American Coastal Insurance (NASDAQ:ACIC) Q2 2026 Earnings Call

0:00 Hello everyone. Thank you for joining us and welcome to the American Coastal Insurance Corporation Q2 twenty twenty six Earnings Call. After today's prepared remarks, we will host a question and answer session.

0:29 I will now hand the conference over to Bennett Bradford Martz, President and CEO. Brad, please go ahead. Thank you. 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. For more information regarding these statements, please note the language on Slide two of our earnings presentation. During the second quarter of twenty twenty six, American Coastal continued to maintain its market leadership position in Florida commercial residential property insurance, but also experienced continued downward rate pressure causing gross premiums written to decrease roughly 5% compared to the same period a year ago.

1:18 Some minor non hurricane catastrophe losses incurred of approximately $3,100,000 also impacted comparability with the prior year given the lack of any such losses in 2025. Despite top and bottom line compression year over year, our underlying combined ratio of 68.7% was very respectable as was the twenty six point six percent return on equity in the current quarter. During the open window trading window that is in the second quarter, the company repurchased nearly 1,400,000 shares of its common stock, bringing the year to date total shares repurchased to just over 1,800,000. And I'm happy to announce that the Board of Directors has increased our authority to buy back up to roughly 30,600,000 worth of our common stock in the future.

2:10 Our earnings presentation was revamped this quarter with the intent to improve the messaging around what makes ACIC special. I strongly encourage anyone looking to learn more about our company to read that document each period along with our other filings. As disclosed on page nine of our earnings presentation, we recently seized an opportunity to reduce our first event hurricane retention from $49,000,000 to only $23,500,000 before income tax effective August 1. The outlook for hurricanes making landfall in Florida this year, along with continued softening of reinsurance pricing, allowed us to mitigate downside risk from potential hurricanes this year.

2:57 This change is further evidence that ACIC is continuously monitoring the market and always on the lookout for opportunities to improve our risk adjusted performance. For the sake of clarity, our reinsurance strategy is to buy more protection when pricing is cost effective and retain more risk on our balance sheet when it's not. Our second and third event retentions remain unchanged at $25,000,000 and 2,000,000 respectively. Thus, we are confident to state that American Coastal should remain profitable this year even with three full retentions. Lowering American Coastal's potential risk from hurricanes improves the overall quality and reliability of our earnings and cash flows.

3:43 Accordingly, our earnings guidance for the full year currently remains unchanged at 85,000,000 to 100,000,000, inclusive of net average annual losses expected from catastrophes. Actual earnings before income tax could be higher or lower depending on actual catastrophe frequency and or severity. Conversely, our guidance for total revenue is being revised downward to between 300,000,000 and $320,000,000, given the trajectory of the current pricing environment. Without any significant hurricane losses or other surprises this year, we believe that rates, deductibles and policy acquisition costs will likely remain under pressure into 2027.

4:32 But this is likely to be partially offset by lower reinsurance costs. We remain committed to writing new business and looking for intelligent ways to grow. But ACIC will continue to prioritize underwriting profitability as our primary strategic objective. I'd like to now turn it over to our CFO, Lana Castle, for more specifics on our financial results. Lana? 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 seven of the earnings presentation, American Coastal demonstrated another strong quarter with net income of $21,900,000 Total income was 16,500,000 a decrease of $10,300,000 driven by softening market conditions and onetime benefits

5:32 in the prior year totaling $4,200,000 Gross written premiums are down 5.3% from 2025 with $22,500,000 of assumed ENS premium offsetting decreases in our direct premiums. Our combined ratio was 74.3%, an increase of 13.7 points from 2025, but in line with our expectations as we navigate the soft market cycle.

5:59 Our non GAAP underlying combined ratio, which excludes current year catastrophe losses and prior year development, was 68.7% compared to 62.2% in the prior year. We continue to demonstrate underwriting discipline through the market cycle. Page 16 shows balance sheet highlights. Cash and investments increased $2,300,000 inclusive of our previously declared special dividends of $0.75 per share or $36,600,000 The company's liquidity position remains strong. Stockholders' equity increased $23,200,000 or 7.3% to $340,800,000 driven by our underwriting results. Book value per share is $7.21 a 10.7% increase from year end 2025.

6:50 This concludes our prepared remarks. We'll now open the floor for questions.

6:57 We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand.

7:36 The first question comes from the line of Mitchell Rubin with Raymond James. This is Mitch on for Greg. On the first event retention buy down, I appreciated the rationale you provided. What did it cost? And with the new authorization in place, how does the lower retention factor into capital return for the rest of the year?

8:05 Hi, Mitch. Thanks for your question. This is Brad. The cost was approximately, $8,400,000. So about 4,000,000 of that will be expense to ceded earned this year from August to December and the other the remainder as ceded earned from January through May 31. So we'll spread that cost over the the ten month period.

8:33 And it I think it factors favorably into the prospect for a special dividend. Obviously, we've stated that if if we're we're profitable and earning sufficient returns on capital and we feel like we have excess capital, you know, the prospect for a special dividend remains good. And considering we've we've been profitable, you know, all eighteen years of our operations since our inception in 2007 with, this year expecting to be the nineteenth consecutive year of underwriting profitability. You know, this should help guarantee the the a special dividend is declared. How big is undetermined at this time.

9:21 Thanks for the color on that. For my second question, so this quarter had around 767,000 of unfavorable reserve development. Could you provide any color on where that showed up and whether it's an area that could be recurring?

9:38 We don't believe it's recurring. It really all stemmed from a single claim from the 2019 accident year. It was one of our last remaining sinkhole losses that just slightly was above or or beyond our excess per risk reinsurance coverage. So, unfortunately, the net result was a slight impact to to, adverse reserve development. But aside from that, the quarter was, in line with with all of the periods. And I fully expect we'll have favorable development for the full year. So nothing to worry about with reserves. Thank you. The next line of question comes from the line of Dalton Willett with Charmis Capital Partners.

10:33 Your line is open. Please go ahead.

10:37 Hey, Brad. How are you doing?

10:39 Just a quick question on some of the market share dynamics. Comparing the same quarter last year, it looks like policy count is slightly up. Can you talk a little bit about where you're at with with market share gains or losses and how you guys are thinking about that dynamic? Hi, Dalton. Sure. Yeah. You're you are correct. Policies in force and and total insured value in force as of 06/30/2026 was was they were both up roughly, you know, between 34% year over year. So we're maintaining the exposure base. You know, that that is not the problem. Account retention improved over the first quarter, so it was right around 85% for the second quarter and very much right where we want it to be. And we've been actively writing new business to to help,

11:33 you know, fill in the gaps. So we still see attractive opportunities in the market. Our technical model price is is still above historical levels on most of the risks we see. So we're being cautious, definitely more cautious, but,

11:52 it's all about premium retention right now. You know? We don't we don't control the market forces and dynamics. All we can do is try and build the best risk portfolio around those dynamics. But, yeah, we're we're we're maintaining or maybe even growing our our market leadership position and feel good about that. I don't feel good about the the the decline in in average premium, but that's, you know, that's gonna go up and down over time. Yeah. Absolutely. And then can you talk a little bit about the 30,000,000 roughly contribution from the new ENS center with the ACIC coparticipation and what you guys are seeing there and and if you're still thinking 70 to 80 for the full year twenty fifth.

12:42 Yeah. It's going fine. This was probably a little bit behind expectations. I don't believe for the full when you talk about the full year, when we said what we thought, that 70,000,000 would encompass a full twelve months. So if you're thinking calendar year, it's probably gonna be closer to 50,000,000 for the full year somewhere somewhere along those lines but yeah for for the first twelve months we would expect it to be you know somewhere between 60 and 70

13:15 could be more could be less that Amrisk is working extremely hard to find quality risks to to utilize that capacity, and they're doing a good job. They're fighting the same fight. We're fighting with with rate decreases and erosion of other terms and conditions, but they're disciplined underwriters too. We've got a lot of trust and faith in them. And, you know, the the revenue will will will be very important to help offset weakness in our core condominium book of business.

13:51 But the the the reality is is our our mind is always on the bottom line, not the top line. We'd love like I said, at the intro, we'd love to grow and find attractive opportunities to grow, but we're only gonna do so if if we can earn an acceptable return on GAAP. Fantastic. And then last one if I can. Next year, you guys have the senior notes coming due.

14:17 I know there's been talk of refinancing. You cannot need to keep all of that. Can you talk a little bit about how much of that you might plan on refinancing? And then from debt to cap ratio, that would take you, say, if you've only kept $50,000,000 of that, you would be nicely below your, you know, twenty, twenty five percent debt to cap target. Is that kind of the plan to get there from here?

14:38 Yes. It is. We we still believe a 20% debt to capital ratio 20% or less, I should say, is is appropriate for a company with our our earnings power and risk profile. So depending on interest rates, you know, we're exploring traditional bank debt. We're exploring the bond market.

14:59 We're exploring all avenues and would expect to to get a refinance done within the next six to twelve months. So we would prefer to to have this put to bed and taken care of prior to the next hurricane season to to mitigate any risk of of storms impacting our ability to refinance. But our current plan is to to cut the debt in half. You know, that that's the the current outlook is to reduce the the outstanding long term debt from 150,000,000 to 75,000,000. And we've got the cash on hand today to do that. Awesome. Awesome. Thank you so much for taking my call, and congrats on another strong quarter. Thank you.

15:48 The next question comes from the line of Matt Dane with Tieton Capital Management. Your line is open. Please go ahead. Great. Thank you. It's Tieton Capital Management. I did want to ask the multifamily apartment initiative that you folks have rolled out. How has that developed relative to your expectations? And and help me understand how the the competitive landscape has been, for for that new new focus area. Yeah. Certainly. Happy to do so. The apartment, multifamily, and assisted living facility is definitely on the disappointing side. We are currently running into challenges with by not having an AM best rating. You know, we we plan to solve for that by through ACE the formation of ACES Specialty, which we we have already commenced discussions with with AM Best about getting that rated this year once it's fully capitalized and licensed.

16:59 And secondarily, we're we're not going to we're also evaluating and various fronting relationships, including the the structure we already have in place with with Fortegra to potentially give Skyway access to, AM Best rated paper of sufficient, quality and size to to access that risk. The brokers, love American Coastal. We've been told that over and over. There's nothing wrong with our product, nothing wrong with our company, but the lenders, you know, have strict security requirements around the AM Best rating.

17:44 And, unfortunately, we've lost some business to midterm cancellations because of that, and that has slowed down, you know, the the the quoting and binding activity in apartments. So we're we're kind of in a holding pattern at the moment, but we have enormous opportunity in front of us once we solve that constraint, which we're actively working on and hope to have a solution operational, you know, during the tail end of the fourth quarter, to to start writing both apartments and ALFs as as well as other classes of commercial property that are also more rating sensitive inside and outside of Florida, you know, after hurricane season. That's our plan.

18:34 And so once you do have this, the the lack of the the rating, cured and and and have the solution in place, Brad, would you expect that it should be that there is a good amount of business that you should be able to write at at reasonable rates? And and like you said, the the brokers like your product, and and do you believe that that we'll see some business layer on fairly quickly after that then? Yeah. There's enormous opportunity, out there. We we definitely feel and and have been, you know, told by by multiple parties that, you know, the opportunity is there. Competition is is definitely there as well. That that has not helped matters that that there's excess capacity in the marketplace, and and, you know, the incumbents are fighting hard to retain those policies.

19:28 But we have a strategy and feel like, you know, we can gain a lot more traction with the the ENS and best rated paper at our at SkyWest disposal. Okay. That's helpful. Thanks, Brad. Thank you. The next question comes from the line of Akshay Tana, Private Investor. Your line is open. Please go ahead. Hi, Brad, team. My question is on the treasury shares. I see the treasury shares increased and that's mainly because of the buybacks. Was wondering if you have plans to cancel them know, maybe help help us understand why you keep them.

20:26 Yes. There's that that is the plan. And as I stated at the beginning, we we have reloaded our capacity and increased it now so we're still going be on the lookout for additional opportunities to to repurchase stock and and cancel those shares to reduce the overall share count, which, you know, obviously doesn't necessarily have a an immediate effect for all shareholders or really just benefits, you know, sellers, But, you know, certainly reducing some of the the the share count suggests we we believe in our business. We're, you know, heavily weighted on insider ownership here and increasing our concentration investment in the stock is just something we feel compelled to do when you're trading at five times trailing.

21:22 So we're happy to do it. You know, the limitation is gonna be the average daily trending volume. It just takes a little bit of time to to deploy that capacity.

21:35 Got it. Thanks. And and I know we've discussed about premiums coming down and then competition intensifying as well. And as I look at the Florida commercial residential property market share that gets shared, I'm looking at like a couple of companies that have increased market share. So like Slide is one. I'm just curious on the long term threats to the earning part of the core business. Can you maybe talk a little bit more about it? Like

22:18 Well, I can't comment on what other companies are doing. I can just tell you that, you know, you can measure market share a number of different ways, whether you do it based on total insured value, policy count, premium, etcetera. We feel like we're still the largest writer of it. We're in great position, and we're we're, again, defending our our book of business. We're we're only losing what we wanna lose, where we wanna lose it. The stuff we wanna keep, we're keeping. Retention is right where we want it. Account retention, that is. You know? But that being said, you know, there there's obviously challenges on on the premium side because of increased interest and competition.

23:04 So we're mindful of that. We know how to manage the cycle. We've seen this before. And, you know, if we have to shrink the book because pricing becomes irrational, we will, but that's not the expectation at the moment. We're still in a very good position and, you know, many, many periods away from from being at pricing levels where we we would have to consider that and and meaning ceding market share. So, I don't see that as a a near term problem. Could be a longer term problem depending on how long this this part of the cycle lasts, but for right now, we're we're still actively writing and finding new business opportunities as well. So we're winning new business.

23:54 Retention's where we want it, and and that's what we're focused on. Okay. Thank you. There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.