AMERICAN COASTAL INSURANCE Corp

There have been no material changes to the risk factors previously disclosed in Part I. Item 1A "Risk Factors" of the Company's Annual Report on Form 10-K for the year ended December 31, 2025, except as set forth below.

Our use of AI, and its use by our third-party providers, presents operational, security, legal and regulatory risks that could adversely affect our business, results of operations and reputation.

We use AI, including generative AI tools that produce text, software code and other content in response to user prompts, to support a range of business activities. Our employees use generative AI tools for drafting, summarization, analysis and error checking; our information technology personnel use AI tools in software development and process automation; and Skyway uses an AI-enabled tool to normalize property information submitted for underwriting, enrich it with data from additional sources and check submissions for accuracy. We license these tools from third party providers. As a result, we depend on our providers’ practices for developing, testing, securing and updating those models and have limited visibility into them.

AI tools, particularly generative AI tools, can produce output that is inaccurate, incomplete, inconsistent or fabricated while appearing authoritative, and the same input may produce different output at different times. Our policies state that employees remain accountable for the accuracy of their work product regardless of whether AI tools are used and provide that AI tools are not a substitute for professional judgment, but employees may not detect all errors in AI-generated output. Reliance on inaccurate output could result in underwriting, claims, financial reporting or other operational errors, and software code generated with the assistance of AI may contain defects or security vulnerabilities. AI-generated content may also infringe the intellectual property rights of others.

AI tools also present security and confidentiality risks. As AI tools are granted access to our information and systems and the ability to take actions on behalf of users, manipulation through malicious instructions, or errors by the tools themselves, could result in the unauthorized disclosure of confidential information or unintended actions in our systems. The use of AI tools that we have not approved, or the improper configuration or use of approved tools, could also result in our confidential information being disclosed to or retained by third parties.

Our third-party providers that perform underwriting, claims and other services on our behalf may use AI in their products and processes in ways we do not control and of which we are not aware, which may expose us to the risks described above with less ability on our part to identify or mitigate them.

The legal and regulatory framework governing AI is evolving rapidly and remains uncertain. Insurance regulators in a number of states have adopted the NAIC Model Bulletin on the Use of Artificial Intelligence Systems by Insurers, which suggestes insurers maintain written programs governing their use of AI systems, including systems obtained from third parties, and to mitigate the risk of adverse consumer outcomes, including unfair discrimination. South Carolina adopted this bulletin in 2026, and in 2026 the Texas Department of Insurance issued guidance stating its expectation that a person reviews and agrees with consequential decisions made using AI before action is taken, including decisions made by third parties working with a regulated entity. Although Florida has not adopted similar requirements, these and other states’ requirements may apply to us as we expand our excess and surplus lines business beyond Florida. In Florida, legislation proposed in 2026 would have regulated insurers’ use of AI in claims handling, including by requiring that decisions to deny or reduce a claim be made by a qualified human, and similar legislation may be proposed in the future. At the same time, federal efforts to limit or preempt state regulation of AI have created uncertainty about which requirements will apply. New or inconsistent requirements could restrict our use of AI, increase our compliance costs or expose us to regulatory findings, allegations of unfair trade practices or unfair discrimination or other liability.

We may also fail to realize the efficiencies or other benefits we expect from AI, and our investments in AI may prove costly. Competitors that adopt AI more effectively than we do could gain advantages in pricing, underwriting or operating costs.