Company to Host Quarterly Conference Call at 5:00 P.M. ET on February 29, 2024

The information in this press release should be read in conjunction with an earnings presentation that is available on the Company's website at investors.amcoastal.com/Presentations.

American Coastal Insurance Corporation (Nasdaq: ACIC) ("ACIC" or "the Company"), a property and casualty insurance holding company, today reported its financial results for the fourth quarter and year ended December 31, 2023.

Comments from Chief Executive Officer, Dan Peed:

“We are pleased to deliver continued positive results to our shareholders. Our continuing operations reported core earnings of $17.7 million and $89.5 million for the 2023 fourth quarter and full year, respectively, leading to an annualized core return on equity of 100.6%. Our underlying book value per share was $3.97 at December 31, 2023.”

“Although our personal lines segment experienced a pre-tax loss of $5.2 million, this is an improvement quarter-over-quarter, reflecting the effectiveness of our underwriting and rating actions. Our strategy to reduce expenses and improve the underwriting performance in our commercial lines segment has yielded ongoing positive results; consolidated net income for the fourth quarter was $14.3 million, with an underlying combined ratio of 50.9% for commercial lines and 67.2% on a consolidated basis.”

Return on Equity and Core Return on Equity

The calculations of the Company's return on equity and core return on equity are shown below.

Combined Ratio and Underlying Ratio

The calculations of the Company's combined ratio and underlying combined ratio on a consolidated basis and attributable to both the Company's personal lines and commercial lines operating segments are shown below.

Combined Ratio Analysis

The calculations of the Company's loss ratios and underlying loss ratios are shown below.

The calculations of the Company's expense ratios are shown below.

Quarterly Financial Results

Net income attributable to the Company for the fourth quarter of 2023 was $14.3 million, or $0.31 per diluted share, compared to a net loss of $296.8 million, or $6.89 per diluted share, for the fourth quarter of 2022. Of this income, $17.1 million is attributable to continuing operations for the three months ended December 31, 2023, an increase of $16.1 million from net income of $1.0 million for the same period in 2022. Drivers of net income from continuing operations during the fourth quarter of 2023 included increased gross premiums earned partially offset by increased ceded premiums earned driven by our 2023 quota share agreements, a decrease in our loss and LAE incurred, driven by decreased catastrophe losses, and decreased policy acquisition costs and administrative costs, as described below. This was partially offset by the recognition of losses from discontinued operations of $2.8 million, driven by the deconsolidation of activities related directly to supporting the run-off of United Property & Casualty Insurance Company (UPC).

The Company's total gross written premium increased by $16.0 million, or 13.4%, to $135.2 million for the fourth quarter of 2023, from $119.1 million for the fourth quarter of 2022. This increase was driven primarily by an increase in our personal lines written premium, driven by the Interboro Insurance Company ("IIC") quota share ending and unearned premium being returned. In addition, our commercial lines written premium increased as we focus on transitioning towards a specialty commercial lines underwriter. The breakdown of the quarter-over-quarter changes in both direct written and assumed premiums by state and gross written premium by line of business are shown in the table below.

Loss and LAE decreased by $29.9 million, or 71.7%, to $11.8 million for the fourth quarter of 2023, from $41.7 million for the fourth quarter of 2022. Loss and LAE expense as a percentage of net earned premiums decreased 33.1 points to 21.2% for the fourth quarter of 2023, compared to 54.3% for the fourth quarter of 2022. Excluding catastrophe losses and reserve development, the Company's gross underlying loss and LAE ratio for the fourth quarter of 2023 would have been 7.2%, a decrease of 10.0 points from 17.2% during the fourth quarter of 2022.

Policy acquisition costs decreased by $10.2 million, or 40.2%, to $15.2 million for the fourth quarter of 2023, from $25.4 million for the fourth quarter of 2022, primarily due to an increase in reinsurance ceding commission income, driven by our quota share coverage entered into in the second quarter of 2023 in our commercial lines business. This was partially offset by increases in management fees and premium taxes associated with the increased commercial lines written premiums experienced in 2023.

Operating and underwriting expenses decreased by $1.1 million, or 35.1%, to $2.0 million for the fourth quarter of 2023, from $3.1 million for the fourth quarter of 2022, driven by decreased costs such as printing, postage, rent and utilities as we look to reduce our overhead spending. In addition, our costs related to computer software and services have decreased quarter-over-quarter in 2023.

General and administrative expenses decreased by $2.1 million, or 20.8%, to $8.0 million for the fourth quarter of 2023, from $10.1 million for the fourth quarter of 2022, driven by decreased amortization costs associated with our capitalized software and intangible assets.

Commercial Lines Operating Segment Highlights

Pre-tax earnings attributable to the Company's commercial lines operating segment totaled $27.9 million for the fourth quarter of 2023 compared to $3.7 million for the fourth quarter of 2022. This increase can be attributed to a decrease in Loss and LAE incurred of $24.3 million, driven by decreased catastrophe losses quarter-over-quarter. In addition, policy acquisition costs decreased $8.8 million, driven by reinsurance ceding commission income earned during the period, partially offset by increased management fees and premium taxes associated with the increased commercial lines written premiums experienced in 2023.

These decreased expenses were partially offset by decreased revenues of $8.7 million quarter-over-quarter, driven by decreased net premiums earned during the period, partially offset by decreased net realized investment losses in 2023. Operating and underwriting expenses and general and administrative expenses remained relatively flat, with a net decrease of $302 thousand experienced quarter-over-quarter.

Personal Lines Operating Segment Highlights

Pre-tax loss attributable to the Company's personal lines operating segment totaled $5.2 million for the fourth quarter of 2023 compared to a pre-tax loss of $10.6 million for the fourth quarter of 2022. Drivers of the quarter-over-quarter decrease in pre-tax loss included: a decrease in general and administrative costs of $2.8 million, driven by decreased amortization of our capitalized software and intangible assets related to our personal lines, a decrease in policy acquisition costs of $1.4 million driven by decreased ceding commission expense, partially offset by increased agent commission and policy administration costs and a decrease in loss and LAE incurred of $5.7 million due to decreased non-catastrophe losses.

These fluctuations were partially offset by a $7.8 million decrease in revenues quarter-over-quarter. All of these changes can be attributed to the Company's shift towards becoming a specialty commercial lines underwriter, resulting in reduced writings, exposure, and lower costs associated with the servicing of this business.

Year to Date Financial Results

Net income attributable to the Company for the year ended December 31, 2023, was $309.9 million, or $7.11 per diluted share, compared to a net loss of $469.9 million, or $10.91 per diluted share, for the year ended December 31, 2022. Drivers of the income from continuing operations during 2023 include decreases to loss and loss adjustment expenses due to the impact of Hurricane Ian making landfall in Florida in 2022 causing an increase to losses that year, increased gross written premiums, an increase in ceded premiums earned, favorable prior year loss development during the year, decreased policy acquisition costs, and decreased general and administrative costs. In addition, during 2023 we recorded a gain on disposal of our former subsidiary UPC totaling $238,440,000, driving the income from discontinued operations for the year.

The Company's total gross written premium increased by $97.7 million, or 17.1%, to $670.0 million for the year ended December 31, 2023, from $572.3 million for the year ended December 31, 2022. This increase was driven primarily by increases to premiums written in Florida as we continue to focus on our commercial book of business. This was offset by a decline in written premiums across the personal lines business, due to a decrease in assumed premiums driven by the cancellation of the quota share with our former subsidiary, UPC. The breakdown of the year-over-year changes in both direct written and assumed premiums by state and gross written premium by line of business are shown in the table below.

Loss and LAE decreased by $71.9 million, or 53.4%, to $62.9 million for the year ended December 31, 2023, from $134.8 million for the year ended December 31, 2022. Loss and LAE expense as a percentage of net earned premiums decreased 27.7 points to 22.3% for the year ended December 31, 2023, compared to 50.0% for the year ended December 31, 2022. Excluding catastrophe losses and reserve development, the Company's gross underlying loss and LAE ratio for the year ended December 31, 2023, would have been 9.4%, a decrease of 7.0 points from 16.4% for the year ended December 31, 2022.

Policy acquisition costs decreased by $12.0 million, or 12.6%, to $83.3 million for the year ended December 31, 2023, from $95.3 million for the year ended December 31, 2022, primarily due to an increase in ceding commission income due to changes in the terms of the Company's quota share reinsurance agreements. This was partially offset by increased external management fees and premium taxes related to the Company's increased commercial lines gross written premium.

Operating and underwriting expenses decreased by $3.5 million, or 25.5%, to $10.2 million for the year ended December 31, 2023, from $13.7 million for the year ended December 31, 2022, driven by decreased costs such as printing, postage, rent and utilities as we look to reduce our overhead spending.

General and administrative expenses decreased by $12.8 million, or 30.3%, to $29.5 million for the year ended December 31, 2023, from $42.3 million for the year ended December 31, 2022, driven by the impairment of goodwill attributable to the Company's personal lines operating segment during 2022. There were no similar transactions in 2023.

Commercial Lines Operating Segment Highlights

Pre-tax earnings attributable to the Company's commercial lines operating segment totaled $118.1 million for the year ended December 31, 2023, compared to $35.8 million for the year ended December 31, 2022. Drivers of the year-over-year increase in pre-tax earnings include a decrease in loss and LAE incurred of $40.8 million due to decreased catastrophe losses year-over-year as well as favorable development on prior year losses and increased net premiums earned of $33.1 million driven by higher gross written premiums year-over-year as the Company transitions towards becoming a specialty commercial lines underwriter. This was partially offset by increased ceded premiums driven by the changes in our quota share contracts.

Year-over-year, policy acquisition costs decreased $5.6 million driven by to an increase in ceding commission income due to changes in the terms of the Company's quota share reinsurance agreements in 2023. Operating and administrative expenses remained relatively flat, with a net increase of $123 thousand as we look to reduce our overhead spending.

Personal Lines Operating Segment Highlights

Pre-tax losses attributable to the Company's personal lines operating segment totaled $13.9 million for the year ended December 31, 2023, compared to $52.2 million for the year ended December 31, 2022. This decreased loss can be attributed to decreased expenses of $53.4 million, driven by a $31.1 million decrease in losses and LAE incurred driven by decreased catastrophe losses year-over-year, decreased policy acquisition costs of $6.4 million driven by decreased policy management fees associated with decreased written premiums and decreased operating expenses of $2.6 million, driven by a reduction in our overhead spending. Additionally, general and administrative expenses decreased $13.3 million driven by the one-time impairment of goodwill totaling $10.2 million in 2022. There was no similar transaction during 2023.

These decreased expenses were partially offset by decreased net premiums earned of $20.6 million driven by decreased assumed premiums from the cancellation of the quota share contract with our former subsidiary, UPC.

Reinsurance Costs as a Percentage of Gross Earned Premium

Reinsurance costs as a percentage of gross earned premium in the fourth quarter of 2023 and 2022 were as follows:

Ceded premiums earned related to the Company's catastrophe excess of loss contracts remained relatively flat, driven by the need for less coverage for the 2023-2024 treaty year due to the reduction in the Company's geographic footprint and exposure, as well as the utilization of quota share reinsurance coverage for our commercial lines operating segment, offset by rate increases on the coverage experienced in the current year. The utilization of quota share reinsurance coverage, as described, increased the Company's ceding ratio overall.

Reinsurance costs as a percentage of gross earned premium in the fourth quarter of 2023 and 2022 for the Company's personal lines and commercial lines operating segments were as follows:

Investment Portfolio Highlights

The Company's cash, restricted cash and investment holdings increased from $340.9 million at December 31, 2022 to $369.0 million at December 31, 2023. The Company's cash and investment holdings consist of investments in U.S. government and agency securities, corporate debt and investment grade money market instruments. Fixed maturities represented approximately 91.6% of total investments at December 31, 2023 compared to 91.4% of total investments at December 31, 2022. The Company's fixed maturity investments had a modified duration of 3.4 years at December 31, 2023 compared to 4.0 years at December 31, 2022.

Book Value Analysis

Book value per common share increased 185.8% from $(4.21) at December 31, 2022, to $3.61 at December 31, 2023. Underlying book value per common share increased 213.8% from $(3.49) at December 31, 2022 to $3.97 at December 31, 2023. An increase in the Company's retained earnings as the result of net income from both continuing and discontinued operations in 2023 drove the increase in the Company's book value per share. As shown in the table below, removing the effect of AOCI increases the Company's book value per common share, as the Company has experienced unfavorable capital market conditions resulting in an accumulated other comprehensive loss position at December 31, 2023.

Conference Call Details

About American Coastal Insurance Corporation

American Coastal Insurance Corporation (amcoastal.com) is the holding company of the insurance carrier, American Coastal Insurance Company, which was founded in 2007 for the purpose of insuring Condominium and Homeowner Association properties, and apartments in the state of Florida. American Coastal Insurance Company has an exclusive partnership for distribution of Condominium Association properties in the state of Florida with AmRisc Group (amriscgroup.com), one of the largest Managing General Agents in the country specializing in hurricane-exposed properties. American Coastal Insurance Company has earned a Financial Stability Rating of ‘A, Exceptional’ from Demotech.

American Coastal Insurance Corporation’s portfolio of investments also includes Interboro Insurance Company, a New York domiciled personal lines carrier founded in 1914.

Definitions of Non-GAAP Measures

The Company believes that investors' understanding of ACIC's performance is enhanced by the Company's disclosure of the following non-GAAP measures. The Company's methods for calculating these measures may differ from those used by other companies and therefore comparability may be limited.

Net income (loss) excluding the effects of amortization of intangible assets, income (loss) from discontinued operations, realized gains (losses) and unrealized gains (losses) on equity securities, net of tax (core income (loss)) is a non-GAAP measure that is computed by adding amortization, net of tax, to net income (loss) and subtracting income (loss) from discontinued operations, net of tax, realized gains (losses) on the Company's investment portfolio, net of tax, and unrealized gains (losses) on the Company's equity securities, net of tax, from net income (loss). Amortization expense is related to the amortization of intangible assets acquired, including goodwill, through mergers and, therefore, the expense does not arise through normal operations. Investment portfolio gains (losses) and unrealized equity security gains (losses) vary independent of the Company's operations. The Company believes it is useful for investors to evaluate these components both separately and in the aggregate when reviewing the Company's performance. The most directly comparable GAAP measure is net income (loss). The core income (loss) measure should not be considered a substitute for net income (loss) and does not reflect the overall profitability of the Company's business.

Core return on equity is a non-GAAP ratio calculated using non-GAAP measures. It is calculated by dividing the core income (loss) for the period by the average stockholders’ equity for the trailing twelve months (or one quarter of such average, in the case of quarterly periods). Core income (loss) is an after-tax non-GAAP measure that is calculated by excluding from net income (loss) the effect of income (loss) from discontinued operations, net of tax, non-cash amortization of intangible assets, including goodwill, unrealized gains or losses on the Company's equity security investments and net realized gains or losses on the Company's investment portfolio. In the opinion of the Company’s management, core income (loss), core income (loss) per share and core return on equity are meaningful indicators to investors of the Company's underwriting and operating results, since the excluded items are not necessarily indicative of operating trends. Internally, the Company’s management uses core income (loss), core income (loss) per share and core return on equity to evaluate performance against historical results and establish financial targets on a consolidated basis. The most directly comparable GAAP measure is return on equity. The core return on equity measure should not be considered a substitute for return on equity and does not reflect the overall profitability of the Company's business.

Combined ratio excluding the effects of current year catastrophe losses and prior year reserve development (underlying combined ratio) is a non-GAAP measure, that is computed by subtracting the effect of current year catastrophe losses and prior year development from the combined ratio. The Company believes that this ratio is useful to investors, and it is used by management to highlight the trends in the Company's business that may be obscured by current year catastrophe losses and prior year development. Current year catastrophe losses cause the Company's loss trends to vary significantly between periods as a result of their frequency of occurrence and severity and can have a significant impact on the combined ratio. Prior year development is caused by unexpected loss development on historical reserves. The Company believes it is useful for investors to evaluate these components both separately and in the aggregate when reviewing the Company's performance. The most directly comparable GAAP measure is the combined ratio. The underlying combined ratio should not be considered as a substitute for the combined ratio and does not reflect the overall profitability of the Company's business.

Net loss and LAE excluding the effects of current year catastrophe losses and prior year reserve development (underlying loss and LAE) is a non-GAAP measure that is computed by subtracting the effect of current year catastrophe losses and prior year reserve development from net loss and LAE. The Company uses underlying loss and LAE figures to analyze the Company's loss trends that may be impacted by current year catastrophe losses and prior year development on the Company's reserves. As discussed previously, these two items can have a significant impact on the Company's loss trends in a given period. The Company believes it is useful for investors to evaluate these components both separately and in the aggregate when reviewing the Company's performance. The most directly comparable GAAP measure is net loss and LAE. The underlying loss and LAE measure should not be considered a substitute for net loss and LAE and does not reflect the overall profitability of the Company's business.

Book value per common share, excluding the impact of accumulated other comprehensive loss (underlying book value per common share), is a non-GAAP measure that is computed by dividing common stockholders' equity after excluding accumulated other comprehensive income (loss), by total common shares outstanding plus dilutive potential common shares outstanding. The Company uses the trend in book value per common share, excluding the impact of accumulated other comprehensive income (loss), in conjunction with book value per common share to identify and analyze the change in net worth attributable to management efforts between periods. The Company believes this non-GAAP measure is useful to investors because it eliminates the effect of interest rates that can fluctuate significantly from period to period and are generally driven by economic and financial factors that are not influenced by management. Book value per common share is the most directly comparable GAAP measure. Book value per common share, excluding the impact of accumulated other comprehensive income (loss), should not be considered a substitute for book value per common share and does not reflect the recorded net worth of the Company's business.

Discontinued Operations

On February 27, 2023, the Florida Department of Financial Services was appointed as receiver of the Company's former subsidiary, United Property & Casualty Insurance Company ("UPC"). As such, prior year financial results have been recast to reflect the activity of UPC and activities related directly to supporting the business conducted by UPC within discontinued operations.

Forward-Looking Statements

Statements made in this press release, or on the conference call identified above, and otherwise, 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. These statements are made subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements do not relate strictly to historical or current facts and may be identified by their use of words such as “may,” “will,” “expect,” "endeavor," "project," “believe,” "plan," “anticipate,” “intend,” “could,” “would,” “estimate” or “continue” or the negative variations thereof or comparable terminology. 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 Company's 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.

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