Earnings call transcript: American Coastal Insurance Q2 2025 shows strong growth

American Coastal Insurance Corporation (ACIC), with a market capitalization of $492 million, reported robust financial performance in Q2 2025, marked by significant year-over-year growth in net income and revenues. The company continues to expand its presence in the Florida property insurance market, despite a challenging environment. According to InvestingPro analysis, ACIC’s stock is currently fairly valued, trading near its Fair Value estimate. The company maintains an impressive "GREAT" financial health rating, scoring 3.1 out of 5 on InvestingPro’s comprehensive assessment scale.

Key Takeaways

• Net income rose to $26.4 million.
• Revenues increased by 26% year-over-year.
• Core return on equity reached approximately 42%.
• Stockholders’ equity grew by 24% to $292.3 million.

Company Performance

American Coastal Insurance demonstrated strong performance in Q2 2025, with net income reaching $26.4 million and core income increasing by $7.2 million year-over-year. The company’s revenues grew by 26%, aligning with its impressive 23.92% revenue growth over the last twelve months. Trading at a P/E ratio of 6.72, ACIC appears attractively valued compared to industry peers. The company maintained a competitive edge in the challenging Southeast Florida market, where it continues to focus on apartment property insurance. InvestingPro subscribers can access 12+ additional key metrics and exclusive ProTips about ACIC’s valuation and growth potential.

Financial Highlights

• Revenue: Increased by 26% year-over-year.
• Net income: $26.4 million.
• Core income: $26.8 million, up by $7.2 million YoY.
• Cash and investments: Grew 34.3% to $726.2 million.
• Combined ratio: Improved to 60.6%, down 4.3 points from 2024.

Outlook & Guidance

ACIC plans to resume growth in Q4 2025, with a focus on expanding its footprint in the apartment insurance market. The company maintains a selective underwriting approach, aiming to optimize risk management. Future guidance includes EPS forecasts of 0.05 USD for Q3 2025 and 0.51 USD for Q4 2025, with annual projections of 1.36 USD for FY 2025 and 1.46 USD for FY 2026. Analyst consensus remains positive, with a price target of $15, suggesting potential upside from current levels.

Executive Commentary

CEO Brad Martz emphasized the company’s strategic focus, stating, "We’re not chasing rate," highlighting a disciplined approach to risk and capital return. Martz also noted, "We’ll take on risk as it presents an opportunity based on the expected return on capital," underscoring the company’s cautious expansion strategy.

Risks and Challenges

• Market Saturation: The Florida property insurance market is experiencing rate decreases, which could impact profitability.
• Geographic Concentration: Heavy reliance on the Southeast Florida market exposes ACIC to regional risks.
• Regulatory Changes: Potential shifts in insurance regulations could affect operational strategies.
• Reinsurance Costs: Although risk-adjusted reinsurance costs decreased by 12.4%, future increases could affect margins.

Q&A

During the earnings call, analysts inquired about the structure of ACIC’s reinsurance program, the company’s apartment insurance strategy, and its geographic concentration in Southeast Florida. These discussions highlighted ACIC’s strategic focus and risk management practices.

American Coastal Insurance’s Q2 2025 results reflect a strong financial position and strategic growth initiatives, positioning the company well for future challenges and opportunities in the property insurance market. With a beta of -0.29, ACIC demonstrates defensive characteristics that may appeal to risk-conscious investors. For comprehensive analysis and deeper insights, access ACIC’s detailed Pro Research Report, available exclusively on InvestingPro, along with reports for 1,400+ other US stocks.

Full transcript - Atlas Crest Investment Corp (ACIC) Q2 2025:

Conference Operator: Greetings, and welcome to the American Coastal Insurance Corporation second quarter earnings conference call and webcast. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation, and you may be placed into question queue at any time by pressing star one on your telephone keypad. As a reminder, this conference is being recorded. It’s now my pleasure to turn the call over to 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 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 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 Breffert 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 in 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 Martz. Brad?

Brad Martz, President and Chief Executive Officer, American Coastal Insurance Corporation: Thank you, and welcome, everyone. I’m pleased to report American Coastal continued to deliver exceptional results during the second quarter by growing revenues 26% year over year, growing pretax earnings 51% year over year and producing a core return on equity of approximately 42%. In our view, the Florida market for admitted commercial residential property insurance remains relatively healthy, but property insurance rates continued to fall in most territories during the second quarter, so we’re monitoring all terms and conditions very carefully. In Southeast Florida in particular, where much of our exposure is located, the market is generally firmer than the rest of the state and is even expected to improve in some instances due to ongoing capacity and underwriting constraints. Our risk portfolio continues to perform in line with most key underwriting metrics.

These metrics, along with improvements in our balance sheet strength and our catastrophe reinsurance program, are a big reason why we have grown our policies in force roughly 10% since year end. Year to date, total insured value increased approximately 18%, 69,800,000,000.0 as of June 30. However, continuous portfolio optimization and improvements in our overall spread of risk have resulted in modeled expected losses growing at a much slower rate. During the quarter, we completed our core catastrophe reinsurance program renewal effective 06/01/2025. Page 10 of our earnings presentation provides the final structure and highlights of which are very similar to the projected structure we previewed last period with a risk adjusted cost decrease of approximately 12.4%.

Ceded premiums are subject to potential adjustment based on actual modeled average annual loss versus our projected AAL at September 30. So our risk appetite for adding new exposures is likely to be somewhat limited during the third quarter. We expect to resume growth in the fourth quarter towards the end of hurricane season, assuming the underwriting environment is favorable to do so. On July 21, we also announced that the Kearl Bond Rating Agency had upgraded American Coastal Insurance Corporation, to triple b minus and moved all of our, outlooks from stable to positive. Our team has worked hard to regain investment grade status.

And since it reduces the interest rate on our senior notes by a 100 basis points and clearly conveys that our company is headed the right direction, we were very happy to see that. I’ll now turn it over to our CFO, Lana Castle, for more specifics on our second quarter results.

Lana 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, 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 $26,400,000 Core income was $26,800,000 an increase of $7,200,000 year over year due to a $15,100,000 increase in net premiums earned as a product of stepping down our gross quota share from 40% to 20% effective 06/01/2024, and further from 20% to 15% effective 06/01/2025. This was partially offset by increased operating costs of $6,200,000 driven by a $10,300,000 or 74.8% increase in policy acquisition costs, offset by $4,100,000 or 34.5% decrease in general and administrative expenses. Policy acquisition costs increased due to a decrease in ceding commission income because of the step down and increased external management fees, G and A decreased due to the receipt of $2,900,000 of Employee Retention Tax Credit refunds.

These refunds were previously disclosed as a gain contingency and are non recurring. Our combined ratio was 60.6%, a decrease of 4.3 points from 2024 and lower than our stated 65% target. Our non GAAP underlying combined ratio, which excludes current year catastrophe losses and prior year development, was 62.2%, also below our 65% target. We continue to feel our reserve position is strong. Page six of the presentation provides additional detail on our financial results.

The increased operating costs mentioned earlier were in line with expectations and were more than offset by the increase in net premiums earned, creating net earnings strong. Page seven shows balance sheet highlights. Cash and investments grew 34.3% since year end to $726,200,000 reflecting the company’s strong liquidity position. Included in this balance is $25,700,000 of cash received from the sale of our Interborrow subsidiary announced in April 2025. Stockholders’ equity increased 24% since year end to 292,300,000.0 driven by strong results.

Book value per share is 6%, a 22.7% increase from year end 2024. The company continues to be in a strong position to execute on its 2025 initiatives. I’ll now turn it over to Brad Martz for closing remarks.

Brad Martz, President and Chief Executive Officer, American Coastal Insurance Corporation: Thanks, Lana. That completes our prepared remarks for today’s call, and we are now happy to field any questions.

Conference Operator: Thank you. We’ll now 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. Our first question is coming from Greg Peters from Raymond James.

Your line is now live.

Greg Peters, Analyst, Raymond James: Hey. Good afternoon. In your investor deck, you, talk about Skyway underwriters. And I I thought on page nine of this, of the deck, it’s kind of interesting because there’s this quote to bind ratio, and it seemed like it improved pretty noticeably in June. How do I think about the market that you guys are going after with Skyway Underwriters in the context of your comments about the pricing environment for your other core business?

Brad Martz, President and Chief Executive Officer, American Coastal Insurance Corporation: Thanks for the question, Greg. This is Brad. You know, we’re cautiously optimistic about our ability to to grow our presence in the apartment space in Florida on an admitted basis. Obviously, most of the apartment risks are written, in the ES market today. We’re offering a compelling alternative, and, you know, you you have to see a

Lana Castle, Chief Financial Officer, American Coastal Insurance Corporation: lot of

Brad Martz, President and Chief Executive Officer, American Coastal Insurance Corporation: submissions to to finally issue a policy. We haven’t been, you know, chasing everything that’s coming to us, but we’re seeing nice deal flow. And, you know, I think it’s that submission to to buying ratio that’s probably more important as an indicator of us just being cautious, being selective, and being patient. We’re not chasing rate. Rates in the E and S market in Florida tend to be, you know, a little bit more volatile than the admitted market as you can imagine.

So while we price our business like E and S, it it it’s not something that we’re forced to grow. That’s the good part about having an executive chairman who who’s an underwriter and and, you know, there’s no no requirement or anything internally that suggests we we have to hit our $20,000,000 premium goal. You know, we’ll we’ll take on risk as it presents an opportunity based on the expected return on capital, and that that’s really how we’re approaching it.

Greg Peters, Analyst, Raymond James: And can you remind me on this is you know, for this apartment business, this is just this you’re not taking on any liability exposures here. This is just physical damage. Right?

Brad Martz, President and Chief Executive Officer, American Coastal Insurance Corporation: Correct. Yeah. Great clarification. We are not in the casualty business. This is this is a property book only, so, the liability exposure.

Greg Peters, Analyst, Raymond James: Great. And and, you know, lots of great information that you’re providing on slide 10 on your reinsurance program. And very rarely do we see companies that talk about third event cover. So maybe maybe you can spend a second and unpack. Obviously, the first event is pretty straightforward, but talk about the second and third event.

Because I imagine if there are other parts of the tower that are used in a first or second event that might limit the availability of what’s what’s, possible for a third event cover, but perhaps you can provide some clarification on that.

Brad Martz, President and Chief Executive Officer, American Coastal Insurance Corporation: Yeah. Certainly. The group retentions outlined on page 10 of the earnings presentation are are really simulating, you know, three sort of normal events, call it a $100,000,000 of of gross loss. That’s kinda how we think about it with a with an average annual loss in the in the $50,000,000 range. You know, if if you double that and say, okay.

You know, a a normal event like a a Milton that we currently have reserved at 90, and our our incurred losses on Milton are are under 25,000,000, but we’ve got it reserved at 90, suggests that that that’s what the retention would be based on the utilization limit. But, obviously, it really depends on the first event. As you astutely point out, you know, there are a number of different scenarios depending on frequency and severity that could change those retention numbers. But that that’s how the program is designed. That the key variable is the Florida hurricane catastrophe fund.

We’re showing it drawn here attaching at around the $300,000,000 mark. That’s likely to move up based on our exposure growth that that we’re that we’ve reported to to the cat fund as of June 30. So there there will be more coverage ultimately. I think that’s gonna push the total exhaustion point of our program up based on this, structural illustration that that is just a projection. But that being said, you know, we’ve got, no gaps in coverage and, you know, all of the limit inners around the cap front.

Cap front is an earring, I should say, rather. The unique enhancement we made this year, that we didn’t have last year is a cascading feature of some of the the limit up top. Historically, those top layers, you know, had fixed attachment and exhaustion points. Now if there is significant erosion in the Florida hurricane catastrophe fund, you can see the armor re two cat bond, for example, it’s show it’s drawn as 200,000,000 excess of 50,000,000 even though it’s, you know, showing an attachment point well above that, is because it does first drop to 300,000,000 to fill in any erosion of cap fund limit lost, for a second event and then would potentially drop even further to 50,000,000 for a third event. So there are all kinds of different scenarios for frequency and severity.

But on this, what we’ve outlined here is just an expected normalized stress test for three normalized sort of cat one, cat two, cat three type events.

Greg Peters, Analyst, Raymond James: Perfect. Makes sense, and thanks a lot for the detail.

Brad Martz, President and Chief Executive Officer, American Coastal Insurance Corporation: You’re welcome.

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

Bill Dezellem, Analyst, Tieton Capital Management: Thank you. I actually would like to follow-up on the apartment binding ratio. Because that 45% is higher than what you had been experiencing earlier in the year, would would you walk through the implications? I mean, is this literally that the that you had that much higher quality apartments coming to you, or is it more a function of gaining experience, understanding, and getting comfortable with the market, and, and being willing to, to to bind more coverage than you were earlier in the year. Walk walk me through the the dynamics, if you would, please.

Brad Martz, President and Chief Executive Officer, American Coastal Insurance Corporation: Sure. Thanks for the question, Bill. I I definitely would agree we are gaining, experience and and knowledge and, building deeper relationships with with our distribution partners every day. So, you know, what we knew in January is is significantly improved, you know, today. That being said, the quote to bind ratio is a little bit random.

You know, we just June is a big month for production in property insurance in general in Florida. Second quarter is obviously our strongest premium production. Quarter of the year in June, you know, we just happen to see more more risk that fit our eye than than we had in the previous months. So it’s a combination of some seasonality and, a little bit of randomness. But, I will, you know, not miss an opportunity to say, you know, our capabilities are are improving, you know, day by day in in the underwriting distribution of the apartment program.

Bill Dezellem, Analyst, Tieton Capital Management: Well, I’ll ask you to step out on a limb. The first half, your quote to bind ratio was 29% on average. Directionally, is that number going up in the second half or down in the second half?

Brad Martz, President and Chief Executive Officer, American Coastal Insurance Corporation: Hard to say. You know? I I don’t have a perfect crystal ball on on the the underwriting environment. Obviously, if it remains relatively healthy, I think there’s opportunity to grow. If rates continue to decrease and returns, you know, are impacted by various changes in terms and conditions, you know, it could slow.

So it really we’re gonna be opportunistic and and very thoughtful about, you know, growing this this business. But, you know, I’d love to see us meet or exceed our our plan for the year. But, again, it’s a soft target. It’s not something I’m I’m pushing aggressively internally. I’d much rather see us write, you know, a high quality book of business with a a better expected margin than than just put a bunch of premium on the books.

Bill Dezellem, Analyst, Tieton Capital Management: Alright. Thanks, Brad. And and then in your opening remarks, you referenced that the geography where you have concentration is a is a better market, harder market than Florida on average. Would would you dive into that comment a bit further, please?

Brad Martz, President and Chief Executive Officer, American Coastal Insurance Corporation: Sure. The, Southeast Florida, you know, also affectionately known as Tri County, includes Miami Dade, Broward, and Palm Beach Counties, to a lesser extent, Martin County. You know, that that Southeast region of the state is is always going to be the the most challenging. It’s the peak exposure zone in the world for for hurricane risk. And, you know, there’s there’s more demand than there’s supply of of quality carriers willing to to write there and have the experience and knowledge and know how to to successfully underwrite in that particular part of the state.

So we’ve got a strong presence, that bodes well for our book, considering that, you know, that market is what I would I would, characterize it as, firmer than than the rest of Florida where that’s perceived to be less risky. And our apartment business, I should have mentioned, you know, is a lot of this premium that we’re we’re writing in the apartments is not in, you know, the peak zones where where our condo business is. So it is helping diversify our portfolio from from an exposure management perspective. And, you know, we’re we’re happy to see that.

Bill Dezellem, Analyst, Tieton Capital Management: Thank you. That is, that that is helpful. And I guess I have one additional question, relative to the employee tax retention credit, you have now received all of the credits that you’ll be receiving, or are there still still some lingering out there that you are hoping to receive?

Brad Martz, President and Chief Executive Officer, American Coastal Insurance Corporation: I believe we’ve we’ve received everything at this point. Lana, can you confirm that that’s accurate?

Lana Castle, Chief Financial Officer, American Coastal Insurance Corporation: Yes, Brad. I confirmed all have been received.

Brad Martz, President and Chief Executive Officer, American Coastal Insurance Corporation: Thank you. Great.

Bill Dezellem, Analyst, Tieton Capital Management: Thank you both.

Greg Peters, Analyst, Raymond James: You’re welcome.

Conference Operator: Thank you.

Lana Castle, Chief Financial Officer, American Coastal Insurance Corporation: You’re welcome.

Conference Operator: Thank you. We 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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