American Coastal Insurance Corporation (ACIC) is a property and casualty insurance holding company that has been navigating the complexities of the Florida insurance market for over a decade. Founded in 2007, the company's primary focus has been insuring condominium and homeowner association properties, as well as apartments, in the Sunshine State.

Business Overview and History

ACIC's origins can be traced back to 2007, when it was established with the goal of providing insurance coverage for the unique needs of Florida's condominium and homeowner association properties. The company's founders recognized the challenges faced by these properties, which often deal with elevated risks from hurricanes, sinkholes, and other perils common to the region. In its early years, ACIC faced significant challenges stemming from the aftermath of the 2004-2005 hurricane seasons, which had resulted in substantial losses for the Florida insurance industry. The company had to navigate a difficult market environment characterized by rising reinsurance costs, increased litigation, and legislative reforms aimed at stabilizing the Florida property insurance market.

Despite these initial obstacles, ACIC successfully established itself as a reliable insurer in the state. The company built a strong partnership with managing general agent AmRisc to grow its condominium and homeowner association book of business. By leveraging its specialized underwriting expertise and risk management capabilities, ACIC achieved profitability and steadily expanded its footprint in the Florida market.

A significant milestone in ACIC's history came in 2021 when the company underwent a major corporate transformation by going public through a SPAC merger. This strategic move provided ACIC with additional capital and resources to accelerate its growth, enabling the company to enhance its reinsurance program, invest in technology, and diversify its product offerings.

Throughout its history, ACIC has successfully navigated numerous industry challenges, including legislative reforms, increased litigation, and catastrophic hurricane events such as Hurricane Milton in 2024. The company's disciplined underwriting approach, robust reinsurance protections, and operational efficiencies have enabled it to remain profitable and maintain a strong balance sheet through these adversities.

Financial Performance and Ratios

ACIC's financial performance has been marked by both challenges and successes in recent years. For the full-year 2024, the company reported annual revenue of $638 million and net income of $102 million, up nearly 6% year-over-year despite incurring $23 million more in net catastrophe losses. This resilience is evidenced by the company's exceptional 57.4% return on beginning equity.

Financials

The company's balance sheet remains strong, with stockholders' equity increasing 39.6% to $235.7 million as of December 31, 2024. ACIC's cash and investments grew 73.4% to $540.8 million, reflecting its robust liquidity position. The company's debt-to-equity ratio stood at 0.10, indicating a conservative capital structure.

In the most recent quarter (Q4 2024), ACIC reported revenue of $162.7 million and net income of $4.9 million. The company achieved impressive year-over-year revenue growth of 54.7% in Q4 2024, driven by an increase in new business growth and renewal account retention, as well as policy assumptions from Citizens.

Liquidity

ACIC's combined ratio for the full-year 2024 was 67.5%, in line with its 65% target. The company's non-GAAP underlying combined ratio, which excludes current-year catastrophe losses and prior-year development, was 65.9%, demonstrating its disciplined underwriting approach.

As of December 31, 2024, ACIC reported cash and cash equivalents of $153.8 million. The company also has access to a $65 million credit facility with Synovus Bank, which was fully drawn as of the same date. ACIC's current ratio and quick ratio both stand at 12.07, indicating strong short-term liquidity.

Reinsurance Enhancements and Risk Management

Recognizing the importance of effective risk management, ACIC has made significant strides in enhancing its reinsurance program. Prior to year-end 2024, the company placed a new three-year catastrophe bond at the top of its core catastrophe reinsurance program, increasing the limit from $100 million to $200 million and securing favorable pricing. This catastrophe bond includes a cascading or drop-down feature for potential second and third hurricane events, providing additional protection.

Additionally, ACIC successfully renewed its All Other Perils (AOPCAT) program, which protects against non-hurricane catastrophe events, with a modest improvement in terms, including a 37% reduction in its retention from $14.25 million to $9 million before tax. The company's Excess Per Risk reinsurance program, which covers non-catastrophe perils, also saw a 38% reduction in its retention from $6.5 million to $4 million before tax.

The real highlight, however, was the placement of a new Catastrophe Aggregate (CAT-AG) program, designed to reduce the potential earnings volatility from catastrophe events. This program aims to limit ACIC's annual net losses from catastrophes to $40 million or less during 2025, providing an additional layer of protection for the company's financial performance.

Expansion into Apartment Insurance

ACIC's decision to launch a new apartment insurance program in 2024 has been a strategic move to capitalize on the growth opportunities in the Florida rental market. The company has invested significant resources in developing the necessary technological and distribution capabilities to underwrite apartment risks effectively.

As of the end of 2024, ACIC had written 19 new apartment risks, totaling approximately $2.3 million in premium. The company has received hundreds of high-quality submissions from its distribution partners, but has maintained a selective approach, prioritizing underwriting profitability over rapid premium growth.

The apartment program is expected to have a modest impact on ACIC's earnings in 2025, but the company believes it has the potential to become a more significant contributor to its business in the coming years. By leveraging its expertise in insuring similar property types, ACIC aims to diversify its portfolio and enhance its overall profitability.

Outlook and Guidance

ACIC has provided guidance for the upcoming year, projecting a net income range between $70 million and $90 million for 2025. This guidance reflects the company's confidence in its ability to navigate the evolving market conditions and maintain its strong financial performance. The projected net income range implies an expected return on beginning equity of over 30% for 2025, inclusive of all catastrophe losses for the year.

The company's risk transfer enhancements, including the new CAT-AG program, are expected to provide more certainty and less volatility around its future performance. ACIC's focus on selective growth, disciplined underwriting, and effective reinsurance management positions it well to capitalize on the opportunities in the Florida insurance market.

Conclusion

American Coastal Insurance Corporation has demonstrated its ability to navigate the complexities of the Florida insurance market, leveraging its specialized expertise and innovative approach to risk management. The company's strategic expansion into the apartment insurance segment, coupled with its robust reinsurance program and strong financial position, position ACIC for continued success in the years ahead. As the company continues to adapt to the evolving industry landscape, investors will be closely watching ACIC's ability to capitalize on its unique competitive advantages and drive sustainable growth in its primary Florida market.