American Coastal Insurance (ACIC) Q3 2026 earnings call transcript

Thank you. Before beginning our commentary, I must first ask everyone to please see page 2 of our earnings presentation for more information regarding forward-looking statements.

During the third quarter of 2026, American Coastal continued to maintain its market leadership position in Florida Commercial Residential Property Insurance. Evidence by one strong account retention near 90%, two policy and force growth of roughly 7% year to date, three, a 3.2% increase in gross premiums written during the current quarter compared to the same period a year ago, despite downward pressure on average account rates. And finally, but most importantly, delivering a combined ratio of 64.7%, which fueled a core return on equity of over 24%.

While our core business continues to produce great results, I'm very excited about how American Coastal's business profile is evolving. During the quarter, we announced our new ENS carrier, ACES Specialty, was formally licensed and it will be the cornerstone of controlling our ENS growth strategy over the long term. In the near term, we remain on track to formally produce and underwrite our first new ENS property insurance policies on or about the end of the 2026 hurricane season, utilizing one or more third-party carriers who already have the financial rating and licenses needed to commence this important strategic initiative.

Our MGA, Skyway Underreaders, already has several submissions in the pipeline. We have cleared and quoted many of these, so it's reasonable to expect we will bind some new business in December. Given the challenges with self-market conditions in commercial property insurance, our strategy is to remain very selective and disciplined in both the admitted and the non-admitted commercial property markets.

Thus, some compelled to reiterate that while top line growth is nice when new business makes sense, our focus remains locked in on underwriting profitability and risk adjusted returns on capital.

It's currently premature to provide any revenue or earnings guidance for 2027. Our historical process for sharing that annual forward-looking information has been to publish an investor presentation and host a call in January once we have finalized those estimates.

The commercial property market remains very dynamic and competitive with some players doing very reckless and irresponsible things to win new business. This is likely to persist into 2027, but I do expect things to moderate compared to the changes in pricing, terms and conditions American Coastal experienced this year.

ACIC will not require any additional capital to achieve our primary goal of earnings growth over time. We have made the investments required to expand our business and still have excess capital that could be returned to shareholders through a special dividend. Assuming no significant catastrophe losses occur in the fourth quarter. Hurricane ESA ES will have a minor impact on our fourth quarter, but it is unlikely to influence our board's consideration of declaring a special dividend later this year.

I'll now turn it over to our T Financial Officer, Lana Castle for more specifics on our financial results. Thank you, Brad, and hello. I'll provide the financial update, but encourage everyone to review the company's press release, earnings and investor presentations, and form 10Q for more information regarding our performance.

As reflected on page 7 of the earnings presentation, American Coastal demonstrated another strong quarter with nothing among 19.4 million. Poor income was 20.4 million, a decrease of 10.1 million driven by softening market conditions, but the company still produced a strong quarter turn on equity over 24%. On-on-gap underlying combined ratio, which excludes current year catastrophe losses and prior year development was 68.4% compared to 57.8% in the prior year.

We continue to demonstrate underwriting disciplines through the market cycle. As shown on page 15 of our presentation, revenues decreased 19.7 million. Expenses decreased 4 million in the current year, driven by favorable prior year development and law operating expenses, quarter over quarter.

Page 16 shows balance sheet highlights. Cash investments have increased 9.3% from year end. The company's liquidity position remains strong. Stockholders' equity increased 38.1 million at 12% to 355.7 million, driven by our underwriting results.

Book value per share is 7.52, a 15.5% increase from year end 2025. The company is well positioned to navigate the shifting market and capitalize on growth opportunities. This concludes our prepared remarks. We'll now open the floor for questions.

Thanks for the question, Mike. Yeah, it is probably a little early to talk about that. We are working on sourcing various forms of capacity for Skyway, one of which would be AC income earning opportunity for our MGA. So some of the premium we expect to generate and business we expect to underwrite next year will lead to growth in the income beginning in 2027.

But I'd like to defer getting into the specifics of that. You know, until we preview our revenue and profitability metrics early next year, my guess is we will be able to demonstrate some nice top-line growth year over year when comparing 27 to 26, both in terms of gross premiums written, gross premiums earned, net premiums earned, and total revenues.

I do think we have some very positive momentum in our business right now regarding our growth initiatives. That just has to be tempered, obviously, by good cycle management. So while we're optimistic and still feel very comfortable underwriting in the current pricing environment, you know, how much business we actually produce next year is still, you know, our plans are still being developed and finalized. And how much of that will result in fee income growth to the company is also still being determined.

Well, I think the ratios should be relatively consistent going forward. Obviously, we haven't, you know, that there is some amortization of deferred policy acquisition costs that is understating the current run rate on a fully earned basis. But there will be a slight increase there, but certainly the net impact on our ability to grow earnings will not be significant for us. So, policy acquisition costs on the ENS side are obviously slightly higher because of fronting fees that we expect to incur as we produce business through other third party carriers and transform that risk to ourselves and to others. But overall, I think, you know, the pack ratio is not going to move all that dramatic.

Yes, I think that's fair.

You know, the renewal business account retention is one key factor. We're paying close attention to renewal business tends to be, you know, a lot more profitable than writing new business.

So, you know, keeping that account retention, you know, as high as possible is priority one. So, we're doing a great job on that front. Both Amrisk and Skyway are working hard to retain our best business. So, that's going great. But, you know, the market is the market, you know, we don't control the great environment. We just, we will be able to overcome some of that loss of premium through rate change via writing some new business, as well as growth in the ENS side. So, that's really helping offset some of the premium weakness this year, but that'll really be more than fully offset next year.

And why I expect it's feasible to see, you know, revenue growth year over year, even if rates continue to be in decline.

I mean, how much rates continue to decline next year is anyone's guess we have targeted, you know, an estimate, at least preliminary for financial modeling purposes, but even inclusive of a double digit rate decrease next year. We still feel like revenue growth is possible because of this evolving and expanding business profile.

Can confirm there were no shared repurchases during that.

Thank you.

Several factors. Obviously, there's an expectation of only writing business that can produce a solid return on capital. So there's only so much rate decrease. I think we're expecting and our insurers are expecting based on changes that have already occurred. So as we look forward, we just feel that that will be the case. The current velocity of rate change is flowing down a little bit. That was not necessarily true for the first half of the year and some of that bled into the third quarter for sure. But 20% year, the decline is not sustainable. Prices aren't going to continue to free fall like that. So an adjustment was warranted. The operating environment is very competitive and there's lots of excess capital out there.

Obviously, no storms will continue to exacerbate that a little bit as capital remains hungry. But from our perspective, regardless of what happens in the industry, we're going to be looking to moderate what we underwrite going forward.

We'll see if that prediction holds true, but I do think it's reasonable that whatever rate change we experience, we're going to see a very, very similar, if not greater offset on the change of our cost of reinsurance. So those are the two things we like to keep in focus and our pricing has always followed our cost of capital on the reinsurance side. We've kept those two things very much aligned since our inception and that's how we continue to maintain margin.

Thank you, Brad.

No, it really is that simple. I think part of it is having good strong partners and that can provide additional capacity will just allow us to underwrite more business. That's the bottom line. So the more capacity the MGA has the better. Most of that will be retained by the company, but we do envision a partnership with one capacity provider who has able to syndicate that we are hopeful to write on behalf of that will generate fee income where we will not be the primary risk taker. We could take a small co-participation in the business we underwrite on their behalf. But for the most part, that relationship, which is obviously very still in negotiations and in development and nowhere near complete.

But we're being thoughtful and we're excited about the prospect of being able to start underwriting on behalf of other third parties next year. So initially, the business will be transformed to our balance sheets because we want to utilize our capitol and continue to earn stronger terms on our capitol. The build out of ACES is really a function of getting the rating process where they invest will take time.

The whitelisting process in the various states will take time. For example, there are states that have three year seasoning requirements out there that will prohibit ACES from being a direct writer of new business.

So we're not going to let that stop us. We will partner with carriers that have already meet those requirements and write the business.

And the quicker we can transform business to ACES, I guess, theoretically the better given the potential profitability enhancement. But we see strategic value long term in continuing to partner with other carriers that can allow Skyway to build a meaningful ENS risk portfolio. Size, scale, diversification will be important to our long term success. And if I look out five years, I can definitely see a dramatically different mix of business as a result of having various partners and not just being solely dependent on ACES.

Yes, I do believe so. You know, we are first and foremost a balance sheet underwriter or an underwriting shop. And to the extent it makes sense to deploy our capital, we will, but certainly having partners who can help us build this risk portfolio and earn services is part of our short and long term.

I don't think that's a real risk in the near term. I mean, longer term, it's certainly possible that I think that's something that's beyond five years. Remember, we can always control the amount of net risk we retain via reinsurance. So, you know, ACES is capitalized with $100 million and is properly graded. We believe, you know, utilizing reinsurance is going to be, you know, the easiest way to manage the net premium risk to the company to avoid having to raise additional capital. But to the extent that let's just assume for a second, maybe the market shifts or it hardens in terms of conditions improved dramatically, then maybe it would, it could make sense to add capital and move faster to capitalize on that opportunity.

You have to see.

You're welcome.