American Coastal Insurance Corporation

Greetings and welcome to the American Coastal Insurance Corporation second quarter earnings conference call and webcast. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation, and you may be placed into question queue at any time by pressing star 1 on your telephone keypad. If anyone should require operator assistance, please press star 0. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Karen Daly with the Equity Group. Please go ahead, Karen.

Thank you, Kevin, and good afternoon, everyone. American Coastal Insurance Corporation has also made this broadcast available on its website at www.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 investor section of the company's website. Speaking today will be President and Chief Executive Officer Bennett Bradford Marth, 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 in 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 statements. With that, it's my pleasure to turn the call over to Brad Martz. Brad?

Thank you and welcome, everyone. I'm pleased to report American Coastal continued to deliver exceptional results during the second quarter by growing revenues 26% year-over-year, growing pre-tax earnings 51% year-over-year, and producing a core return on equity of approximately 42%. In our view, the Florida market for admitted commercial residential property insurance remains relatively healthy, but property insurance rates continue to fall in most territories during the second quarter, so we're monitoring all terms and conditions very carefully. In southeast Florida in particular, where much of our exposure is located, the market is generally firmer than the rest of the state and is even expected to improve in some instances due to ongoing capacity and underwriting constraints. Our risk portfolio continues to perform in line with most key underwriting metrics. These metrics, along with improvements in our balance sheet strength and our catastrophe reinsurance program, are a big reason why we have grown our policies in force roughly 10% since year end. Year to date, total insured value increased approximately 18%, 69.8 billion as of June 30th. However, continuous portfolio optimization and improvements in our overall spread of risk have resulted in modeled expected losses growing at a much slower rate. During the quarter, we completed our core catastrophe reinsurance program renewal effective June 1st, 2025. Page 10 of our earnings presentation provides the final structure and highlights of which are very similar to the projected structure we previewed last period. with a risk-adjusted cost decrease of approximately 12.4%. Seeded premiums are subject to potential adjustment based on actual modeled average annual loss versus our projected AAL at September 30th, so our risk appetite for adding new exposures is likely to be somewhat limited during the third quarter. We expect to resume growth in the fourth quarter towards the end of hurricane season, assuming the underwriting environment is favorable to do so. On July 21st, we also announced that the Coral Bond Rating Agency had upgraded American Coastal Insurance Corporation to BBB-, and moved all of our outlooks from stable to positive. Our team has worked hard to regain investment grade status, and since it reduces the interest rate on our senior notes by 100 basis points, and clearly conveys that our company is headed the right direction, we were very happy to see that. I'll now turn it over to our CFO, Lana Castle, for more specifics on our second quarter results.

Thank you, Brad, and hello. I'm Lana Castle, Chief Financial Officer of American Coastal Insurance Corporation, and I'll provide a financial update, but encourage everyone to review the company's press release, earnings and investor presentations, and Form 10-Q for more information regarding our performance. As reflected on page five of the earnings presentation, American Coastal demonstrated another strong quarter with net income of $26.4 million. Core income was $26.8 million, an increase of $7.2 million year-over-year due to a $15.1 million increase in net premiums earned as a product of stepping down our gross quarter share from 40% to 20%, effective June 1, 2024, and further from 20% to 15%, effective June 1, 2025. This was partially offset by increased operating costs of $6.2 million, driven by a $10.3 million or 74.8% increase in policy acquisition costs, offset by a $4.1 million or 34.5% decrease in general and administrative expenses. Policy acquisition costs increased due to a decrease in seeding commission incomes because of the step-down and increased external management fees, while G&A decreased due to the receipt of $2.9 million of employee retention tax credit refunds. These refunds were previously disclosed as a gain contingency and are non-recurring. Our combined ratio was 60.6%, a decrease of 4.3 points from 2024 and lower than our stated 65% target. Our non-GAAP underlying combined ratio, which excludes current year catastrophe losses and prior year development, was 62.2%, also below our 65% target. We continue to feel our reserve position is strong. Page 6 of the presentation provides additional detail on our financial results. The increased operating costs mentioned earlier were in line with expectations and were more than offset by the increase in net premiums earned, creating net earnings shown. Page seven shows balance sheet highlights. Cash and investments grew 34.3% since year end to $726.2 million, reflecting the company's strong liquidity position. Included in this balance is $25.7 million of cash received from the sale of our Interbora subsidiary announced in April 2025. Stockholders' equity increased 24% since year end to $292.3 million, driven by strong results. Book value per share is six, a 22.7% increase from year end 2024. The company continues to be in a strong position to execute on its 2025 initiatives.

I'll now turn it over to Brad Martz for closing remarks.

Thanks, Lana.

That completes our prepared remarks for today's call, and we are now happy to field any questions.

Thank you. We're now conducting a question and answer session. If you'd like to be placed into question queue, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. Once again, that's star one to be placed into question queue. In one moment, please, while we poll for questions. Our first question is coming from Greg Peters from Raymond James. Your line is now live.

Hey, good afternoon. In your investor deck, you talk about Skyway underwriters, and I thought on page nine of the deck, it's kind of interesting because there's this quote-to-bind ratio, and it seemed like it improved pretty noticeably in June. How do I think about... the market that you guys are going after with Skyway Underwriters in the context of your comments about the pricing environment for your other core business?

Thanks for the question, Greg. This is Brad.

You know, we're cautiously optimistic about our ability to grow our presence in the apartment space in Florida on an admitted basis. Obviously, most of the apartment risks are written in the E&S market today. We're offering a compelling alternative. And you have to see a lot of submissions to finally issue a policy. We haven't been chasing everything that's coming to us, but we're seeing nice deal flow. And I think it's that submission to buying ratio that's probably more important as an indicator of us just being cautious and being selective and being patient. We're not chasing rate. Rates in the E&S market in Florida tend to be a little bit more volatile than the admitted market, as you can imagine. So while we price our business like E&S, it's not something that we're forced to grow. That's the good part about having an executive chairman who's an underwriter You know, there's no requirement or anything internally that suggests we have to hit our $20 million premium goal. You know, we'll take on risk as it presents an opportunity based on the expected return on capital. And that's really how we're approaching it.

And can you remind me on this is, you know, for this apartment business, this is just, you're not taking on any liability exposures here. This is just physical damage, right?

Correct. Yeah, great clarification. We are not in the casualty business. This is a property book only, so no liability exposure.

Great. And, you know, lots of great information that you're providing in slide 10 on your reinsurance program. And very rarely do we see companies that talk about third event cover so maybe maybe you can spend a second in unpack obviously the first event is pretty straightforward but talk about the second and third event because i imagine if there are other parts of the tower that are used in a first or second event that might limit the availability of what's what's possible for a third event cover, but perhaps you can provide some clarification on that.

Yes, certainly. The group retention outlined on page 10 of the earnings presentation are really simulating, you know, three sort of normal events, call it $100 million of gross loss. That's kind of how we think about it with an average annual loss in the in the $50 million range, you know, if you double that and say, okay, you know, a normal event like a Milton that we currently have reserved at 90, and our incurred losses on Milton are under $25 million, but we've got it reserved at 90, suggests that that's what the retention would be based on the utilization limit. But obviously, it really depends on the first event. As you astutely point out, You know, there are a number of different scenarios, depending on frequency and severity, that could change those retention numbers. But that's how the program is designed. The key variable is the Florida Hurricane Catastrophe Fund. We're showing it drawn here, attaching it around the $300 million mark. That's likely to move up based on our exposure growth that we've reported to the CAT Fund as of June 30th. There will be more coverage, ultimately. I think that's going to push the total exhaustion point of our program up based on this structural illustration that is just a projection. But that being said, you know, we've got no gaps in coverage and, you know, all of the limit in errors around the CAAT Fund. CAAT Fund is an error, I should say, rather. The unique enhancement we made this year that we didn't have last year is a cascading feature of some of the limit up top. Historically, those top layers, you know, had fixed attachment and exhaustion points. Now, if there is significant erosion in the Florida Hurricane Catastrophe Fund, you can see the Armoury 2 cat bond, for example. it's drawn as 200 million excess of 50 million, even though it's showing an attachment point well above that, is because it does first drop to 300 million to fill in any erosion of cap fund limit lost for a second event, and then would potentially drop even further to 50 million for a third event. So there are all kinds of different scenarios for frequency and severity, but what we've outlined here is just an expected normalized stress test for three normalized sort of Cat 1, Cat 2, Cat 3 type events.

Perfect. Makes sense. And thanks a lot for the detail. You're welcome.

Thank you. Next question today is coming from Bill DeZellum from Tyson Capital Management. Your line is now live.

Thank you. I actually would like to follow up on the apartment binding ratio. Because that 45% is higher than what you had been – experiencing earlier in the year. Would you walk through the implications? I mean, is it literally that you had that much higher quality apartments coming to you, or is it more a function of gaining experience, understanding and getting comfortable with the market, and being willing to bind more coverage than you were before? earlier in the year. Walk me through the dynamics, if you would, please.

Sure. Thanks for the question, Bill. I definitely would agree we are gaining experience and knowledge and building deeper relationships with our distribution partners every day. So, you know, what we knew in January is significantly improved, you know, today. That being said, the quote-to-bind ratio is a little bit random. June is a big month for production in property insurance in general in Florida. Second quarter is obviously our strongest premium production quarter of the year, and June, we just happen to see more risks that fit our eye than we had in the previous months. So it's a combination of some seasonality and a little bit of randomness, but I will... not miss an opportunity to say our capabilities are improving day by day in the underwriting distribution of the apartment program.

Well, I'll ask you to step out on a limb. The first half, your quote-to-bind ratio was 29% on average. Directionally, is that number going up in the second half or down in the second half?

Hard to say.

I don't have a perfect crystal ball on the underwriting environment. Obviously, if it remains relatively healthy, I think there's opportunity to grow. If rates continue to decrease and returns are impacted by various changes in terms and conditions, it could slow. We're going to be opportunistic and very thoughtful about you know, growing this business. But, you know, I'd love to see us meet or exceed our plan for the year. But, again, it's a soft target. It's not something I'm pushing aggressively internally. I'd much rather see us write, you know, a high-quality book of business with a better expected margin than just put a bunch of premium on the books.

All right, thanks, Brad. And then in your opening remarks, you referenced that the geography where you have concentration is a better market, harder market than Florida on average. Would you dive into that comment a bit further, please?

Sure. Southeast Florida, you know, also affectionately known as Tri-County, It includes Miami-Dade, Broward, and Palm Beach counties, to a lesser extent Martin County. You know, that southeast region of the state is always going to be the most challenging. It's the peak exposure zone in the world for hurricane risk. And, you know, there's more demand than there's supply of quality carriers willing to write there and have the experience and knowledge and know-how to successfully underwrite in that particular part of the states. So we've got a strong presence that bodes well for our book, considering that, you know, that market is what I would characterize it as firmer than the rest of Florida, where that's perceived to be less risky. And our apartment business, I should have mentioned, you know, is a lot of this premium that we're writing in the apartments is not in you know, the peak zones where our condo business is. So it is helping diversify our portfolio from an exposure management perspective.

And, you know, we're happy to see that.

Thank you. That is helpful. And I guess I have one additional question relative to the employee tax retention credit. You have now received all of the credits that you'll be receiving, or are there still some lingering out there that you are hoping to receive?

I believe we received everything at this point. Lana, can you confirm that that's accurate?

Yes, Brad, I confirmed all have been received.

Thank you. Great. Thank you both. You're welcome. Thank you.

You're welcome. Thank you. We reach the end of our question and answer session. And ladies and gentlemen, that does conclude today's teleconference and webcast. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.