ATLANTIC AMERICAN CORPAAME
ATLANTIC AMERICAN CORP Fair Value Disclosure
| Note 3. |
Disclosures About Fair Value 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 describes the fair value hierarchy and provides information as to the extent to which the Company uses fair value to measure the
value of its financial instruments and information about the inputs used to value those financial instruments. The fair value hierarchy prioritizes the inputs in the valuation techniques used to measure fair value into three broad levels.
| Level 1 |
Observable inputs that reflect quoted prices for identical assets or liabilities in active markets that the Company has the ability to access at the measurement date. The Company’s financial instruments valued using Level 1 criteria
include cash equivalents and exchange traded common stocks.
|
| Level 2 |
Observable inputs, other than quoted prices included in Level 1, for an asset or liability or prices for similar assets or liabilities. The Company’s financial instruments valued using Level 2 criteria include significantly most of its
fixed maturities, which consist of U.S. Treasury securities, U.S. Government securities, obligations of states and political subdivisions, and certain corporate fixed maturities, as well as its non-redeemable preferred stocks. In
determining fair value measurements of its fixed maturities and non-redeemable preferred stocks using Level 2 criteria, the Company utilizes data from outside sources, including nationally recognized pricing services and broker/dealers.
Prices for the majority of the Company’s Level 2 fixed maturities and non-redeemable preferred stocks were determined using unadjusted prices received from pricing services that utilize models where the significant inputs are observable
(e.g. interest rates, yield curves, prepayment speeds, default rates, loss severities) or can be corroborated by observable market data.
|
| 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. With little or no observable market, the determination of fair values uses considerable judgment and represents the Company’s best estimate of an amount that could be realized in a market exchange for
the asset or liability. The Company’s financial instruments valued using Level 3 criteria consist of one equity security. As of December 31, 2024 and December 31, 2023, the value of the equity security valued using Level 3 criteria was $189 and $185, respectively.
The equity security is not traded and is valued at cost. The use of different criteria or assumptions regarding data may have yielded materially different valuations.
|
Recurring Fair Value Measurements
Cash Equivalents. The carrying amount approximates fair value
due to the short-term nature of the instruments.
Fixed Maturities and Common and Non-Redeemable Preferred Stocks. The
carrying amount is determined from publicly quoted market prices. Certain fixed maturities do not have publicly quoted values and consist solely of issuances of pooled debt obligations of multiple, smaller financial services companies. They are
not actively traded and valuation techniques used to measure fair value are based on future estimated cash flows discounted at reasonable estimated rates of interest. Other qualitative and quantitative information is also considered, as
applicable.
Nonrecurring Fair Value Measurements
Non-publicly Traded Invested Assets. The fair value of
investments in certain limited partnerships which are included in other invested assets on the consolidated balance sheet were determined by officers of those limited partnerships.
Policy Loans. Policy loans, which are categorized as Level 3
fair value measurements, are carried at the unpaid principal balances.
Junior Subordinated Debentures. The fair value is estimated
based on observable interest rates and yields for debt instruments having similar characteristics.
As of December 31, 2024, financial instruments carried at fair value were measured on a recurring basis as summarized below:
|
Assets:
|
Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
|
Significant
Other Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
Total
|
||||||||||||
|
Fixed maturities
|
$
|
—
|
$
|
212,612
|
$
|
—
|
$
|
212,612
|
||||||||
|
Equity securities
|
7,711
|
—
|
189
|
7,900
|
||||||||||||
|
Cash equivalents
|
14,948
|
—
|
—
|
14,948
|
||||||||||||
|
Total
|
$
|
22,659
|
$
|
212,612
|
$
|
189
|
$
|
235,460
|
||||||||
As of December 31, 2023, financial instruments carried at fair value were measured on a recurring basis as summarized below:
|
Assets:
|
Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
|
Significant
Other Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
Total
|
||||||||||||
|
Fixed maturities
|
$
|
—
|
$
|
218,219
|
$
|
—
|
$
|
218,219
|
||||||||
|
Equity securities
|
9,228
|
—
|
185
|
9,413
|
||||||||||||
|
Cash equivalents
|
14,834
|
—
|
—
|
14,834
|
||||||||||||
|
Total
|
$
|
24,062
|
$
|
218,219
|
$
|
185
|
$
|
242,466
|
||||||||
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 December 31, 2024 and 2023.
|
Level in
|
2024
|
2023
|
|||||||||||||||||
|
Fair Value
Hierarchy(1)
|
Carrying
Amount
|
Estimated
Fair Value
|
Carrying
Amount
|
Estimated
Fair Value
|
|||||||||||||||
|
Assets:
|
|||||||||||||||||||
|
Cash and cash equivalents
|
Level 1
|
$
|
35,570
|
$
|
35,570
|
$
|
28,301
|
$
|
28,301
|
||||||||||
|
Fixed maturities
|
Level 2
|
212,612
|
212,612
|
218,219
|
218,219
|
||||||||||||||
|
Equity securities
|
(1) |
|
7,900
|
7,900
|
9,413
|
9,413
|
|||||||||||||
|
Policy loans
|
Level 3
|
1,722
|
1,722
|
1,778
|
1,778
|
||||||||||||||
|
Liabilities:
|
|||||||||||||||||||
|
Junior subordinated debentures, net
|
Level 2
|
33,738
|
35,443
|
33,738
|
33,670
|
||||||||||||||
|
Revolving credit facility
|
Level 2
|
4,023 | 4,023 | 3,019 | 3,019 | ||||||||||||||
| (1) |
See the aforementioned information for a description of the fair value hierarchy as well
as a disclosure of levels for classes of these financial assets.
|
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.