American Coastal Insurance Corporation Q1 FY2026 earnings call

During the first quarter, American Coastal was patient and disciplined in the softening commercial property insurance market. Most risk portfolio produced exceptional results. Account retention was in line with targets, and policy count and exposure base increased. The key to long-term success is maintaining adequate margin. The June 1, 2026 Core Catastrophe Reinsurance Program was complete, securing risk-adjusted reinsurance cost decreases, increasing exhaustion point to over $1.6 billion, moving lower layers to all perils basis, and enhancing aggregate protection against hurricanes. CFO provided financial update with net income $19.3 million, core income $19.3 million. President mentioned the company has $150 million to $200 million of excess capital, margins are solid, and pre-tax earnings are flat year over year, maintaining strong combined ratio reflecting disciplined underwriting.

In the first quarter, net income was $19.3 million. Core income was $19.3 million, a decrease of $1.4 million year-over-year due to decreased net premium earned, partially offset by decreased total expenses. The combined ratio was 66%, an increase of one point from 2025 and in line with the previously stated target. The non-GAAP underlying combined ratio, excluding current year catastrophe losses and prior year development, was 68.3% compared to 68.2% in the prior year. Revenues and expenses remained consistent year over year. Other income decreased $900,000 in the current year driven by non-recurring items in 2025. Net income from continuing operations remained relatively flat, decreasing $400,000 in the current year inclusive of this non-recurring income. On the balance sheet, cash and investments decreased 7.5% from year-end to $599.4 million due to the payment of the previously declared special dividend of $0.75 per share of $36.6 million. Stockholders' equity increased 4.5% to $331.7 million driven by underwriting results, and book value per share is $6.86, a 5.4% increase from year-end 2025.

First quarter results did not change the previously given revenue guidance. The second quarter is the strongest premium production quarter of the year and will impact the full-year guidance. Currently, the company is still striving for the full-year estimates but it will depend on how strong the second quarter is.

Market rapidly softening could impact premiums. Uncertainty in reinsurance and loss costs changes. Uncertainty in hurricane season activity. Competition leading to price and deductible changes. Early uncertainty in AI tool application for operating efficiencies.

Q: Maybe a first couple of questions right around just the impact, I guess, for modeling purposes of the new reinsurance. How should we think?

A: I would prefer to defer that question until we've finalized our ultimate retention decisions, only because I think that has an impact on seated premiums as well as how to model losses in the second half of the year. We are very close. We were hoping to have that finalized before today's call, but While the program excess of $50 million is essentially done, we are looking at various cost benefit analyses of reducing likely second and third event retentions to ensure that we are remaining profitable in a three loss scenario. So I think it's probably a little early, but we can still suggest and refer you to the full year guidance that remains unchanged at this time.

Q: The first quarter results so far don't give any reason to change the revenue guidance that you gave earlier?

A: No. Second quarter is our strongest premium production quarter of the year. It has... Well, you know, the potential to, you know, essentially make or break that guidance. So, I want to be cautious in potentially using, you know, the first three months of the year to revise our estimate for the full year. But for right now, we're still striving for those estimates on a full year basis. but it will depend on, you know, how strong the second quarter is.

Q: Can you just, I guess, remind where you see the opportunities for the EMS carrier? I think it's mainly just if I'm right here, Texas and Florida for now, is that right? And then kind of just longer term, just thoughts on how you see that expanding?

A: Yeah, absolutely. You know, we would, Finally, ASSIM's E&S business in the first quarter is about $6.2 million of E&S premium that came in through our participation on the AMRS E&S portfolio, which we were excited about. That does still track with our initial full-year guidance, although anything could happen. It could certainly come in above that or below that. Where we're seeing opportunities for Skyway is really going to be dependent on market conditions, but we're evaluating all classes of commercial property very, very carefully. Our core products in both condominiums, apartments, and assisted living facilities are where we're going to lead. And we're going to continue to focus on properties with risk characteristics that are very similar to our portfolio in Florida. So, we are also working with various fronting partners to stand up a fronting, a best rated option for use in Florida and outside of Florida for Skyway to have additional underwriting capacity that will likely produce some premium by the fourth quarter. but we're still in the process of setting that up. Hope to have it operational in the third quarter with premium production starting in the fourth quarter. So not a huge uplift from ENS via Skyway Underwriters in 2026. It's more of a 2027 initiative. I think most of our ENS premium, you know, somewhere between $50 and $80 million is going to be coming from the assumption of and co-participation on the AMRIS portfolio for 2026.

Q: Maybe just lastly on the loss or expense side, your G&A expense kind of averages around $10 or $11 million a quarter. Any reason to think that could change any time over the next year or so in either direction?

A: No, it's been relatively stable. Obviously, we had some non-recurring benefits in the prior year that are distorting the expense ratio in the current period. But as far as our fixed costs, we've got a very good handle on those and have a strategy to continue to try and do more with less. We're gaining some operating efficiencies through various uses of technology and AI tools, which we're super excited about. It's very premature to actually get into any real details, but our mantra, one of our strategic objectives for this year was to operationalize AI, and we're off to a very good start.

Q: We've heard some market rhetoric around increasing competition in Florida. Could you provide some color on the trends you're seeing with retention levels on renewals in new business?

A: Retention historically in our business, Mitch, has been between – you know, 75% and 95%. That's where we target account retention with kind of the sweet spot being in the low to mid-80s. It was slightly below that in the first quarter, but well within our targeted range. We saw it bounce back pretty nicely in March after, you know, we made a voluntary decision to walk away from a few large, very large accounts in January where we did see some what I would consider to be reckless competition come in and significantly undercut both on price and on deductible, which was just not consistent with how we underwrite. So we're going to be disciplined in those situations and seed market share to those willing to burn their way into the market. It's rare that that's happening. It's not a daily occurrence. I would say competition and capacity is obviously robust, but most of that is healthy competition. And we're doing a good job of defending our market leadership position, as evidenced by the fact that our policy count and our exposure base is relatively stable. So it is tough sledding out there, no question about it. But what we do feel very good about our ability to compete moving forward, given the job we've done on the reinsurance renewal. The risk-adjusted cost decreases there, and again, I'm gonna refrain from giving specific numbers today, but right now they are exceeding our average year-over-year average premium changes. So with reinsurance costs, in line or better than what we're losing on the front end with our rates, it will continue to allow us to compete very aggressively and maintain our best accounts.

Q: Sticking with the reinsurance renewal, can you walk us through some of the more meaningful structural changes in the renewal relative to last year's program?

A: Yeah, I'll reiterate them again for you in case you want to dive into more details, just stop me and let me know. But we have more overall limits. That's number one. Introducing some new cascading layers that you know, work like a top and drop where you've got a lot more vertical limit for first event yet more aggregate limit for second subsequent events assuming those layers, you know, are not eroded. So, the increased protection for both frequency and severity is sending return times you know, even higher year over year. So we feel very good about it, whether you're looking at it from a first event, a second, or a third event perspective. Some more robust coverage at a very attractive risk-adjusted rate decrease combined with, I guess, the third biggest change is the movement to an all-perils tower away from a hurricane-only tower. Historically, we had separated the non-hurricane and the hurricane risk because of the noise and the volatility associated with our old discontinued personal lines business. But we just have exceptional loss experience when it comes to the SCS, severe convective storm stuff. So it made perfect sense for us to think about including the – the lower layers, placing the lower layers on an all-perilous basis. And, you know, that way we will – that would save us approximately $4 million by non-renewing the layers, excess of $50 million on the AOP-CAT renewal at 1-1. And then, you know, we'll certainly obviously consider various options within our retention, you know, with that renewal because there's still some additional spend there. In total, that program was about $11 million, if I remember correctly. So there's still significant spend there to manage the potential frequency and severity of non-hurricane cat, but we're trying to drive simplicity and standardization across the board with this risk transfer approach. And we got a lot more overall limit out of our gross cat quota share as well. while we're maintaining the 15% session rate with, you know, earned premiums going down in this part of the cycle, we are actually, you know, technically shrinking that reinsurance spend via the quota share. So we view that as a positive, and we're very happy with where we landed this year.

Q: Would you please go into a bit more detail on the new initiatives that you're doing on the E&S front and the timing on when that may lead to total American coastal growth?

A: Sure. Hi, Bill. Reiterating timing, obviously we got E&S kicked off in the month of March with the initial 6.2 million of written. Full year is still, like I said, somewhere going. It's going to depend on how much capacity Amaris can put to work, right? We've given them a certain amount of capacity. They're fighting hard to win and write quality business. You know, I would expect that number is going to add about $70 million in P&S premium to our company this year that we did not have last year. That's solid new growth coming from that segment. For 27 and beyond, I think it's going to look very similar to what we've done with apartments, where you could expect, you know, $20 to $30 million. annually of new business through a thoughtful, sort of very disciplined approach to finding niches where we know how to compete, we know how we're going to win, and we can earn an attractive return on capital. Some of that is obviously market dependent and, you know, what's going on with terms and conditions for sure. You know, if market changes, maybe we can do a lot more a lot faster, but in getting current market conditions and our outlook for where markets are headed, especially if this is a relatively benign hurricane season, which is forecast given the current prediction for a super-aluminum year, you know, it could be slower for us to attract and write new business. That may be the first time that I've ever heard a quasi plea for more hurricanes. I wouldn't go that far. We don't wish that on anybody. But yeah, I mean, it certainly would chase off some of the capacity that's out there doing irresponsible things and maybe firm up pricing a little bit, which would give us you know, some more comfort and margin for error as we branch into the new territories with our core products. We're very confident in our ability to compete both in and outside of Florida, and we have underwriting experience in places like Texas and South Carolina with commercial residential. We've been there before. We've got a good game plan, but yeah, sometimes You just got to be patient with the insurance cycle.

Q: I had a question on capital allocation. You mentioned 200 million of excess capital, and we only see about 5 million of stockholders in Q1. And I understand there's probably an additional $20 million of repurchases authorized that could be done. Can you please expand on the reasoning for, you know, reasoning behind only doing $5 million of stock repurchases with one or more of my purchase categories?

A: Yes, thanks for your question. It's a good one. have excess capital in the system between our statutory ordinary dividend capacity, the amount of equity and capital we've amassed in our captives, as well as the unregulated unrestricted cash we have on hand. We're being a little cautious about share repurchase primarily because of the fact that it would further reduce the outstanding float and the liquidity in our stock. So I think that's one we really would prefer to maintain for severe potential dislocation in the price. The stock is still very cheap, and by almost any measure, So it is attractive to us, and we could see some additional use of that board authorization in the second half of the year. I definitely don't want to rule that out, but we also have to be in an open trading window. The window for us has been closed and is generally closed half of every quarter. So there's that constraint as well. But I think share buyback, are definitely on the table for discussion, as is debt reduction and special dividends to shareholders. So a lot of that will depend on timing, what's going on with interest rates, what happens with our results for the full year. So we'll be mindful and watch that stock price. If it gets too cheap, that's something we will give serious consideration to.