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Dynamic quotes 
OFFON

ATLAS FINANCIAL HOLDINGS, INC.

(AFHIF)
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ATLAS FINANCIAL : Management's Discussion and Analysis ("MD&A") of Financial Condition and Results of Operations (form 10-K)

04/15/2021 | 05:21pm EDT
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and related notes that appear elsewhere in this report. In this
discussion and analysis, the term "common share" refers to the summation of
restricted voting common shares, ordinary voting common shares and participative
restricted stock units when used to describe earnings (loss) or book value per
common share. All amounts are in U.S. dollars, except for amounts preceded by
"C" as Canadian dollars, share and per share amounts.
Forward-Looking Statements
In addition to the historical consolidated financial information, this report
contains "forward-looking statements," within the meaning of the Private
Securities Litigation Reform Act of 1995, which may include, but are not limited
to, statements with respect to estimates of future expenses, revenue and
profitability; trends affecting financial condition, cash flows and results of
operations; the availability and terms of additional capital; dependence on key
suppliers and other strategic partners; industry trends; the competitive and
regulatory environment; the successful integration of acquisitions; the impact
of losing one or more senior executives or failing to attract additional key
personnel; and other factors referenced in this report. Factors that could cause
or contribute to these differences include those discussed below and elsewhere,
particularly in 'Part I, Item 1A, Risk Factors.'
Often, but not always, forward-looking statements can be identified by the use
of words such as "plans," "expects," "is expected," "budget," "scheduled,"
"estimates," "forecasts," "intends," "anticipates," "believes" or variations
(including negative variations) of such words and phrases, or state that certain
actions, events or results "may," "could," "would," "might" or "will" be taken,
occur or be achieved. Forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance or achievements of Atlas to be materially different from any future
results, performance or achievements expressed or implied by the forward-looking
statements. Such factors include, among others, general business, economic,
competitive, political, regulatory and social uncertainties.
Although Atlas has attempted to identify important factors that could cause
actual actions, events or results to differ materially from those described in
forward-looking statements, there may be other factors that cause actions,
events or results to differ from those anticipated, estimated or intended.
Forward-looking statements contained herein are made as of the date of this
report, and Atlas disclaims any obligation to update any forward-looking
statements, whether as a result of new information, future events or results, or
otherwise. There can be no assurance that forward-looking statements will prove
to be accurate, as actual results and future events could differ materially from
those anticipated in such statements. Accordingly, readers should not place
undue reliance on forward-looking statements due to the inherent uncertainty in
them.
I. Company Overview
We are a technology and analytics driven financial services holding company
incorporated under the laws of the Cayman Islands. Our primary business is
generating, underwriting and servicing commercial automobile insurance in the
United States, with a niche market orientation and focus on insurance for the
"light" commercial automobile sector.
Our business currently focuses on a managing general agency strategy. Primarily
through our wholly owned subsidiary, AGMI, our objective is recapturing business
and maintaining we have historically written in the taxi, livery/limo,
paratransit and transportation network company ("TNC") sectors as well as
generating new business that fits our current underwriting parameters. We are
also actively pursuing additional programs in the "light" commercial auto space
where we believe our expertise, infrastructure and insurance technology will
enable us to increase scale and profitability, but there can be no assurance
that these programs will materialize. We believe that the specialized
infrastructure and technology platforms we've developed over the years to
support our traditional business will enable us to provide comparative
advantages as a managing general agency in other commercial auto segments. In
particular, we believe our ability to efficiently manage large numbers of small
or highly transactional accounts through our technology platform and workflows
is a differentiator. We are also evaluating opportunities to leverage our
optOnTM insuretech platform which was developed to provide micro-duration
commercial automobile insurance for gig-economy drivers via a proprietary mobile
app based ecosystem.
The sector on which we traditionally focused was comprised of taxi cabs,
non-emergency para-transit, limousine, livery, including certain full-time TNC
drivers/operators, and business auto. Our goal is to always be the preferred
specialty insurance business in any geographic areas where our value proposition
delivers benefit to all stakeholders. AGMI distributes our products through a
network of independent retail agents, and actively wrote insurance in 41 states
and the District of Columbia
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during 2020. We embrace continuous improvement, analytics and technology as a
means of building on the strong heritage our subsidiary companies cultivated in
the niche markets we serve.
Industry Trends
The "light" commercial automobile sector is a subset of the broader commercial
automobile insurance industry segment, which over the long term has been
historically profitable. In more recent years, the commercial automobile
insurance industry has seen profitability challenges. Data compiled by S&P
Global indicates that in 2020 the total market for commercial automobile
liability insurance was approximately $45 billion. The size of the commercial
automobile insurance market can be affected significantly by many factors, such
as the underwriting capacity and underwriting criteria of automobile insurance
carriers and general economic conditions. Historically, the commercial
automobile insurance market has been characterized by periods of excess
underwriting capacity and increased price competition ("Soft Market") followed
by periods of reduced underwriting capacity and higher premium rates ("Hard
Market"). As of the filing of this report, commercial auto insurance has been in
a prolonged Hard Market with approximately 38 consecutive quarters of rate
increases (source: U.S. Counsel of Insurance Agents and Brokers).
Historically, operators of "light" commercial automobiles were expected to be
less likely than other business segments within the commercial automobile
insurance market to take vehicles out of service, as their businesses and
business reputations rely heavily on availability. Our target market has changed
in recent years as a result of TNC and other trends related to mobility. The
significant expansion of TNC has resulted in a reduction in taxi vehicles
available to insure; however, it has increased the number of livery operators.
Market research also suggests that the combined addressable markets between
traditional taxi, livery and TNC companies expanded during this period.
Factors Affecting Our Results of Operations
We generate commission revenue by selling policies in the commercial auto
markets on behalf of our insurance carrier partners, which compensate us through
first year and renewal commissions. We use our proprietary technology and
processes to generate and obtain consumer leads and allocate those leads to
agents whom we believe are best suited for those consumers. As a result, one of
the primary factors affecting our growth is our total number of agents,
comprised of both existing core agents and the number of new agents that we
contract to sell new policies. In our traditional target markets, we view agents
as a valuable component of helping consumers through the purchasing process to
enable them to identify the most appropriate coverage that suits their needs. We
have also developed proprietary technologies and processes that enable us to
expand our lead acquisition efforts to maintain agent productivity.
The amount of revenue we expect to recognize is based on multiple factors,
including our commission rates with our insurance carrier partners and the
market demand for the types of products we offer. The higher our hit ratios on
new policies and the higher the our retention ratios, the more revenue we expect
to generate. Additionally, we may earn certain volume-based compensation from
some unrelated risk taking partners, which can include a renewal rights
component. Our goal is to maximize policyholder lifetime value by optimizing
efficiency and scale, which starts by providing consumers with a transparent,
valuable and best-in-class consumer experience by endeavoring to support our
distribution channel effectively and provide insurance solutions that meet the
specific needs of our customers.
Recent Events
Prior to the strategic transition referenced above, our core business was the
underwriting of commercial automobile insurance policies, focusing on the
"light" commercial automobile sector, through American Country, American Service
and Gateway (collectively, the "ASI Pool Companies") and Global Liberty
(together with the ASI Pool Companies, our "Insurance Subsidiaries"), along with
our wholly owned managing general agency, AGMI. As previously announced, the ASI
Pool Companies were placed in rehabilitation under the statutory control of the
Illinois Department of Insurance during the second half of 2019. Regulatory
actions were taken in certain states, including restriction, suspension, or
revocation of certain state licenses and certificates of authority held by the
ASI Pool Companies preceding and following the initiation of rehabilitation.
The Company's current strategy focuses on AGMI's managing general agency
operation as the primary go-forward business. During 2019 and 2020, we worked
with insurance regulators and advisors to evaluate and take steps intended to
achieve the best outcome for stakeholders in connection with our Insurance
Subsidiaries pursuant to regulatory actions. See ''2020 Developments"" below for
certain developments with respect to the Company and the Insurance Subsidiaries.
As a result of management no longer having financial control of the ASI Pool
Companies, they have been deconsolidated from this report and in reports since
October 1, 2019. During the fourth quarter of 2019, the Company began actively
pursuing the potential sale of Global Liberty, and as a result, Global Liberty
has been classified as discontinued operations since October 1, 2019. These
determinations impact the financial presentation in this report and are more
fully described throughout. We feel that the current presentation best
represents the aspects of Atlas' business on which the Company intends to focus
going forward.
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In March 2020, the World Health Organization formally declared the novel
coronavirus ("COVID-19") outbreak a pandemic. With social distancing measures
that have been implemented to curtail the spread of the virus, we enacted a
robust business continuity plan, including a work-from-home policy for all of
our employees. We believe our technology platform and pre-existing remote agent
capabilities have allowed for a seamless transition to a remote working
environment and that our technology platforms continue to provide agents with
tools and company contacts necessary to quote our products to our markets.
COVID-19 has dramatically reduced the addressable market. At the time of filing,
it is difficult to estimate the near and longer-term impact on market size and
potential revenue, and the impact of COVID-19 on our customers appears to have
resulted in a reduction of trips and vehicles in operation in the range of
approximately 52% to as much as 88% as compared to the end of 2019. This
directly impacts our revenue and the ability to generate new business.
2020 Developments
On August 31, 2020, the Company filed a Current Report on Form 8-K advising that
Nasdaq would suspend trading in the Company's securities effective at the open
of business on September 2, 2020. Nasdaq filed a Form 25 Notification of
Delisting with the SEC on October 27, 2020 notifying the SEC of Nasdaq's
determination to remove the Company's common shares from listing on Nasdaq under
Section 12(b) of the Exchange Act. The formal delisting of the Company's common
shares from Nasdaq became effective on November 6, 2020, ten days after the Form
25 was filed. In connection with the suspension of trading on The Nasdaq Capital
Market, the Company's common shares began to trade on the OTC Markets system
effective with the open of the markets on September 2, 2020.
On May 8, 2020, American Acquisition and the Director (as defined below) as
statutory rehabilitator of Gateway signed a stock purchase agreement with Buckle
Corp. ("Buckle"), a technology-driven financial services company, to purchase
the stock of Gateway and Gateway's corporate charter and state licenses from its
statutory rehabilitator in a collaborative transaction as an important next step
in Atlas' strategic plan. Buckle's core business focuses on part-time TNC
drivers and is complementary to Atlas' focus on full-time drivers in the livery,
paratransit, taxi and TNC segments.
On June 10, 2020, the required court orders were entered to place Gateway in
liquidation, with the Director of Insurance of the State of Illinois (the
"Director") acting as the statutory liquidator. This was necessary to facilitate
the above described transaction with Buckle. The sale of stock, charter and
state licenses of Gateway to Buckle closed effective June 16, 2020. The Company
and Buckle entered into an underwriting agreement whereby Gateway under Buckle's
ownership became a risk-taking partner for AGMI. The Company and Buckle also
entered into a professional services agreement in furtherance of related
strategic activities.
Subsequent to the Gateway transaction, Buckle proposed terms to acquire the
stock, charter and state licenses of American Country and American Service. In
connection therewith, a required court order was entered on August 11, 2020 to
place American Country and American Service in liquidation, with the Director
acting as the statutory liquidator. American Acquisition and the Director as
statutory liquidator of American County and American Service signed a stock
purchase agreement on November 2, 2020. The closing of this pending transaction
is subject to regulatory approval and other conditions.
In July 2020, the Company announced that AGMI's underwriting agreement with
National Interstate Insurance Company ("National Interstate"), for paratransit
business was extended and expanded. Further to the extension and expansion, the
Company and National Interstate executed a renewal rights agreement with respect
to paratransit accounts with eight or more vehicles ("Large Paratransit
Accounts"). Pursuant to this agreement, the Company and National Interstate will
work together to transition the handling of Large Paratransit Accounts to
National Interstate. The Company received $2.9 million as consideration from
National Interstate as consideration for this transaction. Under the previously
announced expanded agreement AGMI, will manage owner operators and fleets with
seven or less vehicles ("Small Paratransit Accounts") until at least August
2021. If the Small Paratransit Account program is not extended further, National
Interstate continues to retain the option to purchase renewal rights on this
segment at the expiration of the agreement period. Under the terms of the
agreements, the Company will not compete with National Interstate for Large
Paratransit Accounts for a period of three years following the Large Paratransit
Account renewal rights transaction. Other previously disclosed material terms of
the agreements between the parties remain unchanged.
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II. Application of Critical Accounting Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America ("U.S. GAAP") requires
management to adopt accounting policies and make estimates and assumptions that
affect amounts reported in the consolidated financial statements. The most
critical estimates include those used in determining:
•Revenue recognition
•Fair value of financial assets;
•Impairment of financial assets;
•Deferred policy acquisition costs;
•Valuation of deferred tax assets.
In making these determinations, management makes subjective and complex
judgments that frequently require estimates about matters that are inherently
uncertain. Many of these policies, estimates and related judgments are common in
the insurance and financial services industries; others are specific to our
businesses and operations. It is reasonably likely that changes in these items
could occur from period to period and result in a material impact on our
consolidated financial statements.
A brief summary of each of these critical accounting estimates follows. For a
more detailed discussion of the effect of these estimates on our consolidated
financial statements, and the judgments and assumptions related to these
estimates, see the referenced sections of this document. For a complete summary
of our significant accounting policies, see 'Part II, Item 8, Note 1, Nature of
Operations and Basis of Presentation,' in the Notes to Consolidated Financial
Statements.
Revenue Recognition
In accordance with ASC 606, revenue is recognized when a customer obtains
control of promised goods or services and is recognized in an amount that
reflects the consideration that an entity expects to receive in exchange for
those goods or services. We apply the following five-step model in order to
determine this amount: (i) identification of the promised goods in the contract;
(ii) determination of whether the promised goods are performance obligations,
including whether they are distinct in the context of the contract; (iii)
measurement of the transaction price, including the constraint on variable
consideration; (iv) allocation of the transaction price to the performance
obligations; and (v) recognition of revenue when (or as) we satisfy each
performance obligation.
Significant management judgments and estimates must be made in connection with
determination of the revenue to be recognized in any accounting period. If we
made different judgments or utilized different estimates for any period,
material differences in the amount and timing of revenue recognized could
result. The accounting estimates and judgments related to the recognition of
revenue require us to make assumptions about numerous factors such as the
determination of the policy price. Before the adoption of ASC 606, we were
already using a similar method to calculate the revenue value of commission on
premiums written through affiliates so we believe we have the ability to make
reasonable estimates for these items and have the appropriate accounting
policies and controls in place to do so. The uncertainty associated with the
variable consideration is subsequently resolved when the policy is issued,
renews, and any adjustments are recognized to the underlying premium in the
period incurred.
Fair Value of Financial Assets
Atlas has used the following methods and assumptions in estimating fair value:
Fair values for bonds and equity securities are based on quoted market prices,
when available. If quoted market prices are not available, fair values are based
on quoted market prices of comparable instruments or values obtained from
independent pricing services. Atlas employs a fair value hierarchy to categorize
the inputs it uses in valuation techniques to measure the fair value. The
hierarchy is comprised of quoted prices in active markets (Level 1), third party
pricing models using available trade, bid and market information (Level 2) and
internal models without observable market information (Level 3). The Company
recognizes transfers between levels of the fair value hierarchy at the end of
the period in which events occur impacting the availability of inputs to the
fair value methodology. Typically, transfers from Level 2 to Level 3 occur due
to collateral performance.
Atlas' fixed income portfolio is managed by a Securities and Exchange Commission
("SEC") registered investment adviser specializing in the management of
insurance company portfolios. Management works directly with them to ensure that
Atlas benefits from their expertise and also evaluates investments as well as
specific positions independently using internal resources. Atlas' investment
adviser has a team of credit analysts for all investment grade fixed income
sectors. The investment process begins with an independent analyst review of
each security's credit worthiness using both quantitative tools and qualitative
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review. At the issuer level, this includes reviews of past financial data,
trends in financial stability, projections for the future, reliability of the
management team in place and market data (credit spread, equity prices, trends
in this data for the issuer and the issuer's industry). Reviews also consider
industry trends and the macro-economic environment. This analysis is continuous,
integrating new information as it becomes available. As of December 31, 2020,
this process did not generate any significant difference in the rating
assessment between Atlas' review and the rating agencies.
Atlas employs specific control processes to determine the reasonableness of the
fair value of its financial assets. These processes are designed to supplement
those performed by our external portfolio manager to help ensure that the values
received from them are accurately recorded and that the data inputs and the
valuation techniques utilized are appropriate, consistently applied, and that
the assumptions are reasonable and consistent with the objective of determining
fair value. For example, on a continuing basis, Atlas assesses the
reasonableness of individual security values which have stale prices or whose
changes exceed certain thresholds as compared to previous values received from
our external portfolio manager or to expected prices. The portfolio is reviewed
routinely for transaction volumes, new issuances, any changes in spreads, as
well as the overall movement of interest rates along the yield curve to
determine if sufficient activity and liquidity exists to provide a credible
source for market valuations. When fair value determinations are expected to be
more variable, they are validated through reviews by members of management or
the Board of Directors who have relevant expertise and who are independent of
those charged with executing investment transactions.
Changes in inflation can influence the interest rates which can impact the fair
value of our available-for-sale fixed income portfolio and yields on new
investments. The Investment Committee of the Board of Directors considers
inflation when providing guidance and analyzing the investment portfolio to
provide a stable source of income to supplement underwriting income.
Impairment of Financial Assets
Atlas assesses, on a quarterly basis, whether there is objective evidence that a
financial asset or group of financial assets is impaired. An investment is
considered impaired when the fair value of the investment is less than its cost
or amortized cost. When an investment is impaired, the Company must make a
determination as to whether the impairment is other-than-temporary.
Under U.S. GAAP, with respect to an investment in an impaired debt security,
other-than-temporary impairment ("OTTI") occurs if (a) there is intent to sell
the debt security, (b) it is more likely than not it will be required to sell
the debt security before its anticipated recovery, or (c) it is probable that
all amounts due will be unable to be collected such that the entire cost basis
of the security will not be recovered. If Atlas intends to sell the debt
security, or will more likely than not be required to sell the debt security
before the anticipated recovery, a loss in the entire amount of the impairment
is reflected in net realized gains (losses) on investments in the consolidated
statements of operations. If Atlas determines that it is probable it will be
unable to collect all amounts and Atlas has no intent to sell the debt security,
a credit loss is recognized in net realized gains (losses) on investments in the
consolidated statements of operations to the extent that the fair value is less
than the amortized cost basis; any difference between fair value and the new
amortized cost basis (net of the credit loss) is reflected in accumulated other
comprehensive (loss) income, net of applicable income taxes.
For equity securities, the Company evaluates its ability to retain its
investment in the issuer for a period of time sufficient to allow for any
anticipated recovery in fair value. Evidence considered to determine anticipated
recovery are analysts' reports on the near-term prospects of the issuer and the
financial condition of the issuer or the industry, in addition to the length and
extent of the market value decline. If an OTTI is identified, the equity
security is adjusted to fair value through a charge to earnings (see 'Part II,
Item 8, Note 6, Investments' in the Notes to Consolidated Financial Statements).
Deferred Policy Acquisition Costs
Atlas defers brokers' commissions, premium taxes and other underwriting and
marketing costs directly relating to the successful acquisition of premiums
written to the extent they are considered recoverable. The other underwriting
and marketing costs include a percentage of salary and related expense, payroll
taxes and travel of our marketing and underwriting employees. The percentage is
derived from an annual persistency rate study using policy and vehicle counts to
compute a hit ratio. The deferred costs are then expensed as the related
premiums are earned. The method followed in determining the deferred policy
acquisition costs ("DPAC") limits the deferral to its realizable value by giving
consideration to estimated future claims and expenses to be incurred as premiums
are earned. Changes in estimates, if any, are recorded in the accounting period
in which they are determined. Anticipated investment income is included in
determining the realizable value of the DPAC. Atlas' DPAC are reported net of
deferred ceding commissions.
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Valuation of Deferred Tax Assets
Deferred taxes are recognized using the asset and liability method of
accounting. Under this method, the future tax consequences attributable to
temporary differences in the tax basis of assets, liabilities and items
recognized directly in equity and the financial reporting basis of such items
are recognized in the financial statements by recording deferred tax assets
("DTAs") or deferred tax liabilities ("DTLs").
DTAs related to the carry-forward of unused tax losses and credits, and those
arising from temporary differences are recognized only to the extent that it is
probable that future taxable income will be available against which they can be
utilized. DTAs and DTLs are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on future tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the date
of enactment or substantive enactment.
In assessing the need for a valuation allowance, Atlas considers both positive
and negative evidence related to the likelihood of realization of the DTAs.
Atlas performs an assessment of recoverability of its DTAs on a quarterly basis.
If, based on the weight of available evidence, it is more likely than not the
DTAs will not be realized, a valuation allowance is recognized in income in the
period that such determination is made. Atlas has recorded a valuation allowance
of $33.4 million and $32.5 million for its gross future deferred tax assets as
of December 31, 2020 and 2019, respectively.
III. Operating Results
Highlights
•Due to the deconsolidation of the ASI Pool Companies and the discontinued
operation classification of Global Liberty, the fourth quarter 2019 and go
forward continuing operating results do not and will not include insurance
company financial impacts other than those related to discontinued operations
and will solely consist of the results of Atlas, including AGMI. All references
and comparisons to 2019 throughout this document reflect this impact.
•Gross commission income was $5.2 million in 2020, a decrease of 30.3% from $7.5
million in 2019.
•Total revenue was $9.5 million in 2020 compared to $120.6 million in 2019. 2019
included $110.2 million of net earned premiums related to the deconsolidated
entities of the ASI Pool Companies.
•Underwriting loss was $15.9 million in 2020 compared to an underwriting loss of
$9.0 million in 2019.
•Net loss from continuing operations was $13.0 million, or $1.08 loss per common
share diluted, in 2020 compared to a net loss from continuing operations of
$13.0 million (including a $4.4 million of loss on deconsolidation of the ASI
Pool Companies), or $1.09 loss per common share diluted, in 2019, representing
an increase in earnings per common share diluted of $0.01.
•Net income from discontinued operations was $238,000, or $0.02 earnings per
common share diluted in 2020 compared to a net loss from discontinued operations
of $7.4 million, or $0.62 loss per common share diluted, in 2019, representing
an increase in earnings per common share diluted of $0.64.
•Including the change in accounting treatment in the fourth quarter of 2019,
book value per common share decreased $1.05 to $(1.76) as of December 31, 2020
from $(0.71) as of December 31, 2019.

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Consolidated Performance
($ in '000s, except per share data)                                    Year ended December 31,
                                                                         2020              2019
Gross premiums written                                           $           -        $   160,684
Net premiums earned                                                          -            110,241
Commission income                                                        5,195              7,458
Net claims incurred                                                          -             80,767
Underwriting expense:
Acquisition costs                                                        2,934             11,825

DPAC amortization                                                            -              1,498
Other underwriting expenses                                             18,133             32,651
Total underwriting expenses                                             21,067             45,974
Underwriting loss                                                      (15,872)            (9,042)
Net investment income                                                        -              1,902
Intangible asset impairment loss                                             -               (740)
Loss from operating activities, before income taxes                    (15,872)            (7,880)
Interest expense, net                                                   (1,931)            (1,466)
Loss from change in fair value of equity securities                          -               (277)
Realized gains and other income                                          4,351              1,274
Loss on disposal of subsidiaries                                             -             (4,427)
Net loss before income taxes                                           (13,452)           (12,776)
Income tax (benefit) expense                                              (484)               223
Income (loss) from discontinued operations, net of tax                     238             (7,427)
Net loss                                                         $     (12,730)       $   (20,426)

Key Financial Ratios
Loss per common share diluted                                    $       (1.08)       $     (1.09)
Book value per common share                                      $       (1.76)       $     (0.71)


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Revenues
Historically, our revenues were derived primarily from premiums from our
insurance policies and income from our investment portfolio. As a larger
percentage of our premium is written by AGMI with unrelated strategic
risk-taking partners, commission and fee income is expected to represent the
majority of the Company's revenue going forward. Our underwriting approach is to
price our products with the objective of generating underwriting profit for the
insurance companies we own and with whom we partner. The Company's philosophy is
to prioritize improvement in profit margin over top line growth. As with all P&C
insurance businesses, the impact of price changes, other underwriting activities
and market conditions is reflected in our financial results over time.
Underwriting changes on our in-force policies occur as these policies are
renewed. This cycle generally takes twelve months for our entire book of
business and up to an additional twelve months to earn a full year of premium
and recognize commissions at the renewal rate.
We approach investment and capital management with the intention of supporting
our MGA operations by providing a stable source of income. The goals of our
investment policy are to protect capital while optimizing investment income and
capital appreciation and to maintain appropriate liquidity. We follow a formal
investment policy, and the Board of Directors reviews the portfolio performance
at least quarterly for compliance with the established guidelines. The
Investment Committee of the Board of Directors provides interim guidance and
analysis with respect to asset allocation, as deemed appropriate.
Expenses
Historically, net claims incurred expenses were a function of the amount and
type of insurance contracts we wrote and of the claims experience of the
underlying risks underwritten by the insurance companies we own and owned. We
recorded net claims incurred based on an actuarial analysis of the estimated
claims we expected to be reported on contracts that were written. Our objective
had been to establish case reserves at our Insurance Subsidiaries at the maximum
probable exposure, based on our historical claims experience and, beginning in
2016, the use of claim related analytics. The amount reported under net claims
incurred in any period included payments in the period net of the change in the
value of the reserves for net claims incurred between the beginning and the end
of the period, as well as estimation of potential future trends or changes.
While the Company had always relied on independent actuarial professionals and
internal controls in this regard, the estimation of reserves is inherently
uncertain. As a result of the ASI Pool Companies being placed in rehabilitation
by the Illinois Department of Insurance, management of the Company no longer has
the authority to establish reserves for these entities. The strategic shift
undertaken by the Company coupled with regulatory actions related to the ASI
Pool Companies had a major effect on our business. Expenses related to the
deconsolidated entities no longer have an impact on our operating results
beginning on October 1, 2019. Also, since October 1, 2019, Global Liberty has
been classified as a discontinued operation and its expenses are considered as
such.
Acquisition costs at our Insurance Subsidiaries consist principally of brokerage
and agent commissions and, to a lesser extent, premium taxes. The commissions
paid to our external producers are reduced by ceding commissions received from
assuming reinsurers that represent a percentage of the premiums on insurance
policies and reinsurance contracts written and vary depending upon the amount
and types of contracts written.
Other underwriting expenses consist primarily of personnel related expenses
(including salaries, benefits and certain costs associated with awards under our
equity compensation plans, such as share-based compensation expense) and other
general operating expenses incurred primarily in connection with our MGA and
holding company operations. We believe that because a portion of our personnel
expenses are relatively fixed in nature, changes in premium writings may impact
our operating scale and operating expense ratios. Commissions and other fee
related revenue were earned and recognized in connection with policies managed
by AGMI.
Gross Premiums Written
Gross Premiums Written by Line of Business
($ in '000s)                        Year ended December 31,        % Change
                                       2020            2019      2020 vs. 2019
Commercial automobile           $    -              $ 138,034         (100.0) %
Other                                -                 22,650         (100.0)
Total                           $    -              $ 160,684         (100.0) %


Gross premiums written decreased 100% in 2020 compared to 2019. The decrease is
related to the deconsolidation of the ASI Pool Companies. See "Part II, Item 7,
2020 Developments" for certain developments with respect to the Company and the
Insurance Subsidiaries.
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Geographic Concentration
Gross Premiums Written by State
($ in '000s)                   Year ended December 31,
                             2020                   2019
New York            $    -             -  % $  61,902     38.5  %
California               -             -       33,062     20.6
Virginia                 -             -        7,840      4.9
Illinois                 -             -        6,439      4.0
Minnesota                -             -        4,203      2.6
Louisiana                -             -        4,190      2.6
Texas                    -             -        3,753      2.3
Georgia                  -             -        3,670      2.3
Ohio                     -             -        3,282      2.0
Nevada                   -             -        2,678      1.7
Other                    -             -       29,665     18.5
Total               $    -             -  % $ 160,684    100.0  %


Ceded Premiums Written
Ceded premiums written is equal to premiums ceded under the terms of Atlas' in
force reinsurance treaties. Atlas generally purchased reinsurance in an effort
to limit net exposure on any one claim to a maximum amount of $500,000 with
respect to commercial automobile liability claims. This Excess of Loss
reinsurance was primarily secured through General Reinsurance Corporation ("Gen
Re"), a subsidiary of Berkshire Hathaway, Inc. Atlas also purchased reinsurance
from Gen Re in an effort to protect against awards in excess of its policy
limits.
Ceded premiums written decreased 100.0% to $0 in 2020 compared to $72.9 million
in 2019, respectively, due to the deconsolidation of the ASI Pool Companies and
classification of Global Liberty as a discontinued operation.
During 2019, the Company received notice from Gen Re that effective July 31,
2019, the XOL reinsurance coverage for the ASI Pool Companies would terminate on
a cut-off basis. Additionally, effective September 30, 2019, the ASI Pool
Companies' Quota Share contract with Swiss Re was terminated on a run-off basis.
During 2020, the Company received notice from Gen Re that effective January 1,
2020, the XOL reinsurance coverage for Global Liberty terminated on a run-off
basis. See "Part II, Item 7, 2020 Developments" for certain developments with
respect to the Company and the Insurance Subsidiaries.
Net Premiums Written
Net premiums written is equal to gross premiums written less the ceded premiums
written under the terms of Atlas' in-force reinsurance treaties. Net premiums
written decreased 100.0%, or $87.8 million from 2019. The change is due to the
deconsolidation of the ASI Pool Companies.
Net Premiums Earned
Premiums are earned ratably over the term of the underlying policy. Net premiums
earned decreased 100.0%, or $110.2 million from 2019. The change is due to the
deconsolidation of the ASI Pool Companies.
Commission Income
AGMI earns commission for the sale of first year and renewal policies from our
insurance carrier partners, which are presented in our consolidated statements
of operations as commission revenue. Our contracts with our insurance carrier
partners contain a commission percentage that is used to compute the total
commission due per policy written. We also generate fee income in connection
with individual policies as well as professional services provided to our
business partners under contractual arrangements. Our commission revenue is
recognized upon the sale or renewal of a policy. After a policy is sold, we have
policy management obligations to the policyholder and the insurance carrier
partner, including, but not limited to, policy endorsements, policy
cancellations and policy restatements. Therefore, we do incur additional expense
related to our policy management requirements. Most costs associated with the
sale of an individual policy are incurred prior to or at the time of the initial
sale of an individual policy and are characterized in our financial statements
as Other Underwriting Expenses.
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Commission income relating to the business processed by AGMI decreased by $2.3
million, or 30.3%, from $7.5 million in 2019 to $5.2 million in 2020. The
decrease is related to the decrease of written premiums for policies that were
part of the ASI Pool Companies that AGMI earned commission income during 2019.
Net Claims Incurred
The loss ratio relating to the net claims incurred was 73.3% in 2019. The loss
ratio decreasing to 0% in 2020 was the result of the deconsolidation of the ASI
Pool Companies.
Acquisition Costs
Acquisition costs of $2.9 million in 2020 represent commissions paid to retail
agents who sell insurance policies. Acquisition costs of $11.8 million in 2019
represented commissions and taxes incurred on net premiums earned offset by
ceding commission on business reinsured. The decrease in acquisition costs
resulted from the deconsolidation of the ASI Pool Companies.
Deferred Policy Acquisition Costs (DPAC)
Our assessment of the historic DPAC definition, methodology and computation that
was utilized when the organization was insurance company focused is no longer
relevant based upon the new strategic direction to a managing general agency.
Historically, the Company computed DPAC based on its costs to obtain insurance
policy quotes (the prior definition of the "contract"). This computation
deferred a percentage of underwriting expenses based upon the activities of
certain underwriting departments that supported the new and renewal business
activities and the actual amount of bound and issued policies as a percentage of
quote/submission activities. Due to the strategic shift that occurred in 2019,
the Company determined that the historic DPAC asset of $1.2 million was impaired
as of October 1, 2019 and written down to zero.
Other Underwriting Expenses
Other underwriting expenses including share based compensation and amortization
of intangible assets decreased $14.5 million to $18.1 million in 2020 compared
to $32.7 million in 2019. The $14.5 million decrease related to the
deconsolidation of the ASI Pool Companies' expenses of $20.5 million offset by
an increase of $6.0 million mainly related to increases in severance costs,
salaries and benefits, corporate insurance, and depreciation and amortization of
business systems and software offset by decreases in banking charges and
professional fees.
The Company's expense structure is expected to continue to be modified to
reflect the change from its historic insurance company structure to its
continuing operation primarily as a managing general agency.
Net Investment Income
Net investment income is primarily comprised of interest income, dividend
income, and income from other invested assets which were held by our Insurance
Subsidiaries, net of investment expenses, which are comprised of investment
management fees, custodial fees and allocated salaries. Net investment income,
net of investment expenses, decreased by 100.0% to $0 in 2020 compared to $1.9
million in 2019. Equity method investments and collateral loans generated
investment income of $0 in 2020 and investment losses of $793,000 in 2019,
respectively. The decreases from 2020 to 2019 were a result of the
deconsolidation of the ASI Pool Companies.
Intangible Asset Impairment Loss
In 2019, the Company fully impaired intangible assets not subject to
amortization in the amount of $740,000 relating to the Gateway acquisition.
There were no intangible assets impaired during 2020.
Interest Expense, Net
On April 26, 2017, Atlas issued $25 million of five-year 6.625% senior unsecured
notes and received net proceeds of approximately $23.9 million after deducting
underwriting discounts and commissions and other offering expenses. Interest
expense related to the senior unsecured notes was $1.9 million for each of the
years ended 2020 and 2019, respectively. On November 10, 2016, American
Acquisition entered into a ten-year 5.0% fixed rate mortgage agreement with the
Insurance Subsidiaries totaling $10.7 million with principal and interest
payments due monthly. Interest expense in 2020 and 2019 totaled $364,000 and
$97,000, respectively. Prior to October 1, 2019, the interest expense payments
related to the mortgage had been eliminated in consolidation. On May 1, 2020,
American Acquisition entered into a PPP Loan pursuant to the CARES Act that
bears interest at a rate of 1.0% per annum. Interest expense related to the PPP
Loan for 2020 totaled $31,000.
American Acquisition entered into subordinated surplus debentures ("Surplus
Notes") with the ASI Pool Companies in April 2015 that had a maturity date of
April 30, 2020. Interest income related to the Surplus Notes for 2020 totaled
$308,000. Prior to October 1, 2019, the interest income related to the Surplus
Notes had been eliminated in consolidation.
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Loss from Change in Fair Value of Equity Securities
Beginning January 1, 2018, Atlas adopted Accounting Standards Update 2016-01,
which requires changes in the unrealized market value of equities held at fair
value to be recorded through net income. In 2020 and 2019, Atlas recorded losses
of $0 and $277,000, respectively, through net income related to the changes in
the unrealized amounts on equities held at fair value. The decrease from 2020 to
2019 was a result of the deconsolidation of the ASI Pool Companies.
Net Realized Investment Gains (Losses)
Net realized investment gains is comprised of the gains and losses from the
sales of investments and property and equipment. Net realized investment returns
decreased 100.4% to a net loss of $(3,000) in 2020 from a net gain of $821,000
in 2019, due to gains from the sales of fixed income and equity securities that
occurred during 2019.
Other Income
Atlas recorded other income of $4.4 million and $453,000 in 2020 and 2019,
respectively. The increase related primarily to the Company receiving $2.9
million related to a sale of renewal rights on the paratransit program book of
business.
Loss before Income Taxes
Atlas generated pre-tax loss from continuing operations of $13.5 million and
$12.8 million for each of the years ended in 2020 and 2019, respectively. The
causes of these changes in pre-tax losses are attributed to the combined effects
of the reasons cited in the 'Net Premiums Earned, 'Commission Income', 'Net
Claims Incurred,' 'Acquisition Costs,' 'Other Underwriting Expenses,' 'Net
Investment Income,' 'Intangible Asset Impairment Loss,' 'Interest Expense, Net,'
'Loss from Change in Fair Value of Equity Securities,' 'Net Realized Investment
Gains (Losses)' and 'Other Income' sections above.
Income Taxes
Atlas recorded income tax (benefit) expense of $(484,000) and $223,000 in 2020
and 2019, respectively.
Tax Rate Reconciliation
($ in '000s)                                                            Year ended December 31,
                                                                     2020                         2019

Provision for taxes at U.S. statutory marginal income tax rate

                                               $    (2,825)             21.0  % $ (2,683)         21.0  %
Provision for deferred tax assets deemed unrealizable
(valuation allowance)                                        1,744               (13)      2,779         (21.8)
Nondeductible expenses                                          (3)                -          28          (0.2)
Tax-exempt income                                                -                 -          (3)            -
State tax (net of federal benefit)                              (3)                -          71          (0.6)
Stock compensation                                             630              (4.7)         31          (0.2)
Nondeductible acquisition accounting adjustment                (42)              0.3           -             -

Other                                                           15              (0.1)          -             -

Provision for income taxes for continuing operations $ (484)

3.5 % $ 223 (1.8) %



During 2013 and 2019, due to shareholder activity, "triggering events" as
determined under IRC Section 382 occurred. As a result, under IRC Section 382,
the use of the Company's net operating loss and other carryforwards generated
prior to the "triggering events" will be subject to a yearly limitation as a
result of this "ownership change" for tax purposes, which is defined as a
cumulative change of more than 50% during any three-year period by shareholders
owning 5% or greater portions of the Company's shares. Due to the mechanics of
the Section 382 calculation when there are multiple triggering events the
Company's losses will generally be limited based on the thresholds of the 2019
triggering event. The Company has established a valuation allowance against the
Net Operating Losses ("NOL's) that will expire unused as a result of the yearly
limitation.
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In assessing the need for a valuation allowance, Atlas considers both positive
and negative evidence related to the likelihood of realization of the deferred
tax assets.
Positive evidence evaluated when considering the need for a valuation allowance
includes:
•current year profit;
•management's expectations of future profit; and
•positive growth trends in gross premiums produced.
Negative evidence evaluated when considering the need for a valuation allowance
includes:
•net losses generated in the three most recent years; and
•yearly limitation as required by IRC Section 382 on net operating loss
carryforwards generated prior to 2013.
Net Loss and Loss per Common Share
Atlas had net loss of $12.7 million and $20.4 million in 2020 and 2019,
respectively. Loss per common share diluted was $1.08 and $1.09 in 2020 and
2019, respectively.
Potential Dilutive Common Shares
                                                                            

Year ended December 31,

                                                                           2020                   2019
Basic weighted average common shares outstanding                        11,957,268                11,954,494
Dilutive potential ordinary shares:
Dilutive stock options                                                           -                         -

Diluted weighted average common shares outstanding                      11,957,268                11,954,494


The effects of convertible instruments are excluded from the computation of earnings per common share diluted in periods in which the effect would be anti-dilutive. In 2020 and 2019, all exercisable stock options were deemed to be anti-dilutive.

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IV. Financial Condition

The following presentation and analysis reflects the deconsolidation of the ASI
Pool Companies as of October 1, 2019 and Global Liberty being classified as
discontinued operations.
Consolidated Statements of Financial Condition
($ in '000s, except for share and per share data)                           December 31,
                                                                         2020           2019
Assets
Cash and cash equivalents                                           $     5,238    $     9,025
Restricted cash                                                           5,287          7,122
Premiums receivable (net of allowance of $800 and $800,
respectively)                                                            13,442         38,607
Intangible assets, net                                                    2,235          2,625
Property and equipment, net                                              18,815         21,793
Right-of-use asset                                                          888          1,592
Notes receivable                                                         18,017         17,709
Other assets                                                              1,895          1,086
Assets held for sale                                                     53,885         51,302
Total assets                                                        $   119,702    $   150,861

Liabilities
Premiums payable                                                    $    19,416    $    43,988
Lease liability                                                           1,091          1,993
Due to deconsolidated affiliates                                         19,170         11,172
Notes payable, net                                                       36,168         32,100
Other liabilities and accrued expenses                                    4,342          7,302
Liabilities held for sale                                                60,407         62,767
Total liabilities                                                   $   140,594    $   159,322

Shareholders' Deficit

Ordinary voting common shares, $0.003 par value, 266,666,667 shares authorized, shares issued: December 31, 2020 - 12,248,798 and December 31, 2019 - 12,198,319; shares outstanding: December 31, 2020 - 11,993,293 and December 31, 2019 - 11,942,812

                $       

37 $ 36 Restricted voting common shares, $0.003 par value, 33,333,334 shares authorized, shares issued and outstanding: December 31, 2020 and December 31, 2019 - 0

                                                     -              -
Additional paid-in capital                                               

81,840 81,548 Treasury stock, at cost: 255,505 shares of ordinary common voting shares at each of December 31, 2020 and December 31, 2019

                (3,000)        (3,000)
Retained deficit                                                       (100,199)       (87,469)
Accumulated other comprehensive income, net of tax                          430            424
Total shareholders' deficit                                         $   (20,892)   $    (8,461)
Total liabilities and shareholders' deficit                         $   119,702    $   150,861



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Deferred Tax Assets
Components of Deferred Tax
($ in '000s)                                         As of December 31,
                                                       2020        2019
Gross deferred tax assets:
Losses carried forward                             $   16,408   $ 10,264
Claims liabilities and unearned premium reserves          496        554
Investment in affiliates                               23,870     24,450
Bad debts                                                 168        168

Stock compensation                                        279        873
Other                                                     203         81
Valuation allowance                                   (33,420)   (32,522)
Total gross deferred tax assets                         8,004      3,868

Gross deferred tax liabilities:
Deferred policy acquisition costs                         134        112
Investments                                               122        116
Fixed assets                                            1,344      2,099
Intangible assets                                         469        551
Other                                                   5,935        990
Total gross deferred tax liabilities                    8,004      3,868
Net deferred tax assets                            $        -   $      -


Deferred tax assets are recognized to the extent that it is probable that future
taxable income will be available against which they can be utilized. When
considering the extent of the valuation allowance on Atlas' deferred tax assets,
weight is given by management to both positive and negative evidence. U.S. GAAP
states that a cumulative loss in recent years is a significant piece of negative
evidence that is difficult to overcome in determining that a valuation allowance
is not needed against deferred tax assets. Based on Atlas' cumulative loss in
recent years, Atlas has established a valuation allowance of $33.4 million and
$32.5 million for its gross future deferred tax assets as of December 31, 2020
and 2019, respectively.
The Company had a change in control for Federal income tax purposes in 2019. As
a result, the Company's net operating losses are subject to a yearly limitation
by the Internal Revenue Code.
Net Operating Loss Carryforward as of December 31, 2020 by Expiry
($ in '000s)
             Year of Occurrence                             Year of Expiration                   Amount
                    2011                                           2031                      $         1
                    2012                                           2032                               70
                    2015                                           2035                                1
                    2017                                           2037                           13,649
                    2018                                           2038                            8,903
                    2018                                        Indefinite                         8,245
                    2019                                           2039                            4,973
                    2019                                        Indefinite                         6,306
                    2020                                           2040                           31,300
                    2020                                        Indefinite                         4,686
Total                                                                                        $    78,134


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Buildings and Land
In the fourth quarter of 2016, Atlas purchased a building and land for $9.3
million to serve as its corporate headquarters. The Company purchased
furnishings and made improvements to this building of $8,300 and $16,500 in 2020
and 2019, respectively. See 'Part II, Item 8, Note 9, Property and Equipment' in
the Notes to Consolidated Financial Statements for further discussion of the
corporate headquarters.
Claims Liabilities
As a result of the deconsolidation of the ASI Pool Companies and the
classification of Global Liberty as discontinued operations, all claims
liabilities have been reduced to $0.
Changes in the Provision for Unpaid Claims and Claims Adjustment Expenses, Net of Reinsurance
Recoverables
($ in '000s)                                                          Year ended December 31,
                                                                        2020            2019

Unpaid claims and claims adjustment expenses, beginning of period $

   -    $   226,487
Less: reinsurance recoverable                                                 -         55,265
Net unpaid claims and claims adjustment expenses, beginning of
period                                                                        -        171,222

Incurred related to:
Current year                                                                  -         78,612
Prior years                                                                   -          2,155
                                                                              -         80,767
Paid related to:
Current year                                                                  -         22,176
Prior years                                                                   -         89,970
                                                                              -        112,146

Reduction in liability from deconsolidation                                 

- 139,843

Net unpaid claims and claims adjustment expenses, end of period $

   -    $         -
Add: reinsurance recoverable                                                  -              -

Unpaid claims and claims adjustment expenses, end of period $

- $ -



The process of establishing the estimated provision for unpaid claims and claims
adjustment expenses is complex and imprecise, as it relies on the judgment and
opinions of a large number of individuals, on historical precedent and trends,
on prevailing legal, economic, social and regulatory trends, and on expectations
as to future developments. The process of determining the provision necessarily
involves risks that the actual results may deviate, perhaps substantially, from
the best estimates made.
As of September 30, 2019, the results of the ASI Pool Companies have been
deconsolidated. Through September 30, 2019, the incurred related to prior years
primarily related to unfavorable development on involuntary assigned risk pools
and run-off commercial auto. Assigned risk pools are established by state
governments to cover high-risk insureds who cannot purchase insurance through
conventional means.
Off-Balance Sheet Arrangements
As of December 31, 2020 and 2019 we did not have any material off-balance sheet
arrangements within the meaning of Item 303 of Regulation S-K.
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Changes in Shareholders' (Deficit) Equity
($ in '000s)                         Ordinary
                                      Voting      Restricted     Additional                                 Accumulated Other
                                      Common    Voting Common     Paid-In       Treasury      Retained    Comprehensive Income  Total Shareholders'
                                      Shares        Shares        Capital        Stock        Deficit            (Loss)          Equity (Deficit)
Balance December 31, 2018          $      36    $         -    $   202,298    $  (3,000)   $  (190,503)   $           (3,132)   $          5,699
Deconsolidation of ASI Pool
Companies                                  -              -       (121,622)           -        123,460                  (604)              1,234
Net loss                                   -              -              -            -        (20,426)                    -             (20,426)
Other comprehensive income                 -              -              -            -              -                 4,160               4,160
Share-based compensation                   -              -            872            -              -                     -                 872
Balance December 31, 2019          $      36    $         -    $    81,548    $  (3,000)   $   (87,469)   $              424    $         (8,461)
Net loss                                   -              -              -            -        (12,730)                    -             (12,730)
Other comprehensive loss                   -              -              -            -              -                     6                   6
Share-based compensation                   1              -            292            -              -                     -                 293
Balance December 31, 2020          $      37    $         -    $    81,840    $  (3,000)   $  (100,199)   $              430    $        (20,892)


As of December 31, 2020, there were 11,993,293 ordinary voting common shares
outstanding and no preferred shares outstanding.
On December 31, 2018, the Company awarded grants for ordinary voting common
shares of the Company to its external directors pursuant to a director equity
award agreement dated December 31, 2018. The awards, which were approved by the
Company's Board of Directors in March 2018, were valued at $40,000 per external
director ("Aggregate Award") and were made under the Company's Equity Incentive
Plan. The number of restricted stock units awarded was determined by dividing
(A) the Aggregate Award by (B) the closing price of one share of Company
ordinary voting common share at the close of market on April 4, 2018, which was
$10.50 per share. For new directors, the Aggregate Award is proportionate to the
director's start date and priced as of that same day. During 2018, the Company
awarded 17,524 RSU grants having an aggregate grant date fair value of $179,000.
The RSUs will vest 33.3% on January 1 of each year with the last vesting period
being 2021.
There were 3,301 and 11,682 non-vested RSUs issued as of December 31, 2020 and
2019, respectively. The RSUs are participative and are included in the
computations of earnings per common share and book value per common share for
these periods.
During 2020, the Company issued 8,381 ordinary voting common shares as a result
of the vesting of RSUs. During 2019, the Company issued 5,842 ordinary voting
common shares as a result of the vesting of RSUs and 27,195 ordinary voting
common shares, then immediately canceled 6,169 shares, as a result of a cashless
exercise of options.
Mezzanine Equity
There were no preferred shares outstanding as of December 31, 2020 and 2019.
Book Value

Book Value per Common Share

   ($ in '000s, except for share and per share data)               December 31,
                                                                2020           2019
   Shareholders' equity                                    $    (20,892)  $     (8,461)

   Less: Accumulated dividends on preferred stock                     -              -
   Common equity                                           $    (20,892)  $     (8,461)
   Common shares:
   Common shares outstanding                                 11,993,293    
11,942,812
   Restricted stock units                                         3,301         11,682
   Total common shares                                       11,996,594     11,954,494
   Book value per common share outstanding                 $      (1.74)  $ 

(0.71)



The changes to book value per common share are attributed to the combined
effects of the reasons cited in the 'Net Premiums Earned,' 'Commission Income,'
'Net Claims Incurred,' 'Acquisition Costs,' 'Other Underwriting Expenses,' 'Net
Investment
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Income,' 'Intangible Asset Impairment Loss,' 'Interest Expense, Net,' 'Loss from
Change in Fair Value of Equity Securities,' 'Net Realized Investment Gains
(Losses)' and 'Other Income' subsections of the 'Operating Results' section.
Liquidity and Capital Resources
Liquidity Management
The purpose of liquidity management is to ensure there is sufficient cash to
meet all financial commitments and obligations as they become due. The liquidity
requirements of Atlas' business have been met primarily by funds generated from
operations, asset maturities and income and other returns received on
securities. Cash provided from these sources is used primarily for payment of
claims, commissions and general expenses. The sources and uses of cash have
changed as a result of the Company's strategic shift from a traditional
insurance carrier based operation to a managing general agency.
As a holding company, Atlas may derive cash from its subsidiaries generally in
the form of dividends and in the future may charge management fees to the extent
allowed by statute or other regulatory approval requirements to meet its
obligations. AGMI funds its obligations primarily through commission revenue
generated by the production of insurance premiums for related and third party
entities. The Insurance Subsidiaries fund their obligations primarily through
premiums collected, investment income and proceeds from the sales and maturity
of investments, and capital contributions from their parents. The Insurance
Subsidiaries require regulatory approval for the return of capital and, in
certain circumstances, payment of dividends. In the event that dividends and
management fees available to Atlas are inadequate to service its obligations,
Atlas would need to raise capital, sell assets or incur debt obligations. See
"Part II, Item 7, 2020 Developments."
On April 26, 2017, Atlas issued $25 million of five-year 6.625% senior unsecured
notes and received net proceeds of approximately $23.9 million after deducting
underwriting discounts and commissions and other estimated offering expenses.
Interest on the senior unsecured notes is payable quarterly on each January 26,
April 26, July 26 and October 26. Atlas may, at its option, beginning with the
interest payment date of April 26, 2020, and on any scheduled interest payment
date thereafter, redeem the senior unsecured notes, in whole or in part, at a
redemption price equal to 100% of the principal amount plus accrued and unpaid
interest to, but excluding, the date of redemption. The senior unsecured notes
will rank senior in right of payment to any of Atlas' existing and future
indebtedness that is by its terms expressly subordinated or junior in right of
payment to the senior unsecured notes. The senior unsecured notes will rank
equally in right of payment to all of Atlas' existing and future senior
indebtedness but will be effectively subordinated to any secured indebtedness to
the extent of the value of the collateral securing such secured indebtedness. In
addition, the senior unsecured notes will be structurally subordinated to the
indebtedness and other obligations of Atlas' subsidiaries. From time to time the
Company may seek to repurchase Company debt through cash repurchases in the open
market or otherwise. Such repurchases, if any, will be on the terms and prices
determined by the Company and will depend upon market conditions, liquidity
needs and other factors. The amount of such repurchases may be material.
The senior unsecured notes were issued under an indenture and supplemental
indenture that contain covenants that, among other things, limit: (i) the
ability of Atlas to merge or consolidate, or lease, sell, assign or transfer all
or substantially all of its assets; (ii) the ability of Atlas to sell or
otherwise dispose of the equity securities of certain of its subsidiaries; (iii)
the ability of certain of Atlas' subsidiaries to issue equity securities; (iv)
the ability of Atlas to permit certain of its subsidiaries to merge or
consolidate, or lease, sell, assign or transfer all or substantially all of
their respective assets; and (v) the ability of Atlas and its subsidiaries to
incur debt secured by equity securities of certain of its subsidiaries.
Summary of Consolidated Cash Flows
($ in '000s)                                                          Year 

ended December 31,

                                                                        2020              2019
Net cash flows used in operating activities                     $     (24,531)       $   (48,758)
Net cash flows provided by investing activities                        10,381             67,742
Net cash flows provided by (used in) financing activities               3,845               (183)
Net (decrease) increase in cash                                 $      

(5,622) $ 11,836



Cash used in operations during 2020 was primarily a result of the strategic
shift from insurance company operations to managing general agency operations.
Cash used in operations during 2019 was primarily a result of the effect of
deconsolidation of the ASI Pool Companies and the discontinued operation
classification of Global Liberty.
Cash provided by investing activities during 2020 resulted from the net sales
and maturities of fixed income securities and short-term investments partially
offset by the purchase of property and equipment. Cash provided by investing
activities during 2019 was due to liquidation of investments of the ASI Pool
Companies to support the run-off of claims and operating activities while these
companies were in rehabilitation and the effect of the discontinued operation
classification of Global Liberty.
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Cash provided by financing activities during 2020 was a result of the Company
receiving a PPP Loan offset by mortgage payments made to the ASI Pool Companies.
Cash used in financing activities during 2019 was primarily a result of the
deconsolidation of the ASI Pool Companies and the repayment during the fourth
quarter of 2019 of principal on mortgage notes due to the deconsolidation
entities.
From time to time the Company may seek to repurchase Company debt through cash
repurchases in the open market or otherwise.  Such repurchases, if any, will be
on terms and prices determined by the Company and will depend upon market
conditions, liquidity needs and other factors.  The amount of such repurchases
may be material.
Capital Resources
The Company manages capital using both regulatory capital measures and internal
metrics. The Company's capital is primarily derived from common shareholders'
equity, retained deficit and accumulated other comprehensive (loss) income.
As a holding company, Atlas could derive cash from its subsidiaries generally in
the form of dividends to meet its obligations, which will primarily consist of
operating expense payments and debt payments. Atlas subsidiaries fund their
obligations primarily through commission and fee income.
Ability to Meet Financial Obligations
As discussed in greater detail in "Part II, Item 8, Note 20", Going Concern,
there is substantial doubt about whether the Company will have sufficient
capital to operate through or beyond April 2022 unless the Company is successful
in taking certain mitigating action (see Part II, Item 8, Note 20).
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We are a smaller reporting company as defined in Rule 12b-2 of the Exchange Act;
therefore, pursuant to Regulation S-K, we are not required to make disclosures
under this item.
                                       44

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