A.M. Best has affirmed the financial strength rating (FSR) of A (Excellent) and the issuer credit ratings (ICR) of "a" of American Southern Insurance Company (Topeka, KS) and its wholly owned and 100% reinsured subsidiary, American Safety Insurance Company (collectively referred to as American Southern Group). Concurrently, A.M. Best has affirmed the ICR of "bbb-" of the parent company, Atlantic American Corporation (Atlantic American) (NASDAQ:AAME).

A.M. Best has also affirmed the FSR of A- (Excellent) and the ICR of "a-" of Bankers Fidelity Life Insurance Company (Bankers Fidelity). Additionally, A.M. Best has assigned an FSR of A- (Excellent) and ICR of "a-" to Bankers Fidelity Assurance Company (formerly known as Direct Life Insurance Company), a wholly owned subsidiary of Bankers Fidelity. The outlook for all ratings is stable. All companies are domiciled in Atlanta, GA, unless otherwise specified.

American Southern's ratings reflect its strong risk-adjusted capitalization, conservative balance sheet, long history of profitability, management's disciplined underwriting approach and its local market knowledge. Somewhat offsetting these positive rating factors are the deterioration in American Southern's underwriting performance over the past several years and the group's history of paying substantial stockholder dividends, which historically have been used to service the debt held at Atlantic American.

The ratings of Bankers Fidelity Life Insurance Company (Bankers Fidelity) reflect its strong capitalization, its strategic importance to the parent, Atlantic American Corporation, and an expanding suite of ancillary health insurance products. Partially offsetting these strengths are potential business concentration risks and higher infrastructure and distribution costs. The ratings assignment of Bankers Fidelity Assurance reflects its role as a subsidiary of Bankers Fidelity and the strategy to utilize this new entity to expand into new geographies. The group's ratings also consider the financial leverage and interest coverage of Atlantic American. Atlantic American's adjusted debt-to-total capital as of June 30, 2014 was 19.5% and within A.M. Best's guidelines for its current rating level. Interest coverage has historically been slightly below A.M. Best's expectations for its current rating level; however, this is offset by the group's ability to historically generate sufficient earnings to cover obligations at the parent. In addition, Atlantic American held roughly $26 million of cash and short-term investments and other marketable securities at June 30, 2014.

While A.M. Best believes the ratings are well positioned at the current level, factors that may lead to negative rating actions for American Southern include a lack of underwriting discipline, which results in a further deterioration of underwriting and operating performance, or an erosion of surplus that causes a significant decline in risk-adjusted capital.

A.M. Best believes that positive rating movement at Bankers Fidelity and its wholly owned subsidiary, Bankers Fidelity Assurance is unlikely in the near to medium term. Key factors that could lead to a negative rating action include any change to the financial condition of the parent company or A.M. Best's view of Bankers Fidelity's strategic importance to the parent company.

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Key insurance criteria reports utilized:

• Rating Members of Insurance Groups

• Risk Management and the Rating Process for Insurance Companies

• Understanding BCAR for U.S. and Canadian Life/Health Insurers

• Understanding BCAR for Property/Casualty Insurers

• Equity Credit for Hybrid Securities

• Insurance Holding Company and Debt Ratings

• Understanding Universal BCAR

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

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