AMERICAN COASTAL INSURANCE Corp (ACIC)·Q4 2024 Earnings Summary

Executive Summary

• Q4 2024 remained profitable despite a Cat 3 event (Hurricane Milton) driving a 27.8pt hit to the combined ratio; total revenue rose 54.7% year over year to $79.3m as net premiums earned increased with lower quota-share cessions .
• Core EPS was $0.12 and GAAP diluted EPS was $0.10; core income fell to $6.0m, down $12.0m year over year on catastrophe retention and higher policy acquisition costs tied to lower ceding commissions after quota-share step-down .
• Reinsurance protections were enhanced: a $200m three-year catastrophe bond with a drop‑down feature, AOP retention reduced to $9m (from $14.25m), Excess Per Risk retention reduced to $4m (from $6.5m), and a $40m catastrophe aggregate program designed to reduce earnings volatility in 2025 .
• 2025 guidance reiterated: net income $70–$90m; management targets ~65% underlying combined ratio and expects ROE >30% on beginning equity, aided by risk transfer enhancements; sale of Interboro expected to add ~$22m of holding company cash at closing (Apr 1) .

What Went Well and What Went Wrong

What Went Well

• Profitability preserved in the face of a full retention hurricane: “that Cat 3 hurricane event was absorbed within a single quarter's profit… our target” .
• Strong top-line growth with reduced cessions: “we were able to grow total revenues nearly 55% year-over-year in Q4” as quota share stepped down from 40% to 20% effective June 1, 2024 .
• Reinsurance program strength and breadth expanded: $200m cat bond with drop‑down for second and third events; AOP retention cut ~37%; Excess Per Risk retention cut ~38%; new CAT Aggregate to dampen volatility .

What Went Wrong

• Catastrophe impact compressed margins: Q4 combined ratio at 91.9% (up 32.0pts y/y) with 27.8pts from Hurricane Milton; underlying CR still 65.9% .
• Core income fell $12.0m y/y to $6.0m; policy acquisition costs rose $13.4m (+102.3%) due mainly to lower ceding commission income after quota-share step‑down and higher MGA fees .
• Versus sell‑side (Raymond James) markers, Q4 core EPS ($0.12), BVPS ($4.89), and CR (91.9%) were below the firm’s estimates, suggesting modest expectation shortfalls despite management describing results as “in line” .

Financial Results

Segment and Mix

KPIs and Balance Sheet

Versus Sell‑Side Estimates (Raymond James)

Notes: *Analyst estimate adjusted for special dividend per company presentation .

Catastrophe Details

• Current year net catastrophe losses in Q4: $20.4m before tax (Milton); prior-year reserve development favorable $1.3m .
• Milton’s effect on CR: +27.8pts; reinstatement premiums expected to add ~$13m to ceded premiums earned over Oct 2024–May 2025 .

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “Premium generation is the easy part… Underwriting profit is the goal, and we remain laser focused” .
• “Even with Hurricane Milton… Cat 3 hurricane event was absorbed within a single quarter’s profit… target” .
• “We placed a new 3‑year catastrophe bond… upsized from $100m to $200m… drop‑down feature for potential second and third events” .
• “Cash and investments grew 73.4% to $540.8m… Stockholders’ equity increased 39.6% to $235.7m… Book value per share is $4.89” .
• “We project a range between $70m and $90m of net income in 2025” .

Q&A Highlights

• Pricing/renewal dynamics: Management expects pricing down 5–10% y/y but margins intact at ~65% pre-cat given moderating inflation and Florida reforms improving litigation environment .
• Apartment program scale: 2025 goal ~$20m premium; longer‑term TAM $200–$300m for garden‑style apartments similar to condo risk characteristics; selective risk binding (~10% bind ratio) .
• Reinsurance renewal outlook: Aim to keep retention absorbable within a quarter’s earnings; push exhaustion closer to 250‑year RP; $200m cat bond already placed; structural layering awaits Cat Fund attachment clarity .
• Industry cat losses: California fires may modestly tighten global cat capacity but limited expected impact on ACIC’s Florida program .
• Coverage enhancements: Cat bond drop‑down enables $50m coverage for second/third events, superior to prior fixed attachment structures .

Estimates Context

• S&P Global consensus estimates: Unavailable for Q4 2024 in our session; therefore, Street‑comps vs S&P could not be shown (values unavailable).
• Company’s scorecard vs a sell‑side benchmark (Raymond James): Core EPS $0.12 vs $0.16, BVPS $4.89 vs $5.05*, CR 91.9% vs 88.9%, CROE 10.6% vs 11.9% .
• Implications: Cat retention and reinstatement effects likely drove modest estimate shortfalls; with enhanced reinsurance and lower ceding ratios, forward estimates may need to reflect lower pricing but steadier margins and potential apartment program contribution .

Key Takeaways for Investors

• Cat resilience and program depth: Q4 showed ACIC can absorb a Cat 3 retention within one quarter; expanded reinsurance (cat bond, aggregate cover) lowers 2025 earnings volatility risk .
• Earnings power under lower cessions: Revenue up 54.7% y/y with net premiums earned rising after quota-share step‑down; underlying margins around the 65% target ex‑cat .
• Near‑term optical pressure: Q4 core EPS and CR missed a prominent sell‑side marker due to Milton and acquisition costs; watch reinstatement premiums through mid‑2025 .
• Growth optionality: Early apartment program traction and Citizens takeout support policy count and diversification; 2025 apartment premium target ~$20m with TAM $200–$300m longer term .
• Capital and shareholder returns: Strong liquidity ($540.8m cash & investments) and equity ($235.7m); special $0.50 dividend evidences confidence .
• Corporate simplification: Interboro sale closing expected to add ~$22m cash to holdco; streamlines focus on Florida commercial property .
• Setup for 2025: Guidance $70–$90m net income maintained; pricing softens but deductibles/valuations steady; management reiterates margin discipline and >30% ROE target on beginning equity .

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