American Coastal Insurance Corporation

Greetings and welcome to the American Coastal Insurance Corporation's fourth quarter 2025 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 will be placed in the question queue at any time by pressing star 1. As a reminder, this conference is being recorded. It is now my pleasure to turn the call over to your host, Jeremy Hellman, Vice President at the Equity Group, and American Coastal's Investor Relations Representative. Please go ahead, Jeremy.

Thank you, Operator, and good afternoon, everyone. American Coastal Insurance Corporation is broadcast available on its website at www.amcoastal.com. 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-Martz and Chief Financial Officer Svetlana Castle. On behalf of the company, I'd like to note that statements made in 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 underline the forward-looking statements proven accurate or above the risk or under-userized actual results could differ materially from those expressed or applied by the forward-looking statements. 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 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 accept as required by applicable law. The company undertakes no obligation to update or revise any forward-looking statements. With that, it is my pleasure to turn it over to Brad Martz. Brad?

Thank you, Jeremy, and welcome, everyone. During the fourth quarter of 2025, American Coastal continued to demonstrate that we are a unique, high-performing specialty underwriter producing strong returns on capital that is very well positioned for the future. A lack of hurricane activity in the current period helped drive solid earnings growth compared to the same period last year that was impacted by catastrophe losses yet remained profitable. Our full-year net income of $106.8 million exceeded our full-year guidance at the beginning of 2025, which was $70 to $90 million. And even with a major hurricane loss, ACIC would have landed above the midpoint of our guidance. Over the last three years, ACIC has produced over $336 million of pre-tax profits and returned over $60 million to shareholders through special dividends. I think it's fair to say our strategic transformation has been nothing short of spectacular. Yet, I believe we're capable of more. As forecasted last quarter, premiums written in the current period rebounded nicely, increasing approximately 59% compared to the third quarter of 2025, but declined 19% year over year due primarily to rate decreases. Rates are falling in our business, due in large part to Florida's legislative reforms that are clearly working as evidenced by reduced reinsurance costs and lower losses incurred. For the full year, our net premiums earned of 306.8 million were also above the midpoint of our 2025 guidance, which was 290 to 320 million. Total revenues increased year-over-year despite a much more competitive environment without sacrificing underwriting discipline. With softer market conditions persisting in commercial property insurance, we expect premium production to remain challenging as our risk appetite is highly correlated to modeled expected returns on capital. Last month, we revealed plans to improve the company's business profile by introducing new revenue and earnings growth pathways in the E&S market. While we are not necessarily looking to grow commercial property exposure in the short term, we do believe there are pockets of opportunity to underwrite new profitable commercial residential property insurance business inside and outside of Florida where we can leverage American Coastal's technical expertise and competitive advantages. Our ENS ambitions and investments are more about putting the company in the best possible position to succeed over time rather than chasing growth in this part of the property cycle. With that, I'd like to now turn it over to our Chief Financial Officer, Lana Castle, for more specifics on our fourth quarter and full year results.

Thank you, Brad, and hello. I'll provide a financial update, but encourage everyone to review the company's press release, earnings and investor presentations, and Form 10-K 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 $26.6 million. Core income was $25.8 million, an increase of $19.8 million year-over-year due to a $20.5 million decrease in incurred losses as Hurricane Milton made landfall in the fourth quarter of 2024, resulting in a full excessive loss catastrophe retention. For the full year, Net income was 106.8 million and core income was 103.7 million, an increase of 26.8 million. Our combined ratio was 58.6% for the quarter and 60.1% for the full year. Our non-GAAP underlying combined ratio, which excludes current year catastrophe losses and prior year development, was 58.9% for the quarter, a decrease of seven points from the prior year. For the full year, Our underlying combined ratio was 61.5%, which is below our 65% target. We continue to maintain a strong reserve position. Page 6 of our presentation shows more detailed quarter-over-quarter comparison, with net premiums earned driving higher revenue compared to 2024 as a product of stepping down our gross catastrophe quarter share from 20% to 15%, effective June 1, 2025. Operating expenses remained relatively flat, decreasing 1.3 million or 3.4%. Page 7 provides the year-over-year comparison of our results. Revenues for the full year increased 38.8 million or 13.1% in 2025, driven by the quarter share step-down previously mentioned, as well as a step-down from 40% to 20%, which was effective June 1, 2024, and impacted 2024 results. Total expenses remained flat year over year, though operating costs increased $22.6 million, largely as a result of reduced seeding commissions. This was offset by the retention related to Hurricane Milton. Page 8 shows balance sheet highlights. Cash and investments grew 19.8% in 2025 to $647.7 million, reflecting the company's strong liquidity position. Stockholders' equity increased 34.8% since year end to 317.6 million, driven by strong underwriting results. Book value per share is 651, a 33.2% increase from year end 2024. These increases are inclusive of a special dividend of 75 cents per share declared in the fourth quarter, totaling 36.6 million. As shown on page nine, Through strong results, the company has seen increased liquidity and low quality share since the first quarter of 2023. I'll now turn it over to Brad Marks for closing remarks.

Thank you, Vanna.

I'm extremely grateful for our team and for our business partners as they are the true reasons for ACIC's outperformance of its peer group and the insurance industry returns overall. That completes our prepared remarks for today, and we are now happy to field any questions.

Thank you, and I'll be conducting a question and answer session. If you'd like to be placed in the 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. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star one. One moment, please. while we poll for questions. Our first question today is coming from Michael Phillips from Oppenheimer. Your line is now live.

Thank you, and good evening, everybody. I guess I want to start, I guess, Brad, with the gross premium results this quarter down around 19%. It looks like from December through September, at least your commentary on the rate environment is 13%. It looks like it kind of may be stabilized. I guess I want to see if you can comment on that. But then, talk more about the premium orders in this quarter. Last quarter, you said you intentionally slowed down for exposure limitations and expected a rebound this quarter that continued in the next quarter. It looks like maybe that didn't happen, or maybe it did in your view. I guess I just want to talk about that and kind of how this quarter's 19% drop compares to what you were thinking. Thanks.

Thanks, Mike. Good questions, and I would Just reiterate that quarter over quarter, you know, premium rebounded, you know, almost 60%. So we're okay with that. The machine, you know, when you slow it down, it does take time to crank it back up sometimes. So, you know, we felt it was super important to hit the average annual loss targets that we set for September 30th. You know, that's a key measuring stick for our core catastrophe reinsurance program, and we were successful in delivering on hitting that target. So we believe we took the appropriate measures to manage our exposures in the third quarter. That being said, obviously October got off to a little bit of a slow start because of just the time it takes to continue to receive, quote, bind, and issue policies given the lead times associated with that activity. So, you know, it's a challenging market environment. We make no bones about it. You know, we are walking away from risks that are, you know, previously may have met our return on capital hurdle rates, but today might not be. So we're trying to be disciplined and I think you'll see a little bit of volatility in the written, but from an earn perspective, you know, I have no worries. I think we've given solid revenue guidance for 2026. No promises on us being able to hit those numbers, of course, but hopefully, you know, we did demonstrate some predictability in our business with the results we posted relative to the guidance in 2025.

Okay, no, thanks, Brad. That was helpful. I guess your last couple words there were what I was going to go next. Maybe I'll still go there just to see what you think. But, you know, if growth continues to slow maybe more than you thought, that obviously will affect earned, you know, later in the year. It sounds like you're not worried that – at least for now you're not worried about the revenue numbers you talked about earlier this year.

Yeah, that's right. I mean, we're going to push hard for – you know, changes in expenses commensurate with the changes in revenues. So I think it's just super important for us to continue to work extremely hard on obviously putting together the best possible risk transfer program we can compile at 6-1. We had a very successful placement of our 1-1 AOP-CAT program and our catastrophe aggregate program with those being down year-over-year on a risk-adjusted basis quite substantially, well ahead of the rate change in the fourth quarter, or the written premium change year-over-year in the fourth quarter. So we feel good about the 6-1 renewal. Those programs are much smaller. It's not a perfect read-through to the June 1st program. But obviously, if we're suffering... rate change of whatever percentage we're going to be pushing hard to see lost costs and reinsurance costs come down a commensurate rate to protect margin. And if not, that could put some pressure on the combined ratio and or we will be more selective in what business gets written, both new business and renewal business.

Okay, thank you, Brad. Maybe one smaller one on the margin piece. The G&A ratio has kind of ticked up a bit, and I wonder what's driving that and any expectations for this year on that one. Thanks.

Nothing notable to point out. Obviously, we had some distortion in the first half of the year with some payroll tax credits that artificially reduced our recurring normal operating expense levels, but third quarter and fourth quarter represent a true current run rate. So first half of 26 won't necessarily be a perfect comparison with first half of 25, but other than that, I don't have anything to call out on G&A.

Okay. Well, thank you. And phenomenal results on the margin side, so congrats on that. And I'll hop off for now. Thank you. Thank you.

Thank you. Next question is coming from Mitchell Rubin from Raymond James. Your line is now live.

Hey, good afternoon. You've outlined plans for expansion into South Carolina, Texas, and broader nationwide E&S markets through ACES and the expanded Amherst partnerships. Could you provide some color on how underwriting margins, catastrophe profiles, and reinsurance structures in these markets differ from your Florida book? Thanks.

Sure. Thanks for your question, Mitch. I think they are relatively similar. The phenomenon of named windstorm exposure is not much different in Texas and in South Carolina. That being said, I think those states will run at a slightly higher combined ratio. So it's hard to forecast that precisely, but our experience having underwritten in those states previously through Journey Insurance Company would suggest that it's comparable. So we're going to focus on the same classes of commercial residential property that that we write today. It's primarily condos, apartments, and assisted living facilities. Any other classes would be outside of our comfort zone today, and we would have to provide you a little bit more color around such initiatives. But the expansion with AMRIS, to answer that part, we're super excited about. been a long time coming for us. They're obviously a terrific partner, 25 years of successful inception-to-date results through their organization, and we're proud to have offered them some capacity. It's a modest line that we're starting with, with roughly $100 million of full-year premiums. That being said, under You know, if the market hardens and they needed more capacity, we could consider increasing that. And conversely, if the market softens and margins are not in line with expectations, you know, we could see that being reduced. But it's a two-year deal. It's done. It's off and running. We'll start recognizing some premiums from their nationwide commercial E&S property portfolio in March.

Thanks, I appreciate the color there. So, with the debt to total capital ratio at 32% in the quarter, and you've previously stated a long-term target of around 25%, how are you prioritizing deleveraging funding ACEs and potential capital return in 2026?

The debt matures at the end of 2027, so there's no immediate need to address that obviously job one is to earn an underwriting profit continue to drive book value per share and uh increasing shareholder equity through organic or organic earnings profiles so i think that in and of itself will continue to bring down that that the cap ratio um that being said we've we've stated that we will be um Seeking to reduce the overall amount of financial leverage in the system. So I think when it comes time to refinance that debt, I would expect the company to shy away from a straight refinance. I think total debt would likely fall anywhere between $50 and $75 million. And that's a level we're comfortable with. But we'll see. You know, a lot of that will depend on the earnings generation, cash flow generation in the business. You know, we're excited to be able to return some of our profits to shareholders the last two years, over $60 million, as I noted. And we're watching the stock price carefully. We do think the company is, you know, significantly undervalued, and repurchasing shares is also an option. Typically, you know, we think about buybacks as something that would require, you know, a significant market dislocation. But that being said, you know, at the current earnings multiples, we think the stock's a good buy.

Great. Thank you. Congratulations on the quarter in the year. You're welcome. Thank you. Thank you. Next question today is coming from Akshay Fola, a private investor. Your line is now live.

Hi, Brad. Lana, congratulations on a good quarter and a great 2025. I have questions on the E&S opportunity, so the new company ACS. I joined the call a little late, so forgive me, but do you mind giving an update on where you are with the creating the new entity from the last call and the update. And then I have one more follow-up question.

Yeah, the update is, it is still pending regulatory approval in the state of Arizona. So it did take us pretty much the better part of the fourth quarter to complete all the background checks and biographical affidavits, etc., that were required. Typically, the state of Arizona doesn't even begin reviewing any kind of new company application until that's been completed. So, we've cleared that hurdle and I believe they're working on it and we should have an update for you shortly. But right now, the certificate of authority is still pending.

Thanks. And how should we think about the forecasted gross premiums for ACS for 2026? And then also thinking longer term, how should one think about ACS market share? So in the January presentation, you'd mentioned about the E&S opportunity market, about $1.4 billion in Florida, $1.9 billion in Texas, and $455 million in South Carolina, which comes up to a total of $3.7 billion of opportunity. Can we expect if things fall in the right place, ACES also to have the same market share as what AIM Coastal has, which is I think around 25% market share. Is that kind of where the team's targeting or how should one think about it in the long term?

I mean, it's a great question. I think obviously we want to have a market leadership position in anything we do. That's the ultimate goal. You know, how long it takes to achieve something like that is anyone's guess. But, you know, for 2026, the premium ambition for ACEs is relatively small. I'd say 5% or less of our total revenue guidance for the year is going to come from ACES. It's really about 27 and beyond. For the initial year of ACES, assuming it's approved and capitalized, which of course the timing of that is still even uncertain, but in the first 12 months of its operation, it's going to operate just as a collateralized reinsurer. It'll take time for us to go and get it rated by AM Best and put it in a position to be a direct writer of commercial property business. But that being said, whatever capital we inject into ACES, we are going to put it to work doing uh, deals to, uh, similar to what we've, um, recently done with, with Amarisk, you know, with that net pool to share, um, you know, produce expected to produce over a hundred million dollars on a first, on a full, um, full year basis. So it's not, um, out of the realm of possibility that ACES could, um, someday be on par with, with American coastal. but it's probably unlikely. I see it being a little bit smaller for the next three to five years. But beyond that, yeah, I mean, Utopia would be a perfectly balanced portfolio between admitted and non-admitted business between Florida and non-Florida states with great spread of risk and geographic diversification.

Got it. And then

In terms of like combined ratios for all these, for ACES, would you say that that kind of tracks like your goal of 65% combined ratio, like what you have for AIM Coastal? Is that still like the overall kind of target what you're looking for?

I think that's aggressive. You know, the condo book in Florida is a little bit unique because of its, the Florida market and because of the, the, The duration at which we've been underwriting in that particular geography, so the knowledge, the experience, the scale we have, you know, and as well as the benefit of the Florida Hurricane and CAT Fund probably make that unachievable. But historically, the commercial residential property insurance combined ratio in Florida, underlying combined, again, excluding CAT, has operated between 65 and 75 throughout the 18-year history of the company. So, it depends on the loss experience, of course, but you gotta have an underlying margin. That's what our chairman is constantly preaching. With an underwriting margin, that allows you to absorb the catastrophes when they occur and the soft market cycles when they occur. Without a margin, then you're really setting yourself up for disappointment. So we believe that everything we do is going to be accretive and earn an acceptable return on capital, but I wouldn't expect business generated through the E&S platform to achieve the same exact results that our condo book in Florida has achieved.

Thank you. My last question is going to be on shared purchases. So I know the team has mentioned in a couple of conferences as well that the stock is undervalued. And I believe it too. And I'm a shareholder as well, and I believe the stock's undervalued. So I guess my question is, what's holding the team back from share repurchases? I know you mentioned you would do or you would look at share repurchases when the stock's undervalued. So I'm just curious what's holding the team back.

It just hasn't been our top priority.

I appreciate the sentiment and, you know, we hear you and I think going forward it will be given slightly more consideration. I don't know if that consideration will trump how we feel about, you know, special dividends. We love the optionality of that and waiting, you know, until we're through hurricane season to really be able to accurately measure you know, what excess capital we may or may not have. So ideally, you know, we'll obviously still be able to pay a special dividend every year, but the amount of that will be driven by our lost results, which are inherently unpredictable. That being said, we're monitoring the stock. We're obviously not a complete outlier with some of our peers. But to the extent that we are not rewarded for continuing to produce exceptional returns, yeah, I mean, we're buyers at these levels.

Okay. Thank you so much. Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over for any further closing comments. Nothing further from the American Coastal King. Thank you.

That does conclude today's teleconference webcast. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.