income for the nine month period ended September 30, 2015 was due to an increase in realized investment gains. Operating income increased $0.4 million in the three month period ended September 30, 2015 over the three month period ended September 30, 2014, but decreased $0.9 million during the nine month period ended September 30, 2015, from the comparable period in 2014. The increase in operating income for the three month period ended September 30, 2015 was primarily due to increased profitability in the property and casualty operations and a decrease in stock grant compensation expense. The decrease in operating income for the nine month period ended September 30, 2015 was primarily attributable to less favorable loss experience and a decrease in premium revenue in the life and health operations coupled with a decline in investment income from lower average yields on the Company’s investments in fixed maturities. Also contributing to the decrease in operating income for the nine month period ended September 30, 2015 was an increase in other expense of $0.9 million due to increased legal and consulting fees. Partially offsetting the decrease in operating income for the nine month period ended September 30, 2015 was the reduction in interest expense from the decrease in the average outstanding balance of the Company’s Junior Subordinated Debentures, a decrease in compensation expense from stock awards as well as increased profitability in the property and casualty operations.

A more detailed analysis of the individual operating companies and other corporate activities is provided below.

-18-

Table of Contents

American Southern

The following summarizes American Southern’s premiums, losses, expenses and underwriting ratios for the three month and nine month periods ended September 30, 2015 and the comparable periods in 2014:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
	(Dollars in thousands)
Gross written premiums	$	10,379		$	9,293		$	47,639		$	43,452
Ceded premiums		(1,143	)		(1,445	)		(3,745	)		(4,694	)
Net written premiums	$	9,236		$	7,848		$	43,894		$	38,758
Net earned premiums	$	13,888		$	13,191		$	41,249		$	39,142
Net loss and loss adjustment expenses		8,326			9,530			26,206			29,207
Underwriting expenses		5,000			3,789			13,884			10,265
Underwriting income (loss)	$	562		$	(128	)	$	1,159		$	(330	)
Loss ratio		60.0	%		72.3	%		63.5	%		74.6	%
Expense ratio		36.0			28.7			33.7			26.2
Combined ratio		96.0	%		101.0	%		97.2	%		100.8	%

Gross written premiums at American Southern increased $1.1 million, or 11.7%, during the three month period ended September 30, 2015, and $4.2 million, or 9.6%, during the nine month period ended September 30, 2015, over the comparable periods in 2014. The increase in gross written premiums for the three month and nine month periods ended September 30, 2015 was primarily attributable to an increase in automobile physical damage written premiums resulting from two new programs which incepted in 2014 as well as an increase in surety business from an existing agency. During the three month and nine month periods ended September 30, 2015, automobile physical damage gross written premiums from the two new programs increased $0.9 million and $3.2 million, respectively, while the surety gross written premiums increased $0.8 million and $2.4 million, respectively, from the comparable periods in 2014. Partially offsetting the increase in gross written premiums for the nine month period ended September 30, 2015 was a decrease of $1.0 million in the commercial automobile liability line of business due primarily to the cancellation of an agency in the second quarter of 2014.

Ceded premiums decreased $0.3 million, or 20.9%, during the three month period ended September 30, 2015, and $0.9 million, or 20.2%, during the nine month period ended September 30, 2015, from the comparable periods in 2014. American Southern’s ceded premiums are determined as a percentage of earned premiums and generally increase or decrease as earned premiums increase or decrease. However, the change in ceded premiums for the three month and nine month periods ended September 30, 2015 was disproportionate to the increase in earned premiums due primarily to a decrease in earned premiums from certain commercial automobile liability accounts, cancelled in the second quarter of 2014, which had been subject to reinsurance. Commercial automobile liability business, when reinsured, generally has higher contractual reinsurance cession rates than other lines of business and therefore changes in earned premiums in this line of business, when reinsured and significant, may impact the overall ratio of premiums ceded to premiums earned as in the three month and nine month periods ended September 30, 2015.

The following presents American Southern’s net earned premiums by line of business for the three month and nine month periods ended September 30, 2015 and the comparable periods in 2014 (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
	(In thousands)
Automobile liability	$	6,160	$	6,627	$	18,735	$	20,194
Automobile physical damage		3,417		2,859		10,306		7,982
General liability		807		940		2,364		2,807
Property		1,040		972		3,068		2,700
Surety		2,464		1,793		6,776		5,459
Total	$	13,888	$	13,191	$	41,249	$	39,142

-19-

Table of Contents

Net earned premiums increased $0.7 million, or 5.3%, during the three month period ended September 30, 2015, and $2.1 million, or 5.4%, during the nine month period ended September 30, 2015, over the comparable periods in 2014. The increase in net earned premiums for the three month and nine month periods ended September 30, 2015 was primarily attributable to increases in automobile physical damage, property and surety earned premiums from both new and existing programs. Partially offsetting the increase for the three month and nine month periods ended September 30, 2015 was the decrease in commercial automobile liability earned premiums due primarily to an agency cancellation. Premiums are earned ratably over their respective policy terms, and therefore premiums earned in the current year are related to policies written during both the current year and immediately preceding year.

The performance of an insurance company is often measured by its combined ratio. The combined ratio represents the percentage of losses, loss adjustment expenses and other expenses that are incurred for each dollar of premium earned by the company. A combined ratio of under 100% represents an underwriting profit while a combined ratio of over 100% indicates an underwriting loss. The combined ratio is divided into two components, the loss ratio (the ratio of losses and loss adjustment expenses incurred to premiums earned) and the expense ratio (the ratio of expenses incurred to premiums earned).

Net loss and loss adjustment expenses at American Southern decreased $1.2 million, or 12.6%, during the three month period ended September 30, 2015, and $3.0 million, or 10.3%, during the nine month period ended September 30, 2015, from the comparable periods in 2014. As a percentage of premiums, net loss and loss adjustment expenses were 60.0% in the three month period ended September 30, 2015, compared to 72.3% in the three month period ended September 30, 2014. For the nine month period ended September 30, 2015, this ratio decreased to 63.5% from 74.6% in the comparable period of 2014. The decrease in the loss ratio for the three month and nine month periods ended September 30, 2015 was due to more favorable loss experience in the automobile and surety lines of business and was primarily attributable to actions taken in prior years to better rationalize American Southern's book of business and to strengthen guidelines with respect to new and renewal business.

Underwriting expenses increased $1.2 million, or 32.0%, during the three month period ended September 30, 2015, and $3.6 million, or 35.3%, during the nine month period ended September 30, 2015, over the comparable periods in 2014. As a percentage of premiums, underwriting expenses were 36.0% in the three month period ended September 30, 2015, compared to 28.7% in the three month period ended September 30, 2014. For the nine month period ended September 30, 2015, this ratio increased to 33.7% from 26.2% in the comparable period of 2014. The increase in the expense ratio for the three month and nine month periods ended September 30, 2015 was primarily due to American Southern’s variable commission structure, which compensates the company’s agents in relation to the loss ratios of the business they write. During periods in which the loss ratio decreases, commissions and underwriting expenses will generally increase, and conversely, during periods in which the loss ratio increases, commissions and underwriting expenses will generally decrease. During the three month and nine month periods ended September 30, 2015, these commissions at American Southern increased $0.9 million and $3.2 million, respectively, from the comparable periods in 2014 due to more favorable loss experience.

Bankers Fidelity

The following summarizes Bankers Fidelity’s earned premiums, losses, expenses and underwriting ratios for the three month and nine month periods ended September 30, 2015 and the comparable periods in 2014:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
	(Dollars in thousands)
Medicare supplement	$	20,077		$	21,218		$	60,479		$	64,118
Other health products		1,237			1,183			3,609			3,556
Life insurance		2,657			2,745			8,012			8,395
Total earned premiums		23,971			25,146			72,100			76,069
Insurance benefits and losses		16,311			17,564			50,055			51,784
Underwriting expenses		8,769			8,294			24,825			25,423
Total expenses		25,080			25,858			74,880			77,207
Underwriting loss	$	(1,109	)	$	(712	)	$	(2,780	)	$	(1,138	)
Loss ratio		68.0	%		69.8	%		69.4	%		68.1	%
Expense ratio		36.6			33.0			34.5			33.4
Combined ratio		104.6	%		102.8	%		103.9	%		101.5	%

-20-

Table of Contents

Premium revenue at Bankers Fidelity decreased $1.2 million, or 4.7%, during the three month period ended September 30, 2015, and $4.0 million, or 5.2%, during the nine month period ended September 30, 2015, from the comparable periods in 2014. Premiums from the Medicare supplement line of business decreased $1.1 million, or 5.4%, during the three month period ended September 30, 2015, and $3.6 million, or 5.7%, during the nine month period ended September 30, 2015, due primarily to a decline in both first year and renewal premiums. Other health product premiums increased slightly during the same comparable periods, primarily as a result of new sales of the company’s group health products. Premiums from the life insurance line of business decreased $0.1 million, or 3.2%, during the three month period ended September 30, 2015, and $0.4 million, or 4.6%, during the nine month period ended September 30, 2015 from the comparable 2014 periods due to the redemption and settlement of existing policy obligations exceeding the level of new sales activity.

Benefits and losses decreased $1.3 million, or 7.1%, during the three month period ended September 30, 2015, and $1.7 million, or 3.3%, during the nine month period ended September 30, 2015, from the comparable periods in 2014. As a percentage of premiums, benefits and losses were 68.0% in the three month period ended September 30, 2015, compared to 69.8% in the three month period ended September 30, 2014. For the nine month period ended September 30, 2015, this ratio increased to 69.4% from 68.1% in the comparable period of 2014. The decrease in the loss ratio for the three month period ended September 30, 2015 was due to more favorable loss experience, primarily in the Medicare supplement line of business. The increase in the loss ratio for the nine month period ended September 30, 2015 was primarily attributable to the company’s initiative to moderate pricing increases in various Medicare supplement product offerings in certain markets to remain competitive.

Underwriting expenses increased $0.5 million, or 5.7%, during the three month period ended September 30, 2015 over the three month period ended September 30, 2014, and decreased $0.6 million, or 2.4%, during the nine month period ended September 30, 2015, from the comparable period in 2014. As a percentage of premiums, underwriting expenses were 36.6% in the three month period ended September 30, 2015, compared to 33.0% in the three month period ended September 30, 2014. For the nine month period ended September 30, 2015, this ratio increased to 34.5% from 33.4% in the comparable period of 2014. The increase in the expense ratio for the three month and nine month periods ended September 30, 2015 was primarily due to a higher investment in agent lead expense. Partially offsetting the increase in the expense ratio for the three month and nine month periods ended September 30, 2015 were decreases in general advertising and other agency related expenses as well as a decrease in external actuarial consulting fees.

INVESTMENT INCOME AND REALIZED GAINS

Investment income decreased $0.2 million, or 8.3%, during the three month period ended September 30, 2015, and $0.3 million, or 4.2%, during the nine month period ended September 30, 2015, from the comparable periods in 2014. The decrease in investment income for the three month and nine month periods ended September 30, 2015 was primarily attributable to a decrease in the average yield on the Company’s investments in fixed maturities.

The Company had net realized investment gains of $7,000 during the three month period ended September 30, 2015, compared to net realized investment gains of $0.9 million in the three month period ended September 30, 2014. The Company had net realized investment gains of $5.1 million during the nine month period ended September 30, 2015, compared to net realized investment gains of $1.4 million in the nine month period ended September 30, 2014. The net realized investment gains in the nine month period ended September 30, 2015 were primarily attributable to a $3.2 million gain from the sale of property held within two of the Company’s real estate partnership investments as well as gains from the sale of a number of the Company’s investments in fixed maturities. The net realized investment gains in the three month and nine month periods ended September 30, 2014 also resulted from the disposition of several of the Company’s investments in fixed maturities. During the three month and nine month periods ended September 30, 2014, the Company recorded investment impairments due to other than temporary declines in values of $0.2 million on certain of its investments in non-redeemable preferred stocks. While the impairments did not impact the carrying value of the investments, they resulted in realized losses which reduced reported realized investment gains. There were no impairments recorded during the three month or nine month periods ended September 30, 2015. Management continually evaluates the Company’s investment portfolio and, as may be determined to be appropriate, makes adjustments for impairments and/or will divest investments.

INTEREST EXPENSE

Interest expense decreased slightly during the three month period ended September 30, 2015, and $0.2 million, or 14.9%, during the nine month period ended September 30, 2015, from the comparable periods in 2014 due to a decrease in the outstanding amount of Junior Subordinated Debentures. On August 4, 2014, the Company acquired $7.5 million of its then outstanding Junior Subordinated Debentures, which decreased the outstanding balance to $33.7 million and resulted in lower prospective interest expense.

-21-

Table of Contents

OTHER EXPENSES

Other expenses (commissions, underwriting expenses, and other expenses) increased $1.4 million, or 10.4%, during the three month period ended September 30, 2015, and $3.6 million, or 9.1%, during the nine month period ended September 30, 2015, over the comparable periods in 2014. The increase in other expenses for the three month and nine month periods ended September 30, 2015 was primarily attributable to an increase in commission accruals at American Southern due to more favorable loss experience. During the three month and nine month periods ended September 30, 2015, these commissions at American Southern increased $0.9 million and $3.2 million, respectively, from the comparable periods in 2014. The majority of American Southern’s business is structured in a way that agents are compensated based upon the loss ratios of the business they place with the company. During periods in which the loss ratio decreases, commissions and underwriting expenses will generally increase, and conversely, during periods in which the loss ratio increases, commissions and underwriting expenses will generally decrease. Also contributing to the increase in other expenses for the three month and nine month periods ended September 30, 2015 was an increase in legal and consulting fees of $0.2 million and $0.9 million, respectively, as compared to the same periods in 2014. Further, agent lead expense in the life and health operations increased $0.7 million and $1.2 million in the same comparable periods, resulting from increased lead investment. Partially offsetting the increase in other expenses for the three month and nine month periods ended September 30, 2015 were decreases in general advertising expenses, other agency related expenses and external actuarial consulting fees in the life and health operations as well as a decrease in compensation expense from stock awards. Additionally, during the nine month period ended September 30, 2015, incentive compensation expense decreased $0.4 million from the comparable 2014 period due to the Company’s recent operating performance. On a consolidated basis, as a percentage of earned premiums, other expenses increased to 39.6% in the three month period ended September 30, 2015 from 35.4% in the three month period ended September 30, 2014. For the nine month period ended September 30, 2015, this ratio increased to 38.1% from 34.4% in the comparable period of 2014. The increase in the expense ratio for the three month and nine month periods ended September 30, 2015 was primarily due to the increase in commission accruals at American Southern.

INCOME TAXES

The primary differences between the effective tax rate and the federal statutory income tax rate for the three month and nine month periods ended September 30, 2015 resulted from the dividends-received deduction (“DRD”) and the small life insurance company deduction (“SLD”). 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. The SLD varies in amount and is determined at a rate of 60 percent of the tentative life insurance company taxable income (“LICTI”). The SLD for any taxable year is reduced (but not below zero) by 15 percent of the tentative LICTI for such taxable year as it exceeds $3.0 million and is ultimately phased out at $15.0 million.

The primary differences between the effective tax rate and the federal statutory income tax rate for the three month and nine month periods ended September 30, 2014 resulted from the DRD, the SLD and the change in deferred tax asset valuation allowance. The change in deferred tax asset valuation allowance was due to the utilization of certain capital loss carryforward benefits that had been previously reduced to zero through an existing valuation allowance reserve. All unused capital loss carryforwards expired at the end of 2014.

The provision-to-filed return adjustments are generally updated at the completion of the third quarter of each fiscal year, after the Company’s tax return for the previous year is filed with the IRS.

LIQUIDITY AND CAPITAL RESOURCES

The primary cash needs of the Company are for the payment of claims and operating expenses, maintaining adequate statutory capital and surplus levels, and meeting debt service requirements. Current and expected patterns of claim frequency and severity may change from period to period but generally are expected to continue within historical ranges. The Company’s primary sources of cash are written premiums, investment income 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, future premium 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 the subsidiaries. The principal cash needs of the Parent are for the payment of operating expenses, the acquisition of capital assets and debt service requirements, as well as the repurchase of shares and payments of any dividends as may be authorized and approved by the Company’s board of directors from time to time. At September 30, 2015, the Parent had approximately $22.7 million of unrestricted cash and investments.

-22-

Table of Contents

The Parent’s insurance subsidiaries reported statutory net income of $7.2 million for the nine month period ended September 30, 2015 compared to statutory net income of $4.9 million for the nine month period ended September 30, 2014. Statutory results are impacted by the recognition of all costs of acquiring business. In periods in which the Company’s first year premiums increase, statutory results are generally lower than results determined under GAAP. Statutory results for the Company’s property and casualty operations may differ from the Company’s results of operations under GAAP due to the deferral of acquisition costs for financial reporting purposes. The Company’s life and health operations’ statutory results may differ from GAAP results primarily due to the deferral of acquisition costs for financial reporting purposes, as well as the use of different reserving methods.

Over 90% of the invested assets of the Parent’s insurance subsidiaries are invested in marketable securities that can be converted into cash, if required; however, the use of such assets by the Company is limited by state insurance regulations. Dividend payments to a parent corporation by its wholly owned insurance subsidiaries are subject to annual limitations and are restricted to 10% of statutory surplus or statutory earnings before recognizing realized investment gains of the individual insurance subsidiaries. At September 30, 2015, American Southern had $38.4 million of statutory surplus and Bankers Fidelity had $35.7 million of statutory surplus. In 2015, dividend payments by the Parent’s insurance subsidiaries in excess of $7.6 million would require prior approval. Through September 30, 2015, the Parent received dividends of $4.9 million from its subsidiaries.

The Parent provides certain administrative and other services to each of its insurance subsidiaries. The amounts charged to and paid by the subsidiaries include reimbursements for various shared services and other expenses incurred directly on behalf of the subsidiaries by the Parent. In addition, there is in place a formal tax-sharing agreement between the Parent and its insurance subsidiaries. As a result of the Parent’s tax loss, it is anticipated that the tax-sharing agreement will continue to provide the Parent with additional funds from profitable subsidiaries to assist in meeting its cash flow obligations.

The Company has two statutory trusts which exist for the exclusive purpose of issuing trust preferred securities representing undivided beneficial interests in the assets of the trusts and investing the gross proceeds of the trust preferred securities in Junior Subordinated Debentures. The outstanding $18.0 million and $15.7 million of Junior Subordinated Debentures mature on December 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 September 30, 2015, the effective interest rate was 4.38%. The obligations of the Company with respect to the issuances of the trust preferred securities represent a full and unconditional guarantee by the Parent of each trust’s obligations with respect to the trust preferred securities. Subject to certain exceptions and limitations, the Company may elect from time to time to defer Junior Subordinated Debenture interest payments, which would result in a deferral of distribution payments on the related trust preferred securities. The Company has not made such an election.

The Company intends to pay its obligations under the Junior Subordinated Debentures using existing cash balances, dividend and tax-sharing payments from the operating subsidiaries, or from potential future financing arrangements.

At September 30, 2015, 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 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 Company’s 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 1,378,000 shares of the Company’s 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 Company’s option. The Series D Preferred Stock is not currently convertible. At September 30, 2015, the Company had accrued but unpaid dividends on the Series D Preferred Stock totaling $0.3 million.

Cash and cash equivalents decreased from $16.4 million at December 31, 2014 to $14.6 million at September 30, 2015. The decrease in cash and cash equivalents during the nine month period ended September 30, 2015 was primarily attributable to net cash used in operating activities of $1.4 million, additions to property and equipment of $0.2 million, dividends paid on the Company’s common stock of $0.4 million and the purchase of shares for treasury for $0.4 million. Partially offsetting the decrease in cash and cash equivalents was a $0.6 million increase resulting from the sale and maturity of securities exceeding investment purchases.

The Company believes that existing cash balances as well as the dividends, fees, and tax-sharing payments it expects to receive from its subsidiaries and, if needed, additional borrowings from financial institutions, will enable the Company to meet its liquidity requirements for the foreseeable future. Management is not aware of any current recommendations by regulatory authorities, which, if implemented, would have a material adverse effect on the Company's liquidity, capital resources or operations.

-23-

Table of Contents

Item 4. Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1934 (the “Exchange Act”) reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applies its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management’s control objectives. The Company’s management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures can prevent all possible errors or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. There are inherent limitations in all control systems, including the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented by the individual acts of one or more persons. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and, while our disclosure controls and procedures are designed to be effective under circumstances where they should reasonably be expected to operate effectively, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in any control system, misstatements due to possible errors or fraud may occur and may not be detected. An evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act). Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

There have been no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains and references certain information that constitutes forward-looking statements as that term is defined in the federal securities laws. Those statements, to the extent they are not historical facts, should be considered forward-looking statements, and are subject to various risks and uncertainties. Such forward-looking statements are made based upon management’s current assessments of various risks and uncertainties, as well as assumptions made in accordance with the “safe harbor” provisions of the federal securities laws. The Company’s actual results could differ materially from the results anticipated in these forward-looking statements as a result of such risks and uncertainties, including those identified in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014, any subsequent quarterly reports on Form 10-Q and the other filings made by the Company from time to time with the Securities and Exchange Commission. The Company undertakes no obligation to update any forward-looking statement as a result of subsequent developments, changes in underlying assumptions or facts, or otherwise.

-24-

Table of Contents

PART II. OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On May 6, 2014, the Board of Directors of the Company approved a plan that allows for the repurchase of up to 750,000 shares of the Company's common stock (the "Repurchase Plan") on the open market or in privately negotiated transactions, as determined by an authorized officer of the Company. Any such repurchases can be made from time to time in accordance with applicable securities laws and other requirements.

The table below sets forth information regarding repurchases by the Company of shares of its common stock on a monthly basis during the three month period ended September 30, 2015.

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs
July 1 – July 31, 2015		15,108	$	3.75		15,108		371,455
August 1 – August 31, 2015		9,777		3.69		9,777		361,678
September 1 – September 30, 2015		20,285		3.79		20,285		341,393
Total		45,170	$	3.75		45,170

Item 6. Exhibits

31.1	Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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.

-25-

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	ATLANTIC AMERICAN CORPORATION
	(Registrant)

Date: November 10, 2015	By:	/s/ John G. Sample, Jr.
		John G. Sample, Jr.
		Senior Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

-26-

Table of Contents

EXHIBIT INDEX

Exhibit Number	Title

31.1	Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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.

Georgia		58-1027114
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

4370 Peachtree Road, N.E.,		30319
Atlanta, Georgia		(Zip Code)
(Address of principal executive offices)

Part I. Financial Information		Page No.

Item 1.	Financial Statements:

	Condensed Consolidated Balance Sheets at September 30, 2015 and December 31, 2014	2

	Condensed Consolidated Statements of Operations for the three months and nine months ended September 30, 2015 and 2014	3

	Condensed Consolidated Statements of Comprehensive Income for the three months and nine months ended September 30, 2015 and 2014	4

	Condensed Consolidated Statements of Shareholders’ Equity for the nine months ended September 30, 2015 and 2014	5

	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

Item 4.	Controls and Procedures	24

Part II. Other Information

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25

Item 6.	Exhibits	25

Signatures		26

ASSETS
	Unaudited September 30, 2015			December 31, 2014
Cash and cash equivalents	$	14,637		$	16,375
Investments:
Fixed maturities (cost: $213,450 and $207,568)		211,810			214,888
Common and non-redeemable preferred stocks (cost: $10,953 and $11,969)		19,988			18,924
Other invested assets (cost: $2,372 and $2,995)		2,372			2,995
Policy loans		2,181			2,202
Real estate		38			38
Investment in unconsolidated trusts		1,238			1,238
Total investments		237,627			240,285
Receivables:
Reinsurance		14,243			14,348
Insurance premiums and other (net of allowance for doubtful accounts: $683 and $439)		14,404			10,728
Deferred income taxes, net		310			-
Deferred acquisition costs		27,675			26,981
Other assets		5,763			5,747
Intangibles		2,544			2,544
Total assets	$	317,203		$	317,008

LIABILITIES AND SHAREHOLDERS’ EQUITY
Insurance reserves and policyholder funds:
Future policy benefits	$	71,576		$	70,845
Unearned premiums		27,251			24,544
Losses and claims		65,241			66,625
Other policy liabilities		1,294			2,080
Total insurance reserves and policyholder funds		165,362			164,094
Accounts payable and accrued expenses		14,891			13,586
Deferred income taxes, net		-			1,395
Junior subordinated debenture obligations, net		33,738			33,738
Total liabilities		213,991			212,813

Commitments and contingencies (Note 7)
Shareholders’ equity:
Preferred stock, $1 par, 4,000,000 shares authorized; Series D preferred, 55,000 shares issued and outstanding; $5,500 redemption value		55			55
Common stock, $1 par, 50,000,000 shares authorized; shares issued: 22,400,894; shares outstanding: 20,566,330 and 20,600,039		22,401			22,401
Additional paid-in capital		56,619			56,491
Retained earnings		25,429			21,866
Accumulated other comprehensive income		4,807			9,279
Unearned stock grant compensation		(395	)		(460	)
Treasury stock, at cost: 1,834,564 and 1,800,855 shares		(5,704	)		(5,437	)
Total shareholders’ equity		103,212			104,195
Total liabilities and shareholders’ equity	$	317,203		$	317,008

	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Net income	$	238		$	1,451		$	4,274		$	3,148
Other comprehensive income (loss):
Available-for-sale securities:
Gross unrealized holding gain (loss) arising in the period		(3,729	)		(7,103	)		(1,774	)		2,627
Related income tax effect		1,306			2,487			621			(919	)
Less: reclassification adjustment for net realized gains included in net income ⁽¹⁾		(7	)		(848	)		(5,106	)		(1,441	)
Related income tax effect ⁽²⁾		2			296			1,787			504
Net effect on other comprehensive income (loss)		(2,428	)		(5,168	)		(4,472	)		771
Total comprehensive income (loss)	$	(2,190	)	$	(3,717	)	$	(198	)	$	3,919

Nine Months Ended September 30, 2015	Preferred Stock		Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income			Unearned Stock Grant Compensation			Treasury Stock			Total
Balance, December 31, 2014	$	55	$	22,401	$	56,491	$	21,866		$	9,279		$	(460	)	$	(5,437	)	$	104,195
Net income		-		-		-		4,274			-			-			-			4,274
Other comprehensive loss, net of tax		-		-		-		-			(4,472	)		-			-			(4,472	)
Dividends on common stock		-		-		-		(412	)		-			-			-			(412	)
Dividends accrued on preferred stock		-		-		-		(299	)		-			-			-			(299	)
Restricted stock grants		-		-		106		-			-			(184	)		78			-
Amortization of unearned compensation		-		-		-		-			-			249			-			249
Purchase of shares for treasury		-		-		-		-			-			-			(360	)		(360	)
Issuance of shares under stock plans		-		-		22		-			-			-			15			37
Balance, September 30, 2015	$	55	$	22,401	$	56,619	$	25,429		$	4,807		$	(395	)	$	(5,704	)	$	103,212

Nine Months Ended September 30, 2014
Balance, December 31, 2013	$	65	$	22,401	$	57,103	$	18,738		$	6,204		$	(485	)	$	(3,099	)	$	100,927
Net income		-		-		-		3,148			-			-			-			3,148
Other comprehensive income, net of tax		-		-		-		-			771			-			-			771
Dividends on common stock		-		-		-		(422	)		-			-			-			(422	)
Dividends accrued on preferred stock		-		-		-		(353	)		-			-			-			(353	)
Restricted stock grants		-		-		328		-			-			(559	)		231			-
Amortization of unearned compensation		-		-		-		-			-			480			-			480
Purchase of shares for treasury		-		-		-		-			-			-			(2,440	)		(2,440	)
Issuance of shares under stock plans		-		-		42		-			-			-			29			71
Balance, September 30, 2014	$	65	$	22,401	$	57,473	$	21,111		$	6,975		$	(564	)	$	(5,279	)	$	102,182

Revenues	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
American Southern	$	14,899	$	14,819	$	45,335	$	43,167
Bankers Fidelity		25,370		26,909		80,260		81,040
Corporate and Other		90		928		485		1,195
Total revenue	$	40,359	$	42,656	$	126,080	$	125,402

	Atlantic American Statutory Trust I		Atlantic American Statutory Trust II
JUNIOR SUBORDINATED DEBENTURES ^{(1) (2)}
Principal amount owed	$	18,042	$	23,196
Balance September 30, 2015	$	18,042	$	23,196
Less: Treasury debt ⁽³⁾		-		(7,500	)
Net balance September 30, 2015	$	18,042	$	15,696
Net balance December 31, 2014	$	18,042	$	15,696
Coupon rate	LIBOR + 4.00%		LIBOR + 4.10%
Interest payable	Quarterly		Quarterly
Maturity date	December 4, 2032		May 15, 2033
Redeemable by issuer	Yes		Yes
TRUST PREFERRED SECURITIES
Issuance date	December 4, 2002		May 15, 2003
Securities issued		17,500		22,500
Liquidation preference per security	$	1	$	1
Liquidation value	$	17,500	$	22,500
Coupon rate	LIBOR + 4.00%		LIBOR + 4.10%
Distribution payable	Quarterly		Quarterly
Distribution guaranteed by ⁽⁴⁾	Atlantic American Corporation		Atlantic American Corporation

	Three Months Ended September 30, 2015
	Income			Shares (In thousands)		Per Share Amount
Basic and Diluted Earnings Per Common Share:
Net income	$	238			20,589
Less preferred stock dividends		(100	)		-
Net income applicable to common shareholders	$	138			20,589	$	.01

	Three Months Ended September 30, 2014
	Income			Shares (In thousands)		Per Share Amount
Basic and Diluted Earnings Per Common Share:
Net income	$	1,451			20,768
Less preferred stock dividends		(117	)		-
Net income applicable to common shareholders	$	1,334			20,768	$	.06

	Nine Months Ended September 30, 2015
	Income			Shares (In thousands)		Per Share Amount
Basic and Diluted Earnings Per Common Share:
Net income	$	4,274			20,584
Less preferred stock dividends		(299	)		-
Net income applicable to common shareholders	$	3,975			20,584	$	.19

	Nine Months Ended September 30, 2014
	Income			Shares (In thousands)		Per Share Amount
Basic and Diluted Earnings Per Common Share:
Net income	$	3,148			20,885
Less preferred stock dividends		(353	)		-
Net income applicable to common shareholders	$	2,795			20,885	$	.13

	September 30, 2015
	Carrying Value		Gross Unrealized Gains		Gross Unrealized Losses		Amortized Cost
Fixed maturities:
Bonds:
U.S. Treasury securities and obligations of U.S. Government agencies and authorities	$	30,782	$	430	$	243	$	30,595
Obligations of states and political subdivisions		25,720		721		415		25,414
Corporate securities:
Utilities and telecom		17,728		1,537		727		16,918
Financial services		51,108		2,167		1,149		50,090
Other business – diversified		63,014		944		4,066		66,136
Other consumer – diversified		23,014		183		1,024		23,855
Total corporate securities		154,864		4,831		6,966		156,999
Redeemable preferred stocks:
Financial services		252		2		-		250
Other consumer – diversified		192		-		-		192
Total redeemable preferred stocks		444		2		-		442
Total fixed maturities		211,810		5,984		7,624		213,450
Equity securities:
Common and non-redeemable preferred stocks:
Utilities and telecom		1,305		341		-		964
Financial services		5,039		711		-		4,328
Other business – diversified		195		148		-		47
Other consumer – diversified		13,449		7,835		-		5,614
Total equity securities		19,988		9,035		-		10,953
Other invested assets		2,372		-		-		2,372
Policy loans		2,181		-		-		2,181
Real estate		38		-		-		38
Investments in unconsolidated trusts		1,238		-		-		1,238
Total investments	$	237,627	$	15,019	$	7,624	$	230,232

	September 30, 2015
	Less than 12 months				12 months or longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Treasury securities and obligations of U.S. Government agencies and authorities	$	9,498	$	242	$	503	$	1	$	10,001	$	243
Obligations of states and political subdivisions		13,237		415		-		-		13,237		415
Corporate securities		69,731		3,496		14,644		3,470		84,375		6,966
Total temporarily impaired securities	$	92,466	$	4,153	$	15,147	$	3,471	$	107,613	$	7,624

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Fixed maturities	$	-	$	209,569	$	2,241	$	211,810
Equity securities		15,228		4,760		-		19,988
Cash equivalents		13,731		-		-		13,731
Total	$	28,959	$	214,329	$	2,241	$	245,529

	Fixed Maturities
Balance, December 31, 2014	$	2,214
Total unrealized gains included in other comprehensive income		50
Balance, March 31, 2015		2,264
Total unrealized losses included in other comprehensive loss		(57	)
Balance, June 30, 2015		2,207
Total unrealized gains included in other comprehensive loss		34
Balance, September 30, 2015	$	2,241