American Coastal Insurance Corporation

At this time, all participants are in a listen-only mode. A question and answer session will follow a formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, I'd like to let you know that this conference is being recorded. It is now my pleasure to turn the call over to your host, Karen Daly, Vice President at the Equity Group and American Coastal's investor relations representative. Please go ahead, Karen.

Thank you, Diego, and good afternoon, everyone. American Coastal Insurance Corporation has also made this broadcast available on its website at www.ancoastal.com. A replay will be available for approximately 30 days following the call. Additionally, you can find copies of the latest earnings release and earnings presentation in the investor section of the company's website. Speaking today will be President and Chief Executive Officer Bennett Bradford-Martz 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 the 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 Marks. Brad?

Thank you, Karen, and welcome, everyone. I'm pleased to report American Coastal continued to deliver exceptional results during the third quarter, with over $42 million of earnings before income taxes, representing our best quarter to date. Total revenues grew over 10%, and despite general administrative expenses normalizing in the third quarter without the non-recurring payroll tax credits realized in the first half of the year, American Coastal was able to grow net income 16% year-over-year due to the muted catastrophe and attritional losses incurred. As previewed last quarter, we intentionally slowed premiums written in the third quarter to limit exposure growth through the peak of hurricane season and to hit our modeled expected average annual loss target, which was ultimately successfully accomplished. As the commercial property market continues to soften, risk selection and underwriting discipline remain paramount as we search for profitable growth opportunities. Looking forward, we believe the opportunity to earn strong returns on capital remains present even if headwinds from the current softening cycle persist. Accordingly, On October 1st, American Coastal reverted to normal operations, so we do expect to see a rebound in premiums written during the fourth quarter, with that positive momentum likely continuing into 2026. Our wholly owned MGA SkyWay underwriters recently introduced a new product and began quoting a new commercial residential property insurance program targeting the assisted and independent living facility market in Florida. American Coastal is only underwriting and retaining property exposure and will not be taking any liability or casualty risk. We believe the assisted living niche represents another attractive avenue for us to leverage our powerful distribution relationships and unique expertise in underwriting commercial residential property insurance by targeting properties that have similar physical risk characteristics to our condo and apartment policies but are also expected to be diversifying to our risk portfolio. Page 10 of our earnings presentation provides more detail on this exciting new initiative. I'd like to now turn it over to our Chief Financial Officer, Lana Castle, for more specifics on our results.

Thank you, Brad, and hello. I'll provide the 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 5 of the earnings presentation, American Coastal demonstrated another strong quarter with net income of $32.5 million. Core income was $30.5 million, an increase of $3.6 million year-over-year due to $6.4 million increase in net premiums earned as a product of stepping down our gross catastrophe quarter share from 20% to 15%. effective June 1, 2025, and the earning of new business premiums written in prior quarters. This was partially offset by increased operating costs of $5.6 million, driven by a $4.5 million or 21.5% increase in policy acquisition costs. Policy acquisition costs increased due to an increase in commission to MGA and decrease in seeding commission income year over year. Our combined ratio was 56.9%. a decrease of 0.8 points from 2024 and lower than our stated target of 65%. Our non-gap-on-the-line combined ratio, which excludes current year catastrophe losses and prior year development, was 57.8%, also below our 65% target. We continue to feel our reserve position is strong. Page six of our presentation, shows increased operating expenses of $5.6 million, as previously described. These increased costs were in line with expectations and were more than offset by the increase in net premiums earned mentioned earlier, driving additional net earnings shown. Looking at the full year results on page 7 of the earnings presentation, net income from continuing operations was $80.2 million, an increase of $9.7 million, or 13.8% year-over-year. Revenues have increased 31.7 million or 14.6% year-over-year, driven by increased net premiums earned. Operating expenses increased 23.8 million year-over-year, driven by policy acquisition costs increasing 28.7 million. This increase was in line with expectations and driven by the quarter share step-down and commissions mentioned previously. G&A expenses partially offset this, decreasing 4.9 million However, this was driven by one-time tax credit refunds of $4.5 million previously unrecorded and disclosed as a gain contingency. Page 8 shows balance sheet highlights. Cashing investments grew 28.5% since year-end to $695 million, reflecting the company's strong liquidity position. Stockholders' equity has increased 38.9% since year-end to $327.2 million, driven by strong results. Book value per share is 671, a 37.2% increase from year end 2024. The company continues to be in a strong position to execute its strategic initiatives. I'll now turn it over to Brad for closing remarks.

Thanks, Lana. I don't have anything to add, so that completes our prepared remarks today, and we're now happy to field any questions.

Thank you. And at this time, we will conduct our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. And your first question comes from Greg Peters with Raymond James. Please state your question.

Good afternoon. So I'm going to have three questions, one on the gross premium written decline in third quarter. And related to that, I guess, would be the commentary in your presentation about pricing being down 13 percent. Also go to reinsurance. But first, for gross premium written, can you Break up for us the part of the decrease that was related to suspending writing new business versus the portion that related to pricing being down, as you said, in your price release, 13% offset by assuming maybe there was some new business or maybe not.

Hi, Greg. This is Brad. Yeah, we didn't suspend new business. per se, we were still actively writing new and renewal business. We just had more stringent underwriting controls in place. So we set and manage our book of business by giving AmRisk on the condo side, for example, certain targets for total insured value or PML and or average annual loss. And in this particular case, For this year, we had set an average annual loss target at 930 linked to our reinsurance buy, right? So we want to always meet the targets for the amount of exposure we're going to have enforced during hurricane season relative to what we told our reinsurance partners we would deliver on. So that was super important to us. Obviously, if you go over that target, there's flexibility, just so additional reinsurance premium. We could have continued to grow in the third quarter if we'd chosen to do so, but we felt it was prudent to hold the line and continue to meet the targets we had laid out for our expected average annual loss. So that's the real reason for the decrease. Again, something we can easily make up for in the fourth quarter and into the first half of 2026, so I wouldn't read too much into it.

Okay. The other question, just, you know, in your press release, you talk about the reinsurance costs as a percentage of gross earned premium. quite down nicely in the third quarter this year versus third quarter last year. I know, I guess the January 1st renewal is right around the corner. That's not the big wind contract for you, but maybe you could just give us a little sense or some sense of how the one-one renewal discussions are going, which I'm sure you're involved with at this point in time, and any early read you have on the wind contract that comes up in June?

Sure. We had some very productive conversations in Orlando in early October with about three-fourths of our reinsurance panel. We had, I think, a good dialogue about Patrick Corbett- capacity and desire to grow alongside our reinsurance partners so they're certainly strong support for American coastal out there, but interestingly enough, you know we didn't the conversations were not centered or focused around price. Patrick Corbett- You know, we leave that to to other metrics and price discovery tools, including. utilizing our broker reinsurance intermediaries to evaluate the market and try and get a sense for what we can expect on pricing. So I think there's lots of capacity out there. There's certainly not a supply problem. Question is, what will be the demand? And I see reinsurance costs you know, moving in step with what's going on with our rates on the front end. So you mentioned our rates are down. That trend continued in the third quarter. So we are obviously looking at those headwinds from the softening cycle, like I said, and trying to understand what that means for returns on capital and the profitability of our business. So when I think about average premiums they're really only down about 9% since year end. But for the full year they they will be down commensurate with the risk adjusted cost decrease we've received on our core cat renewal pricing at six one of 2025. So as long as that continues, you know our outlook will will remain positive, but certainly in absence of of major cat events in the second half of. 2025 has helped provide some clarity around where pricing, both on the primary and the seated side, are headed.

Fair enough. Okay. Thanks for your answers. You're welcome. Thank you. And as a reminder, to ask a question, press star 1 on your phone now. Thank you. We have another question coming from Greg Peters with Raymond James.

Please state your question.

Hey, I'm going to ask one follow-up question just because you featured this in your presentation, which is the assisted living business. Maybe you have a lot of information on the slide on it, but maybe you can... give us a sense of what you think the addressable market looks like for American Coastal and how that might factor into your growth for for next year.

Absolutely. Thank you for the question. This is another opportunity for us, you know, brought to us, you know, by some of our distribution partners You know, the initial market research, you know, we've done would suggest it's, you know, about $100 million market for the types of risks we're looking at, which, you know, is limited. It is growing. You know, it could be double that in 10 years, as you can see by the growth projections. But, you know, it won't have a material impact on our results for next year. You know, similar to what we outlined for apartments, where we thought that was about a $200 million market opportunity, we'd write about 10% of that in year one. I think you can think about ALFs the same way, where today it's about $100 million addressable market opportunity. And, you know, if we can capture 10% of that in year one, I think that would be a decent result. We're not looking to knock the cover off the ball and right out of the gates. We've got a lot of learning curve in front of us, although we do feel very comfortable with this risk. What's interesting about it is that the properties we're targeting are eligible for the Florida Hurricane Catastrophe Fund. That's right in our wheelhouse. So just like apartments and condos, that provides us a cost advantage um you know having that business in the florida admitted market so um where it's eligible for the cap fund and the guarantee fund so i think we'll have some success it's a little early to forecast so i would um we'll have more details around our our forward-looking projections for 2026 at our next investor day we're currently targeting um Sometime in the first half of January, probably the second week of January most likely, don't have a definitive date yet, to host an investor day where we'd like to update shareholders on our strategic initiatives for the upcoming year and update our full year guidance for 2026 for both net premiums earned and net income.

So stay tuned for that. Got it. All right. Thanks so much. You are welcome.

Thank you. And there are no further questions at this time. So with that, we will conclude today's call. All parties may disconnect. Have a good evening. Thank you.