American Coastal Insurance (ACIC) Q2 2026 Earnings Call Transcript

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DATE

Wednesday, Aug. 5, 2026 at 5:00 p.m. ET

CALL PARTICIPANTS

• President and Chief Executive Officer - Bennett Bradford Martz
• Chief Financial Officer - Svetlana Castle
• Vice President, Finance and Investor Relations - Alexander Baty

TAKEAWAYS

• Total Revenue -- $82.6 million, representing a 4.5% decrease compared to the second quarter of the prior year.
• Net Income -- $21.9 million, or $0.44 per diluted share, a decrease from $26.4 million, or $0.53 per diluted share, in the previous year.
• Core Income -- $16.5 million, reflecting a decrease from $26.8 million due to softening market conditions and the absence of $4.2 million in one-time benefits recorded in 2025.
• Gross Premiums Written -- $216.3 million, a 5.3% decrease resulting from continued downward rate pressure in the Florida commercial-residential property insurance market.
• Combined Ratio -- 74.3%, an increase of 13.7 percentage points year over year that management attributed to the soft market cycle.
• Net Loss Ratio -- 27.0%, compared to 19.8% in the prior year, driven by $3.1 million in non-hurricane catastrophe losses.
• Expense Ratio -- 47.3%, an increase from 40.8% in the prior year, primarily due to increased general and administrative salary-related expenses.
• Underlying Combined Ratio -- 68.7%, which excludes current year catastrophe losses and prior year reserve development, compared to 62.2% in the second quarter of 2025.
• Hurricane Retention -- Reduced for the first event from $49 million to $23.5 million before income tax, effective Aug. 1, at a total cost of $8.4 million.
• Full Year Revenue Guidance -- Revised downward to between $300 million and $320 million, reflecting the trajectory of current pricing.
• Full Year Earnings Guidance -- Maintained at $85 million to $100 million, inclusive of expected net average annual catastrophe losses.
• Share Repurchases -- 1.4 million shares of common stock repurchased during the quarter, bringing the year-to-date total to just over 1.8 million shares.
• Buyback Authorization -- Increased by the Board of Directors to approximately $30.6 million in remaining authority.
• Book Value Per Share -- $7.21, a 10.7% increase from the end of 2025, driven by underwriting results.
• Assumed E&S Premium -- $28.7 million year to date, helping to offset declines in direct premiums.
• Policies in Force -- Increased between 3% to 4% year over year, along with total insured value in force, maintaining the company's exposure base.
• Account Retention -- Approximately 85% for the second quarter, representing an improvement over the first quarter of 2026.
• Non-Hurricane Catastrophe Losses -- $3.1 million incurred in the current quarter, compared to zero such losses in the second quarter of 2025.
• Unfavorable Reserve Development -- $767,000 stemming from a single sinkhole claim related to the 2019 accident year.
• E&S Full Year Outlook -- Management expects E&S premium to be approximately $50 million for the 2026 calendar year.
• Debt Reduction Plan -- Management plans to reduce outstanding long-term debt from $150 million to $75 million within the next six to 12 months.
• Net Investment Income -- $5.4 million, a slight decrease from $5.8 million in the second quarter of the prior year.
• Net Premiums Earned -- $69.7 million, representing an 11.1% decrease year over year driven by lower gross premiums.

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RISKS

• Martz warned that "rates, deductibles, and policy acquisition costs will likely remain under pressure into 2027," citing the trajectory of the current softening pricing environment.
• Martz noted that the company has "lost some business to mid-term cancellations" due to the current lack of an AM Best rating for the multifamily apartment initiative.

SUMMARY

American Coastal Insurance Corporation (NASDAQ:ACIC) management reported that the company is maintaining its market leadership in Florida commercial property insurance while navigating a softening pricing cycle. The company revised its total revenue guidance downward to reflect market conditions but maintained its full year earnings guidance, supported by disciplined underwriting and a significant reduction in hurricane retention risk. Strategic initiatives focused on the expansion of excess and surplus lines and the refinancing of long-term debt are underway to optimize the capital structure and mitigate risks ahead of future hurricane seasons.

• CEO Martz emphasized the company's fiscal strength during the quarter, stating, "American Coastal got stronger."
• The company reduced its first event hurricane retention to $23.5 million to mitigate downside risk, with Martz noting the strategy is to "buy more protection when pricing is cost-effective."
• Management identified the lack of an AM Best rating as the primary constraint for growth in the multifamily apartment and assisted living facility segments.
• The company plans to resolve rating-sensitive growth constraints by pursuing the capitalization and licensing of ACES Specialty during the fourth quarter of 2026.
• Martz stated that the company would "prefer to have this put to bed and taken care of prior to the next hurricane season" regarding its plan to reduce outstanding long-term debt by 50% using cash on hand.
• The prospect for a special dividend remains favorable if the company maintains profitability and excess capital, according to management.

INDUSTRY GLOSSARY

• E&S: Excess and Surplus insurance, which covers higher-risk properties or specialized risks typically not insured by standard carriers.
• Combined Ratio: A measure of underwriting profitability calculated as the sum of incurred losses and expenses divided by earned premiums; a ratio below 100% indicates profit.
• Underlying Combined Ratio: A non-GAAP metric that excludes catastrophe losses and prior year reserve adjustments to show the core performance of the insurance book.
• Retention: The amount of loss an insurance company pays from its own funds before reinsurance coverage is triggered.
• TIV: Total Insured Value, the sum of the value of all property and assets covered under an insurance policy.
• AmRisc: A Managing General Agent that partners with the company for distribution of condominium association insurance in Florida.
• ACES Specialty: A subsidiary entity the company intends to use to write rating-sensitive commercial property business.
• ALF: Assisted Living Facility, a specific segment of commercial property the company targets for insurance coverage.

Full Conference Call Transcript

Operator: Hello, everyone. Thank you for joining us, and welcome to the American Coastal Insurance Corporation Q2 2026 Earnings Call. [Operator Instructions] I will now hand the conference over to Bennett Bradford Martz, President and CEO. Brad, please go ahead.

B. Martz: 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 2 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 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 9 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 1. 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 3 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?

Svetlana Castle: 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 7 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 (sic) [ $28.7 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.

Operator: [Operator Instructions] The first question comes from the line of Mitchell Rubin with Raymond James. Your line is open. Please go ahead.

Mitchell Rubin: This is Mitch on for Greg. On the first event retention buydown, 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?

B. Martz: Mitch, thanks for your question. This is Brad. The cost was approximately $8.4 million. So about $4 million of that will be expensed as ceded earned this year from August to December, and the other -- the remainder as ceded earned from January through May 31. 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 all 18 years of our operations since our inception in 2007 with this year expecting to be in the 19th consecutive year of underwriting profitability. This should help guarantee the -- a special dividend is declared, but how big is undetermined at this time.

Mitchell Rubin: 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?

B. Martz: 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. So unfortunately, the net result was a slight impact to adverse reserve development. But 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. So nothing to worry about with reserves.

Operator: The next question comes from the line of [ Dalton Willett ] with [ Sharmus Capital Partners ].

Unknown Analyst: Just a quick question on some of the market share dynamics. 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 or losses and how you guys are thinking about that dynamic?

B. Martz: Dalton, sure. Yes, you are correct. Policies in force and total insured value in force as of June 30, 2026, was -- they were both up roughly between 3% and 4% year-over-year. So we're maintaining the exposure base. That is not the problem. Account retention improved over the first quarter, so it was right around 85% for the second quarter. It's 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 price 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. 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. I don't feel good about the decline in average premium, but that's going to go up and down over time.

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

B. Martz: 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 million and $70 million. It could be more, it could be less. AmRisc 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 the revenue will be very important to help offset weakness in our core condominium book of business. But the reality 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 capital.

Unknown Analyst: And then last one if I can. Next year you guys have the senior notes coming due. I know there's been talk of refinancing, you may not need to keep all of that. So can you talk a little bit about how much of that you might plan on refinancing? And then, some debt-to-cap ratio that would take you -- 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?

B. Martz: 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 bank debt. We're exploring the bond market. We're exploring all avenues and would expect to get a refinance done within the next 6 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 refinance. But our current plan is to cut the debt in half.

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.

Unknown Analyst: Congrats on another strong quarter.

Operator: The next question comes from the line of Matt Dhane with Tieton Capital Management.

Matthew Dhane: It's Tieton 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 for that new focus area?

B. Martz: 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. We plan to solve for that by -- through the formation of ACES specialty, which we have already commenced discussions with AM Best about getting that rated this year once it's fully capitalized and licensed. And secondarily, we're also evaluating various fronting relationships, including the structure we already have in place with Fortegra to potentially give Skyway access to AM Best-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 have strict security requirements around the AM Best rating. And unfortunately, we've lost some business to mid-term cancellations because of that. And that has slowed down 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 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.

Matthew Dhane: 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 -- 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?

B. Martz: 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 AM Best-rated paper at Skyway's disposal.

Operator: The next question comes from the line of [ Akshay Tanna ], private investor.

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

B. Martz: Yes, there's -- 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 obviously doesn't necessarily have 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 of investment in the stock is just something we feel compelled to do when you're trading at 5x trailing. So we're happy to do it.

The limitation is going to be the average daily trading volume. It just takes a little bit of time to deploy that capacity.

Akshay Tanna: And I know we've discussed about premiums coming down 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 have 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. Can you maybe talk a little bit more about it?

B. Martz: Well, I can't comment on what other companies are doing. I can just tell you that you can measure market share in 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, defending our book of business. We're only losing what we want to lose, where we want to lose it. The stuff we want to keep, we're keeping. Retention is right where we want it, account retention, that is. But that being said, there's obviously challenges on the premium side because of increased interest and competition. So we're mindful of that.

We know how to manage the cycle. We've seen this before. And 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 and meaning ceding market share. So I don't see that as a near-term problem. It 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.

Operator: [Operator Instructions] There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.

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