American Coastal Insurance Corp (ACIC) 2025 Q4 法說會逐字稿

Greetings and welcome to the American Coastal Insurance Corporation's fourth quarter 2025 Earnings Conference call and webcast.

(Operator Instructions)

As a reminder, this conference is being recorded. It is my pleasure to turn the call over to your host, Jeremy Hellman, Vice President at the Equity Group and American Coastal's Investment relations representative. Please go ahead, Jeremy.

Thank you, operator, and good afternoon everyone.

American Coastal Insurance Corporation is also broadcast available on its website at www.mcoastal.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 investors section of the company's website. Speaking today will be President and Chief Executive Officer Bennett Martz March and Chief Financial Officer Svetlana Castle.

On behalf of the company, I would d like to note that statements made in this call that are not historical facts or forward-looking statements. Some believe statements are based on reasonable estimates, assumptions, and plans. However, if the estimates, assumptions, or plans underlying the forward-looking statements proven accurate, or if other risks on these arise, actual results could differ materially from those expressed or applied by the forward-looking statements.

Factors that could cause actual assaults to differ materially may be found in the company's filings with the US Securities and Exchange Commission in the risk factors section in the most recent annual report on Form 10k and subsequent quarterly reports on Form 10Q.

For the 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 forwarding statements. With that, it is my pleasure to turn over to Bennett Martz. Bennett.

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 $70million 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 $290million to $320 million. Total revenues increase 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 modelled 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 ENS 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 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 would 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, Bennett, and hello. I'll provide a financial update, but encourage everyone to review the company's press release, earnings and investor presentations, and Form 10k 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 excess of 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 catastrophic losses and prior year development, was 58.9% for the quarter, a decrease of 7 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 six of our presentation shows more detailed quarter over quarter comparison with net premiums earned driving and high revenue compared to 2024 as a product of setting down our gross catastrophic quarter share from 20% to 15% effective June 1st, 2025.

Operating expenses remained relatively flat, decreasing $1.3 million or 3.4%. Page seven provides a 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 pack the 2024 results.

Total expenses remained flat year over year, though operating costs increased $22.6 million, largely as a result of reduced hidden commissions. This was offset by the retention related to Hurricane Milton.

Page eight 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 $0.75 per share declared in the fourth quarter, totalling $36.6 million.

As shown on page nine, through strong results, the company has seen increased liquidity and book quality share since the first quarter of 2023.

I'll now turn it over to red marks for closing remarks.

Thank you. 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.

(Operator Instructions) 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 that at least your commentary on the rate environment is 13%. It looks like it 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 to continue in the next quarter. It looks like maybe that didn't happen and I mean, or maybe it did in your view. I guess I just want to talk about that and 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, premium rebounded, almost 60%, so we're okay with that. The machine, when you slow it down, it does take time to crank it back up sometime. so.

So, we felt it was super important to hit the average annual loss targets that we set for September 30th, you know that 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 we are, walking away from risks that are, 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, I have no worries. I think we've given solid revenue guidance for 2026.

No, promises and on us being able to hit those numbers, of course, but hopefully, 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 that's 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, if growth continues to slow, maybe more than you thought, that obviously will affect earned, later in the year. Does that, it sounds like you're not worried that, of the, 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 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 it 61.

We had a very successful placement of our 11, AOP cap 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 premium written premium change year over year in the fourth quarter, so we feel good about the 61 renewals.

It's not those programs are much smaller. It's not a perfect read through to the June first program, but, obviously if we're suffering, rate change of whatever percentage we're going to be pushing hard to see. Loss 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, Bennett. Maybe one smaller one, on the margin piece, the G&A ratio is 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 the 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.

(Operator Instructions) 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 ENS markets through ACEs and the expanded Armrest Partnership. 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 it's hard to 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, we're going to focus on the same classes of commercial residential property that we write today. It's primarily condos, apartments, and the assisted living facilities. Any other classes would have, 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 Amorri to answer that part. We're super excited about that. That's 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, it's a modest, line that that we're starting with roughly $100 million of full year premiums.

That being said, if under 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, 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 ES 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 increasing shareholder equity through organic or organic earnings profiles.

So I think that in and of itself will continue to bring down that. That that the cap ratio, that being said, we've stated that we will be, 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 $50million and $75 million.

And that's the level we're comfortable with, but we'll see, that a lot of that will depend on the earnings generation, cash flow generation in the business, 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 and we're watching the stock price carefully. We do think the company is, significantly undervalued and repurchasing shares is also an option. Typically, we think about buybacks as something that would require, a significant market dislocation, but that being said, at the current earnings multiples, we think the stock's a good buy.

Great, thank you. Congratulations on the quarter and the year.

You're welcome. Thank you.

Thank you.

(Operator Instructions) Akshayola, a private investor who is now live.

Hi Bennett, Lana, congratulations on a good quarter and a great 2025.

I had questions on, the, ENS opportunity, so the new, company ACES. I joined the call a little late, so forgive me, but do you mind giving an update on, where you are with, creating the new, entity, from your 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.

Okay, thanks and how should we think about like the forecasted like gross premiums for ACS for 2026 and then also like thinking longer-term how should one you know think about ACS, market share so in the January presentation you'd mentioned about the ES opportunity market, about $1.4 billion in Florida. $1.9 billion in Texas and $455 million in South Carolina which comes up to like a total of $3.7 billion of opportunity so like in like.

Can we expect, if things fall in the right place, ACES also have to have the same market share as what, AI Coastal has, which is, I think, around 25% market share. Is that like 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 and and anything we do that that's. The ultimate goal, how long it takes to achieve something like that is anyone's guess, but for 2026, the premium ambition for aces is relatively small. I, I'd say 5% or less of our total revenue guidance for the year is going to come from. From ACs, it, it's really about '27 and beyond, for the initial year of ACs, assuming it's.

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 a am. Best and put it in a position to be a direct writer of commercial property business.

So, but that being said, whatever capital we inject into aces, we are going to put it to work, doing, deals to, similar to what we've, recently done with Amrik, with that net Pota share, produce, expected to produce over $100 million on a first, on a full year basis, so it, it's not, out of the realm of possibility that Ais could, someday be on par 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-emitted 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 tracks like your goal of 65% combined ratio, like, what you have for a coastal, is that still like the overall kind of target what you're looking for?

I think that's aggressive, the condo book in Florida is a little bit unique because of its, of the Florida market and because of the duration at which we've been underwriting in that particular geography, so the knowledge, the experience, the scale we have, and as well as the benefit of the Florida Hurricane cat Fund probably make that, on a. But historically the commercial residential property insurance combined ratio in Florida underlying combined again excluding CAD, has operated between 65 and 75 throughout the 18-year history of the company.

So, you know we, it depends on the loss experience of course, but you got to have an underlying margin that 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 there every day.

We do is going to be accretive and earn an acceptable return on capital, but I wouldn't expect, business generated through the ENS 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, share the purchases. So, I know the team has mentioned, in a couple of conferences as well that the, 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 repurchase? I know you mentioned, you would do or you would look at, share purchases when the stock 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, 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, special dividends. We love the optionality of that and waiting, 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, 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 the lines at this time and have a wonderful day. We thank you for your participation today.