American Coastal Insurance Corporation Common Stock 2026 Q2 Earnings Call

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, 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. I'm happy to announce that the board of directors has increased our authority to buy back up 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 risks 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. 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-$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. 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. 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 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 seven of the earnings presentation, American Coastal demonstrated another strong quarter with net income of $21.9 million. Core 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 million. Gross written 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-GAAP underlying 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. The 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 $7.21, a 10.7% increase from year-end 2025. This concludes our prepared remarks. We'll now open the floor for questions.

Hi, Mitch. Thanks for your question. This is Brad. The cost was approximately $8.4 million. About $4 million of that will be expense to ceded earn this year from August to December, and the remainder as ceded earn from January through May 31st. We'll spread that cost over the 10-month period. 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. Considering we've been profitable all 18 years of our operations since our inception in 2007, with this year expecting to be the 19th consecutive year of underwriting profitability, this should help guarantee a special dividend is declared. How big is undetermined at this time.

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 above or beyond our Excess Per Risk Reinsurance coverage. Unfortunately, the net result was a slight impact to adverse reserve development. Aside from that, the quarter was in line with all other periods, and I fully expect we'll have favorable development for the full year. Nothing to worry about with reserves.