American Coastal Insurance Stock

Thank you. Hello everyone, thank you for joining us and welcome to the American Coastal Insurance Corporation Q2 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. withdraw your question, press star 1 again. I will now hand the conference over to Bennett Bradford-Martz, President and CEO. Brad, please go ahead.

Thank you. On behalf of the company, I'd like to note that statements made during this call that are not historical facts are forward-looking statements. For more information regarding these statements, please note the language on slide two of our earnings presentation. During the second quarter of 2026, American Coastal continued to maintain its market leadership position in Florida commercial residential property insurance, but also experienced continued downward rate pressure, causing gross premiums written to decrease roughly 5% compared to the same period a year ago. Some minor non-hurricane catastrophe losses incurred of approximately 3.1 million also impacted comparability with the prior year, given the lack of any such losses in 2025. Despite top and bottom line compression year over year, our underlying combined ratio of 68.7% was very respectable, as was the 26.6% return on equity in the current quarter. During the open window, trading window that is, in the second quarter, the company repurchased nearly 1.4 million shares of its common stock, bringing the year-to-date total shares repurchased to just over 1.8 million. And I'm happy to announce that the Board of Directors has increased our authority to buy back up to 1.4 million shares. to roughly 30.6 million worth of our common stock in the future.

Our earnings presentation was revamped this quarter with the intent to improve the messaging around what makes ACIC special. I strongly encourage anyone looking to learn more about our company to read that document each period along with our other filings. As disclosed on page nine of our earnings presentation, we recently seized an opportunity to reduce our first event hurricane retention from $49 million to only $23.5 million before income tax, effective August 1st. The outlook for hurricanes making landfall in Florida this year, along with continued softening of reinsurance pricing, allowed us to mitigate downside risk from potential hurricanes this year. This change is further evidence that ACIC is continuously monitoring the market and always on the lookout for opportunities to improve our risk adjusted performance. For the sake of clarity, our reinsurance strategy is to buy more protection when pricing is cost effective and retain more risk on our balance sheet when it's not. Our second and third event retentions remain unchanged at 25 million and 2 million, respectively.

Thus, we are confident to state that American Coastal should remain profitable this year, even with three full retentions. Lowering American Coastal's potential risk from hurricanes improves the overall quality and reliability of our earnings and cash flows. Accordingly, our earnings guidance for the full year currently remains unchanged. at 85 million to 100 million, inclusive of net average annual losses expected from catastrophes. actual earnings before income tax could be higher or lower, depending on actual catastrophe frequency and or severity. Conversely, our guidance for total revenue is being revised downward to between $300 million and $320 million, given the trajectory of the current pricing environment. Without any significant hurricane losses or other surprises this year, we believe that rates, deductibles, and policy acquisition costs will likely remain under pressure into 2027. but this is likely to be partially offset by lower reinsurance costs. We remain committed to writing new business. and looking for intelligent ways to grow. But ACIC will continue to prioritize underwriting profitability as our primary strategic objective.

I'd like to now turn it over to our CFO, Lana Castle, for more specifics on our financial results. Lana?.

Thank you, Brad, and hello. I'll provide a financial update, but encourage everyone to review the company's press release, earnings and investor presentations, and form 10-Q for more information regarding our performance. As reflected on page 7 of the earnings presentation, American Coastal demonstrated another strong quarter with net income of $21.9 million. For income was $16.5 million, a decrease of $10.3 million driven by softening market conditions, and one time benefits in the prior year totaling $4.2 Gross return premiums are down 5.3% from 2025, with 22.5 million of assumed E&S premium offsetting decreases in our direct premiums. Our combined ratio was 74.3%, an increase of 13.7 points from 2025, but in line with our expectations as we navigate the soft market cycle. Our non-combined ratio, which excludes current year catastrophe losses and prior year development, was 68.7% compared to 62.2% in the prior year. We continue to demonstrate underwriting discipline through the market cycle. Page 16 shows balance sheet highlights.

Cash and investments increased $2.3 million, inclusive of our previously declared special dividends of $0.75 per share, or $36.6 million. company's liquidity position remains strong. Stockholders' equity increased 23.2 million, or 7.3%, to 340.8 million driven by our underwriting results. Book value per share is 721, a 10.7% increase from year end 2025. This concludes our prepared remarks. We'll now open the floor for questions.

We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. The first question comes from the line of Mitchell Rubin with Raymond James.

Your line is open. Please go ahead.

Hey, good afternoon. This is Mitch on for Greg. On the first event retention buy down, I appreciated the rationale you provided. What did it cost and with the new authorization in place, how does the lower retention factor into capital return for the rest of the year?.

Hi Mitch, thanks for your question. This is Brad. The cost was approximately $8.4 million. So about 4 million of that will be Expense this seeded earn this year from August to December and the other. the remainder as seeded earn from January through May 31st. So we'll spread that cost over the 10 month period And I think it factors favorably into the prospect for a special dividend. Obviously, we've stated that if we're profitable and earning sufficient returns on capital and we feel like we have excess capital, the prospect for a special dividend remains good and considering we've been profitable, you know, all 18 years ago, of our operations since our inception in 2007, year, expecting to be in the 19th consecutive year of underwriting profitability. This should help guarantee a special dividend is declared, but how big is undetermined at this time.

Thanks for the color on that. For my second question, so this quarter had around 767,000 of unfavorable reserve development. Could you provide any color on where that showed up and whether it's an area that could be recurring?.

We don't believe it's recurring. It really all stemmed from a single claim from the 2019 accident year. It was one of our last remaining sinkhole losses that just slightly was was above or beyond our excess per risk reinsurance coverage. So unfortunately the net result was, slight impact to adverse reserve development. But aside from that, the quarter was in line with all of the periods, and I fully expect we'll have favorable development for the full year. So nothing to worry about with reserves.

Thank you. The next line of question comes from the line of Dalton Willett with Charmis Capital Partners. Your line is open. Please go ahead.

Hey Brad, how you doing? Just a quick question on some of the market share dynamics. You know, comparing the same quarter last year, it looks like policy count is slightly up. Can you talk a little bit about where you're at with market share gains and losses and how you guys are thinking about that dynamic?.

Hi, Dalton. Sure. Yes, you are correct. Policies in force and total insured value in force as of June 30th, 2026, they were both up roughly, you know, between 3 and 4 percent overall. year over year. So we're maintaining the exposure base. You know, that is not the problem. Account retention improved over the first quarter, so it was right around 85% for the second quarter, very much right where we want it to be. And we've been actively writing new business to help fill in the gaps. So we still see attractive opportunities in the market. our technical model prices is still above historical levels on most of the risks we see.

So we're being cautious, definitely more cautious, but it's all about premium retention right now. You know, we don't control the market forces and dynamics. All we can do is try and build the best risk portfolio around those dynamics. But yes, we're maintaining or maybe even growing our market leadership position and feel good about that. Don't feel good about and average premium, but that's, you know, that's going to go up and down over time.

Yes, absolutely. And then can you talk a little bit about the $30 million roughly contribution from the new ENS Center with the ACES co-participation and what you guys are seeing there and if you're still thinking $70 to $80 for the whole year 26?.

Yes, it's going fine. This was probably a little bit behind expectations. I don't believe for the full, when you talk about the full year, when we said what we thought that 70 million would encompass a full 12 months. So if you're thinking calendar year, it's probably going to be closer to 50 million for the full year, somewhere along those lines. But yes, for the first 12 months, we would expect it to be somewhere between 60 and 70. more could be less. The AmRisk is working extremely hard to find quality risks to utilize that capacity and they're doing a good job. They're fighting the same fight we're fighting with rate decreases and erosion of other terms and conditions, but they're disciplined underwriters too. We've got a lot of trust. and faith in them.

And, you know, the revenue will will be very important to help offset weakness in our core condominium book of business. But the reality is, is our mind is always on the bottom line, not the top line. we'd love like i said at the intro we'd love to grow and find attractive opportunities to grow but we're only going to do so if we can earn an acceptable return on government.

fantastic and then last one if i can uh next year you guys have the senior notes coming due uh i know there's been talk of you know refinancing you cannot need to keep all of that because can you talk a little bit about you know how much of that you might plan on refinancing and then you know from debt to cap ratio that would take you you know say if you only kept 50 million of that you would be.

nicely below your 20 to 25% debt to cap target. Is that kind of the plan to get there from here? Yes, it is. We still believe a 20% debt to capital ratio, 20% or less I should say, is appropriate for a company with our earnings power and risk profile. So depending on interest rates, we're exploring traditional We're exploring the bond market. We're exploring all avenues and would expect to get a refinance done within the next six to 12 months. So we would prefer to have this put to bed and taken care of prior to the next hurricane season to mitigate any risk of storms impacting our ability to to refinance. But our current plan is to cut the debt in half.

You know, that's the current outlook is to reduce the outstanding long-term debt from 150 million to 75 million.

And we've got the cash on hand today to do that. Awesome. Awesome. Thank you so much for taking my call and congrats on another strong quarter.

Thank you. The next question comes from the line of Matt Dane with Tietan Capital Management. Your line is open. Please go ahead.

Great, thank you. It's Ty, at Tain Capital Management. I did want to ask the multifamily apartment initiative that you folks have rolled out, how has that developed relative to your expectations? And help me understand how the competitive landscape has been developed. for that new focus area? Yes, certainly.

happy to do so. The apartment multifamily and assisted living facility is definitely on the disappointing side. We are currently running into challenges with by not having an AM best rating. You know, we plan to solve for that by through the formation of ASIS specialty, which we have already commenced discussions with AMBEST about getting that rated this year once it's fully capitalized and licensed. And secondarily, we're not going to, we're also evaluating and verifying various fronting relationships, including the structure we already have in place with Fort Tegra to potentially give SkyWay access to AMBES rated paper of sufficient quality and size to access that risk. The brokers love American Coastal. We've been told that over and over. There's nothing wrong with our product, nothing wrong with our company. But the lenders, you know, have strict security requirements around the AM Best rating.

And unfortunately we've lost some business to midterm cancellations because of that. And that has slowed down, you know, the quoting and binding activity in apartments. So we're kind of in a holding pattern at the moment. But we have enormous opportunity in front of us once we solve that constraint, which we're actively working on and hope to have a solution operational during the tail end of the fourth quarter to start writing both a plan for the state. apartments and ALFs as well as other classes of commercial property that are also more rating sensitive inside and outside of Florida after hurricane season. That's our plan.

And so once you do have this, the lack of the rating cured and have the solution in place, Brad, would you expect that it should be that there is a good amount of business that you should be able to write at reasonable rates? And like you said, the brokers like your product. And do you believe that we'll see some business later on fairly quickly after that then?.

Yes, there's enormous opportunity out there. We definitely feel and have been told by multiple parties that the opportunity is there. Competition is definitely there as well. That has not helped matters that there's excess capacity in the marketplace. And the incumbents are fighting hard to retain those policies. But we have a strategy and feel like we can gain a lot more traction with the E&S and best rated paper at SkyWiz disposal. Okay, that's helpful. Thanks, Brad. Thank you.

The next question comes from the line of Akshay Tanna, private investor. Your line is open. Please go ahead.

Hi Brad team. My question is on the Treasury shares. the treasury shares increased and that's mainly because of the buybacks. I was wondering if have plans to cancel them or you know maybe help us understand why keep them.

Yes, that is the plan. And as I stated at the beginning, we have reloaded our capacity and increased it now. So we're still going to be on the lookout for additional opportunities to repurchase stock. and cancel those shares to reduce the overall share count, which YOU KNOW, OBVIOUSLY DOESN'T NECESSARILY HAVE A an immediate effect for all shareholders or really just benefits sellers. But certainly reducing some of the share count suggests we believe in our business. We're heavily weighted on insider ownership here and increasing our concentration investment in the stock It's just something we feel compelled to do when you're trading at five times trailing. We're happy to do it. You know, the limitation is going to be the average daily training volume. It just takes a little bit of time to deploy that capacity.

Got it, thanks. And I know we've discussed about premiums coming and then competition intensifying as well. And as I look at the Florida commercial residential property, market share that gets shared. I'm looking at a couple of companies that are I have an increased market share. So like slide is one. I'm just curious on the long-term threats to the earning part of the core business. Maybe talk a little bit more about it. Okay.

Well, I can't comment on what other companies are doing. I can just tell you that you can measure market share a number of different ways. Whether you do it based on total insured value, policy count, premium, etc. We feel like we're still the largest writer of it. We're in great position and we're again, and defending our book of business. We're only losing what we wanna lose where we wanna lose it. stuff we want, account retention, that is. But that being said, there's obviously challenges on the premium side because of increased interest in competition.

So we're mindful of that. we know how to manage the cycle we've seen this before and you know if we have to shrink the book Because pricing becomes irrational, we will, but that's not the expectation at the moment. We're still in a very good position and many, many periods away from being at pricing levels where we would have to consider that, meaning seeding market share. So I don't see that as a near-term problem. Could be a longer term problem, depending on how long this part of the cycle lasts. But for right now, we're still actively writing and finding new business opportunities as well. So we're winning new business. retention is where we want it, and that's what we're focused on.

Okay, thank you. As a friendly reminder, please, If you would like to ask a question, please press star 1 on your telephone keypad. There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Greetings, and welcome to the American Coastal Insurance Corporation's First Quarter 2026 Earnings Conference Call and webcast. [Operator Instructions] As a reminder, that this conference is being recorded. It is now my pleasure to turn the call over to your host, Jeremy Hellman, Vice President at the Equity Group and American Coastal Insurance Corporation. Thank you.

Thank you, operator, and good afternoon, everyone. American Coastal Insurance Corporation has also made this broadcast available on its website at www.amcoastal.com. A replay will be available for approximately 30 days following the call. Additionally, you can find copies of the latest earnings release and presentation in the Investors section of the company's website.

Speaking today will be President and Chief Executive Officer, Bennett Bradford Martz; and Chief Financial Officer, Svetlana Castle.

On behalf of the company, I'd like to note that statements made during this call that are not historical facts are forward-looking statements. The company believes these statements are based on reasonable estimates, assumptions and plans. However, if the estimates, assumptions or plans underlying the forward-looking statements prove inaccurate or if other risks or uncertainties arise, actual results could differ materially from those expressed in or implied by the forward-looking statements.

Factors that could cause actual results to differ materially may be found in the company's filings with the U.S. Securities and Exchange Commission in the Risk Factors section in our most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q. Forward-looking statements speak only as of the date on which they are made, and except as required by applicable law, the company undertakes no obligation to update or revise any forward-looking statements.

With that, it's my pleasure to turn the call over to Brad Martz. Brad?

Thank you, and welcome, everyone. During the first quarter of 2026, American Coastal continued to be patient and disciplined in navigating a rapidly softening commercial property insurance market. Most of our risk portfolio continues to produce exceptional results, evidenced by our fantastic loss and combined ratios.

Average account rate decreases are distorting comparability with gross premiums, but premium production only tells part of the story. Looking deeper reveals American Coastal's account retention was in line with our targets and our policy count and exposure base actually increased at the end of the current quarter versus the same period a year ago. This is strong evidence that ACIC continues to protect and defend its market leadership position.

The key to ACIC's long-term success has been our ability to maintain an adequate margin throughout the cycle. Having a strong underlying combined ratio is what ultimately enables us to retain catastrophe risk and produce an acceptable risk-adjusted return on capital over time. Thus, despite losing rate on the front end, we are maintaining margin because loss costs and reinsurance costs are also moving the right direction.

I'm pleased to report that our June 1st, 2026, core catastrophe reinsurance program is effectively complete, and we are very pleased with the outcome. The key takeaways are: first, we were able to secure risk-adjusted reinsurance cost decreases that were necessary for us to remain both very competitive and profitable.

Second, we increased our exhaustion point up to over $1.6 billion, expected to exceed the 250-year return time using the most recent version of Verisk hurricane model, including demand surge and a 10% load for loss adjustment expenses.

Third, we have moved our lower layers to an all-perils basis that will allow us to non-renew the January 1st all other perils catastrophe reinsurance program next year, while maintaining robust protection against potential non-hurricane cat events.

And lastly, we have more aggregate protection against frequency and severity resulting from a potentially active hurricane season.

Pages 11, 12 and 13 of our earnings presentation provide some additional information regarding our reinsurance program renewals. For the core cat in particular, American Coastal is still evaluating various retention options, and that is expected to be completed very soon. Once finalized, we will disclose more details regarding our hurricane retentions as well as the expected total cost of the [ 6/1 renewal ]. I want to personally thank our reinsurance partners for their incredible support and thoughtfulness as we keep moving forward together.

I'd like to now turn it over to our CFO, 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 presentation and Form 10-Q for more information regarding our performance.

As reflected on Page 5 of the earnings presentation, American Coastal demonstrated another strong quarter with net income of $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.

Our combined ratio was 66%, an increase of 1 point from 2025 and in line with our previously stated target. Our non-GAAP underlying combined ratio, which excludes current year catastrophe losses and prior year development, was 68.3% compared to 68.2% in the prior year. We continue to demonstrate underwriting discipline through the market cycle as indicated by our stable margin.

As shown on Page 6 of our presentation, revenues and expenses remained consistent year-over-year. Other income decreased $900,000 in the current year, driven by nonrecurring items in 2025. Net income from continuing operations remained relatively flat, decreasing $400,000 in the current year, inclusive of this nonrecurring income.

Page 7 shows balance sheet highlights. Cash and investments decreased 7.5% from year-end to $599.4 million, driven by the payment of our previously declared special dividend of $0.75 per share of $36.6 million.

The company's liquidity position remains strong. Stockholders' equity increased 4.5% to $331.7 million, driven by our underwriting results. Book value per share is $6.86, a 5.4% increase from year-end 2025.

The company is well positioned to navigate the shifting market and capitalize on opportunities as they present themselves. I will now turn it over to Brad Martz for closing remarks.

Thank you, Lana. Today, we estimate we have between $150 million and $200 million of excess capital in our company. That provides us with tremendous strategic and financial flexibility moving forward. Margins remain solid. We are obviously losing some premium on the front end, but with earnings -- pretax earnings essentially being flat year-over-year and maintaining a strong combined ratio, we feel like that is representative of the disciplined underwriting we continue to do here at American Coastal.

That concludes our prepared remarks for today, and we are happy to field any questions at this time.

[Operator Instructions] And our first question comes from Michael Phillips with Oppenheimer & Company.

Maybe a first couple of questions, Brad, around just the impact, I guess, for modeling purposes of the new reinsurance. How should we think -- I mean, a lot of moving parts here, right? So how should we think about, I guess, on a consolidated basis, maybe either just the net to direct, net to gross premiums this year and maybe even next year, maybe more so this year as compared to what it was in 2025?

Thanks for your question. We appreciate that. I would prefer to defer that question until we finalized our ultimate retention decisions only because I think that has an impact on ceded premiums as well as how to model losses in the second half of the year. We are very close. We're hoping to have that finalized before today's call.

But while the program in 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 3 loss scenario. That has been one of our primary goals to make sure we can maintain underwriting profitability even with 3 full retention events in Florida.

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. I think that is the best estimates we can provide at this moment. After the second quarter, it is possible we'll want to revisit that guidance, but not at this time.

Okay. I guess maybe I was going to ask this later, but since you mentioned it, so the first quarter results so far don't give any reason to change the revenue guidance that you gave earlier?

No. Second quarter is our strongest premium production quarter of the year. It has the potential to essentially make or break that guidance. So I want to be cautious in potentially using the first 3 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 how strong the second quarter is.

Okay. That makes sense. Thanks, Brad. Can you just, I guess, remind, where you see the opportunities for the E&S carrier? I think it's mainly just if I'm right here, Texas and Florida for now. Is that right? And then kind of longer term, just thoughts on how you see that expanding?

Yes, absolutely. We finally assumed some E&S business in the first quarter. It was about $6.2 million of E&S premium that came in through our participation on the AmRisc's 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 fronted A.M. 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 the premium production starting in the fourth quarter.

So not a huge uplift from E&S via Skyway underwriters in 2026. It's more of a 2027 initiative. I think most of our E&S premium, somewhere between $50 million and $80 million is going to be coming from the assumption of -- and co-participation on the AmRisc's portfolio for 2026.

Yes. Perfect. That's very helpful. And then maybe just lastly on the loss or expense side. Your G&A expense kind of averages around $10 million or $11 million a quarter. Any reason to think that could change any time over the next year or so in either direction?

No, it's been relatively stable. Obviously, we had some nonrecurring 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.

Your next question comes from Mitchell Rubin with Raymond James.

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

Yes. Retention historically in our business, Mitch, has been between 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 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 cede 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 flooding out there, no question about it. But we feel very good about our ability to compete moving forward given the job we've done on the reinsurance renewal. We're -- the risk-adjusted cost decreases there, and again, I'm going to 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.

That's very helpful. 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?

Yes, I'll reiterate them again for you in case of you want to dive into more details, just stop me and let me know. But we have more overall limit. That's number one. Introducing some new cascading layers that work like a top and drop where it's -- you've got a lot more vertical limit for first event, yet more aggregate limit for second and subsequent events, assuming those layers are not eroded.

So the increased protection for both frequency and severity is sending return times 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. So 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 lower layers, placing the lower layers on an all-perils basis. And that way, we will -- that would save us approximately $4 million by nonrenewing the layers excess of $50 million on the AOP cat renewal at [ 1/1 ].

And then we'll certainly obviously consider various options within our retention 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.

So while we're maintaining the 15% cession rate with earned premiums going down in this part of the cycle, we are actually 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..

Your next question comes from Bill Dezellem with Tieton Capital.

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

Sure. Bill, reiterating timing, obviously, we got E&S kickoff 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 AmRisc can put to work, right? We've given them a certain amount of capacity. They're fighting hard to win and write quality business.

And I would expect that number is going to add about $70 million in E&S premium to our company this year that we did not have last year. That's solid new growth coming from that segment.

Beyond -- for '27 and beyond, I think it's going to look very similar to what we've done with apartments, where you could expect $20 million 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 what's going on with terms and conditions for sure. If market changes, maybe we can do a lot more, a lot faster. But given 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 El Nino year, it could be slower for us to attract and write new business.

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 yes, 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 some more comfort and margin for error as we branch into new territories with our core products.

We're very confident in our ability to compete both in and outside of Florida, but -- 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 sometimes you just got to be patient with the insurance cycle.

Thanks, Brad. All joking aside, so I want to make sure I'm getting an apples-to-apples comparison here. This quarter, you had $65 million of net earned premiums. So when you're talking about the $70 million of E&S premium with AmRisc this year, that would essentially be equivalent to that [ number or set ] [Audio Gap] to add quarter, the equivalent of one additional quarter to your business revenue?

Not quite. Not quite because I was mixing and matching written and earned a little bit here. So I was talking about written with the $70 million target currently. And again, which could go up, which could go down, but that's written on an earned basis, I would expect about half of that to earn this year..

Thank you for the clarification. Very good point. And assuming that you had 100% retention for additional new business next year, both of which are faulty assumptions. But if that were the case, statement would hold for 2027, that would essentially be the equivalent of an additional quarter.

I think that's fair. And I do think, again, with current assumption of continued soft market conditions, we can expect reinsurance costs to be ultimately very competitive. We still have tools in our arsenal to manage the ceded premium that would potentially allow for even more growth on a net premium earned basis after reinsurance spend.

So depending on our risk appetite and what's going on with the cost of reinsurance capital, I do think the outlook gets even better given some of those elements that are within our control. So we'll have to wait and see.

But yes, ideally, we'd like to be growing revenues and earnings. at all times. That's ideal, but that's just not something -- we're not going to be focused on growing top line in a market that -- where you won't like the results if we do it.

No, that's -- I really appreciate both that and the perspective how those premiums are ultimately flowing in and the implications that could have.

And your next question comes from [ Akshay Fellow ], Private Investor.

I had a question on capital allocation. You mentioned $200 million of -- $200 million of excess capital and we only see about $5 million of stock repurchases 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 -- reasoning behind only doing $5 million of stock repurchases [ with $200 million of excess capital ].

Yes. Thanks for your question. It's a good one. We certainly 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, which -- 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. Open -- 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 buybacks 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 the stock price. If it gets too cheap, that's something we will give serious consideration to.

Just to kind of like comment on that like looking at where the share price is trading, it's kind of like a chicken or the egg problem. Once you have -- once the market gets clarity on the next card market or rates increasing or the actual growth trajectory of the company, the prices tend to go up and then doing buybacks during those times, it just increases the cost of capital, whereas now we have uncertainty on the rates and then the share price for that reason is trading or one of the reasons why it's trading where it is, so that you have the best opportunity by doing these terms. And like it's a balance, I'm sure that you understand. Yes. So just wanted to kind of comment on that, but thank you for your time.

Yes. All fair points.

Thank you. And ladies and gentlemen, that was our last question for today. So with that, we will conclude today's call and all parties may disconnect. Thank you, and have a good day.

Greetings, and welcome to the American Coastal Insurance Corporation's Fourth Quarter 2025 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to turn the call over to your host, Jeremy Hellman , Vice President at The Equity Group and American Coastal's Investor Relations representative. Please go ahead, Jeremy.

Thank you, operator, and good afternoon, everyone. American Coastal Insurance Corporation has also made this broadcast available on its website at www.amcoastal.com. Replay will be available for approximately 30 days following the call. Additionally, you can find copies of the latest earnings release and presentation in the Investors section of the company's website. Speaking today will be President and Chief Executive Officer, Bennett Bradford Martz; and Chief Financial Officer, Svetlana Castle.

On behalf of the company, I'd like to note that statements made in this call that are not historical facts are forward-looking statements. The company believes these statements are based on reasonable estimates, assumptions and plans. However, if the estimates, assumptions or plans underlying the forward-looking statements prove inaccurate or if other risks or uncertainties arise, actual results could differ materially from those expressed or implied by the forward-looking statements.

Factors that could cause actual results to differ materially may be found in the company's filings with the U.S. Securities and Exchange Commission in the Risk Factors section in the most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q. Forward-looking statements speak only as of the date on which they are made and except as required by applicable law, the company undertakes no obligation to update or revise any forward-looking statements.

With that, it is my pleasure to turn the call over to Brad Martz. Brad?

Thank you, Jeremy, and welcome, everyone. During the fourth quarter of 2025, American Coastal continued to demonstrate that we are a unique, high-performing specialty underwriter producing strong returns on capital that is very well positioned for the future. A lack of hurricane activity in the current period helped drive solid earnings growth compared to the same period last year that was impacted by catastrophe losses yet remain profitable.

Our full year net income of $106.8 million exceeded our full year guidance at the beginning of 2025, which was $70 million to $90 million. And even with a major hurricane loss, ACIC would have landed above the midpoint of our guidance. Over the last 3 years, ACIC has produced over $336 million of pretax profits and returned over $60 million to shareholders through special dividends. I think it's fair to say our strategic transformation has been nothing short of spectacular. Yet I believe we're capable of more.

As forecasted last quarter, premiums written in the current period rebounded nicely, increasing approximately 59% compared to the third quarter of 2025, but declined 19% year-over-year due primarily to rate decreases. Rates are falling in our business due in large part to Florida's legislative reforms that are clearly working as evidenced by reduced reinsurance costs and lower losses incurred. For the full year, our net premiums earned of $306.8 million were also above the midpoint of our 2025 guidance, which was $290 million to $320 million. Total revenues increased year-over-year despite a much more competitive environment without sacrificing underwriting discipline.

With softer market conditions persisting in commercial property insurance, we expect premium production to remain challenging as our risk appetite is highly correlated to modeled expected returns on capital. Last month, we revealed plans to improve the company's business profile by introducing new revenue and earnings growth pathways in the E&S market. While we are not necessarily looking to grow commercial property exposure in the short term, we do believe there are pockets of opportunity to underwrite new profitable commercial residential property insurance business inside and outside of Florida, where we can leverage American Coastal's technical expertise and competitive advantages. Our E&S ambitions and investments are more about putting the company in the best possible position to succeed over time rather than chasing growth in this part of the property cycle.

With that, I'd like to now turn it over to our Chief Financial Officer, Lana Castle, for more specifics on our fourth quarter and full year results.

Thank you, Brad, and hello. I'll provide a financial update, but encourage everyone to review the company's press release, earnings and investor presentation and Form 10-K for more information regarding our performance. As reflected on Page 5 of the earnings presentation, American Coastal demonstrated another strong quarter with net income of $26.6 million. Core income was $25.8 million, an increase of $19.8 million year-over-year due to a $20.5 million decrease in incurred losses as Hurricane Milton made landfall in the fourth quarter of 2024, resulting in a full excess of loss catastrophe retention.

For the full year, net income was $106.8 million and core income was $103.7 million, an increase of $26.8 million. Our combined ratio was 58.6% for the quarter and 60.1% for the full year. Our non-GAAP underlying combined ratio, which excludes current year catastrophe losses and prior year development, was 58.9% for the quarter, a decrease of 7 points from the prior year. For the full year, our underlying combined ratio was 61.5%, which is below our 65% target. We continue to maintain a strong reserve position.

Page 6 of our presentation shows more detailed quarter-over-quarter comparison with net premiums earned driving higher revenue compared to 2024 as a product of stepping down our gross catastrophe quota share from 20% to 15% effective June 1, 2025. Operating expenses remained relatively flat, decreasing $1.3 million or 3.4%.

Page 7 provides a year-over-year comparison of our results. Revenues for the full year increased $38.8 million or 13.1% in 2025, driven by the quota share step down previously mentioned as well as a step down from 40% to 20%, which was effective June 1, 2024, and impacted 2024 results. Total expenses remained flat year-over-year, though operating costs increased $22.6 million, largely as a result of reduced ceding commissions. This was offset by the retention related to Hurricane Milton.

Page 8 shows balance sheet highlights. Cash and investments grew 19.8% in 2025 to $647.7 million, reflecting the company's strong liquidity position. Stockholders' equity increased 34.8% since year-end to $317.6 million, driven by strong underwriting results. Book value per share is $6.51, a 33.2% increase from year-end 2024. These increases are inclusive of a special dividend of $0.75 per share declared in the fourth quarter, totaling $36.6 million. As shown on Page 9, through strong results, the company has seen increased liquidity and book value per share since the first quarter of 2023.

I'll now turn it over to Brad Martz for closing remarks.

Thank you, Lana. I'm extremely grateful for our team and for our business partners as they are the true reasons for ACIC's outperformance of its peer group and the insurance industry returns overall. That completes our prepared remarks for today, and we are now happy to field any questions.

[Operator Instructions] Our first question today is coming from Michael Phillips from Oppenheimer.

I guess I wanted to start, I guess, Brad, with the gross premium results this quarter down around 19%. It looks like from December through September, at least your commentary on the rate environment is 13%. It looks like it kind of maybe stabilized. I guess I want to see if you can comment on that. But then talk more about the premium in this quarter. Last quarter, you said you intentionally slowed down for exposure limitations and expected to rebound this quarter to continue into the next quarter. It looks like maybe that didn't happen or maybe it did in your view. I just want to talk about that and kind of how this quarter's 19% drop compares to what you were thinking.

Thanks, Mike. Good questions. And I would just reiterate that quarter-over-quarter, premium rebounded almost 60%. So we're okay with that. The machine, when you slow it down, it does take time to crank it back up sometimes. So we felt it was super important to hit the average annual loss targets that we set for September 30. That's a key measuring stick for our core catastrophe reinsurance program, and we were successful in delivering on hitting that target. So we believe we took the appropriate measures to manage our exposures in the third quarter. That being said, obviously, October got off to a little bit of a slow start because of just the time it takes to continue to receive quote, bind and issue policies given the lead times associated with that activity.

So it's a challenging market environment. We make no bones about it. We are walking away from risks that are previously may have met our return on capital hurdle rates, but today might not be. So we're trying to be disciplined. And I think you'll see a little bit of volatility in the written. But from an earn perspective, I have no worries. I think we've given solid revenue guidance for 2026. No promises on us being able to hit those numbers, of course. But hopefully, we did demonstrate some predictability in our business with the results we posted relative to the guidance in 2025.

Okay. That was helpful. I guess your last couple of words there were what I was going to go next. Maybe I'll still go there and just to see what you think. But if growth continues to slow maybe more than you thought, that obviously will affect earned later in the year. It sounds like you're not worried of the -- at least for now, you're not worried about the revenue numbers you talked about earlier this year.

Yes, that's right. I mean we're going to push hard for changes in expenses commensurate with the changes in revenues. So I think it's just super important for us to continue to work extremely hard on obviously putting together the best possible risk transfer program. We can compile at 6/1. We had a very successful placement of our 1/1 AOP CAT program and our Catastrophe Aggregate program with those being down year-over-year on a risk-adjusted basis quite substantially, well ahead of the rate change in the fourth quarter or the premium -- written premium change year-over-year in the fourth quarter. So we feel good about the 6/1 renewal.

It's not -- those programs are much smaller. It's not a perfect read-through to the June 1 program. But obviously, if we're suffering rate change of whatever percentage, we're going to be pushing hard to see loss costs and reinsurance costs come down a commensurate rate to protect margin. And if not, that could put some pressure on the combined ratio and/or we will be more selective in what business gets written, both new business and renewal business.

Okay. Maybe one smaller one on the margin piece. The G&A ratio has kind of ticked up a bit. And I wonder what's driving that? And any expectations for this year on that one?

Nothing notable to point out. Obviously, we had some distortion in the first half of the year with some payroll tax credits that artificially reduced our recurring normal operating expense levels, but third quarter and fourth quarter represent a true current run rate. So first half of '26 won't necessarily be a perfect comparison with first half of '25. But other than that, I don't have anything to call out on G&A.

Phenomenal results on the margin side. So congrats on that.

Next question is coming from Mitchell Rubin from Raymond James.

You've outlined plans for expansion into South Carolina, Texas and broader nationwide E&S markets through ACES and the expanded AmRisc partnership. Could you provide some color on how underwriting margins, catastrophe profiles and reinsurance structures in these markets differ from your Florida book?

Sure. Thanks for your question, Mitch. I think they are relatively similar. The phenomenon of named windstorm exposure is not much different in Texas and in South Carolina. That being said, I think those states will run at a slightly higher combined ratio. So it's hard to forecast that precisely. But our experience having underwritten in those states previously through Journey Insurance Company would suggest that it's comparable. So we're going to focus on the same classes of commercial residential property that we write today. It's primarily condos, apartments and assisted living facilities. Any other classes would be outside of our comfort zone today, and we would have to provide you a little bit more color around such initiatives.

But the expansion with AmRisc, to answer that part, we're super excited about. That's been a long time coming for us. They're obviously a terrific partner, 25 years of successful inception-to-date results through their organization, and we're proud to have offered them some capacity. It's a modest line that we're starting with, with roughly $100 million of full year premiums. That being said, under -- if the market hardens and they needed more capacity, we could consider increasing that. And conversely, if the market softens and margins are not in line with expectations, we could see that being reduced. But it's a 2-year deal. It's done. It's off and running. We'll start recognizing some premiums from their nationwide commercial E&S property portfolio in March.

I appreciate the color there. So with the debt to total capital ratio at 32% in the quarter, and you've previously stated a long-term target of around 25%, how are you prioritizing deleveraging, funding ACES and potential capital return in 2026?

The debt matures at the end of 2027. So there's no immediate need to address that. Obviously, job 1 is to earn an underwriting profit, continue to drive book value per share and increasing shareholder equity through our organic earnings profile. So I think that in and of itself will continue to bring down that debt-to-cap ratio. That being said, we've stated that we will be seeking to reduce the overall amount of financial leverage in the system. So I think when it comes time to refinance that debt, I would expect the company to shy away from a straight refinance. I think total debt would likely fall anywhere between $50 million and $75 million. And that's a level we're comfortable with.

But we'll see. That -- a lot of that will depend on the earnings generation, cash flow generation in the business. We're excited to be able to return some of our profits to shareholders in the last 2 years, so $60 million, as I noted. And we're watching the stock price carefully. We do think the company is significantly undervalued and repurchasing shares is also an option. Typically, we think about buybacks as something that would require a significant market dislocation. But that being said, at the current earnings multiples, we think the stock is a good buy.

Congrats on the quarter and the year.

Your next question today is coming from [ Akshay Forma ], a private investor.

Congratulations on a good quarter and a great 2025. I have questions on the E&S opportunity, so the new company, ACES. I joined the call a little late, so forgive me, but do you mind giving an update on where you are with creating the new entity from your last call and the update? And then I have one more follow-up question.

Yes. The update is -- it is still pending regulatory approval in the state of Arizona. So it did take us pretty much the better part of the fourth quarter to complete all the background checks and biographical affidavits, et cetera, that were required. Typically, the state of Arizona doesn't even begin reviewing any kind of new company application until that's been completed. So we've cleared that hurdle, and I believe they're working on it, and we should have an update for you shortly. But right now, the certificate of authority is still pending.

And how should we think about like the forecasted gross premiums for ACES for 2026? And then also like thinking longer term, how should one think about ACES market share? So in the January presentation, you had mentioned about the E&S opportunity market, about $1.4 billion in Florida, $1.9 billion in Texas and $455 million in South Carolina, which comes up to like a total of $3.7 billion of opportunity. So like can we expect if things fall in the right place, ACES also to have the same market share as what AmCoastal has, which is, I think, around 25% market share. Is that kind of like where the team is targeting? Or how should one think about it in the long term?

I mean it's a great question. I think, obviously, we want to have a market leadership position in anything we do. That's the ultimate goal. How long it takes to achieve something like that is anyone's guess. But for 2026, the premium ambition for ACES is relatively small. I'd say 5% or less of our total revenue guidance for the year is going to come from ACES. It's really about '27 and beyond.

For the initial year of ACES, assuming it's gets approved and capitalized, which, of course, the timing of that is still even uncertain. But in the first 12 months of its operation, it's going to operate just as a collateralized reinsurer. It will take time for us to go and get it rated by A.M. Best and put it in a position to be a direct writer of commercial property business. So -- but that being said, whatever capital we inject into ACES, we are going to put it to work, doing deals to -- similar to what we've recently done with AmRisc with that net quota share producing -- expected to produce over $100 million on a first -- on a full year basis.

So it's not out of the realm of possibility that ACES could someday be on par with American Coastal, but it's probably unlikely. I see it being a little bit smaller for the next 3 to 5 years. But beyond that, yes, I mean utopia would be a perfectly balanced portfolio between admitted and non-admitted business between Florida and non-Florida states with great spread of risk and geographic diversification.

Got it. And then in terms of like combined ratios for all these -- for ACES -- would you say that, that kind of tracks like your goal of 65% combined ratio like while you have for AmCoastal? Is that still like the overall kind of target what you're looking for?

I think that's aggressive. The condo book in Florida is a little bit unique because of its -- the Florida market and because of the duration at which we've been underwriting in that particular geography. So the knowledge, the experience, the scale we have and as well as the benefit of the Florida hurricane cat fund probably make that unachievable.

But historically, the commercial residential property insurance combined ratio in Florida underlying combined, again, excluding cat, has operated between 65% and 75% throughout the 18-year history of the company. So we -- it depends on the loss experience, of course. But you got to have an underlying margin. That's what our Chairman is constantly preaching. With an underwriting margin that allows you to absorb the catastrophes when they occur and the soft market cycles when they occur. Without a margin, then you're really setting yourself up for disappointment.

So we believe that the -- everything we do is going to be accretive and earn an acceptable return on capital, but I wouldn't expect business generated through the E&S platform to achieve the same exact results that our condo book in Florida has achieved.

My last question is going to be on share repurchases. So I know the team has mentioned in a couple of conferences as well that the stock is undervalued. I believe it, too, and I'm a shareholder as well, and I believe the stock is undervalued. So I guess my question is, what's holding the team back from share repurchases? I know you mentioned you would do or you would look at share repurchases when the stock is undervalued. So I'm just curious what's holding the team back.

It just hasn't been our top priority. I appreciate the sentiment, and we hear you. And I think going forward, it will be given slightly more consideration. I don't know if that consideration will trump how we feel about special dividends. We love the optionality of that and waiting until we're through hurricane season to really be able to accurately measure what excess capital we may or may not have.

So ideally, we'll obviously still be able to pay a special dividend every year, but the amount of that will be driven by our loss results, which are inherently unpredictable. That being said, we're monitoring the stock. We're obviously not a complete outlier with some of our peers. But to the extent that we are not rewarded for continuing to produce exceptional returns, yes, I mean we're buyers at these levels.

Thank you. We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

Nothing further from the American Coastal team.

Thank you. That does conclude today's teleconference webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.

Hello. I'm Brad Martz, President and CEO of American Coastal Insurance Corporation. Here with me is our CFO, Svetlana Castle, who will also be presenting, and we welcome you to our Flash strategic update. This presentation is intended to share some exciting developments at ACIC. They are anticipated to create shareholder value by driving revenue and earnings growth over time.

Accordingly, statements made in this presentation contain forward-looking statements as defined herein, and we recommend caution accordingly. Please review our annual report on Form 10-K, including the risk factors as well as other public filings for more information regarding American Coastal. You may already be familiar with American Coastal, but for those of you who are new to our story, American Coastal was founded by our Chairman, Dan Peed in 2007 to underwrite commercial residential property insurance in Florida.

That includes habitational risks such as condominiums and apartments. We ensure the building shell or envelope that includes the roof, the doors, windows and common areas as well as garages, carports, rec centers and other structures. We do not cover flood, liability or contents of individual units or flood risk as those are typically covered in separate flood and homeowners policies.

ACIC is the market leader for condominium associations in Florida with a #1 market share that includes roughly 4,300 of the approximate 17,000 condominium associations eligible for our product, representing most of the $637 million of premium in-force at the end of the third quarter. Our Florida condo book is underwritten in partnership with the AmRisc Group, the leading commercial property managing general agency in the United States.

The relationship with AmRisc has been very successful with American Coastal achieving an underwriting profit in every year of its existence. 18 years of consecutive profitability in Florida, the peak exposure zone in the world for hurricane risk is no accident. And clearly, it differentiates American Coastal as a leading specialty insurer of catastrophe-exposed property insurance.

This brings us to our first major update, which is an expansion of the partnership with AmRisc. In addition to the admitted market condominium business, AmRisc produces exclusively for ACIC in Florida, AmRisc also underwrites a large portfolio of catastrophe-exposed commercial property insurance on an excess and surplus lines basis, also referred to as E&S or non-admitted in partnership with several other P&C carriers throughout the country.

I'm excited to announce that ACIC is thrilled to provide additional capacity to AmRisc with a 6% participation in their nationwide E&S portfolio. We believe this is mutually beneficial as the additional capacity helps support AmRisc's long-term growth strategy and their stellar underwriting track record in the E&S space over the past 25 years provides American Coastal tremendous comfort that we can earn a superior return on capital with virtually no execution risk or risk of adverse selection.

Here, we've included an example illustration of how ACIC's participation is expected to support AmRisc's $1 billion-plus E&S portfolio and produce approximately $75 million of gross written premium for ACIC in 2026, assuming a March 1 start date. Since American Coastal doesn't currently have an AM Best rating, we are utilizing a fronting carrier and a reinsurance partner to effectively pass through our 6% share of the premiums and losses from AmRisc via a net quota share reinsurance agreement.

Once all the agreements are finalized, ACIC plans to file an 8-K with more details on this arrangement, including who the counterparties are. The initial term of the net quota share is 2 years, but we do expect this to be a long-term commitment of capital to AmRisc, assuming mutually beneficial participation arrangements can be renewed in future periods beyond the initial term. Consistent with ACIC's strategy of retaining a small portion of the overall risk exposure to mitigate potential volatility from catastrophe events, there will be a new catastrophe reinsurance program placed, that is specific to covering our 6% share of AmRisc's E&S portfolio's risk exposure.

This slide provides an illustration showing that ACIC's retention will likely be limited to no more than $10.8 million with an all perils excess of loss program being placed up to the 250-year probable maximum loss with all losses beyond the open market reinsurance program being retained by the fronting carrier. The coverage will be placed 1 in 100 and include reinstatement premium protection to effectively eliminate potential reinstatement costs if any losses are ceded to this program.

Because this is a net quota share, our reinsurance partner in this transaction, who is a multibillion-dollar global entity, will be placing all the open market reinsurance coverage on our behalf, which obviously provides us tremendous confidence it will be placed properly and cost effectively. The E&S market has historically been dwarfed by the admitted market for all lines of business, but that is changing in property insurance. This chart shows how the commercial property insurance market has shifted from admitted to E&S over the past few years during the hard market and helps demonstrate why we believe E&S capabilities are critical for long-term growth and underwriting profitability at American Coastal.

Our strategy will not change in Florida because of the Florida Hurricane Catastrophe Fund, also known as the FHCF or the CAT Fund. The FHCF is only available to carriers writing habitational property insurance on an admitted basis in Florida. Because there is a significant cost advantage provided by the CAT Fund, and we can price our business like an E&S carrier, it does make sense to continue writing as much of the condominiums, apartments and assisted living centers as possible in the Florida admitted market via American Coastal Insurance Company.

However, not all desired risk will fit our admitted market strategy. For instance, the Florida Hurricane Catastrophe Fund is specific to Florida only. So for all other states outside of Florida as well as commercial property risks that don't qualify for the CAT Fund and/or require an AM Best rated carrier, the E&S market is our preferred pathway forward. That leads to our second major update, which is the formation of a new wholly owned and controlled E&S carrier called ACES Specialty Insurance Company.

ACES is short for American Coastal E&S, so it's easy to remember. ACES has an application pending approval in Arizona. So timing for regulatory approval is uncertain, but we do anticipate our new E&S company should be operational this year. ACES is planning to launch with $30 million of policyholder surplus, which we believe will be sufficient for us to achieve our premium objectives in the short term.

ACES will likely begin operations by assuming risk as a collateralized reinsurer until it is properly positioned to be a direct underwriter of new business. To be a viable direct underwriter of new business, ACES will first need to obtain regulatory approval in the various states where the company plans to operate and also achieve a financial rating of at least A-, A from AM Best. This will take some time and additional capital, but we are excited to get started and expect to immediately earn a return on the initial capitalization contributed to ACES via multiple reinsurance opportunities.

Next, this page summarizes our preliminary view of the E&S market opportunities by product for both ACES and our wholly owned specialty MGA Skyway underwriters, who will produce and administer direct business on behalf of ACES. Our initial focus will be underwriting the five classes of commercial property shown here in Florida, Texas and South Carolina. We have underwriting experience in all of these classes and states with the exception of the non-habitational commercial property, which is expected to be relatively small for us.

We are open to expansion in other CAT-exposed geographies where we would expect to have some sort of sustainable competitive advantage underwriting these classes of business. For example, California is a perfect spot in a marketplace that is experiencing some dislocation and represents significant opportunity for us. But it will take us some more time to find the right approach to a state like that.

This slide updates our underwriting strategy to incorporate our thinking on excess and surplus lines. In short, as I mentioned before, our strategy will not change much as we seek to replicate the success we've had in Florida as closely as possible. Distribution will continue to utilize the national wholesale partners that produce the vast majority of our profitable in-force portfolio today. There is differentiation here shown between the admitted balance sheet of American Coastal Insurance Company versus ACES and what the unaffiliated partnership with AmRisc is producing compared to our wholly owned internal MGA, Skyway underwriters.

Before turning it over to our CFO, I want to touch on the market cycle quickly. As you can see from this chart, pricing is coming down, but so are losses and reinsurance costs. That's why we still see opportunity for acceptable returns and remain in a risk-on mindset. We obviously intend to be very careful and very selective through the softening part of the cycle where rates are coming down and terms and conditions are weakening. But being a consistent provider of capacity to our brokers and customers has served ACIC well since our inception. With that, I'd like to reintroduce you to Svetlana Castle.

Thank you, Brad, and hello, everybody. I will start by covering our update to the reinsurance program. Our company has a robust reinsurance program and strong long-term relationships with an extensive panel of highly rated reinsurers. In addition to our core catastrophe reinsurance program, we purchased all other perils and aggregate catastrophe reinsurance programs, both successfully renewed on January 1.

All other peril catastrophe reinsurance provides protection from catastrophe loss events other than named windstorms such as hailstorms, tornadoes and other severe convective storm events, up to 106 million on the first and second event with retention of approximately $10 million on the first and second event. Additionally, we purchased aggregate catastrophe reinsurance. This program was added in 2025 and renewed for 2026.

It provides protection from aggregate catastrophe losses in excess of $40 million during the coverage year. This reinsurance covers all perils and the current limit is $20 million. We will now cover our 2026 guidance. ACIC has two major goals. First, to remain profitable every quarter with a full catastrophe retention loss; and second, to remain profitable for the full year even with three full catastrophe retentions.

Our earnings before income tax guidance is $85 million to $100 million, and our total revenue guidance is $335 million to $365 million. We will now move on to Slide 15, which shows trends in liquidity and book value. ACIC has experienced steady growth in liquidity and book value over the last 24 months. ACIC paid special cash dividends of $0.50 per share on January 10, 2025, and $0.75 per share on January 9, 2026.

Next, I'd like to cover our capital allocation philosophy. In the long term, we plan to target less than 25% debt-to-capital ratio. When management believes ACIC stock is significantly undervalued, we might participate in stock buybacks. The Board of Directors previously authorized repurchasing up to $25 million of ACIC stock, but we haven't had any buybacks to date. We have previously covered our 2026 and 2025 dividends. As a catastrophe exposed underwriter, we believe the special dividend approach provides the company with a stronger capital position than a regular quarterly dividend.

Lastly, I'd like to summarize our investment thesis outlined on Slide 17. ACIC has remained profitable every year since its inception in 2007, including years with high frequency and high severity catastrophe losses. This is accomplished through deep underwriting expertise and an exclusive partnership with a leading commercial property MGA in the U.S.

Additionally, as mentioned in our insurance section, our risk transfer strategy is designed to help reduce potential volatility of earnings and ensure continuity over time. Looking forward, in addition to our established channel, growth will be accomplished through dedicated fully owned E&S property and casualty paper and internal MGA Skyway underwriters. This concludes our presentation, and we thank you all for your interest and attention.

Greetings, and welcome to the American Coastal Insurance Corporation's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, I'd like to let you know that this conference is being recorded. It is now my pleasure to turn the call over to your host, Karin Daly, Vice President at The Equity Group and American Coastal's Investor Relations representative. Please go ahead, Karin.

Thank you, Diego, and good afternoon, everyone. American Coastal Insurance Corporation has also made this broadcast available on its website at www.amcoastal.com. A replay will be available for approximately 30 days following the call. Additionally, you can find copies of the latest earnings release and earnings presentation in the Investors section of the company's website. Speaking today will be President and Chief Executive Officer, Bennett Bradford Martz; and Chief Financial Officer, Svetlana Castle.

On behalf of the company, I'd like to note that statements made during this call that are not historical facts are forward-looking statements. The company believes these statements are based on reasonable estimates, assumptions and plans. However, if the estimates, assumptions or plans underlying the forward-looking statements prove inaccurate or if other risks or uncertainties arise, actual results could differ materially from those expressed in or implied by the forward-looking statements.

Factors that could cause actual results to differ materially may be found in the company's filings with the U.S. Securities and Exchange Commission in the Risk Factors section of the most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q. Forward-looking statements speak only as of the date on which they are made, and except as required by applicable law, the company undertakes no obligation to update or revise any forward-looking statements.

With that, it's my pleasure to turn the call over to Brad Martz. Brad?

Thank you, Karin, and welcome, everyone. I'm pleased to report American Coastal continued to deliver exceptional results during the third quarter with over $42 million of earnings before income taxes, representing our best quarter to date. Total revenues grew over 10% and despite general and administrative expenses normalizing in the third quarter without the nonrecurring payroll tax credits realized in the first half of the year, American Coastal was able to grow net income 16% year-over-year due to the muted catastrophe and attritional losses incurred.

As previewed last quarter, we intentionally slowed premiums written in the third quarter to limit exposure growth through the peak of hurricane season and to hit our modeled expected average annual loss target, which was ultimately successfully accomplished. As the commercial property market continues to soften, risk selection and underwriting discipline remain paramount as we search for profitable growth opportunities.

Looking forward, we believe the opportunity to earn strong returns on capital remains present even if headwinds from the current softening cycle persist. Accordingly, on October 1, American Coastal reverted to normal operations. So we do expect to see a rebound in premiums written during the fourth quarter with that positive momentum likely continuing into 2026. Our wholly owned MGA, Skyway Underwriters, recently introduced a new product and began quoting a new commercial residential property insurance program targeting the assisted and independent living facility market in Florida. American Coastal is only underwriting and retaining property exposure and will not be taking any liability or casualty risk.

We believe the assisted living niche represents another attractive avenue for us to leverage our powerful distribution relationships and unique expertise in underwriting commercial residential property insurance by targeting properties that have similar physical risk characteristics to our condo and apartment policies, but are also expected to be diversifying to our risk portfolio. Page 10 of our earnings presentation provides more detail on this exciting new initiative.

I'd like to now turn it over to our Chief Financial Officer, Svetlana Castle, for more specifics on our 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 10-Q for more information regarding our performance. As reflected on Page 5 of the earnings presentation, American Coastal demonstrated another strong quarter with net income of $32.5 million.

Core income was $30.5 million, an increase of $3.6 million year-over-year due to $6.4 million increase in net premiums earned as a product of stepping down our gross catastrophe quota share from 20% to 15% effective June 1, 2025, and the earning of new business premium written in prior quarters. This was partially offset by increased operating costs of $5.6 million, driven by $4.5 million or 21.5% increase in policy acquisition costs. Policy acquisition costs increased due to an increase in commission to MGA and decrease in ceding commission income year-over-year.

Our combined ratio was 56.9%, a decrease of 0.8 points from 2024 and lower than our stated target of 65%. Our non-GAAP underlying combined ratio, which excludes current year catastrophe losses and prior year development, was 57.8%, also below our 65% target. We continue to feel our reserve position is strong. Page 6 of our presentation shows our increased operating expenses of $5.6 million, as previously described. These increased costs were in line with expectations and were more than offset by the increase in net premiums earned mentioned earlier, driving additional net earnings shown.

Looking at the full year results on Page 7 of the earnings presentation. Net income from continuing operations was $80.2 million, an increase of $9.7 million or 13.8% year-over-year. Revenues have increased $31.7 million or 14.6% year-over-year, driven by increased net premiums earned. Operating expenses increased $23.8 million year-over-year, driven by policy acquisition costs increasing $28.7 million. This increase was in line with expectations and driven by the quota share of step-down and commissions mentioned previously. G&A expenses partially offset this, decreasing $4.9 million, however, this was driven by onetime tax credit refund of $4.5 million previously unrecorded and disclosed as a gain contingency.

Page 8 shows balance sheet highlights. Cash and investments grew 28.5% since year-end to $695 million, reflecting the company's strong liquidity position. Stockholders' equity has increased 38.9% since year-end to $327.2 million, driven by strong results. Book value per share is $6.71, a 37.2% increase from year-end 2024. The company continues to be in a strong position to execute its strategic initiatives.

I'll now turn it over to Brad for closing remarks.

Thanks, Svetlana. I don't have anything to add. So that completes our prepared remarks today, and we're now happy to field any questions.

[Operator Instructions] And your first question comes from Greg Peters with Raymond James.

So I'm going to -- I have 3 questions, one on the gross premium written decline in the third quarter. And related to that, I guess, would be the commentary in your presentation about pricing being down 13% also go to reinsurance. But first, for gross premium written, can you break up for us the part of the decrease that was related to suspending writing new business versus the portion that related to pricing being down, as you said in your press release, 13%, offset by I assume maybe there was some new business or maybe not?

Greg, this is Brad. Yes, we didn't suspend new business per se. We were still actively writing new and renewal business. We just had more stringent underwriting controls in place. So we set and manage our book of business by giving AmRisc on the condo side, for example, certain targets for total insured value or PML and/or average annual loss. And in this particular case, for this year, we had set an average annual loss target at 9/30 linked to our reinsurance [ buy ], right?

So we have -- we want to always meet the targets for the amount of exposure we're going to have in force during hurricane season relative to what we told our reinsurance partners we would deliver on. So that was super important to us. Obviously, if you go over that target, there's flexibility, just no additional reinsurance premium. We could have continued to grow in the third quarter if we've chosen to do so, but we felt it was prudent to hold the line and continue to meet the targets we laid out for our expected average annual loss.

So that's the real reason for the decrease. I think it's, again, something we can easily make up for in the fourth quarter and into the first half of 2026. So I wouldn't read too much into it.

Okay. The other question, just -- in your press release you talked about the reinsurance costs as a percentage of gross earned premium quite down nicely in the third quarter of this year versus the third quarter last year. I know, I guess, the January 1 renewal is right around the corner. That's not the big [ wind ] contract for you. But maybe you could just give us a little sense or some sense of how the 1/1 renewal discussions are going, which I'm sure you're involved with at this point in time? And any early read you have on the wind contract that comes up in June?

Sure. We had some very productive conversations in Orlando in early October with about 3/4 of our reinsurance panel. We had, I think, a good dialogue about capacity and desire to grow alongside our reinsurance partners. So there's certainly strong support for American Coastal out there. But interestingly enough, we didn't -- the conversations were not centered or focused around price. We leave that to other metrics and price discovery tools, including utilizing our broker -- reinsurance intermediaries to evaluate the market and try and get a sense for what we can expect on pricing.

So I think there's lots of capacity out there. There's certainly not a supply problem. The question is what will be the demand. And I see reinsurance costs moving in step with what's going on with our rates on the front end. So you mentioned our rates are down. That trend continued in the third quarter. So we are obviously looking at those headwinds from the softening cycle, like I said, and trying to understand what that means for returns on capital and the profitability of our business.

So -- when I think about average premiums, they're really only down about 9% since year-end. But for the full year, they will be down commensurate with the risk-adjusted cost decrease we've received on our core cat renewal pricing at 6/1 of 2025. So as long as that continues, our outlook will remain positive. But certainly, an absence of major cat events in the second half of 2025 has helped provide some clarity around where pricing, both on the primary and the ceded side are headed.

[Operator Instructions] We have another question coming from Greg Peters with Raymond James.

I'm going to ask one follow-up question just because you featured this in your presentation, which is the assisted living business. Maybe -- you have a lot of information on the slide on it, but maybe you can give us a sense of what you think the addressable market looks like for American Coastal and how that might factor into your growth for next year?

Absolutely. Thank you for the question. This is another opportunity for us, brought to us by some of our distribution partners. The initial market research we've done would suggest it's about $100 million market for the types of risk we're looking at, which is limited. It is growing. It could be double that in 10 years, as you can see by the growth projections. But it won't have a material impact on our results for next year.

Similar to what we outlined for apartments, where we thought that was about a $200 million market opportunity. We'd write about 10% of that in year 1. I think you can think about ALFs the same way, where today, it's about $100 million addressable market opportunity. And if we can capture 10% of that in year 1, I think that would be a decent result. We're not looking to knock the cover off the ball right out of the gates. We've got a lot of learning curve in front of us, although we do feel very comfortable with this risk. What's interesting about it is that the properties we're targeting are eligible for the Florida Hurricane Catastrophe Fund, that's right in our wheelhouse.

So just like apartments and condos, that provides us a cost advantage having that business in the Florida admitted market. So where it's eligible for the cat fund and the guarantee fund. So I think we'll have some success. It's a little early to forecast. So I would -- we'll have more details around our forward-looking projections for 2026 at our next Investor Day. We're currently targeting sometime in the first half of January, probably the second week of January, most likely. I don't have a definitive date yet to host an Investor Day where we'd like to update shareholders on our strategic initiatives for the upcoming year and update our full year guidance for 2026 for both net premiums earned and net income. So stay tuned for that.

And there are no further questions at this time. So with that, we will conclude today's call. All parties may disconnect. Have a good evening. Thank you.