American Coastal Insurance Corporation Q2 FY2026 earnings call

• Market Position: American Coastal Insurance Corporation (ACIC) maintains its market leadership position in Florida commercial residential property insurance, with policies in force and total insured value both up 3-4% year-over-year as of Q2 end 2026, and account retention holding at ~85%.

• Capital Return Activities: ACIC repurchased nearly 1.4 million common shares in Q2 2026, bringing year-to-date repurchases to just over 1.8 million. The board of directors increased repurchase authorization to $30.6 million of common stock, and the company plans to cancel repurchased treasury shares to reduce overall share count.

• Reinsurance Adjustment: Effective August 1, 2026, ACIC reduced its first event hurricane retention from $49 million to $23.5 million pre-income tax, enabled by softer reinsurance pricing and the 2026 Florida hurricane season outlook. Second and third event retentions remain unchanged at $25 million and $2 million respectively. The company's reinsurance strategy is to purchase more protection when pricing is cost-effective, and retain more risk when pricing is not.

• Strategic Priorities: ACIC prioritizes underwriting profitability over top-line growth, and will only pursue growth opportunities that deliver acceptable returns on capital.

• Balance Sheet Health: Liquidity remains strong; cash and investments increased $2.3 million in the quarter after payment of a $36.6 million special dividend.

The transcript does not break out financial performance for separate product segments. Aggregate Q2 2026 results include: net income of $21.9 million, a year-over-year decrease of $10.3 million in quarterly income driven by softening market conditions and $4.2 million in one-time benefits in the prior year period. Gross return premiums decreased 5.3% year-over-year. The reported combined ratio was 74.3%, up 13.7 percentage points from 2025, while the non-GAAP underlying combined ratio (excluding current-year catastrophe losses and prior-year development) was 68.7% compared to 62.2% in the prior year. Stockholders' equity increased $23.2 million (7.3%) to $340.8 million, and book value per share increased 10.7% from year-end 2025 to $721.

• Full-year 2026 earnings guidance is maintained unchanged at $85 million to $100 million, inclusive of expected net average annual catastrophe losses. Actual pre-tax earnings may vary based on actual catastrophe frequency and severity.
• Full-year 2026 total revenue guidance is revised downward to $300 million to $320 million, reflecting current downward rate pressure in the market.
• Management expects rates, deductibles, and policy acquisition costs to remain under pressure into 2027 if there are no major hurricane losses or unexpected market changes, though this pressure will be partially offset by lower reinsurance costs.
• The new ENF Center co-participation project is expected to contribute ~$50 million in calendar year 2026, lower than the original 70-80 million full-year expectation, with a first 12-month contribution forecast between $60 million and $70 million.

• Continued downward rate pressure and market softening are leading to declining gross premiums written and average premium per policy, with competition intensifying across market segments.
• The multifamily/apartment and assisted living facility initiative has underperformed expectations due to ACIC's lack of an AM Best rating, which is required by lenders for many policies, leading to lost business and slower growth in this segment.
• Pricing may become irrational if the soft market cycle persists long-term, potentially forcing ACIC to shrink its book of business and cede market share.
• The company faces upcoming maturity of senior notes, requiring refinancing within the next 6-12 months ahead of hurricane season to avoid storm-related disruptions to refinancing activity.
• Hurricane catastrophe risk remains a core exposure, though the recent reinsurance adjustment has reduced this risk.

Q: What was the cost of the first event hurricane retention buy-down, and how does the lower retention impact plans for capital return for the rest of 2026? / A: The total cost of the buy-down was approximately $8.4 million, with ~$4 million recognized as expense between August and December 2026 and the remainder recognized between January and May 2027. The reduced hurricane risk makes a special dividend more likely, as ACIC has generated 18 consecutive years of profitability and expects to extend that streak to 19 years in 2026. The size of the dividend has not been determined at this time.

Q: What is ACIC's current plan for refinancing its upcoming senior note maturity, and what debt-to-capital target is the company targeting? / A: ACIC's plan is to cut its outstanding long-term debt in half, reducing it from $150 million to $75 million. The company currently has enough cash on hand to complete this reduction. Management is exploring all refinancing avenues including traditional bank debt and the bond market, and aims to complete the process within 6-12 months, ahead of the 2027 hurricane season, to eliminate the risk of storms disrupting the transaction. The company targets a 20% or lower debt-to-capital ratio, aligned with its earnings power and risk profile.

Q: How has the new multifamily apartment and assisted living facility initiative developed relative to expectations, and what challenges is it facing? / A: This initiative has underperformed expectations to date, primarily because many lenders require policies to be backed by an AM Best rated carrier, which ACIC currently does not have for this line. ACIC is addressing this by forming ASA Specialty, and has started discussions with AM Best to secure a rating once ASA Specialty is fully capitalized and licensed. It is also evaluating fronting relationships to access rated paper, and expects to have a solution operational by the end of Q4 2026 to resume growth in this segment after the 2026 hurricane season. There is significant unmet opportunity for ACIC in this space once the rating constraint is resolved.

Q: What are ACIC's plans for its repurchased treasury shares, and why does the company hold repurchased shares? / A: ACIC plans to cancel all repurchased treasury shares to reduce the total outstanding share count. Management continues to actively repurchase stock at current valuations (trading at 5x trailing earnings), and insiders hold significant ownership stakes, so the company believes repurchasing and retiring shares is a compelling use of excess capital. Deployment of the full $30.6 million repurchase authorization will take time due to constraints on average daily trading volume.