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spk03: Hello and welcome to the American Coastal Insurance Corporation second quarter 2023 financial results conference call and webcast. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. You may press star one at any time to be placed in question queue. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Karen Daly, Vice President, Investor Relations with the Equity Group. Please go ahead, Karen.
spk00: 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 at in the investor section of the company's website. Speaking today will be Chairman of the Board and Chief Executive Officer R. Daniel Pede and President and Chief Financial Officer Bennett Bradford Marks. On behalf of the company, I'd like to note 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 risk or uncertainties arise, actual results could differ materially from those expressed in or implied by these forward-looking statements. Factors that could cause actual results to differ materially may be found in a 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 10Q. Forward-looking statements speak only as of the day 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 Pieth. Dan, you may begin.
spk02: Thanks, Karen. Hello, and thanks for joining us on our second quarter earnings call. I'm Dan P., Chairman and CEO of American Coastal Insurance Corporation. I'm planning to overview the activities of the second quarter and the year-to-date numbers, including touching on the operating results of our continuing operations and specifically our commercial line segment. I'll then turn it over to Brad Marks, who will expand on the financial results for continuing operations. We've nearly completed our transition to a commercial specialty insurance business underwritten through American Coastal Insurance Company. The commercial line segment now comprises over 97% of the second quarter gross written premium and 92% of the gross earned premium. In light of this transition to a predominantly commercial specialty business, we announced July 27th that we have changed the holding company name from United Insurance Holding Corporation to American Coastal Insurance Corporation. And effective August 15th, we will begin trading with the new ticker ACIC. We believe this better reflects the future direction of our company as American Coastal Insurance Company has a 15-year track record of consistent product and financial performance in Florida. Back to the numbers. Given the extreme variances introduced by the accounting for discontinued operations, I consider the most applicable numbers to be quarterly and year-to-date results from continuing operations in the commercial line segment. As such, I'm going to highlight the results from the commercial line segment, and then Brad's going to focus mostly on continuing operations, which includes our continuing personal lines operations through Interboral. For the commercial line segment, the pre-tax income was $25.4 million in the second quarter and $64.3 million year-to-date. The net loss ratio was 22.0% in the second quarter and 19.7% year-to-date in line with expectations. The net expense ratio was 37.4% in the second quarter and 36.5% year-to-date both down about eight points from 45% last year. The net combined ratio in the commercial line segment was 59.4% in the second quarter and 56.2% year-to-date, down from 61.5% and 68.0% year-over-year, respectively. Still addressing the commercial line segment, prior year development continued to be favorable at 7.2%, in the second quarter and 5.3% year-to-date. The cat loss ratio was 8.4% in the second quarter and 5.4% year-to-date, which is in line with expectations despite the very active cat season this spring. The underlying combined ratio was 58.2% in the second quarter and 56.1% year-to-date, down from 70.2% and 71.3% year over year, demonstrating the improvement in the underlying profitability produced by the commercial lines portfolio. To highlight a few underwriting metrics on the commercial lines portfolio, the total insured value exposure is down 12.8%, while the probable maximum loss at the 100-year return period is down 21%, as modeled using AIR, both on a year-over-year basis. In contrast, the gross written premium was up 31% in the second quarter and 33.8% year-to-date. Valuation is up an average of 8%. Submissions were up 8.2%. And the hit ratio for quoted renewal business decreased from 85% to 81%. Looking forward, we continue to believe the legislative changes made in Florida will prove to be an effective mitigation of some of the excessive litigation issues over the last half-dozen years. The pre-suit notification of intent to litigate, the reduced time to report, the elimination of one-way attorney fees, and assignment of benefits, as well as other changes, will work their way through the system to reduce loss costs and subsequently insurance rates. However, it will take some time for these changes to work their way through the system, but in the near term, it does appear to have mitigated some of the reinsurers' negative sentiment surrounding the Florida exposure. In conclusion, the Florida residential cap market remains hard. It will take some time for reinsurers and investors to get comfortable with the exposures and challenges that Florida offers. While the hard market creates challenges, it also creates an excellent opportunity for American Coastal having the number one market share for admitted commercial residential exposure in Florida. I expect the market to remain hard for at least the near and intermediate terms.
spk05: With that, I'll turn it over to Brad Martz.
spk01: Thank you, Dan, and hello. This is Brad Martz, the President and CFO of American Coastal Insurance Corporation. I'm pleased to review our financial results, but encourage everyone to review the company's press release, investor presentation, and forms 10Q and 10K for more information regarding our performance. Pages 3 and 4 of our investor presentation provide a summary of the quarter ending June 30, 2023, which included core income of $28.4 million, or $0.65 a share, versus $8.5 million, or $0.20 a share, last year, which grew 236% year-over-year recast for discontinued operations. Net income from continuing operations of $22.6 million, or $0.52 a share, compared favorably to $5.8 million, or $0.14 a share, in the same period last year, driven by strong underwriting performance in our commercial line segment, which was partially reduced by investment losses of $5.2 million, or about $0.12 a share net of tax in the current period. Our combined ratio for the second quarter improved over nine points to 67.7% versus last year fueled by a $36 million or 17% increase in premiums written year over year despite our intentional reduction in policies and risk exposure and the reduced premiums written in the personal line segment. The successful placement of our new catastrophe reinsurance programs for American Coastal and Interboro were the most significant accomplishments during the second quarter, with more overall protection against severity and the lowest retention we've had against a Florida hurricane over the last decade at just $10 million. Page 5 of our investor presentation provides a breakdown of our results for the quarter and year against the recast 2022 amount. which highlight gross premiums earned growing 22.2% year-over-year in the second quarter, helping to overcome increased catastrophe losses and decrease revenue from more premiums seeded as well as non-recurring investment losses. Despite these items, year-to-date net income from continuing operations grew to $54.3 million, an increase of $48.7 million or 870% year over year. Page six of our investor presentation breaks down our results by segment with 25.4 million of free tax profit from commercial lines and a $1.3 million loss from personal lines, reduced by a $3 million loss primarily related to interest expense at the holding company. During the current quarter, we determined that certain non-recurring revenue and expenses of the personal line segment derived from our former affiliate, United P&C, should also be included now as part of discontinued operations. Accordingly, page seven of our investor presentation summarizes the impact of this change to help reconcile our year-to-date results. The net impact was immaterial with roughly $1.1 million moving from discontinued operations to continuing operations with no impact to net income or book value reported last quarter. Page 8 of our investor presentation provides balance sheet highlights as of June 30th, including stockholders' equity increasing to $106.5 million, or $2.45 a share, an increase of about 27% from the prior quarter. Unrealized losses on our bond portfolio declines to $21.1 million, or approximately $0.49 a share, indicating an underlying book value per share of $2.94. Cash and invested assets totaled nearly $242 million, with total assets of over $1.44 billion. Reinsurance plays a critical role in our capital management strategy, and the increase in our quota share reinsurance on June 1, 2023, from 10% to 40%, will reduce the company's net premium risk, which in turn will help improve our risk-based capital ratio this year, but also has the impact of seeding away a higher portion of our expected underwriting profit in the short term. However, our improving statutory capital position will allow us to write and retain more profitable commercial lines business over the long term. Pages nine and 10 of our investor presentation show the final 2023-2024 catastrophe reinsurance programs for American Coastal and Interboro. The structure graph for American Coastal on page nine shows the inuring effect of the Florida Hurricane Catastrophe Fund and four layers to the tower, which is not drawn perfectly to scale here, and how the two 20% quota share programs interact with the remaining private open market limit. Of the $371 million private market occurrence limit, about $236 million, or 64%, is reinstatable with 95% of that cost prepaid. And when combined all together, it represents roughly $1.1 billion of occurrence-based limit and $1.3 billion of aggregate limit. The company also utilized its captive reinsurer to take a small participation, 9% on layer one of the American Coastal Program, but it did not participate on Interborough's program. Thus, the captive could have the effect of increasing our consolidated group retention from $10 million to $12.3 million if a Florida event fully exhausts the first layer of American Coastal's program. That completes our prepared remarks, and we are now happy to take any questions.
spk03: Thank you. And now to conduct your question and answer session. If you'd like to be placed in the question queue, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 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 1.
spk05: Once again, that's star one to be placed into question Q. If there are no questions at this time, I'll turn the floor back over to management for any further closing comments.
spk02: Okay, thanks. This is Dan. I would like to thank our employees and associates for their diligent efforts as we transitioned this company to a commercial specialty underwriter. And then for our investors, thanks for your time on this call and your interest in our company. Thanks again.
spk04: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.
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