American Coastal Insurance Corporation

Greetings and welcome to the American Coastal Insurance Corporation's first quarter 2026 earnings conference call and webcast. 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, press star zero on your telephone keypad as a reminder that 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 Insurance Corporation. Thank you.

Thank you, Operator, and good afternoon, everyone. American Coastal Insurance Corporation has also made this broadcast available on its website at www.mcoastal.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 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 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 our 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 is my pleasure to turn the call over to Brad Martz. Brad?

Thank you and welcome everyone. During the first quarter of 2026, American Coastal continued to be patient and disciplined in navigating a rapidly softening commercial property insurance market. Most of our risk portfolio continues to produce exceptional results, evidenced by our fantastic loss and combined ratios. Average account rate decreases are distorting comparability with gross premiums, but premium production only tells part of the story. Looking deeper reveals American Coastal's account retention was in line with our targets, and our policy count and exposure base actually increased at the end of the current quarter versus the same period a year ago. This is strong evidence that ACIC continues to protect and defend its market leadership position. The key to ACIC's long-term success has been our ability to maintain an adequate margin throughout the cycle. Having a strong underlying combined ratio is what ultimately enables us to retain catastrophe risk and produce an acceptable risk-adjusted return on capital over time. Thus, despite losing right on the front end, we are maintaining margin because loss costs and reinsurance costs are also moving the right direction. I'm pleased to report that our June 1, 2026 Core Catastrophe Reinsurance Program is effectively complete, and we are very pleased with the outcome. The key takeaways are, first, we were able to secure risk-adjusted reinsurance cost decreases that were necessary for us to remain both very competitive and profitable. Second, we increased our exhaustion point up to over $1.6 billion, expected to exceed the 250-year return time using the most recent version of Bear Risk's hurricane model. including demand surge and a 10% load for loss adjustment expenses. Third, we have moved our lower layers to an all perils basis that will allow us to non-renew the January 1st all other perils catastrophe reinsurance program next year while maintaining robust protection against potential non-hurricane cat events. And lastly, we have more aggregate protection against frequency and severity resulting from a potentially active hurricane season. Pages 11, 12, and 13 of our earnings presentation provide some additional information regarding our reinsurance program renewals. For the core CAD in particular, American Coastal is still evaluating various retention options, and that is expected to be completed very soon. Once finalized, We will disclose more details regarding our hurricane retentions as well as the expected total cost of the 6-1 renewal. I want to personally thank our reinsurance partners for their incredible support and thoughtfulness as we keep moving forward together. I'd like to now turn it over to our CFO, Lana Castle, for more specifics on our financial 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-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 $19.3 million. Core income was $19.3 million, a decrease of $1.4 million year-over-year due to decreased net premium earned. partially offset by decreased total expenses. Our combined ratio was 66%, an increase of one point from 2025, and in line with our previously stated target. Our non-GAAP underlying combined ratio, which excludes current year catastrophe losses and prior year development, was 68.3%, compared to 68.2% in the prior year. We continue to demonstrate underwriting discipline through the market cycle. as indicated by our stable margin. As shown on page six of our presentation, revenues and expenses remain consistent year over year. Other income decreased $900,000 in the current year, driven by non-recurring items in 2025. Net income from continuing operations remained relatively flat, decreasing $400,000 in the current year, inclusive of this non-recurring income. Page seven shows balance sheet highlights. Cash and investments decreased 7.5% from year-end to $599.4 million, driven by the payment of our previously declared special dividend of $0.75 per share of $36.6 million. The company's liquidity position remains strong. Stockholders' equity increased 4.5% to $331.7 million, driven by our underwriting results. Book value per share is $6.86, a 5.4% increase from year-end 2025. The company is well positioned to navigate the shifting market and capitalize on opportunities as they present themselves. I will now turn it over to Brad Marks for closing remarks.

Thank you, Lana.

Today, we estimate we have between 150 million and 200 million of excess capital in our company. That provides us with tremendous strategic and financial flexibility moving forward. Margins remain solid. We are obviously losing some premium on the front end, but with earnings, pre-tax earnings essentially being flat year over year and maintaining a strong combined ratio, we feel like that is representative of the discipline underwriting we continue to do here at American Coastal. That concludes our prepared remarks for today, and we are happy to field any questions at this time.

Thank you. And if you'd like to ask a question, press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star followed by 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.

One moment, please, while we poll for questions. And our first question comes from Michael Phillips with Oppenheimer and Company.

Please state your question.

Yeah, thanks. Good evening, everybody. Maybe a first couple of questions right around just the impact, I guess, for modeling purposes of the new reinsurance. How should we think? I mean, a lot of moving parts here, right? So how should we think about, I guess, on a consolidated basis, maybe either just the net to direct, net to gross premiums this year and maybe even next year, maybe more so this year as compared to what it was in 2025?

Thanks for your question.

We appreciate that. I would prefer to defer that question until we've finalized our ultimate retention decisions, only because I think that has an impact on seated premiums as well as how to model losses in the second half of the year. We are very close. We were hoping to have that finalized before today's call, but While the program excess of $50 million is essentially done, we are looking at various cost benefit analyses of reducing likely second and third event retentions to ensure that we are remaining profitable in a three loss scenario. That has been one of our primary goals make sure we can maintain underwriting profitability even with three full retention events in Florida. So I think it's probably a little early, but we can still suggest and refer you to the full year guidance that remains unchanged at this time. I think that is the best estimates we can provide at this moment. After the second quarter, it is possible we'll want to revisit that guidance, but not at this time.

Okay, good. I guess maybe I was going to ask this later, but since you mentioned it, so the first quarter results so far don't give any reason to change the revenue guidance that you gave earlier?

No.

Second quarter is our strongest premium production quarter of the year. It has... Well, you know, the potential to, you know, essentially make or break that guidance. So, I want to be cautious in potentially using, you know, the first three months of the year to revise our estimate for the full year. But for right now, we're still striving for those estimates on a full year basis. but it will depend on, you know, how strong the second quarter is.

Okay. Yeah, no, that makes sense. Thanks, Brad. Can you just, I guess, remind where you see the opportunities for the EMS carrier? I think it's mainly just if I'm right here, Texas and Florida for now, is that right? And then kind of just longer term, just thoughts on how you see that expanding?

Yeah, absolutely. You know, we would, Finally, ASSIM's E&S business in the first quarter is about $6.2 million of E&S premium that came in through our participation on the AMRS E&S portfolio, which we were excited about. That does still track with our initial full-year guidance, although anything could happen. It could certainly come in above that or below that. Where we're seeing opportunities for Skyway is really going to be dependent on market conditions, but we're evaluating all classes of commercial property very, very carefully. Our core products in both condominiums, apartments, and assisted living facilities are where we're going to lead. And we're going to continue to focus on properties with risk characteristics that are very similar to our portfolio in Florida. So, we are also working with various fronting partners to stand up a fronting, a best rated option for use in Florida and outside of Florida for Skyway to have additional underwriting capacity that will likely produce some premium by the fourth quarter. but we're still in the process of setting that up. Hope to have it operational in the third quarter with premium production starting in the fourth quarter. So not a huge uplift from ENS via Skyway Underwriters in 2026. It's more of a 2027 initiative. I think most of our ENS premium, you know, somewhere between $50 and $80 million is going to be coming from the assumption of and co-participation on the AMRIS portfolio for 2026.

Yeah, perfect. Thank you. That's very helpful. Thanks, Brad. And then maybe just lastly on the loss or expense side, your G&A expense kind of averages around $10 or $11 million a quarter. Any reason to think that could change any time over the next year or so in either direction?

No, it's been relatively stable.

Obviously, we had some non-recurring benefits in the prior year that are distorting the expense ratio in the current period. But as far as our fixed costs, we've got a very good handle on those and have a strategy to continue to try and do more with less. We're gaining some operating efficiencies through various uses of technology and AI tools, which we're super excited about. It's very premature to actually get into any real details, but our mantra, one of our strategic objectives for this year was to operationalize AI, and we're off to a very good start.

Okay. Awesome. Thanks, and congrats on those strong margins. Appreciate your time.

You're welcome.

Your next question comes from Mitchell Rubin with Raymond James. Please take your question.

Hey, good afternoon, guys. We've heard some market rhetoric around increasing competition in Florida. Could you provide some color on the trends you're seeing with retention levels on renewals in new business?

Yeah, retention historically in our business, Mitch, has been between – you know, 75% and 95%. That's where we target account retention with kind of the sweet spot being in the low to mid-80s. It was slightly below that in the first quarter, but well within our targeted range. We saw it bounce back pretty nicely in March after, you know, we made a voluntary decision to walk away from a few large, very large accounts in January where we did see some what I would consider to be reckless competition come in and significantly undercut both on price and on deductible, which was just not consistent with how we underwrite. So we're going to be disciplined in those situations and seed market share to those willing to burn their way into the market. It's rare that that's happening. It's not a daily occurrence. I would say competition and capacity is obviously robust, but most of that is healthy competition. And we're doing a good job of defending our market leadership position, as evidenced by the fact that our policy count and our exposure base is relatively stable. So it is tough sledding out there, no question about it. But what we do feel very good about our ability to compete moving forward, given the job we've done on the reinsurance renewal. The risk-adjusted cost decreases there, and again, I'm gonna refrain from giving specific numbers today, but right now they are exceeding our average year-over-year average premium changes. So with reinsurance costs, in line or better than what we're losing on the front end with our rates, it will continue to allow us to compete very aggressively and maintain our best accounts.

Thank you for the color there. That's very helpful. Sticking with the reinsurance renewal, can you walk us through some of the more meaningful structural changes in the renewal relative to last year's program?

Yeah, I'll reiterate them again for you in case you want to dive into more details, just stop me and let me know. But we have more overall limits. That's number one. Introducing some new cascading layers that you know, work like a top and drop where you've got a lot more vertical limit for first event yet more aggregate limit for second subsequent events assuming those layers, you know, are not eroded. So, the increased protection for both frequency and severity is sending return times you know, even higher year over year. So we feel very good about it, whether you're looking at it from a first event, a second, or a third event perspective. Some more robust coverage at a very attractive risk-adjusted rate decrease combined with, I guess, the third biggest change is the movement to an all-perils tower away from a hurricane-only tower. Historically, we had separated the non-hurricane and the hurricane risk because of the noise and the volatility associated with our old discontinued personal lines business. But we just have exceptional loss experience when it comes to the SCS, severe convective storm stuff. So it made perfect sense for us to think about including the – the lower layers, placing the lower layers on an all-perilous basis. And, you know, that way we will – that would save us approximately $4 million by non-renewing the layers, excess of $50 million on the AOP-CAT renewal at 1-1. And then, you know, we'll certainly obviously consider various options within our retention, you know, with that renewal because there's still some additional spend there. In total, that program was about $11 million, if I remember correctly. So there's still significant spend there to manage the potential frequency and severity of non-hurricane cat, but we're trying to drive simplicity and standardization across the board with this risk transfer approach. And we got a lot more overall limit out of our gross cat quota share as well. while we're maintaining the 15% session rate with, you know, earned premiums going down in this part of the cycle, we are actually, you know, technically shrinking that reinsurance spend via the quota share. So we view that as a positive, and we're very happy with where we landed this year.

That was great. Really helpful. Thanks for the answers. Your next question comes from Bill DeZellum with Tiatan Capital.

Please state your question.

Thank you. Would you please go into a bit more detail on the new initiatives that you're doing on the E&S front and the timing on when that may lead to total American coastal growth?

Sure. Hi, Bill.

Reiterating timing, obviously we got E&S kicked off in the month of March with the initial 6.2 million of written. Full year is still, like I said, somewhere going. It's going to depend on how much capacity Amaris can put to work, right? We've given them a certain amount of capacity. They're fighting hard to win and write quality business. You know, I would expect that number is going to add about $70 million in P&S premium to our company this year that we did not have last year. That's solid new growth coming from that segment. For 27 and beyond, I think it's going to look very similar to what we've done with apartments, where you could expect, you know, $20 to $30 million. annually of new business through a thoughtful, sort of very disciplined approach to finding niches where we know how to compete, we know how we're going to win, and we can earn an attractive return on capital. Some of that is obviously market dependent and, you know, what's going on with terms and conditions for sure. You know, if market changes, maybe we can do a lot more a lot faster, but in getting current market conditions and our outlook for where markets are headed, especially if this is a relatively benign hurricane season, which is forecast given the current prediction for a super-aluminum year, you know, it could be slower for us to attract and write new business.

That may be the first time that I've ever heard a quasi plea for more hurricanes.

I wouldn't go that far. We don't wish that on anybody. But yeah, I mean, it certainly would chase off some of the capacity that's out there doing irresponsible things and maybe firm up pricing a little bit, which would give us you know, some more comfort and margin for error as we branch into the new territories with our core products. We're very confident in our ability to compete both in and outside of Florida, and we have underwriting experience in places like Texas and South Carolina with commercial residential. We've been there before. We've got a good game plan, but yeah, sometimes You just got to be patient with the insurance cycle.

Thanks, Brad. All joking aside, I want to make sure I'm getting an apples-to-apples comparison here. This quarter, you had $65 million of net earned premiums. When you're talking about the $70 million of E&S premium with AmRisk this year, that would essentially be

equivalent to that or seven to add order the equivalent of one additional quarter to to your business revenue not quite not not quite because I was mixing and matching written and earned a little bit here so I was talking about written with a the 70 million target currently You know, again, which could go up, which could go down, but that's written on an earned basis. I would expect about half of that to earn this year.

Thank you for the clarification. Very good point. And assuming that you had 100% retention for additional new business next year, both of which are faulty assumptions, but if that were the case, the statement would hold for 2027. That would essentially be the equivalent of an additional quarter.

I think that's fair, and I do think, again, with the current assumption of continued soft market conditions, we can expect reinsurance costs to be very competitive. We still have tools in our arsenal to manage the seeded premium that would potentially allow for even more growth on a net premium earned basis. after reinsurance spend, so depending on our risk appetite and what's going on with the cost of reinsurance capital, I do think the outlook gets even better given some of those elements that are within our control. So we'll have to wait and see, but yes, ideally we'd like to be growing revenues and earnings at all times. That's ideal, but That's just not something, you know, we're not going to be focused on growing top line in a market where you won't like the results if we do it.

No, I really appreciate both that and the perspective how those premiums are ultimately flowing in and the implications that could have. Thank you very much.

You are welcome. Thank you. And your next question comes from Akshay Fola, private investor. Please go ahead. Hello, Brad.

I had a question on capital allocation. You mentioned 200 million of excess capital, and we only see about 5 million of stockholders in Q1. And I understand there's probably an additional $20 million of repurchases authorized that could be done. Can you please expand on the reasoning for, you know, reasoning behind only doing $5 million of stock repurchases with one or more of my purchase categories?

Thank you.

Yes, thanks for your question. It's a good one. have excess capital in the system between our statutory ordinary dividend capacity, the amount of equity and capital we've amassed in our captives, as well as the unregulated unrestricted cash we have on hand. We're being a little cautious about share repurchase primarily because of the fact that it would further reduce the outstanding float and the liquidity in our stock. So I think that's one we really would prefer to maintain for severe potential dislocation in the price. The stock is still very cheap, and by almost any measure, So it is attractive to us, and we could see some additional use of that board authorization in the second half of the year. I definitely don't want to rule that out, but we also have to be in an open trading window. The window for us has been closed and is generally closed half of every quarter. So there's that constraint as well. But I think share buyback, are definitely on the table for discussion, as is debt reduction and special dividends to shareholders. So a lot of that will depend on timing, what's going on with interest rates, what happens with our results for the full year. So we'll be mindful and watch that stock price. If it gets too cheap, that's something we will give serious consideration to.

Okay, thank you. Just kind of like comment on that. You know, like looking at where the share price is trading, it's kind of like a chicken or the egg problem. Once you know the market gets clarity on the next hard market or rates increasing or the actual growth trajectory of the company, the price tends to go up. And then doing buybacks during those times, you know, it just increases the cost of capital. Whereas now, we have uncertainty on the rates, and then the share price for that reason is trading, or one of the reasons why it's trading that it is, so like you have the best opportunity by doing these things. And, you know, like it's that balance, I'm sure, which you understand. Yeah, so just wanted to comment on that. But thank you. Thank you for your time.

Yeah, all fair points. You're welcome. Thank you.

Thank you. And ladies and gentlemen, that was our last question for today. So with that, we will conclude today's call. while parties may disconnect. Thank you and have a good day.