AMERICAN COASTAL INSURANCE Corp

Previous wording

Our policies in-force decreased by 3.2% from 23,473 policies in-force at March 31, 2023 to 22,733 policies in-force at March 31, 2024. For more information regarding the concentration of our policies in force, please see the results of operations section below.

Current wording

Our policies in-force decreased by 5.4% from 23,664 policies in-force at June 30, 2023 to 22,395 policies in-force at June 30, 2024. These values include IIC policies in-force, whose results are captured within discontinued operations. For more information regarding the concentration of our policies in force, please see the discontinued operations and results of operations sections below.

Previous wording

As of October 6, 2023, we were seeking a buyer for IIC to complete our exit from the personal lines business and expect the sale price to be the book value of the entity. The Company entered into a non-binding term sheet on October 6, 2023 for the sale of IIC whereby the buyer will acquire 100% of the issued and outstanding common stock of Interboro in exchange for a cash purchase price equal to the GAAP book value of IIC at the time of closing, subject to negotiating and entering into definitive documents containing customary terms and conditions and obtaining regulatory approval(s). The following discussion highlights significant factors influencing the consolidated financial position and results of operations of American Coastal Insurance Corporation. In evaluating our results of operations, we use premiums written and earned, policies in-force and new and renewal policies by geographic concentration. We also consider the impact of catastrophe losses and prior year development on our loss ratios, expense ratios and combined ratios. In monitoring our investments, we use credit quality, investment income, cash flows, realized gains and losses, unrealized gains and losses, asset diversification and portfolio duration. To evaluate our financial condition, we consider our liquidity, financial strength, ratings, book value per share and return on equity.

Current wording

The following discussion highlights significant factors influencing the consolidated financial position and results of operations of American Coastal Insurance Corporation. In evaluating our results of operations, we use premiums written and earned, policies in-force and new and renewal policies by geographic concentration. We also consider the impact of catastrophe losses and prior year development on our loss ratios, expense ratios and combined ratios. In monitoring our investments, we use credit quality, investment income, cash flows, realized gains and losses, unrealized gains and losses, asset diversification and portfolio duration. To evaluate our financial condition, we consider our liquidity, financial strength, ratings, book value per share and return on equity.

Previous wording

When we prepare our consolidated financial statements and accompanying notes in conformity with GAAP, we must make estimates and assumptions about future events that affect the amounts we report. Certain of these estimates result from judgments that can be subjective and complex. As a result of that subjectivity and complexity, and because we continuously evaluate these estimates and assumptions based on a variety of factors, actual results could materially differ from our estimates and assumptions if changes in one or more factors require us to make accounting adjustments. During the three months ended March 31, 2024, we reassessed our critical accounting policies and estimates as disclosed in Note 2 to the Notes to Unaudited Condensed Consolidated Financial Statements and our Annual Report on Form 10-K for the year ended December 31, 2023. We have made no material changes or additions with regard to those policies and estimates.

Current wording

When we prepare our consolidated financial statements and accompanying notes in conformity with GAAP, we must make estimates and assumptions about future events that affect the amounts we report. Certain of these estimates result from judgments that can be subjective and complex. As a result of that subjectivity and complexity, and because we continuously evaluate these estimates and assumptions based on a variety of factors, actual results could materially differ from our estimates and assumptions if changes in one or more factors require us to make accounting adjustments. During the six months ended June 30, 2024, we reassessed our critical accounting policies and estimates as disclosed in Note 2 to the Notes to Unaudited Condensed Consolidated Financial Statements and our Annual Report on Form 10-K for the year ended December 31, 2023. We have made no material changes or additions with regard to those policies and estimates.

Previous wording

The primary goals of our investment strategy are to preserve capital, maximize after-tax investment income, maintain liquidity and minimize risk. To accomplish our goals, we purchase debt securities in sectors that represent the most attractive relative value, and we maintain a moderate equity exposure. Limiting equity exposure manages risks and helps to preserve capital for two reasons: first, bond market returns are less volatile than stock market returns, and second, should the bond issuer enter bankruptcy liquidation, bondholders generally have a higher priority than equity holders in a bankruptcy proceeding. Our investment strategy is the same for both our personal lines and commercial lines operating segments.

Current wording

The primary goals of our investment strategy are to preserve capital, maximize after-tax investment income, maintain liquidity and minimize risk. To accomplish our goals, we purchase debt securities in sectors that represent the most attractive relative value, and we maintain a moderate equity exposure. Limiting equity exposure manages risks and helps to preserve capital for two reasons: first, bond market returns are less volatile than stock market returns, and second, should the bond issuer enter bankruptcy liquidation, bondholders generally have a higher priority than equity holders in a bankruptcy proceeding.

Previous wording

Our cash, cash equivalents, restricted cash and investment portfolio totaled $504,456,000 at March 31, 2024, compared to $369,022,000 at December 31, 2023.

Current wording

Our cash, cash equivalents, restricted cash and investment portfolio totaled $572,580,000 at June 30, 2024, compared to $311,874,000 at December 31, 2023.

Previous wording

We classify all of our fixed-maturity investments as available-for-sale. Our investments at March 31, 2024 and December 31, 2023 consisted mainly of U.S. government and agency securities, states, municipalities and political subdivisions, mortgage-backed securities and securities of investment-grade corporate issuers. Our equity holdings as of March 31, 2024 consist of mutual funds. We held no equities as of December 31, 2023. At March 31, 2024, approximately 83.1% of our fixed maturities were U.S. Treasuries or corporate bonds rated “A” or better, and 16.9% were corporate bonds rated “BBB” or "BB".

Current wording

We classify all of our fixed-maturity investments as available-for-sale. Our investments at June 30, 2024 and December 31, 2023 consisted mainly of U.S. government and agency securities, states, municipalities and political subdivisions, mortgage-backed securities and securities of investment-grade corporate issuers. Our equity holdings as of June 30, 2024 consist of mutual funds. We held no equities as of December 31, 2023. At June 30, 2024, approximately 87.9% of our fixed maturities were U.S. Treasuries or corporate bonds rated “A” or better, and 12.1% were corporate bonds rated “BBB” or "BB", including our investments held in discontinued operations.

Previous wording

AmCoastal’s core catastrophe reinsurance program in effect June 1 through May 31, annually, which includes excess of loss and quota share treaties providing coverage for catastrophe losses from named or numbered windstorms and earthquakes;

Current wording

AmCoastal’s core catastrophe reinsurance program in effect June 1 through May 31, annually, which includes excess of loss and quota share treaties providing coverage for catastrophe losses from named or numbered windstorms;

Previous wording

AmCoastal’s core catastrophe reinsurance program provides occurrence-based coverage up to an exhaustion point of approximately $1,100,000,000 for a first occurrence and $1,300,000,000 in the aggregate. Under this program, our retention on a first and second event is $10,000,000 each, plus $2,250,000 retained separately by our captive. AmCoastal’s program provides sufficient coverage for a 1-in-150-year return period, indicating that the probability of a single occurrence exceeding protection purchased is roughly 0.7% estimated by equally blending the AIR and RMS catastrophe models using long-term catalogs including demand surge. AmCoastal’s program also provides sufficient coverage for a 1-in-100-year event followed by a 1-in-50-year event in the same treaty year, the probability of which is less than 0.1%. While we believe these catastrophe models are very good tools and their output provides reasonable proxies for the probability of exhausting our reinsurance protections, they are imperfect so actual results could vary dramatically from those expected.

Current wording

AmCoastal’s core catastrophe reinsurance program provides occurrence-based coverage up to an exhaustion point of approximately $1,160,000,000 for a first occurrence and $1,510,000,000 in the aggregate. Under this program, our GAAP retention on a first event is $20,500,000 ($10,000,000 retained by AmCoastal under statutory accounting principles (STAT retained), $10,500,000 retained separately by our captive). We have purchased second and third event retrocession coverage, reducing our second and third event GAAP retentions to $13,000,000 ($10,000,000 STAT retained by AmCoastal, $3,000,000 retained separately by our captive). AmCoastal’s program provides sufficient coverage for approximately a 1-in-184-year return period, indicating that the probability of a single occurrence exceeding protection purchased is roughly 0.5% estimated by equally blending the AIR and RMS catastrophe models using long-term catalogs including demand surge. AmCoastal’s program also provides sufficient coverage for a 1-in-100-year event followed by a 1-in-50-year event in the same treaty year, the probability of which is less than 0.1%. While we believe these catastrophe models are very good tools and their output provides reasonable proxies for the probability of exhausting our reinsurance protections, they are imperfect, so actual results could vary dramatically from those expected.

Previous wording

IIC’s core catastrophe reinsurance program provides coverage up to an exhaustion point of approximately $82,000,000 in the aggregate, with a retention of $3,000,000 per occurrence. Based on IIC’s PML, the program provides sufficient coverage for a 1-in-130-year return period, indicating the probability of a single occurrence exceeding protection purchased is no more than 0.8%. IIC’s program also provides sufficient coverage for a 1-in-100-year event followed by a 1-in-50-year event in the same treaty year, the probability of which is less than 0.1%.

Current wording

IIC’s core catastrophe reinsurance program provides coverage up to an exhaustion point of approximately $82,500,000 in the aggregate, with a retention of $2,500,000 per occurrence. Based on IIC’s PML, the program provides sufficient coverage for two 1-in-130-year events in the same season, indicating the probability of a single occurrence exceeding protection purchased is no more than 0.1%.

Previous wording

Effective December 15, 2023, we agreed to commute a private reinsurer’s share of core catastrophe reinsurance coverage and replace this gap in coverage with new coverage provided by one of our other private reinsurers. This transaction resulted in additional expense of approximately $6,300,000 for the year ended December 31, 2023, but will result in decreased expense totaling $14,300,000 during the first half of 2024, resulting in a net economic benefit of approximately $8,000,000 net of replacement coverage for the period December 15, 2023 through May 31, 2024.

Current wording

Effective December 15, 2023, we agreed to commute a private reinsurer’s share of core catastrophe reinsurance coverage and replace this gap in coverage with new coverage provided by one of our other private reinsurers. This transaction resulted in additional expense of approximately $6,300,000 for the year ended December 31, 2023, and a reduction in expense of approximately $6,300,000 and $15,700,000 during the three and six months ended June 30, 2024, respectively.

Previous wording

The table below outlines our quota share agreements in effect for the three months ended March 31, 2024 and 2023.

Current wording

The table below outlines our external quota share agreements in effect for the six months ended June 30, 2024 and 2023. The impacts of these quota share agreements on the financial statements of our former subsidiary, UPC, are included in discontinued operations in 2023.

Previous wording

(1)This treaty provides coverage for all catastrophe perils and attritional losses incurred. For all catastrophe perils, the quota share agreement provides ground- up protection effectively reducing our retention for catastrophe losses.

Current wording

(1)This treaty provides or provided coverage for all catastrophe perils and attritional losses incurred. For all catastrophe perils, the quota share agreement provides or provided ground-up protection, effectively reducing our retention for catastrophe losses.

Previous wording

(2) This treaty provided coverage on our in-force, new and renewal policies until these states were transitioned to HCPCI or TypTap upon renewal.

Current wording

(3) This treaty provided coverage on our in-force, new and renewal policies until these states were transitioned to HCPCI and TypTap upon renewal.

Previous wording

Reinsurance costs as a percentage of gross earned premium during the three month periods ended March 31, 2024 and 2023 were as follows:

Current wording

Reinsurance costs as a percentage of gross earned premium during the three and six month periods ended June 30, 2024 and 2023 were as follows:

Previous wording

The breakdown of our ceded premiums written under the various types of agreements, as well as the amortization of ceded unearned premiums for our personal lines and commercial lines operating segments can be seen in the tables below. These values can be reconciled to the table above.

Current wording

The breakdown of our ceded premiums written under the various types of agreements, as well as the amortization of ceded unearned premiums for IIC, which is now captured in discontinued operations, can be seen in the tables below.

Previous wording

The impact of the current year catastrophes to our personal lines and commercial lines operating segments can be seen in the tables below. Please note that the catastrophe events may have impacted both operating segments. As a result, the sum of the number of events in the tables below will not reconcile to the consolidated number of events above. In addition, the combined ratio impact is calculated using each segment's net premiums earned and sum of the ratios in the tables below will not reconcile to the ratios above.

Current wording

The impact of the current year catastrophes to IIC, which is now captured within discontinued operations, can be seen in the tables below.

Previous wording

On February 10, 2023, we announced that a solvent run-off for UPC was unlikely and on February 27, 2023, UPC was placed into receivership with the DFS, which divested our ownership of UPC. As a result, UPC, as well as the activities related directly to supporting the business conducted by UPC, qualifies as a discontinued operation. For more information regarding the results of our discontinued operations, see Note 3 in our Notes to Consolidated Financial Statements.

Current wording

On February 10, 2023, we announced that a solvent run-off for UPC was unlikely and on February 27, 2023, UPC was placed into receivership with the DFS, which divested our ownership of UPC. As a result, UPC, as well as the activities related directly to supporting the business conducted by UPC, qualify as a discontinued operation. For more information regarding the results of our discontinued operations, see Note 3 in our Notes to Consolidated Financial Statements.

Previous wording

Our gross written premiums attributable to our personal lines operating segment increased $2,375,000 or 22.7%, to $12,857,000 for the three months ended March 31, 2024 from $10,482,000 for the same period in 2023. This increase was driven primarily by rate increases on our personal lines book of business. The change in personal lines written premiums and new and renewal policies of the personal lines operating segment quarter-over-quarter can be seen below.

Current wording

IIC gross written premiums increased $1,314,000, or 7.5%, to $18,859,000 for the six months ended June 30, 2024 from $17,545,000 for the same period in 2023. This increase was driven primarily by rate increases which took effect in the first quarter of 2024. The change in IIC gross written premiums and new and renewal policies quarter-over-quarter can be seen below.

Previous wording

Our gross written premiums increased $10,335,000, or 5.5%, to $197,458,000 for the three months ended March 31, 2024 from $187,123,000 for the same period in 2023. This increase was driven primarily by an increase in our commercial premiums written in Florida, as we continue to focus on our commercial book of business. In addition, we saw an increase in written premiums across our personal lines business, due primarily to rate increases. The breakdown of the quarter-over-quarter changes in both direct written and assumed premiums by state and gross written premium by line of business are shown in the table below.

Current wording

Our gross written premiums decreased $7,373,000, or 3.1%, to $229,449,000 for the second quarter ended June 30, 2024 from $236,822,000 for the same period in 2023. The breakdown of the quarter-over-quarter changes in both direct written and assumed premiums by state, gross written premium by line of business and new and renewal policies by state are shown in the tables below.

Previous wording

(2) Assumed premium written for 2024 and 2023 is primarily commercial property business assumed from unaffiliated insurers.

Current wording

(1)Assumed premium written for 2023 included commercial property business assumed from unaffiliated insurers.

Previous wording

(2)Assumed premium written for 2023 and 2024 primarily included commercial property business assumed from unaffiliated insurers.

Current wording

(2)Assumed premium written for 2023 included commercial property business assumed from unaffiliated insurers.

Previous wording

Policy acquisition costs decreased $15,179,000, or 56.3%, to $11,793,000 for the three months ended March 31, 2024 from $26,972,000 for the same period in 2023. The primary driver of the decrease was an increase in ceding commission income of $17,321,000, driven by our commercial lines quota share coverage effective June 1, 2023. This was partially offset by an increase in external management fees incurred of $1,599,000 and premium taxes of $556,000 related primarily to our increased commercial lines gross written premium during 2024.

Current wording

Policy acquisition costs decreased $25,158,000, or 51.7%, to $23,534,000 for the six months ended June 30, 2024 from $48,692,000 for the same period in 2023. The primary driver of the decrease was an increase in reinsurance ceding commission income earned in 2024 of $25,336,000, driven by our commercial lines quota share coverage effective June 1, 2023.

Previous wording

Operating expenses increased $641,000, or 29.6%, to $2,809,000 for the three months ended March 31, 2024 from $2,168,000 for the same period in 2023, primarily due to increased underwriting costs quarter-over-quarter totaling $1,120,000. This was partially offset by decreased overhead costs such as rent, printing, postage and utilities totaling $328,000 as a result of cost saving initiatives implemented.

Current wording

Operating and underwriting expenses decreased $504,000, or 10.3%, to $4,377,000 for the six months ended June 30, 2024 from $4,881,000 for the same period in 2023, primarily due to a decrease of $1,047,000 in overhead costs such as rent, printing, postage, utilities and computer software and service costs year-over-year as a result of cost-saving initiatives. This was partially offset by increased underwriting costs totaling $544,000 year-over-year.

Previous wording

During the three months ended March 31, 2024, the Company made a capital contribution of $1,265,000 to its reinsurance subsidiary, UPC Re. We may make future contributions of capital to our insurance subsidiaries as circumstances require. The Company made no capital contributions to its subsidiaries during the three months ended March 31, 2023.

Current wording

During the six months ended June 30, 2024, the Company made capital contributions of $1,265,000 to its reinsurance subsidiary, UPC Re. We may make future contributions of capital to our insurance subsidiaries as circumstances require. The Company made no capital contributions to its subsidiaries during the six months ended June 30, 2023.

Previous wording

In September 2023, the Company entered into an equity distribution agreement (the “Agreement”) with Raymond James & Associates, Inc., as agent (the “Agent”), of up to 8,000,000 shares of the Company’s common stock, par value $0.0001 per share (the “Shares”). Sales of the Shares under the Agreement will be made in sales deemed to be “at the market offerings”. The Agent is not required to sell any specific amount of Shares but has agreed to act as the Company’s sales agent for a commission equal to 3.0% of the gross proceeds from the sales of the Shares. As of March 31, 2024, 4,373,000 shares had been sold under the Agreement resulting in commissions paid of approximately $1,181,000 and net proceeds of approximately $38,190,000. The Agreement will terminate upon the issuance and sale of all Shares subject to the Agreement, or the Agreement may be suspended or discontinued at any time. The Company does not plan to sell additional shares under the at-the-market program to which this Agreement relates during the first half of 2024.

Current wording

In September 2023, the Company entered into an equity distribution agreement (the “Agreement”) with Raymond James & Associates, Inc., as agent (the “Agent”), of up to 8,000,000 shares of the Company’s common stock, par value $0.0001 per share (the “Shares”). Sales of the Shares under the Agreement will be made in sales deemed to be “at the market offerings”. The Agent is not required to sell any specific amount of Shares but has agreed to act as the Company’s sales agent for a commission equal to 3.0% of the gross proceeds from the sales of the Shares. As of June 30, 2024, 4,373,000 shares had been sold under the Agreement resulting in commissions paid of approximately $1,181,000 and net proceeds of approximately $38,190,000. The Agreement will terminate upon the issuance and sale of all Shares subject to the Agreement, or the Agreement may be suspended or discontinued at any time.

Previous wording

Cash Flows for the three months ended March 31, 2024 and 2023 (in millions)

Current wording

Cash Flows for the Six Months Ended June 30, 2024 and 2023 (in millions)

Previous wording

During the three months ended March 31, 2024, we experienced cash inflows of $124,484,000 compared to cash outflows of $104,164,000 during the three months ended March 31, 2023. This change was driven by normal business operations, such as premium collections. Claims payments were offset by reinsurance recovery collections, with the net outflow from these activities totaling approximately $6,685,000. In addition, during the first quarter of 2023, we disposed of UPC, resulting in a gain on disposal adjustment of $238,440,000. There was no similar transaction in 2024.

Current wording

During the six months ended June 30, 2024, we experienced cash inflows of $250,886,000 compared to cash outflows of $232,823,000 during the six months ended June 30, 2023. This change was driven by normal business operations, such as premium collections. Claims payments were offset by reinsurance recovery collections, with the net outflow from these activities totaling approximately $3,542,000. In addition, during the first quarter of 2023, we disposed of UPC, resulting in a gain on disposal adjustment of $238,440,000. There was no similar transaction in 2024.

Previous wording

The principal cash inflows from our investing activities come from repayments of principal, proceeds from maturities and sales of investments. We closely monitor and manage these risks through our comprehensive investment risk management process. The principal cash outflows relate to sales of investments. The primary liquidity concerns with respect to these cash flows are the risk of default by debtors and market disruption. During the three months ended March 31, 2024, net purchases of investments totaled $2,005,000 compared to net sales of investments of $195,082,000 during the three months ended March 31, 2023. These net sales in 2023 were offset by the disposition of $232,582,000 in cash related to the receivership of UPC.

Current wording

The principal cash inflows from our investing activities come from repayments of principal, proceeds from maturities and sales of investments. We closely monitor and manage these risks through our comprehensive investment risk management process. The principal cash outflows relate to sales of investments. The primary liquidity concerns with respect to these cash flows are the risk of default by debtors and market disruption. During the six months ended June 30, 2024, net purchases of investments totaled $152,814,000 compared to net sales of investments of $258,736,000 during the six months ended June 30, 2023. These net sales in 2023 were offset by the disposition of $232,582,000 in cash related to the receivership of UPC.

Previous wording

The principal cash outflows from our financing activities come from repayments of debt and payments of dividends. The primary liquidity concern with respect to these cash flows is market disruption in the cost and availability of credit. We believe our current capital resources, together with cash provided from our operations, are sufficient to meet currently anticipated working capital requirements. During the three months ended March 31, 2024, cash provided by financing activities totaled $11,398,000, compared to no cash used in financing activities for the three months ended March 31, 2023. The increase in inflow in 2024 can be attributed to the proceeds received from the issuance of our common stock under our at the market program described above.

Current wording

The principal cash outflows from our financing activities come from repayments of debt and payments of dividends. The primary liquidity concern with respect to these cash flows is market disruption in the cost and availability of credit. We believe our current capital resources, together with cash provided from our operations, are sufficient to meet currently anticipated working capital requirements. During the six months ended June 30, 2024, cash provided by financing activities totaled $11,458,000, compared to no cash used in financing activities for the six months ended June 30, 2023. The increase in inflow in 2024 is attributed to the proceeds received from the issuance of our common stock, primarily under our at the market program described above.