Executive Summary / Key Takeaways

• Strategic Focus and Profitability: American Coastal Insurance Corporation (ACIC) has successfully streamlined its operations to focus on commercial residential property insurance in Florida, demonstrating exceptional underwriting discipline with a Q3 2025 combined ratio of 56.9% and a full-year 2024 combined ratio of 67.5%, both at or below its 65% target.
• Robust Financial Health and Liquidity: The company exhibits strong financial health, with cash and investments growing 28.5% year-to-date to $695 million by Q3 2025, and stockholders' equity increasing 38.9% to $327.2 million, driving a book value per share of $6.71.
• Enhanced Risk Management and Reinsurance: ACIC has significantly bolstered its reinsurance program, including a new $200 million catastrophe bond with cascading features and a Catastrophe Aggregate (CAT-AG) program, aiming to reduce earnings volatility and increase protection to a 1-in-250-year return period.
• Diversified Growth Initiatives: Beyond its core condo business, ACIC is strategically expanding into the apartment and assisted living facility markets in Florida, leveraging its underwriting expertise and distribution networks to capture profitable, diversifying risks.
• Positive Outlook Despite Market Softening: Despite a softening commercial property market and decreasing rates, ACIC reiterates its 2025 net income guidance of $70 million to $90 million, confident that its disciplined underwriting, efficient operations, and strong reinsurance will sustain profitability.

A Focused Strategy in Florida's Dynamic Insurance Landscape

American Coastal Insurance Corporation (ACIC), founded in 1999, has strategically honed its focus to become a prominent player in Florida's commercial residential property insurance market. Following the divestiture of Interboro Insurance Company (IIC) on April 1, 2025, ACIC now operates as a single reportable segment, concentrating solely on commercial residential insurance offerings in a state known for its unique risk profile. This strategic streamlining allows ACIC to leverage its deep regional expertise and established distribution networks, particularly through its wholly-owned insurance subsidiary, American Coastal Insurance Company (AmCoastal).

The company's overarching strategy is to identify and profitably underwrite risks in areas where larger national carriers have reduced their presence due to the perceived threat of natural catastrophes. This niche-focused approach is underpinned by rigorous risk selection and underwriting discipline, which management consistently emphasizes as paramount, especially as the commercial property market experiences softening. ACIC's business model is built on a foundation of sophisticated risk management, utilizing advanced tools and strong relationships with reinsurance partners to mitigate exposure to catastrophic events.

Technological Edge in Risk Management and Distribution

While not a technology company in the traditional sense, ACIC strategically employs and develops technological capabilities crucial to its insurance operations and competitive standing. A core aspect of its technological differentiation lies in its sophisticated approach to risk assessment and management. The company designs its catastrophe reinsurance programs by utilizing third-party catastrophe modeling software, which projects exposure to events and estimates probable maximum losses (PML) and average annual losses (AAL). This model output, combined with internal and external data, informs ACIC's view of catastrophe risk, enabling it to secure robust reinsurance coverage, such as its core catastrophe program providing coverage for approximately a 1-in-203-year return period.

Furthermore, ACIC's wholly-owned managing general agent (MGA), Skyway Underwriters, LLC, provides essential technological and distribution services. This internal capability has been instrumental in the company's expansion into new product lines. For instance, the launch of the apartment program required a "pretty heavy lift" to build out internal policy administration systems for pricing, quoting, binding, and issuing policies. This internal development capability allows ACIC to replicate and manage activities that were historically outsourced, enhancing operational control and efficiency. The strategic intent behind these technological investments is to improve risk selection, reduce loss volatility through optimized reinsurance, and enable profitable growth in new niches by leveraging existing expertise and distribution.

Competitive Positioning in a Specialized Market

ACIC operates in a competitive landscape characterized by both large national carriers and smaller regional players. Direct competitors like Travelers Companies (TRV), Chubb Limited (CB), Progressive Corporation (PGR), and Allstate Corporation (ALL) offer broad property and casualty insurance. However, ACIC carves out its niche by focusing on specialized commercial residential property insurance in Florida, particularly for condominiums and, more recently, apartments and assisted living facilities.

ACIC's strength lies in its regional expertise and strong relationships with independent agencies, which foster customer loyalty and provide a localized service advantage. This differentiates it from more centralized, brand-driven approaches of larger players like Allstate and can offer a more personalized value proposition compared to the tech-heavy, direct-sales model of Progressive. While ACIC may lag in the sheer scale and comprehensive technological integration seen in global insurers like Chubb, its focused application of underwriting and risk modeling technology allows for efficient operation in its targeted, catastrophe-prone markets.

The company's strategy to target markets where larger national carriers have reduced their presence due to catastrophe risk creates a unique opportunity. ACIC's ability to offer a "compelling alternative" in the admitted market, particularly for apartment risks often relegated to the Excess and Surplus (E&S) market, highlights its competitive edge. However, this market is "pretty competitive," and ACIC acknowledges that it must be selective, prioritizing high-quality business over hyper-growth to maintain its underwriting margins.

Financial Performance and Operational Excellence

American Coastal has consistently demonstrated strong financial performance, reflecting its disciplined underwriting and strategic initiatives. For the nine months ended September 30, 2025, net income from continuing operations rose to $80.23 million, a 13.9% increase year-over-year from $70.45 million in the same period of 2024. Total revenues for this period also saw a significant increase of 14.6% to $249.06 million, driven by higher net premiums earned.

In the third quarter of 2025, ACIC reported its best quarter to date, with over $42 million in earnings before income taxes and a 16% year-over-year increase in net income to $32.48 million. This was largely attributed to "muted catastrophe and attritional losses incurred" and a $6.4 million increase in net premiums earned, partly due to a step-down in the gross catastrophe quota share from 20% to 15% effective June 1, 2025. The company's combined ratio for Q3 2025 was an impressive 56.9%, a decrease of 0.8 points from 2024 and well below its stated target of 65%. The non-GAAP underlying combined ratio, which excludes catastrophe losses and prior year development, was 57.8%, also below target.

Operating expenses increased, notably policy acquisition costs, which rose by $4.5 million (21.5%) in Q3 2025 due to increased MGA commissions and decreased ceding commission income. However, general and administrative expenses decreased by $4.9 million for the nine months ended September 30, 2025, primarily due to a non-recurring $4.5 million employee retention tax credit refund. The company's full-year 2024 pre-tax income was approximately $102 million, up nearly 6% year-over-year, despite absorbing a full retention loss from Hurricane Milton within a single quarter's profit, demonstrating the effectiveness of its risk transfer strategy.

Liquidity and Capital Strength

ACIC maintains a robust liquidity position, with cash and investments totaling $695 million as of September 30, 2025, a 28.5% increase since year-end 2024. Stockholders' equity significantly strengthened, growing 38.9% since year-end to $327.2 million, resulting in a book value per share of $6.71. The company's investment strategy prioritizes capital preservation, maximizing after-tax income, and maintaining liquidity, primarily through debt securities and moderate equity exposure.

Cash flow from operating activities decreased in the nine months ended September 30, 2025, to $118.78 million from $241.91 million in the prior year, mainly due to changes in reinsurance payable and recoverable. However, the company generated net sales of investments totaling $12.90 million and received $4.50 million in net proceeds from the sale of IIC. ACIC also made a capital contribution of $8.27 million to its captive reinsurer, Shoreline Re, and received a $23.00 million dividend from AmCoastal. The company believes its current capital resources and cash from operations are sufficient to meet anticipated working capital requirements.

Strategic Initiatives and Outlook

ACIC is actively pursuing diversified growth opportunities. In December 2024, it launched an apartment program in Florida, targeting garden-style apartment complexes. This initiative is progressing well, with average premiums over $100,000 per policy and a strong quote-to-bind ratio in June 2025. The apartment business is strategically important for diversifying the company's risk portfolio, with much of the new premium originating from central and northeast Florida, areas where ACIC is currently underweight in condos.

Further expanding its reach, ACIC's Skyway Underwriters introduced a new commercial residential property insurance program in Q3 2025, targeting the assisted and independent living facility market in Florida. This niche is expected to be diversifying and offers a cost advantage due to eligibility for the Florida Hurricane Catastrophe Fund. While the initial impact on results is expected to be modest, management sees a long-term addressable market of approximately $100 million, with potential to double in 10 years.

The company's outlook for 2025 remains positive, with reiterated net income guidance between $70 million and $90 million. Management anticipates a rebound in premiums written in Q4 2025, continuing into 2026, as the company reverts to normal operations after intentionally slowing exposure growth during the peak hurricane season. The recent upgrade of its issuer and debt ratings to BBB- by Kroll Bond Rating Agency on July 21, 2025, is expected to reduce interest expenses on its Senior Notes, further supporting profitability.

Key Risks and Mitigations

Despite a positive outlook, ACIC faces inherent risks, primarily its exposure to catastrophic events and severe weather conditions in Florida. While the company utilizes sophisticated catastrophe models, management acknowledges that "actual results could vary dramatically from those expected." To mitigate this, ACIC has significantly enhanced its reinsurance program, including a new three-year catastrophe bond with a cascading feature for second and third hurricane events, and a Catastrophe Aggregate (CAT-AG) program designed to limit annual net catastrophe losses to $40 million.

Reliance on key agent relationships, particularly with AmRisc, LLC, also presents a risk, as the loss of these relationships could adversely impact business. The concentration of commercial business with AmRisc could give the MGA substantial leverage in negotiations. ACIC also faces legal proceedings, including a $1.50 million policy retention related to a claim from the Florida Department of Financial Services regarding UPC (UPC)'s insolvency, and a loss contingency related to quota share commissions due to UPC's receivership. The company continues to monitor these matters closely.

Conclusion

American Coastal Insurance Corporation has forged a compelling investment thesis through its focused strategy, disciplined underwriting, and proactive risk management in the dynamic Florida commercial residential property market. The company's ability to consistently achieve its target combined ratio, even when absorbing significant catastrophe losses, underscores the effectiveness of its operational model and robust reinsurance protections. With a strong balance sheet, increasing liquidity, and strategic expansion into complementary niches like apartments and assisted living facilities, ACIC is well-positioned for profitable growth.

While the softening commercial property market and inherent catastrophe risks present ongoing challenges, ACIC's commitment to underwriting discipline, coupled with its enhanced reinsurance structure and internal technological capabilities, provides a solid foundation. The reiterated 2025 net income guidance and the recent credit rating upgrade signal management's confidence in sustaining strong returns. For discerning investors, ACIC offers a unique opportunity to participate in a specialized insurer that is strategically adapting and growing within its core market, leveraging expertise and prudent risk transfer to deliver consistent profitability.