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AC

AMERICAN COASTAL INSURANCE Corp (ACIC)·Q3 2024 Earnings Summary

Executive Summary

  • Strong quarter with total revenue up 56% year over year to $82.1M, core EPS $0.54 and combined ratio 57.7%; results benefited from lower ceded premiums after cutting the catastrophe quota share to 20% on 6/1/24 and higher investment income .
  • Guidance reduced for FY24 following Hurricane Milton (Q4 net loss impact of $16.2M after tax and ~$13M of reinstatement premiums to be amortized Oct–May), but management still expects profitability in Q4 and for the full year .
  • Citizens takeout executed on Oct 29, adding 88 risks (~$9.7M expiring premium) and launching a new apartment program; management emphasizes continued growth with disciplined underwriting .
  • S&P Global consensus estimates were unavailable due to data access limits; company-cited Raymond James estimates imply a material beat on core EPS ($0.54 vs $0.15) and a much better combined ratio (57.7% vs 89.3%), which is a likely positive sentiment catalyst .

What Went Well and What Went Wrong

  • What Went Well

    • Non-cat underwriting and reinsurance program design drove a 57.7% combined ratio (target 65%) and 5.0-pt YoY improvement; underlying CR improved to 52.9% (–6.3 pts YoY) .
    • Core EPS of $0.54 (+54% YoY) and total revenue of $82.1M (+56% YoY) as lower quota share cession boosted net premiums earned; CFO underscored revenue growth and a solid reserve position .
    • Strategic wins: successful Citizens takeout (88 risks; ~$9.7M expiring premium) and apartment program launch; management highlighted “exceptional and steady underlying combined ratio” and expects growth to continue .

  • What Went Wrong

    • Hurricane activity: Debby and Helene produced $3.8M after-tax losses in Q3; Milton in October will drive a Q4 after-tax net loss of $16.2M and require reinstatement premiums (~$13M) through May 2025 .
    • Expense pressure: policy acquisition costs rose $7.3M (+53.7%) and G&A rose $2.2M (+36.7%) due to lower ceding commissions from the quota share step-down and higher overhead; however, these were offset by higher net premiums earned .
    • FY24 outlook lowered versus Q2 guide due to Milton (FY24 net income from continuing ops cut to $75–$80M from $85–$95M; NPE to $270–$280M from $285–$300M) .

Financial Results

MetricQ3 2023Q1 2024Q2 2024Q3 2024
Total Revenue ($USD Millions)$52.5 $73.2 $68.7 $82.1
Net Premiums Earned ($USD Millions)$50.3 $68.7 $63.4 $74.5
GAAP Diluted EPS – Continuing Ops ($)$0.34 $0.48 $0.39 $0.56
Core EPS ($)$0.35 $0.50 $0.40 $0.54
Combined Ratio (%)62.7% 58.3% 64.9% 57.7%
Underlying Combined Ratio (%)59.2% 57.8% 66.4% 52.9%

| Loss Ratio, Net (%) | 19.5% | 23.1% | 24.1% | 15.8% | | Expense Ratio, Net (%) | 43.2% | 35.2% | 40.8% | 41.9% |

KPIs and balance sheet trajectory:

KPIQ1 2024Q2 2024Q3 2024
Book Value per Share ($)$4.27 $4.63 $5.38
Stockholders’ Equity ($USD Millions)$204.0 $223.1 $259.6
Cash & Investments ($USD Millions)$504.5 $572.6 $630.9

Notes:

  • Q3 YoY drivers: materially lower net cessions (quota share to 20% from 40% on 6/1/24), higher investment income, and modest current-year cat losses in-quarter (Debby/Helene ~$5.0M pre-tax; $1.4M favorable PYD) .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Income from Continuing Ops ($M)FY 2024$85–$95 (from Q2 guide) $75–$80 Lowered
Net Premiums Earned ($M)FY 2024$285–$300 $270–$280 Lowered
Net Income from Continuing Ops ($M)Q4 2024n/a$4.6–$9.6 New
Net Premiums Earned ($M)Q4 2024n/a$69.5–$79.5 New
Reinstatement Premiums (ceded)Oct 2024–May 2025n/a≈$13 New
Net Retention per Event (after-tax)Next two events (post-Milton)n/a$10.3M New

Management commentary links guidance changes to Hurricane Milton’s Q4 impact ($16.2M after-tax net loss) and reinstatement costs, while emphasizing that the reinsurance tower remains largely intact and Q4 remains profitable .

Earnings Call Themes & Trends

TopicQ1 2024Q2 2024Q3 2024Trend
Reinsurance structure / Quota sharePlanned step-down of gross CAT quota share to 20% effective 6/1/24 to drive revenue growth Completed renewals; reduced quota share to 20%; FORA replaced; more limit for potential 3rd event Full tower largely intact post-Milton; $13M reinstatement premiums; net retention $10.3M for next two events De-risked structure, more net retention with strong protection
Catastrophe activityMinimal net cat impact; strong CR Essentially no cat losses in Q2 Debby/Helene $3.8M after-tax in Q3; Milton will be ceded, $16.2M after-tax net loss in Q4 Cat activity rising into 2H; impacts guided
Citizens takeout / growthNot highlightedTake-out application approved for Oct 27, 2024 assumption Completed takeout: +88 risks, ~$9.7M expiring premium; launched apartment program Scaling distribution and product
Personal lines divestiture (IIC)Progress; PL profitability improved in Q1 Executed definitive sale agreements; anticipate close 1Q25; IIC in discontinued ops IIC remains in discontinued ops; small profit in Q3 Exit on track
Market/pricingFirm conditions supporting underwriting; plan to reduce quota share Market softening; renewal rates starting to decline; retention ~85% No major shift vs Q2 commentary in press materials Gradual softening from peak
Liquidity/equityBVPS $4.27; equity $204M BVPS $4.63; equity $223M BVPS $5.38; equity $259.6M Strengthening balance sheet
Investment portfolioDuration ~3.2y at Q1 Duration ~2.4y; strong cash generation Duration ~2.3y; adding positions ahead of lower yields Shortening duration, positioned for rate path

Management Commentary

  • “We expect the new non-cat margin run rate as measured by the underlying combined ratio as well as the strong revenue growth to continue in future quarters.” — Executive Chairman Daniel Peed .
  • “Net of reinsurance and income tax benefit, Milton will result in a $16.2 million net loss in the fourth quarter… We have nearly our full reinsurance tower in place for any future events… our net retention would drop to $10.3 million… for the next two named windstorms.” — President B. Bradford Martz .
  • “American Coastal had a strong quarter with net income of $28.1 million… combined ratio was 57.7%, below our 65% target… operating expenses increased $9.5 million primarily due to a $7.3 million increase in policy acquisition costs… more than offset by the decrease in ceded premiums earned.” — CFO Svetlana Castle .
  • “For the third quarter, our total revenue was $82.1 million, a 56% increase year-over-year.” — CEO Dan Peed (press release) .

Q&A Highlights

  • No Q&A occurred on the Q3 call; the operator closed the call without analyst questions .

Estimates Context

  • S&P Global consensus data was unavailable due to API access limits; as a result, consensus comparisons could not be retrieved at this time. Values would typically be sourced from S&P Global Market Intelligence; unavailable for this report window.
  • Company-cited Raymond James estimates indicate a significant beat on Q3 core EPS ($0.54 vs $0.15) and a materially better combined ratio (57.7% vs 89.3%); BVPS also exceeded ($5.38 vs $4.71) .
  • Implication: Sell-side models likely need to reflect higher net premiums earned run-rate from the 20% quota share structure and better underlying loss performance, offset by reinstatement premiums and Milton’s Q4 impact .

Key Takeaways for Investors

  • Structural earnings power stepped up post 6/1/24 with lower quota share cession; Q3 showed 57.7% CR and 52.9% underlying CR with strong NPE growth and investment income tailwind .
  • FY24 outlook was trimmed for Milton and reinstatement costs, but management still sees Q4 profitability and a strong full-year result, with most of the tower intact into late season risks .
  • Citizens takeout and a new apartment program add measured growth at attractive underwriting terms; pipeline expansion should support NPE and scale .
  • Expense normalization: higher policy acquisition costs and G&A from lower ceding commissions and overhead are expected given the step-down in QS; offset by stronger NPE and underwriting margins .
  • Balance sheet momentum: BVPS rose to $5.38; stockholders’ equity to $259.6M; liquidity increased further, reducing leverage and enhancing flexibility .
  • Risk monitor: Hurricane season remains the key swing factor; Milton’s net impact is quantified and largely ring-fenced by reinsurance; next two events would have a lower $10.3M after-tax retention per occurrence .
  • If S&P consensus becomes available, we expect models to recalibrate to higher NPE/ROE run-rate and slightly lower FY24 net income guidance, with reinstatement amortization flowing through Q4–Q2’25 .

Appendix: Additional Details

  • Q3 hurricane impacts (QTD): Debby net ~$0.6M after tax; Helene net ~$3.2M after tax; combined ~$3.8M after tax .
  • Q4 event estimate: Milton gross loss $150–$200M trending toward low end; exceeds $20.5M retention; net after reinsurance and tax ~$16.2M loss in Q4 .
  • Favorable reserve development in Q3: $1.4M .
  • Reinsurance economics: reinstatement premiums expected to increase ceded premiums by ≈$13M (amortized Oct–May), with nearly full tower in place .

Search scope and documents read:

  • Q3 2024 8-K with earnings press release and presentation (full): key financials, CR, guidance, reinsurance updates .
  • Q3 2024 earnings call transcript (full): hurricane impacts, guidance, and operational updates .
  • Prior quarters for trend analysis: Q2 2024 and Q1 2024 8-K earnings releases and presentations .