American Coastal Insurance Corporation Price & Performance (ACIC)

Factors that could cause actual results to differ materially may be found in company's filings in the Risk Factors section of the most recent Annual Report on Form 10 ks, and subsequent quarterly reports on Form 10 Q. Forward looking statements speak only as of the date on which they are made, and except as required by applicable law, company undertakes no obligation to update or revise any forward looking statement. With that, it's my pleasure to turn the call over to Brad Mart. [indiscernible] Hello, and welcome to American Coastal's Fourth Quarter twenty twenty four Earnings Call. Today, I'll provide an operational and strategic update and then turn it over to our CFO, Lana Castle, for more specifics on our fourth quarter and full year results along with our expectations for 2025. American Coastal continued to perform very well the fourth quarter and despite a full retention loss from Hurricane Milton, we remain profitable. And I could not be more optimistic about our future. In December, we successfully launched a new apartment program in Florida Our team worked extremely hard to build out the technological and just and these efforts are already starting to pay off. As of today, American Coastal has written 19 new apartment risk totaling approximately $2,300,000 of premium.

Most of that exposure is less than ten years old with some being brand new.

And most risks are located outside of our peak zones for condos The company has received hundreds of high quality submissions from our distribution partners But we are being very selective with what we've added to our risk portfolio. Premium generation is the easy part of our business. Underwriting profit is the goal. And we remain laser focused on that as our primary objective for all new business. During the fourth quarter, I was very pleased to see new business growth along with renewal account retention being better than expected. These metrics combined with our policy assumption from Citizens resulted in ACIC growing its policy count sequentially quarter over quarter.

Further, by retaining more of our business using less quota share, we were able to grow total revenues nearly 55% year over year in Q4. Rates are continuing to decrease due to favorable trends in loss and reinsurance costs, but deductible levels and valuations are holding firm, which creates Next, I'd like to highlight American Coastal's accomplishments enhancing our reinsurance protections. Prior to year end, the company placed a new three year catastrophe bond at the top of our core catastrophe reinsurance program that was upsized from $100,000,000 to 200,000,000 and priced well below the expected range.

We did this in advance of our 6.1 renewal because of the attractive terms and pricing available. At that time. This new top layer also includes a cascading or drop down feature for potential second and third hurricane events that has previously not been available to us in the market. At least not since 2020.

So we're very grateful to have obtained this more robust coverage. At January 1, we also successfully renewed our [indiscernible] Which protects against non hurricane catastrophe events. Such as tornado and hailstorms, That was completed with a modest improvement in terms including reducing our retention approximately 37% from $14,250,000 dollars to $9,000,000 before tax. We had a similar experience at February 1 with our excess per risk reinsurance program which protects against non catastrophe perils such as fire, also reducing our retention about 38% from $6,500,000 to just $4,000,000 before tax. However, the real headline for the period was the placement of a new catastrophe aggregate or CAT ag program designed to reduce potential earnings volatility. The purpose of the Cat egg is to reduce the probability of our annual net losses from catastrophes exceeding $40,000,000 during 2025.

History would suggest it's unlikely American Coastal will feed any losses to the CATAG.

But if the frequency and severity of hurricanes and non hurricane cat events increases, this program should respond and protect future expected earnings. For the full year 2024, our pretax income was approximately 102,000,000 up nearly 6% year over year despite having incurred $23,000,000 more in net catastrophe losses. Even with Hurricane Meltdown in Q4, American Coastal American profitable And that Cat three hurricane event was absorbed within a single quarter's profit which we've stated previously is our target. ACIC's strong annual earnings produced an exceptional 57.4% return on beginning equity.

The company's starts 2025 with approximately $236,000,000 of stockholders' equity And given our previous earnings guidance for this year, which we are now reiterating, that implies an expected return on beginning equity of over 30% inclusive of all cat losses for this year. Net losses incurred will ultimately drive our actual results for 2025 But the risk transfer enhancements added should provide more certainty and less volatility around our performance. And with that, I would like to now turn it over to Lana. Lana?

Thank you, Brad, and hello. I'm Lana Caso, Chief Financial Officer of American Coastal Insurance Corporation. And I will provide a financial update but encourage everyone to review the company's press release earnings and investor presentations and Form 10 ks for more information regarding our performance.

As reflected on Page five of the earnings presentation, American Coastal had a profitable quarter despite the full retention from Hurricane Milton. Net income of $4,900,000 Foreign income was $6,000,000 a decrease of $12,000,000 year over year as a result of $20,500,000 pretax retention from Milton. Partially offset by lower ceded earned premiums from the step down of our growth catastrophe quarter share from 40% to 20% effective June 1, 2024. Page six of the presentation shows that gross premium earned grew $3,600,000 to $162,700,000 Our combined ratio was 91.9%. Hurricane Milton drove 27.8% of this ratio. Our non GAAP underlying combined ratio which excludes current year catastrophe losses and prior year development, was 650.9%. And our 2024 full year combined ratio was 67.5%. In line with our 65% target. Our reserve position remains strong. As shown on Page six of our presentation, operating expenses increased $15,100,000 This was primarily driven by a $13,400,000 increase in policy acquisition costs due to a decrease in senior commission income as a result of the quarter shift step down mentioned earlier and increased MGA fees paid related to our premium growth, quarter over quarter. General and administrative expenses also contributed to this increase.

Increasing by $1,700,000 or 17.7%. These increased costs were in line with expectations and offset by the decrease in the previously mentioned seeded premiums earned and increased gross premiums earned.

Very proud to have demonstrated a profitable quarter despite Milton proving successful initiatives to have catastrophe events be an earnings event, not an event that erodes our equity position. Page seven shows balance sheet highlights. Cash and investments grew 73.4% to $540,800,000 reflecting the company's strong liquidity position. Stockholders' equity increased 39.6% to $235,700,000 driven by strong underwriting results and inclusive of a $24,240,000 dividend paid to shareholders in January 2025. Book value per share is $4.89 a 35.5% increase from year end 2023. High liquidity and stronger capitalization resulted in significant improvement to our leverage ratios. The company is in strong position to execute on its 2025 growth initiative. It's As Brad mentioned, our previously provided forward looking guidance remains same and we project a range between $70,000,000 and $90,000,000 of net income in 2025. I'll now turn it over to Brad Mart for closing remarks. Thank you, Lana.

I'll conclude today by mentioning that we have received regular [indiscernible] from the state of New York to complete the sale of Interboro. We have scheduled a closing date for April 1 So one second past our drop dead date for first quarter. But all kidding aside, we're now working with the buyer on all the closing checklist items and that transaction will add approximately $22,000,000 of cash to our holding company. I'm honored and humbled by the opportunity to lead and want to thank each and every one of you for your participation and interest our great company. That completes our prepared remarks for today's call. And we are now happy to take any questions.

Thank you. Our first question is coming from Gregory Peters from Raymond James. Your line is now live. Hey, good afternoon, everyone. I wanted to go to the outlook or the guidance slide And you've provided some expectations around earned premium Just provide some color on how pricing is. You said pricing is the pricing environment has changed because of the profitability. Maybe you can give us an update of how you see that evolving through the course of this year?

Sure. I'd be happy to. Thanks for your question, Greg. Pricing is changing because of expectations of future loss and reinsurance costs. So with those coming down, it's Our expectation that we'll be able to pass some savings on to our policyholders. So we're excited about that. I do think there are a number of reasons for that inflation moderating, some of the reforms that have been enacted in Florida are absolutely having positive effect in the market, especially in terms of litigation. So there are a number of reasons why we're optimistic It's about the Florida marketplace today, but it's not going to impact our expected profitability. We're still targeting it combined ratio of 65% before CAT. So margins are intact despite pricing being down between 510% year over year. On the average account renewal.

Okay. And then you talked about the apartment growth, the opportunity to grow your apartment book.

Do you have sort of an aspirational target of how how much business you're how big you want that book to get? Obviously, [indiscernible] I mean longer term, do you have a mix in mind that you're thinking about We do. Absolutely. It's a good question. And back in our Investor Day, in December, we did talk a little bit about the market and $300,000,000 of premium based on our analysis of the garden style apartment complexes. Garden style is the same physical sort of risk characteristics that we're writing today in our condo book. So we're not going to stray from the secret sauce that has really worked well for us in terms of risk characteristics. The only one apartment is occupancy. Tenant occupied versus owner occupied. Obviously, that has some potential differences in lost experience from perils like fire which we obviously price for otherwise, from a win perspective, which is our primary risk, that's the fiscal risk characteristics of the building are unchanged. We don't write liability either. So it really is just a property cover.

And for 2025, we've stated our goal is modest at about $20,000,000 of premium. We may exceed that, we may not. We're off to a pretty good start. We've got several quotes issued and I expect we'll have a strong ramp up leading up to June 1 and then it'll quiet down just like typical with the seasonality in our condo book. But Yes. It will have a modest impact to earnings this year. But I think in 2026, 2027, see a much larger, mix shift between condos and apartments.

Great. The final question that I'll have for the call will be just You have an important new insurance renewal coming up. Thinking your slide deck, you talked about how previous year your quarter share was reduced from 40% to 20 Can you you give us a preview on how what kind of changes you think might happen with your reinsurance structure for the renewal? And how the pricing is on that renewal considering that you did have some losses last year.

Sure. I'll do my best. It's obviously pretty early. Our team was actually in Bermuda yesterday, meeting with some of our reinsurance partners on Tuesday and Monday as well. So we're actively working on the structure and the placement for midyear.

I can just tell you our goals are very similar in terms of keeping a modest retention that is absorbed within a typical quarter's earnings. We'd like to push the exhaustion point of the program up closer to the two fifty year return period if we can. The expiring program was about the two thirty year according to AIR. So that'll be a little challenging with model change. From both AR and RMAs. We look at both but we're off to a good start with the limit we placed in the cap on March at the December. So that $200,000,000 new layer sits on top. There's essentially $800,000,000 of open market limit that we're placing this year. Dollars 400,000,000 is already done in the cap on market. And the other $400,000,000 dollars will sit some slightly above, alongside, but most of that limit below. The cat fund and above our retention. So we haven't finalized our retention yet.

And the Florida Hurricane Catastrophe Fund will not be done with their rate making procedures until the March. And that'll finalize the the attachment point of the cap fund, which is instrumental in us finalizing the layering and structure. So we're still a few weeks away from having clarity on that?

But we're actively working on it and we expect to have a very, very successful Great. Makes sense. Congratulations on your results.

Thank you.

Thank you. Next question is coming from Bill Dezellem from Thank you. Congratulations on a good quarter with a big gap.

So I have a couple of three questions. I'd like to start with the apartment market. And make sure we're scaling this correctly that you're referencing the size of this market being that you would like to address $200,000,000 to 300,000,000 And would that be versus or compared to the $638,000,000 dollars of gross premiums earned in 2024, would that be the proper the proper reference point and characterization? Yes, it would be. We ended 2024 with $646,000,000 of in force premiums the vast majority of that being condos. So yes, I think that's the appropriate reference point in terms of the mix between apartments and condos? That's helpful. And I believe in your opening remarks, Brad, you had referenced that there was a lot of work to get ready for the apartment business. For those of us who had never run an insurance company before, would you talk to us about what was required to be ready to do this and kind of that behind the scenes view please.

Sure.

I can give you a brief executive summary and that really entailed first developing a product and then filing the rates, rules and forms with our regulators in Tallahassee getting approval for those then building out policy administration systems to be able to price quote, bind risk and issue policies and also establishing our distribution network. So we are we have partnered with AmWinds and CRC and Bridge Specialty among others that and they are key producer for us on the condo side. So they know us very well and we know them very well. We're not venturing into foreign territory with people who we don't know. So know Florida, we know our producers, we know this product, we've underwritten it before. We're very comfortable with risk, again, given that it's substantially identical to a condo, but it did require a lot of steps to be able to to underwrite this. Appropriately. And how about back office systems? Was there a heavy lift to accomplish that? Or is it essentially the same systems? No, it was pretty heavy lift. I mean, we were really starting a team that had substantial experience [indiscernible] building and integrating and implementing very complex architecture but that that was not our foray.

Historically, 100% of our business has been produced by Amrisk and we have a fantastic partnership with Amrisk. We are not seeking to compete with Amrisk. I have to reiterate that that again. But obviously, we are producing some of this stuff internally and So we had to to do our best to replicate a lot of the activities that are on the condo book that are being done by a third party that is unaffiliated with the company. And then one additional question on that front. If you look at $1,000,000 of gross premiums earned on the condo business underwritten by Amrisk versus $1,000,000 of gross premium written or earned on the apartment business. What is the incremental level of profitability to American Coastal now that you are doing that, the work that Amrisk does for you on the condo front?

I wouldn't say there's a huge incremental level. Think we're still targeting a similar combined ratio. It's just the mix of how we get there is slightly different. So we'll trade a slightly higher loss cost for the tenant occupancy of apartments for reduced operating expenses for some of the internal efficiencies we've created with doing this in house But obviously, scale has a lot to do with that. Really depends on how much business we write and how good of underwriters we are and how good of a job we do with risk selection. Risk selection [indiscernible] this business and we are our binding ratio is right around 10% today. So I think we're being very, very picky and that's a good thing. We'll start slow. I'm sure we'll make some mistakes along the way and pivot accordingly. But I think we're off to a good start. And yes, if we can approach a similar combined ratio, I'd be thrilled.

But in all, the reality is that it might be It's been around seventeen plus years. It's very well underwritten. Very stable. So it'll take us time. I think, to get there. But The objective is to have it be very comparable. That's helpful.

And then jumping to reinsurance, if I may. Last month, the California fires made big headlines.

What implications, if any, do you see for American Coastal now that a little bit of time has passed? And and the industry has had time to evaluate the impact. My personal opinion on this It may have a small impact on Florida, but I don't think it'll allow us significant impact. Obviously, capacity was impacted in the global reinsurance market with a pretty big loss being ceded out of California. But it's a big global reinsurance market. I think they can handle it. I think they will address their underwriting and pricing for California. Separately But it could put pressure on capacity for all forms of cat globally. Just because it is such a big loss. So that could impact some carriers in Florida, but I don't expect it to have much impact on American Coastal. Okay. Thank you. And then relative to your oneone renewal, you in your opening remarks referenced coverage that previously has not been available for several years. That sounds significant. Would you please kind of rewalk through that and the implications and how that's important to you all.

Sure. And when I say hasn't been available, I really mean [indiscernible] to us, maybe others were successful and purchased limit that cascades or drops down [indiscernible] for us, it's been a while and we just think that's superior coverage at the end of the day. Instead of limit having fixed attachment and exhaustion point, what this new catastrophe bond will do for us is, it has the potential for after a first event to drop down to $50,000,000 for a second event and for a third event. Providing us substantial more protection than we've had in years past. And at least the most two recent years, for a high frequency year. Great. Thank you. And congratulations on your promotion. [indiscernible] Thank you. We've reached the end of our question and answer session. And ladies and gentlemen, that does conclude today's teleconference and webcast. You may disconnect your line at this time. And have a wonderful day. We thank you for your participation today.