American Coastal Insurance Corporation

Greetings, and welcome to American Coastal's Third Quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Karen Daly, Vice President, the Equity Group, and American Coastal's IR representative. Please go ahead.

Thank you, Brock, and good afternoon, everyone. American Coastal Insurance Corporation has also made this broadcast available on its website at .amcoastal.com. A replay will be available for approximately 30 days following the call. Additionally, you can find copies of the latest earnings release and presentation in the Investors section of the company's website. Speaking today will be Chairman of the Board and Chief Executive Officer R. Daniel Pede, President Bennett Brackert-Marts, and Chief Financial Officer Svetlana Castle. On behalf of the company, I'd like to note that statements made during this call that are not historical facts are forward-looking statements. The company believes these statements are based on reasonable estimates, assumptions, and plans. However, if the estimates, assumptions, or plans underlying the forward-looking statements prove inaccurate or if other risks or uncertainties arise, actual results could differ materially from those expressed in or implied by the forward-looking statement. Factors that could cause actual results to differ materially may be found in the company's filings with the U.S. Securities and Exchange Commission. In the Risk Factor section of their most recent annual report on Form 10-K 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, the company undertakes no obligation to update or revise any forward-looking statement. With that, it's my pleasure to turn the call over to Mr. Daniel Pede. Dan, you may begin.

Thank you, Kara. The third quarter of 2024 saw the emergence of the active Atlantic hurricane season that was predicted starting with hurricanes Debbie and Helene. Then just after the third quarter ended, Hurricane Milton made landfall in central Florida, impacting millions of Floridians, including AMCOASTAL staff. In preparation for Hurricane Milton, American Coastal activated its business continuity plan and I'm pleased to report that our operations continued seamlessly, meaning there were no disruptions to policyholders and we were prepared to immediately respond to claims. Significant cleanup and restoration efforts continue and American Coastal is proud to have supported relief efforts through monetary donations and pay time off for employees who volunteered. As we previously announced, we estimate that we will retain approximately $3.8 million in after-tax losses stemming from Debbie and Helene and $16.2 million in after-tax losses retained in Milton in the fourth quarter. This compares favorably against our peers and enables a strong underwriting profit in the third quarter. Furthermore, American Coastal has an exceptional and steady underlying combined ratio, along with the significantly increased total revenue of $82.1 million in the third quarter. This stems from favorable reinsurance pricing as well as the reduction of the quota share from 40% to 20%. We expect a new non-CAT margin run rate as measured by the underlying combined ratio as well as the strong revenue growth to continue in future quarters. Finally, I'm pleased to announce that American Coastal successfully participated in its first-ever takeout from Citizens. The takeout added policies to our condo book and signaled the launch of a new apartment program. We are excited for the future and pleased that you are here to learn more about American Coastal. With that, I will turn the call over to Brad Marz, President of ACIC.

Thanks, Dan, and hello. Today, I'll provide additional color on the recent hurricane losses and also review our forward-looking guidance for the remainder of 2024. Then I'll turn it over to our CFO. Pages three and four of our earnings presentation highlight additional details on the named windstorms that Dan mentioned made landfall in Florida so far this year. Hurricane Debbie was a Kepler I storm in August with minimal wind damage. To date, we've only received 15 claims and estimated a gross loss of a million dollars with a net impact of about $600,000 after tax in the third quarter. Hurricane Helene was a much stronger Category 4 storm in September but made landfall in the Big Bend region, resulting in very minor wind damage to our risk portfolio. Helene also caused extensive flood damage on the west coast of Florida, but flood is not a cover peril by our hurricane policies. To date, we've received 26 claims for Helene and estimated our gross loss at $5 million, which translates to a net loss of about $3.2 million after tax. Like Debbie, Helene was within our retention and not considered an event for our core catastrophe excessive loss reinsurance program. Hurricane Milton, on the other hand, was a Category 3 storm in October that caused significant wind damage to our portfolio given its landfall in Sarasota County. As of today, we've received 154 claims and expect about 200 in total and have estimated the ultimate gross loss to be between 150 and 200 million. Milton appears to be trending towards the bottom of that range. It may even be below our guidance, but will certainly exceed our 20.5 million retention, making it our first event seeded to the core catastrophe excessive loss reinsurance program this year. Net of reinsurance and income tax benefit Milton will result in a $16.2 million net loss in the fourth quarter. Lastly, the company will also incur roughly $13 million of additional seeded premiums that were earned between October 2024 and May of 2025 to reinstate the limit used by Milton. This means that we have nearly our full reinsurance tower in place for any future events. So ACIC is very well protected against potential subsequent events such as Raphael. And if any additional hurricanes impact Florida this year, our net retention would drop to $10.3 million net of reinsurance and income tax benefit for the next two named wind storms should they occur. Page eight of our earnings presentation updates the guidance provided previously to include the actual results for the third quarter as well as the impact of Hurricane Milton on the fourth quarter of 2024. While I'm pleased to say we expect to remain profitable in the fourth quarter and post the strong result for the full year considering the increased level of hurricane activity impacting Florida. Comparison to the prior periods is obviously impacted by the fact that American Coastal did not incur any hurricane losses or reinstatement premium costs in 2023. With that, I'd now like to turn it over to Lana.

Thank you, Brett. And hello. I'll provide a financial update but encourage everyone to review the company's press release, earnings and investor presentations and form 10Q for more information regarding our performance. As reflected in page five of the earnings presentation, American Coastal had a strong quarter with a net income of $28.1 million. Our income was $26.9 million, which is an increase of $11.4 million year over year as a result of lower seeded earned premiums from the step down of our gross catastrophe quarter share from 40% to 20% effective June 1, 2024. Page six of the presentation shows that gross premium earned grew 2.4 million to 160.2 million. Our combined ratio was 57.7%, which is below our 65% target and a decrease of five points from .7% in the same period last year. We feel our reserve position is strong. As shown on page six of our presentation, operating expenses increased 9.5 million. This was primarily driven by 7.3 million or .7% increase in policy acquisition costs due to a decrease in seeding commission income because of the quarter share step down mentioned earlier. General and administrative expenses also contributed to this increase, increasing 2.2 million or 36.7%. These increased costs were in line with expectations and were more than offset by the decrease in the previously mentioned seeded premiums earned. The result is an increase in earnings before tax of 18.4 million year over year. This is a direct result of our executed initiative to retain more of our underwriting profit. Page nine shows balance sheet highlights. Cash and investments grew .1% to 571.1 million, reflecting the company's strong liquidity position. Stockholders' equity increased .8% to 259.6 million driven by strong underwriting results. Book value per share is 538, a .2% increase from year end. High liquidity and stronger capitalization resulted in significant improvement to our leverage ratios. The company is in a strong position to meet policyholder obligations from the recent catastrophe losses. I'll now turn it over to Brad Marks for closing remarks.

Thanks, Lana. We appreciate your interest in ACIC and look forward to sharing more information with you at our upcoming Virtual Investor Day at 11 a.m. on December the 4th. That completes our prepared remarks today and we are now happy to take any questions.

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I'd like to turn the call back to Dan Pied for closing remarks.

Hey, thanks. And thanks to all of you for your time and your interest in American Coastal. We are excited for our future opportunities and looking forward to our continuing profitable growths. With that,

thanks again.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.