Earnings call transcript: American Coastal Insurance Q1 2025 sees steady growth

American Coastal Insurance Corporation (ACIC), a $570 million market cap insurer, reported its financial results for the first quarter of 2025, revealing a solid performance with a focus on strategic growth and innovation. According to InvestingPro analysis, the company maintains a "GREAT" overall financial health score of 3.43, reflecting its strong market position. Despite challenges in the Florida condominium market, ACIC maintained its competitive edge through diversification and strong underwriting practices.

Key Takeaways

• Net income reached $21.3 million, with a core income decrease of $3.7 million year-over-year.
• Net premium earned grew by 9% to $68.3 million.
• The company launched a new apartment building insurance initiative, targeting Central and Northeast Florida.
• Policies in force increased by approximately 6% since the year-end.
• The reinsurance program is set for renewal with increased protection and decreased rates.

Company Performance

ACIC demonstrated resilience in the first quarter of 2025, driven by strategic initiatives and a robust market presence in Florida’s condominium insurance sector. Trading at a P/E ratio of 7.48 and showing impressive revenue growth of 12.2% over the last twelve months, the company’s fundamentals remain strong. The company’s focus on diversifying its portfolio with a new apartment building insurance product is expected to bolster future growth. Despite a year-over-year decrease in core income, ACIC’s net premiums and policies in force showed positive momentum, reflecting its ability to navigate a competitive market environment. Get deeper insights into ACIC’s financial health with a comprehensive Pro Research Report, available exclusively on InvestingPro.

Financial Highlights

• Net income: $21.3 million
• Core income: $20.7 million (decrease of $3.7 million YoY)
• Net premium earned: $68.3 million (9% increase YoY)
• Combined ratio: 65%
• Cash and investments: $540.8 million (5.2% increase)
• Stockholders’ equity: $260.9 million (10.7% increase)

Outlook & Guidance

Looking forward, ACIC plans to renew its catastrophe reinsurance program effective June 1, 2025, with a 16% increase in the first event limit to $1.35 billion. The aggregate protection is expected to increase by 32%, while the risk-adjusted reinsurance rate is anticipated to decrease by approximately 12%. Analysts maintain a positive outlook with a price target of $16, suggesting potential upside from current levels. The company aims to continue its measured growth and risk selection strategies, supported by its defensive beta of -0.31, which indicates lower market volatility exposure.

Executive Commentary

CEO Bennett Bradford Martz emphasized the company’s growth in policies, stating, "We successfully grew our policies in force approximately 6% since year end." He also highlighted the cautious approach to building a strong portfolio: "We’re gonna move very carefully and cautiously and slowly to build the best portfolio." CFO Svetlana Castle reassured stakeholders, saying, "We continue to feel our reserve position is strong."

Risks and Challenges

• The Florida condominium market faces affordability and resale value challenges.
• Competition remains intense, requiring strategic pricing and underwriting.
• Economic uncertainties could impact future growth and profitability.
• Regulatory changes in Florida’s insurance market could pose additional challenges.

ACIC’s strategic focus on diversification and innovation, along with its robust reinsurance program, positions it well for future growth despite market challenges. The company’s ability to maintain competitive rates while managing risk will be crucial in sustaining its market position. With an EV/EBITDA ratio of 2.07 and trading near its Fair Value according to InvestingPro analysis, ACIC presents an interesting case for investors seeking exposure to the insurance sector.

Full transcript - Atlas Crest Investment Corp (ACIC) Q1 2025:

Conference Operator: As a reminder, this conference is being recorded. It’s now my pleasure to turn the call over to your host, Karen Daley with The Equity Group. Please go ahead, Karen.

Karen Daley, Investor Relations, The Equity Group: 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 thirty 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 Factors section of their most recent annual report on Form 10 ks 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 Marge. Brad?

Bennett Bradford Martz, President and Chief Executive Officer, American Coastal Insurance Corporation: Thank you, Karen. Today, I’m pleased to report American Coastal continued to deliver exceptional results during the first quarter by hitting our target combined ratio of 65% and also producing a core return on equity of over 34%. We successfully grew our policies in force approximately 6% since year end with premiums in force as of 03/31/2025 totaling approximately 661,000,000. New business growth combined with solid renewal account retention of approximately 88% helped increase gross premiums written by over 7% compared to the same period last year. The Florida condominium market has continued to generate media attention this year, focused primarily on declining affordability and resale values.

We acknowledge and certainly understand such issues can be challenging, but they are not having a significant impact on our business. The market for older, high rise, waterfront condos in Florida, where most of the concerns lie, but that is not our target market. Conversely, the underwriting environment for newer, well maintained, low rise, garden style condos further inland in Florida where American Coastal is focused remains relatively healthy and competitive. This is evidenced by the fact that we are currently open to new business and passing on savings in the form of lower rates our policyholders without sacrificing margins that allow us to underwrite this risk. Next, I’d like to offer a quick progress update on our core catastrophe reinsurance program renewal effective 06/01/2025.

Page 12 of our earnings presentation provides an overview of the projected structure. At this point, we are now 100% placed except for a new top layer shown on this page as layer five, which was recently, firm ordered to the market and is in the process of being finalized. Assuming we end up placing a % of that top layer, that would bring our estimated first event limit up approximately 16% from the 1,160,000,000.00 last year to approximately 1,350,000,000.00 this year. Our aggregate protection from multiple events is also expected to increase pretty significantly, about 32% year over year, given the new dropdown features of the two top layers. ACIC is buying significantly more protection this year due to both exposure growth and a more conservative view of hurricane risk.

Last year, we disclosed our program exhausted at roughly the two hundred and eight year return time using an equal blend of AIR version 10 and RMS version 22. And if you use that same model view on our expected renewal this year, exhaustion point, increases to close to the two hundred and fifty year return time. However, our updated view of risk incorporates the new versions of both the AAR and RMS in the return time shown on this page, but that obviously distorts the comparability. Our first event retention is expected to increase from approximately $20,500,000 last year to $29,750,000 this year, but is similar to last year as a percentage of stockholders’ equity. For three full retention events, we expect to retain $52,000,000 up from 46 and a half million dollars last year, but this is down as a percentage of our equity.

We are extremely grateful for the broad support we received this year from our reinsurance partners, and the risk adjusted reinsurance rate decrease estimated at approximately 12% is consistent with the rate decreases we’re currently sharing with our policyholders. The risk adjusted rate decreases did vary by layer between 1022%, with the first layer being flat due to, hurricane Milton. Overall, we’re very pleased with the sixone renewal progress, and we will have more detail regarding it in an eight ks filing within a couple of weeks. I’ll now turn it over to our CFO, Lana Castle, for more specifics on our first quarter results.

Svetlana Castle, Chief Financial Officer, American Coastal Insurance Corporation: 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 $21,300,000 Core income was $20,700,000 a decrease of $3,700,000 year over year due to increased policy acquisition costs, partially offset by higher gross premiums earned as we execute on our plan of measured growth with a focus on risk selection and decreased ceded premium earned from the step down of our growth catastrophe quota share from 40% to 20% effective 06/01/2024. Page six of the presentation shows that net premium earned grew 9% to $68,300,000 As Brad mentioned, our combined ratio was 65%, in line with our previously stated target. Our non GAAP underlying combined ratio, which excludes current year catastrophe losses and prior year development, was 68.2%.

We continue to feel our reserve position is strong. As shown on Page six of our presentation, operating expenses increased $12,100,000 This was primarily driven by a $13,900,000 or 144.8% increase in policy acquisition costs due to a decrease in ceding commission income because of the quota share step down mentioned earlier and increased management fees paid related to our quarter over quarter premium growth. General and administrative expenses offset this, decreasing $1,800,000 or 15.9%. Page seven shows balance sheet highlights. Cash and investments grew 5.2% to $540,800,000 reflecting the company’s strong liquidity position.

Our cash position strengthened further in April, following the proceeds from the inter borrower sale of $26,500,000 which were higher than expected. Stockholders’ equity increased 10.7% to $260,900,000 driven by our first quarter income. Book value per share is $5.4 a 10.4% increase from year end 2024. The company continues to be in a strong position to execute on its 2025 growth initiatives. I’ll now turn it over to Brad Marks for closing remarks.

Bennett Bradford Martz, President and Chief Executive Officer, American Coastal Insurance Corporation: Thanks, Lana. I’ll just note, as always, appreciate your interest in American Coastal. That really completes our prepared remarks for today’s call. We’re now happy to take any questions.

Conference Operator: Thank you. We’ll now be conducting a question and answer session.

Bennett Bradford Martz, President and Chief Executive Officer, American Coastal Insurance Corporation: Session.

Conference Operator: Our first question is coming from Greg Peters from Raymond James. Your line is now live.

Greg Peters, Analyst, Raymond James: Hey, Greg. Good afternoon. Can we go to page nine of your investor deck and which is the, you know, the rate trend and when deductible, can you can you give some color to explain to us what’s going on in this chart? Because it looks like it’s down, but I’m I’m just wanna make sure I’m reading the chart right.

Bennett Bradford Martz, President and Chief Executive Officer, American Coastal Insurance Corporation: Sure, Greg. Happy to. So the red line is a measure of our average account rate. So average account rate, it it that’s the way we look at it, you know, as a function of total insured value. So you would take that rate times the total insured value to get the premium.

And as you can see from essentially the third quarter two thousand twenty four through the end of the first quarter twenty five, it’s been relatively stable. The the real decrease, you know, occurred. You know, we we peak off of sort of record high rate levels and set that high watermark back in February. And, you know, since then, we’ve we’ve come back down to to more normal levels. But even at, you know, close to a dollar, it was 97¢ here shown in this chart as of, March 31.

You know, that that’s that’s a pretty healthy rate level, relative to to our historical, you know, premiums. So we still feel good about rate adequacy. We’re watching the trend in average wind deductible, which is represented in the the bar charts below very carefully. Because, obviously, if if you’re you’re giving up premium and you’re assuming more risk via lower deductibles, you know, that that is, not necessarily a great combination. But, you know, it’s, like I said, a competitive market.

We’re we’re pushing hard, especially in areas like Tri County where we’re we’re definitely focused on maintaining, you know, 5% win deductibles. But outside of the Tri County area, you know, we we have a little bit more latitude depending on where the risk is.

Greg Peters, Analyst, Raymond James: Great. Thanks for for walking us through that. When when and then and then I wanted to the other the other question that you started covered in your call and your in your comments were the, you know, the slide 12, which is the reinsurance. I don’t I don’t remember seeing a third event sort of cover in your previous cap program. So has something changed, or is this just more of the concept of the the cascading feature coming down?

And I I’m just curious, with the other the other aspect about it is, you know, this does not include reinstatement costs. So how is that shaping up this year in terms of year over year comparisons?

Bennett Bradford Martz, President and Chief Executive Officer, American Coastal Insurance Corporation: Okay. Starting with reinstatement cost. Last year, we had a a reinstatement exposure of about 13,000,000 ish, something like that. This year, it’s only expected to be about 5,000,000. So we we’ve dramatically reduced the reinstatement premium exposure, assuming, you know, all all layers had to be reinstated.

So, that’s, a a big improvement year over year. And last year, we did have third event covered. It was definitely more limited. And, the retention for a third event last year was 13,000,000. So it was 20 and a half, then 13 for second, and then 13 for for a third for a total of 46.5 for three events.

But, yeah, it was much more limited. The the major enhancement this year is that the the cap bond we did back in in January, the 200,000,000 excess of 50 is is something that it and that is correct the way it’s drawn. It just it drops down, for subsequent events that that’s improving, our our sideways protection and the overall aggregate coverage. Same with layer five is is going to be a top or drop feature. We haven’t quite we’re still negotiating final positions on that layer.

So, you know, we’ll we’ll ultimately, obviously, update this very soon with a and and specify the final exhaustion point and return times, etcetera. But overall, very pleased with with how this has come together.

Greg Peters, Analyst, Raymond James: Yeah. The just a question a follow-up question on the the 200 x of 50. When that drops down, how far does that will that drop all the way down to layer one, or does it drop where how far down does it drop in the event of earlier layers being exhausted from a storm?

Bennett Bradford Martz, President and Chief Executive Officer, American Coastal Insurance Corporation: It it it it’s it’s exactly as it stated. So, it’s 200,000,000 excess of 50. You know, the the rest of this protection is inuring to it, but assuming that protection were were to be, gone, you know, the the reality of the where it would attach is about the 300,000,000 mark. It you know, assuming you’ve fully reinstated layer one and layer two, the the cap bond would drop down to the, 300,000,000 mark for a second event. And then for a third event, you know, obviously, if you did not have a reinstatement for layers one and two, which were one and a hundred, then it would drop down to 50.

Greg Peters, Analyst, Raymond James: Perfect. The last question I have yeah. Thank you. Thanks for for filling in some, some gaps there. What what, I the last question I have for you is just, I know one of the newer initiatives is the apartment building, the apartment, initiative.

Can you give us an update on how that’s progressing?

Bennett Bradford Martz, President and Chief Executive Officer, American Coastal Insurance Corporation: Yeah. It’s going well. We’ve, through the first four months of the year, we’ve averaged about 15 policies, 15 binds a month. We’re obviously quoting more than that and seeing a lot more submissions than that. But it but it’s been good.

Average premium’s, you know, a little over a hundred thousand dollars. So if you were to annualize the first four months, that that would put us, you know, somewhere between 18 and and $20,000,000. Pretty consistent with our target. Don’t know if that’s, the, you know, a feasible thing to do to just annualize those four months given the seasonality in the book and and the upward trend and and and what we’re trying to do in growing that portfolio. But we’re seeing very good risks.

AAL to premium ratio, for example, is very much is spot on in line with, the new business and the renewal business we wrote in the in the condos. So, and the PML PML to TIV and the expected profit margin as modeled is is also very, very attractive relative to the condos. We’re we’re getting good spread of risk, helping to diversify our portfolio. A lot of this business is coming in in Central And Northeast Florida where we’re underweight in condos. Tends to be a lot further inland as well.

A lot of new construction. So the risk characteristics, are are very nice. So we’ve got a pretty extensive set of underwriting guidelines related to valuation requirements and location and occupancy and height and, you know, so on and so forth, but, we’re we’re pretty happy. The only thing I would suggest is that it is a you know, it’s a pretty competitive market, much more so than than we expected. And, you know, we’re trying to be selective.

So I I wanna manage expectations about this being, you know, a a hyper growth opportunity. It’s it’s not. We’re gonna move very carefully and cautiously and slowly to build the best portfolio we can that’s gonna produce, you know, similar underwriting returns to what we’ve accomplished on on the condo side.

Greg Peters, Analyst, Raymond James: Makes sense. Thanks for your answers. Welcome.

Conference Operator: Thank you. Next question today is coming from Bill Dezellem from Tieton Capital. Your line is now live.

Bill Dezellem, Analyst, Tieton Capital: Thank you. Two questions. First of all, how are you thinking about, quota sharing going ahead and specifically about lowering that quota sharing amount?

Bennett Bradford Martz, President and Chief Executive Officer, American Coastal Insurance Corporation: Hi, Bill. I can take that. We are very pleased with the result this year with the quota share stepping down from 20% to 15%. We have not made any formal decisions yet relative to to 02/1926. So the quota share will be the external quota share will be 15% from 06/01/2025 to 05/31/2026.

And, you know, ultimately, I I think it it could go lower. It just depends on, you know, cost and availability of reinsurance in those lower layers. I think that’s something we will take into account, as well as the broad support provided by by Arch across all our layers and all our programs. They’re they’ve been a terrific supporter of American Coastal, and we appreciate that very much. So, there there are some qualitative and quantitative factors to consider before we adjust that lower.

One thing we didn’t mention is that we are increasing the internal quota share, from 35 or 30% to to 45. So we are, going to be feeding a lot more business to the captive, which is, you know, building a a pretty healthy balance sheet as a result. So, you know, for the statutory insurance company, that’s gonna continue to keep risk based capital very high. It’s net retention lower than the group as a whole and and help, you know, protect the regulated entity, you know, while accumulating additional underwriting profits and and and capital flexibility, in the captive.

Bill Dezellem, Analyst, Tieton Capital: Great. Thank you. And then, would you please discuss the, Amrisk management fee and and the change, contractual change that you all, have there?

Bennett Bradford Martz, President and Chief Executive Officer, American Coastal Insurance Corporation: Sure. There were two changes made, to that. And when when we negotiated the extension, there was a profit sharing component added to the Amrisk agreement that both sides are are very happy with. And we also, increased the the total percentage of there’s two parts. There’s a administration part and a and a claims part, but those two pieces combined went up, 1%.

So that that’s 1% of premium written. And most of that 1% increase was passed on to to producers. In softening market conditions, that that’s typically what happens as premiums start to go down. Commission rates, you know, need to go up to maintain level revenues for for our key producing partners. And, obviously, the opposite is true in in the harder markets where where rates are going up and commission rates can go down to maintain sort of normalized growth in in commission revenue for producers.

Bill Dezellem, Analyst, Tieton Capital: Great. Thank you, and congratulations on another solid quarter.

Bennett Bradford Martz, President and Chief Executive Officer, American Coastal Insurance Corporation: Thank you.

Conference Operator: Thank you. We’ve reached 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.

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