Q4 2023 American Coastal Insurance Corp Earnings Call
Operator: www.americancoastalinsurance.com Hello and welcome to the American Coastal Insurance Corporation's 2023 Fourth Quarter and Full Year Earnings Conference Call and Webcast. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. You may be placed into the question queue at any time by pressing star one on your telephone keypad.
Hello, and welcome to the American coastal insurance Corporation's 2023, and fourth quarter and full year earnings conference call and webcast. If anyone should require operator assistance. Please press star zero on your telephone keypad, a question and answer session will follow the formal presentation. He may be places the question queue.
At any time by pressing star one on your telephone keypad. As a reminder, this conference is being recorded it's now my pleasure to turn the call over to Karen Daily Vice President of the equity group and American coastal is Investor Relations Representative. Please go ahead Karen.
Operator: As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Karin Daly, Vice President of the Equity Group and American Coastal's Investor Relations Representative. Please go ahead, Karin.
Karin Daly: Thank you, Kevin, and good afternoon everyone. American Coastal Insurance Corporation has also made this broadcast available on its website at www.amcoastal.com. A replay will be available for approximately 30 days following the call.
Thank you, Kevin and good afternoon, everyone.
American Coastal insurance Corporation has also made this broadcast available on its website at www Dot young coastal dot com.
A replay will be available for approximately 30 days following the call. Additionally, you can find copies of our latest earnings release and presentations in the investors section of the company's website.
Karin Daly: Additionally, you can find copies of the latest earnings release and presentations in the investor section of the company's website. Speaking today will be Chairman of the Board and Chief Executive Officer R. Daniel Peed and President Bennett Bradford Martz. 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. The company believes these statements are based on reasonable estimates, assumptions, and plans. However, if these 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 statement. 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 of their most recent annual report on Form 10-K. Forward-looking With that, it's my pleasure to turn the call over to Mr. Daniel Peed. Dan, you may begin. Thanks, Karin.
Speaking today will be chairman of the board and Chief Executive Officer Art, Danielle Pete and precedent than at breakfast marks.
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.
The company believes these statements are based on reasonable estimates assumptions and plans. However, if these are 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.
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 and the risk factors section of their most recent annual report on Form 10-K.
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.
With that it's my pleasure to turn the call over to Mr. Daniel Peet Van you may begin.
Thanks, Karen.
Robert Daniel Peed: Hello, and thank you for joining us on our fourth quarter earnings call. I'm Dan Peed, Chairman and CEO of American Coastal Insurance Corporation. I will provide an overview of results for the fourth quarter and year-to-date and then turn it over to Brad Martz, who will expand on the financials... Our core income for the fourth quarter was $17.7 million, which annualized as a 100.6% core return on equity. The core income at December 31st was $89.5 million, which is over a $100 million improvement year-over-year. [inaudible] The validated net loss ratio is 21.2% for the fourth quarter, 23 versus 54.3% in the same period last year. The consolidated net loss ratio year-to-date is 22.3%, and the consolidated net expense ratio continues to trend downwards. 45.4% in the fourth quarter and 43.7% year to date, down from 50.2% and 56.2%, respectively, last year.
Hello, and thank you for joining us on our fourth quarter earnings call and then Pete Chairman and CEO of American Coastal Insurance Corporation.
I will provide an overview of results from the fourth quarter and year to date, and then turn it over to Brad Martz, who will expand on our financial results.
Our core income for the fourth quarter and $17 7 million.
Which annualized is a 100.6% core return on equity the.
Koreatown at December 31st is $89 5 million, which is over a 100 million improvement year over year.
Net income is primarily attributable to our commercial line segment.
The consolidated net loss ratio was 21, 2% for the fourth quarter 23 versus 54, 3% in the same period in 2022.
Consolidated net loss ratio year to date was 22, 3%.
The consolidated net expense ratio continues to trend downwards.
45, 4% in the fourth quarter, and 43, 7% year to date.
From 52% and 56, 2% respectively last year.
Robert Daniel Peed: The net combined ratio was 66.6% in the fourth quarter and 66.0% year to date, down from 104.5% and 106.2% year over year, respectively. Personal lines underperformed in the fourth quarter and year to date, but the impact is smoothed by the commercial line segment continuing to outperform year over year. Pre-tax earnings attributable to the commercial line segment totaled $27.9 million for the fourth quarter.
The net combined ratio is 66.6% in the fourth quarter.
66.0% year to date down from 104.5% and 106.6% year over year, respectively.
Personal lines underperformed in the fourth quarter and year to date, but the impact is smooth by the commercial line segment continuing to outperform year over year.
Pretax earnings attributable to the commercial line segment totaled $27 9 million for the fourth quarter of 2023 compared to $3 7 million for the fourth quarter of 2022.
Robert Daniel Peed: 2023 compared to $3.7 million for the fourth quarter of 2022. The commercial lines underlying combined ratio improved 17.5 points to 50.9% in the fourth quarter 2023 from 68.4% in the fourth quarter of 2022. The same improvement holds true year-to-date with the commercial lines underlying combined ratio, improving 13.2 points year-over-year to 53.6% year-to-date for 2022. Earnings also improved as management implemented and achieved its plan for expense reduction in 2023. Policy acquisition, underwriting, and general and administrative expenses were all reduced, positively impacting the bottom line. AmCoastal's 2023 results position commercial lines in a solid position going into 2024 and creates opportunities unique to AmCoastal, the largest commercial residential lines rider in Florida behind all these citizens, to continue its conservative reinsurance approach, protect its balance sheet, and identify opportunities to expand its products to meet the needs of Florida policyholders and create shareholder value. Moving on to personal lines, this segment experienced a pre-tax loss of $5.2 million in the fourth quarter We continue confirmatory due diligence with the potential buyer of Interboro and expect to sign definitive documents shortly.
The commercial lines underlying combined ratio improved 17.5 points to 59% in the fourth quarter 2023 from 68, 4% in the fourth quarter 2022 the.
The same improvement holds true year to date with commercial lines underlying combined ratio improving 13.2 points year over year to 53, 6% year to date for 2023.
Earnings also improved as management implemented and achieved its plan for expense reduction in 2023.
Policy acquisition.
Underwriting and general and administrative expenses were all reduced positively impacting the bottom line.
M Coastal's 2023 results position commercial lines in a solid position going into 2024.
It's opportunities unique to am coastal the largest commercial residential lines writer in Florida behind all these citizens.
Continue its conservative reinsurance approach protect its balance sheet and identify opportunities to expand.
Our products to meet the needs of Florida, policyholders and create shareholder value.
Moving on to personal lines. This segment experienced a pretax loss of $5 2 million in the fourth quarter 2023.
But that compares favorably to a pretax loss of $10 6 million in the fourth quarter of 2022.
We continue confirmatory due diligence with the potential buyer of inter Boro and expect to sign definitive documents shortly.
Robert Daniel Peed: The sale of Interborough will unlock capital and generate liquidity to explore diversification opportunities for our business. In all, net income attributable to the company for the year ended December 31, 2023 was $309.9 million or $7.11 per diluted share, and the market offering raised approximately $38 million to date, which, as we have stated, creates capacity for expanding specialty underwriting, especially during these hard markets, as a result of the strong performance of our commercial segment and the improvement in our personal alignment. Period over period, our book value per common share increased 29.8% from $2.78 at September 30, 2023, to $3.61 at December 31st. While competition in the commercial line space is increasing, AmCoastal continues to be a commercial and residential leader in Florida because of its well-established reputation.
The sale of integral will unlock capital and generate liquidity to explore diversification opportunities for our business.
In all net income attributable to the company for the year ended December 31, 2023 was $309 9 million or $7 on 11 cents per diluted share.
Alright, the Medicare market offering raised approximately 38 million to date, which as we have stated creates capacity for expanding specialty underwriting, especially during these hard market conditions.
As a result of the strong performance of our commercial segment and the improvement in our personal lines segment.
We're at over period, our book value per common share increased 29.8% from $2 78 at September 30th 2023 to.
The $3.61 at December 31, 2023.
While competition in the commercial line space is increasing.
Am coastal continues to be a commercial residential leader in Florida because of its well established reputation.
Robert Daniel Peed: Extensive Distribution Network, and an underwriting expert. I expect this unmatched competitive advantage will continue to drive results and deliver value to shareholders. With that, I'll turn it over to Brad. Thank you Dan, and hello.
Extensive distribution network and underwriting expertise.
This unmatched competitive advantage will continue to drive results and deliver value to shareholders.
With that I'll turn it over to Brad Martz.
Thank you, Dan and Hello, I'm happy to review, our financial results and encourage everyone to review the company's press release earnings and Investor presentations.
Bennett Bradford Martz: I'm happy to review our financial results and encourage everyone to review the company's press release, earnings and investor presentations, and Forms 10-Q and 10-K, including amendments, for more information regarding our performance. We entered 2024 with positive forward momentum in our core business. Underwriting actions taken over the past year combined with expense reduction and a more favorable external operating environment led ACIC to post-record results. Dan highlighted for 2023.
Forms 10-Q, and 10-K, including amendments for more information regarding our performance.
We entered 2024 with positive forward momentum in our core business underwriting actions taken over the past year combined with expense reduction and a more favorable external operating environment led to a CIC to post record results.
Dan highlighted for 2023.
Bennett Bradford Martz: While we were pleased with our overall performance in the fourth quarter, pre-tax earnings included non-recurring charges of roughly $8.4 million, $2 million of which was related to the impairment of capitalized software, and 6.4 million impacted reinsurance costs. Page 6 of our earnings presentation provides some additional color on the charge related to reinsurance, which is actually a good thing because it will reduce reinsurance costs over time. The reinsurance charge occurred as a voluntary commutation to the 2023 core catastrophe reinsurance program in exchange for a no claims bonus. The $6.4 million incurred in Q4 will be offset by $14.4 million of cost savings over the remaining treatment period from January 1st to May 31st, 2024. The net economic benefit to ACIC is approximately $8 million after accounting for the upfront costs incurred in Q4 and the savings expected in Q1 and Q2 of 2024, which are net of costs we incurred to replace the cap limit commuted. A big driver of improvement in the pre-tax earnings in our combined ratio in the current quarter was the lack of any meaningful catastrophe losses. Catastrophe losses were just $277,000 this quarter compared to $18.9 million in the same period last year.
Well, we were pleased with our overall performance in the fourth quarter pretax earnings included nonrecurring charges of roughly $8 4 million to.
2 million of which was related to impairment of capitalized software and $6 4 million impacted reinsurance costs.
Page six of our earnings presentation provide some additional color on the charge related to reinsurance, which is actually a good thing.
Because it will reduce reinsurance costs over time.
Reinsurance charge occurred from a voluntary commutation to the 2023 core catastrophe reinsurance program in exchange for a no claims bonus.
The $6 4 million incurred in Q4 will be offset by $14 4 million of cost savings over the remaining trading period from January one to May 31 2024.
The net economic benefit to AC I see is approximately $8 million after accounting for the upfront costs incurred in Q4 and the savings expected in Q1 and Q2 of 2024.
Which are net of costs, we incurred to replace the cat limit commuted.
A big driver of improvement in the pretax earnings in our combined ratio in the current quarter was the lack of any meaningful catastrophe losses.
Catastrophe losses were just $277000 this quarter compared to $18 9 million in the same period last year.
Bennett Bradford Martz: We continue to see favorable prior year reserve development with $629,000 in the current quarter and feel good about our overall lost reserves at year end. Excluding catastrophe losses and prior year reserve development, our underlying combined ratio improved over 15 points to 67.2% in the current period and was 65% for the full year. We previously stated that our target for the underlying combined ratio in 2023 was 65 percent, so we're obviously pleased with hitting this goal. Page seven of our earnings presentation breaks down our results by segment, with $27.9 million of pre-tax profit from commercial lines reduced by a $5.2 million loss from personal lines and $3.2 million of expense at the whole company, which is primarily interest expense. This brought our year-to-date pre-tax profit in commercial lines to over $118 million with a combining ratio of 53.7%. As Dan mentioned, ACIC continues to work towards finalizing definitive agreements to sell Interboro, and we still expect to get that done this year, but completing the sale is now more likely to occur towards the end of 2024. That means personal lines will continue to be a minor drag on overall results this year.
We continued to see favorable prior year reserve development with 629000 in the current quarter and feel good about our overall loss reserves at year end.
Excluding catastrophe losses and prior year reserve development, our underlying combined ratio improved over 15 points to 67, 2% in the current period and was 65% for the full year.
We previously stated that our target for the underlying combined ratio in 2023 was 65%. So we're obviously pleased with hitting this goal.
Page seven of our earnings presentation.
Breaks down our results by segment with $27 $9 million of pre tax profit from commercial lines reduced by a $5 2 million dollar loss from personal lines and $3 2 million of expense at the whole company, which is primarily interest expense.
This brought our year to date pretax profit in commercial lines to over $118 million with a combined ratio of 53, 7%.
As Dan mentioned, a CIC continues to work towards finalizing definitive agreements to sell into Boro and we still expect to get that done this year.
But completing the sale is now more likely to occur towards the end of 2020 for.
That means personal lines will continue to be a minor drag on overall results. This year. However, we did receive regulatory approval in New York for a 12, 6% rate increase effective February six for new business and March 15th for renewal business with an annualized expected impact of $5 $9 million. So that is.
Bennett Bradford Martz: However, we did receive regulatory approval in New York for a 12.6% rate increase, effective February 6th for new business and March 15th for renewal business, with an annualized expected impact of $5.9 million. So that is obviously expected to help improve personal lines results in the current period. Page 8 of our earnings presentation provides balance sheet highlights, including stockholders' equity increasing 40% to $168.8 million, or $3.61 a share, unrealized losses on our bond portfolio of $17.1 million, or $0.36 a share, indicating an underlying book value of approximately $3.97. Cash and invested assets total $369 million, with total assets of just under $1.1 billion. As Dan mentioned, our previously announced at-the-market, or ATM, program delivered a nice boost to our unrestricted liquidity and our overall capitalization during the quarter. As of year-end, ACIC issued and sold approximately 3.4 million new shares, raising $26.8 million net of selling expenses. Subsequent to year-end, the company sold another 1 million shares, raising another $11.4 million net of expenses.
Obviously expected to help improve personal lines results in the current period.
Page eight of our earnings presentation provides balance sheet highlights, including stockholders' equity, increasing 40% to $168 8 million or $3.61 a share.
Sure.
Unrealized losses on our bond portfolio, $17 1 million or <unk> 36 cents a share.
Indicating the underlying book value of approximately $3.97 cash.
Cash and invested assets totaled $369 million with total assets of just under $1 1 billion.
Yeah.
As Dan mentioned, our previously announced at the market or ATM program delivered a nice boost to our unrestricted liquidity in our overall capitalization during the quarter.
As of year end AC IC issued and sold approximately $3 4 million new shares raising $26 8 million net of selling expenses subsequent to year end. The company sold another 1 million shares raising another $11 4 million net of expenses. The a T. M is now.
Raise more.
More capital than we originally anticipated, but the dilutive impact was in line with our original expectations.
Accordingly, the ATM has now been paused and American coastal is not anticipating additional sales of its common stock under the 18 ATM program at this time.
Bennett Bradford Martz: The ATM has now been raised, more capital than we originally anticipated, but the dilutive impact was in line with our original expectation. Accordingly, the ATM has now been paused, and American Coastal is not anticipating additional sales of its common stock under the ATM program at this time. The big question everyone wants to know is what we are going to do with the $38.2 million raised from the ATM inception to date. And, as we stated previously, we see a tremendous opportunity to grow our net earned premiums over time by retaining more of our direct underwriting results. We've deployed some of this capital to our captive already to support our January 1st AOPCAT reinsurance program and our excess per risk reinsurance program that was placed on February 1st on layers with a modeled expected return on capital well in excess of 50%. However, most of the proceeds are being reserved for our much bigger core catastrophe renewal on June 1st of this year.
The Big question, everyone wants to know is what are we going to do with the $38 2 million raised from the ATM inception to date.
And as we stated previously we see a tremendous opportunity to grow our net earned premiums over time by retaining more of our direct underwriting results.
We've deployed some of this capital to our captive already to support our January 1st a O P cat reinsurance program.
And our excess per risk reinsurance program that was placed at February 1st.
On layers with a modeled expected return on capital well in excess of 50%.
However, most of the proceeds are being reserved for a much bigger core catastrophe renewal at June 1st of this year.
It's premature to comment on our upcoming core catastrophe renewal at June 1st, but we are hard at work on it and can point to the very successful reinsurance renewals at one one and two one is good evidence that we expect to see significant improvements in pricing and overall protection at June 1st this year.
Bennett Bradford Martz: It's premature to comment on our upcoming core catastrophe renewal at June 1, but we are hard at work on it and can point to the very successful reinsurance renewals at 1-1 and 2-1 as good evidence that we expect to see significant improvements in pricing and overall protection at June 1 this year relative to the program expiring at May 31. Page nine of our earnings presentation summarizes our current view, the underwriting environment, and market conditions remain very favorable for achieving underwriting profitability and above average risk adjuster returns on capital in the near term. To capitalize on this, we will look to supplement our anticipated organic growth this year by also exploring takeout and assumption opportunities. We believe assuming business from other carriers, such as Citizens, that meet our underwriting criteria makes sense in the current environment and could potentially offset any potential competitive pressures as the market cycle evolves. Pages 10 and 11 of our earnings presentation provide some additional color on pricing and valuation trends in our commercial residential business.
Relative to the program expiring at May 31st.
Yeah.
Page nine of our earnings presentation summarizes our current view.
Of the underwriting environment market conditions remain very favorable for achieving underwriting profitability and above average risk adjusted returns on capital in the near term.
To capitalize on this we will look to supplement our anticipated organic growth. This year, but also exploring take out an assumption opportunities we.
We believe assuming business from other carriers, such as citizens that meet our underwriting criteria makes sense in the current environment and could potentially offset any potential competitive pressures as the market cycle cycle evolves.
Pages, 10, and 11 of our earnings presentation provide some additional color on pricing and valuation trends in our commercial residential business.
We ended 2023 with premiums up 28% and exposures down 18% year over year.
Rate levels are moderating, but remain very healthy relative to current exposures.
Operator: We ended 2023 with premiums up 28% and exposures down 18% year over year. Rate levels are moderating, but remain very healthy relative to current exposures, loss, and expense trends. Even with direct written premiums flattening out, we are confident in our ability to grow net earned premiums in 2024, which is truly what will drive our bottom line this year. And finally, we would like to give a huge thank you to our partners at Amris for their exceptional contributions to our success in 2023. And also offer our sincere congratulations to both the buyer and the seller of Amaris Parent Company. American Coastal continues to enjoy a very strong and exclusive relationship with AmRisk in the Florida-admitted commercial residential space, and we do not expect any significant changes to our business because of the ownership change by AmRisk in the foreseeable future with that operator.
Loss and expense trends.
Even with direct written premiums flattening out we are confident in our ability to grow net earned premiums in 2024, which is truly what will drive our bottom line. This year.
And finally, we would like to give a huge thank you to our partners at am risk for their exceptional contributions to our success in 2023 and.
And also offer our sincere congratulations to both the buyer and the seller of Amyris parent company.
American coastal continues to enjoy very strong and exclusive relationship with Amyris in the Florida admitted commercial residential space and we do not expect any significant changes to our business because of Amyris ownership change in the foreseeable future.
With that operator.
Please open the line for questions.
Certainly we will now be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he like to remove your question from the queue for participants using speaker equipment, maybe it would be necessary to pick up your handset.
Operator: Please open the line for questions. We'll now be conducting a question and answer session. If you'd like to be placed in the question queue, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
Before pressing star one.
One moment, please while we poll for questions.
Our first question is coming from Greg Peters from Raymond James Your line is now live.
Well hey, good afternoon.
Robert Daniel Peed: You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star 1. One moment, please, while we poll for questions. Our first question is coming from Greg Peters from Raymond James. Your line is now live. Well, hey, good afternoon, Dan and Brad. So, Dan, in your comments, you mentioned increased competition in your specialty commercial line? Brad, you also mentioned that. Can you give us a sense of what your expectations are in terms of pricing or rate? in your specialty segment for 24 and how that might compare with what happened in 23. Sure. I stand by what I said.
Dan and Brad.
So Dan in your comments are you.
I hinted about increased competition in your specialty commercial lines business. Brad you also mentioned that king.
Can you give us a sense of what your expectation is in terms of pricing or rates in your specialty segment for 'twenty, four and how that might compare with what happened in 'twenty three.
Sure Stan.
You know we had so little competition last year that just about any competition is an increase.
We see probably the main company.
Where the accounts are if the accounts leave would be doing to citizens and mostly due to a rate just due to a rate.
Robert Daniel Peed: You know, we had so little competition last year that just about any competition is an increase. We see probably the main company, where the accounts, if the accounts leave, would be going to citizens and mostly due to a rate, just due to a rate, being less expensive for that citizen's policy. We have also seen a few different carriers that are introducing products, but they tend to be a small number compared to the... to the volume that American Coastal typically does.
Being less expensive for the citizens policy.
We have also seen a few different carriers that are introducing products, but.
They tend to be.
They tend to be a small number compared to the you know sort of the volume that American coastal typically sees so as far as REIT. We continue to expect that we will get rate increases. They just will be decelerating from the rate increases that we were getting over the course of the last 12 months.
Bennett Bradford Martz: So as far as REITs are concerned, we continue to expect that we will get rate increases; they just will be decelerating from the rate increases that we were getting over the course of the last 12 months, and I would expect that we probably will be, you know, up between 10% and 20% through the course of 2024 over the average rate of 2023. Okay, I guess, you know, the other comment you made was just sort of what the expected underlying combined ratio target was for 23. Wondering if you want to venture a guess and give us sort of a range of what you think the underlying combined ratio target should be for the enterprise for 24, or give us some benchmark of expectations around what you think the margin performance will be, understanding that there's volatility for cap. Yeah, Hi Greg. This is Brad.
And I would expect that we probably will be.
Up between 10% and 20%.
Through the course of 2024 over the average 2023 weeks.
Okay, I guess you know.
Other comment I think.
You made was just sort of what do you expect that.
The underlying combined ratio target my was 423.
Wondering if you want wanted to venture a guess and give us sort of a range of what you think the underlying combined ratio targets should be for the enterprise.
Were twenty-four or give us some benchmark.
Expectation.
Brown.
What you think the.
The margin performance will be understanding that there's volatility for cat.
Okay.
Yeah, Hi, Greg This is Brad.
Bennett Bradford Martz: Well, the underlying combined excludes CAD and reserve development, so that's the purpose of that measurement. It does allow us to create an apples-to-apples comparison across all years, regardless of what's happening with prior year reserve development or the volatility associated with CAD. So we think it's a good metric, and we're still targeting 65% as of today. But I think our reinsurance renewal on June 1 could change that outlook, favorably or unfavorably, depending on how we execute. But I think that's the big reset, that we need to wait and see how our fixed costs related to reinsurance, as well as the variable costs associated with the quota share, end up changing on June 1. Okay, and then I guess, you know, pivoting to sort of the capital imbalance sheet situation. Uh, I guess you've, you know, now shut down the ATM for the time being, pausing it, I think was the word you How should we think about capital adequacy across the enterprise? If you look at your debt to total capital... the coverage ratio looks elevated relative to your peers, but maybe I'm missing something.
The underlying combined excludes cat and reserve development. So that's that's the purpose of that measurement it does.
Low us to create an apples to apples comparison across all years, regardless of what's happening with prior year reserve development or the volatility associated with cat, but so we think it's a good metric and we're still targeting 65% as of today I think you know the our reinsurance renewal June one could change that outlook.
Blair unfavorably, depending on how we execute.
But I think that's the big reset that we need to wait and see how how our fixed costs related to reinsurance as well as the variable costs associated with the quota share end up changing at June <unk>.
Okay, and then I guess.
Getting to sort of the capital and balance sheet situation.
I guess, you know shutting near closing on the ATM for the time being causing it I think was the word you use.
How should we think about capital adequacy across the enterprise.
Your debt to total capital.
Average ratio looks elevated relative to your peers, but.
Maybe I'm missing something I think your RBC is probably running a little bit high right now, but if you can provide some perspective around your views on capital.
Bennett Bradford Martz: I think your RBC is probably running a little bit high right now, but if you can provide some perspective around your views on capital. Certainly. You're correct on the statutory side, which is where we're most sensitive to our capital needs. American Coastal Insurance Company ended the year with a risk-based capital ratio of 981%.
Certainly.
You're correct on the statutory side, which as you know where were most sensitive to our capital needs American coastal insurance company ended the year with a risk based capital ratio of 981%. So we feel like we've done a great job managing that obviously.
Bennett Bradford Martz: So we feel like we've done a great job managing that. Obviously, taking back more net premium risk with decreasing potential reinsurance spend could cause us to see a decrease in that RBC, but it will be offset by increased underwriting profitability. So, the way we've modeled it out, I think we're all set on capital for the year. Obviously, we are working feverishly to unlock some additional liquidity by selling Interperol, which is a big reason we... went to the ATM as, you know. We were somewhat disappointed in the timeline and the length of time it's taking to dispose of that asset and formally exit the personal lines business.
Taking back more net premium risk with decreasing our potential reinsurance spend could could.
It caused us to see.
See a decrease in that RBC, but it will be offset by increased.
Increased underwriting profitability. So that's the way we've modeled it out I think we're all set on capital for.
For the year, obviously, we are working.
Working feverishly to unlock some some additional liquidity by selling into borough, which you know is a big reason we we.
Went to the ATM is.
Oh, we had a we were somewhat disappointed in and you know the timeline and the length of time, it's taking to dispose of that asset and formally exited the personal lines business.
Robert Daniel Peed: But for right now, I think we're in great shape on policyholder surplus and RBC. And if we want to retain more risk, I think we have the capital to do it. Got it. I guess just to pivot back to your one of your other comments about takeout opportunities. Citizens.
But for right now I think we're in great shape with on policyholder surplus in RBC and if we want to retain more risk I think we have the capital to do it.
Got it I guess, just just pivoting back to your your one of your comments about.
Take out opportunities from citizens I assume that's still that's focused on like the specialty commercial side, that's not a pivot back into the personal residential side that's is that correct.
Robert Daniel Peed: I assume that's still focused on the specialty commercial side. It's not a pivot back into the personal residential side. Is that correct? That is correct. Yeah, good clarification. I apologize for omitting that. But yeah, we've lost a few accounts to citizens due to rate differential, and that's okay. That happens from time to time.
That is correct, yeah, good clarification, and I apologize for missing that but yeah. We you know we've lost a few accounts the citizen's data rate differential and and you know that's okay that happens from time to time, but you know there is some good business debt that we'd like to to get back and I think that's.
Robert Daniel Peed: But there is some good business that we'd like to get back, and I think that's one way to do it. So we should be evaluating the opportunities there from time to time. And when it makes sense, and the risks we're familiar with that meet our underwriting criteria are available, we'll consider it. Got it. Well, congratulations on the air.
Oh, one way to do it so we should be evaluating the opportunities there are from time to time and when it makes sense and the risks you know we're familiar with that that meet our underwriting criteria are available we will consider it.
Got it well congratulations on the air.
Robert Daniel Peed: Thank you. Thank you. The next question is coming from Ariane Gupta from Eagle Eye Asset Private Limited. Your line is now live. Hello, Brad. Hello, Dan.
Thank you.
Thank you.
Thank you. Your next question is coming from Ariane Cooped up from Eagle life asset Private limited. Your line is now live.
Hello, Brian Hello, Dan. Thank you so much.
Robert Daniel Peed: Thank you so much. You know, congratulations on the results for the commercial specialty segment. I've had a couple of questions.
Congratulations on the results for our for the commercial specialty segment I just had a couple of questions though.
Robert Daniel Peed: So I guess, have there been any updates on the fee income side of the business? I guess that's my first question. I'll take that. This is Dan.
I guess they have there been any updates on the on the fee income side of the business.
So the first question.
Oh I'll take that this is Dan.
Robert Daniel Peed: We are working on some different opportunities, but I think, as we have kind of mentioned all along, I wouldn't feel like that is something that is..., you know, imminently in the short term, it would be something that we build over time. We are still working on some fee business opportunities, but there is nothing there to report yet. Sure, sure, that makes sense.
We are working on some different opportunities, but I think as we have kind of mentioned all along.
I wouldn't feel like that is something that is just you know eminently in our in the in the short term it would be something that would build over time.
We are still working on some fee opportunity.
Fee business opportunities, but there is no nothing there to report yet.
Robert Daniel Peed: And I was also wondering, are there any opportunities that you guys see in the E&S market and, you know, in the non-admitted market where there might be, I mean, opportunities for growth? Well, one thing that Brad mentioned is the opportunity for pretty significant growth in our net premiums written and net premiums earned from the standpoint of just eating more of our own cooking? Obviously, if you look at our numbers, there's a very large feed percentage, in part due to our capital level at the beginning of last year, at www.americancoastalinsurance.com, but it could be significant on the net written premium number. So that's one opportunity.
Sure sure that makes sense and I was also wondering are there any opportunities that you guys seem to get enough market.
And on the non admitted market, where where potentially there there might be opportunities for growth.
Well one thing that Brad mentioned is the opportunity for pretty significant.
Both in our net premiums written and net premiums earned from the standpoint of just eating more of our own cooking. Obviously, if you look at our numbers Theres a very large treated.
Percentage in.
In part due to our capital level at the beginning of last year.
Obviously that capital has been reinforced and we like the business that were writing a from a gross written premium perspective, and we may be able to have more of that hit the net written premium perspective. So that's one one opportunity for growth.
Wallet.
While it won't be as significant on the on the top gross written premium number we don't think this year, but it could be materially it could be significant on the net written premium members. So that's that's one opportunity and we are exploring some other opportunities from the <unk>.
Robert Daniel Peed: And we are exploring some other opportunities from the ENS side of business or... essentially, like, for example, in some reinsurance opportunities or stuff like that, but nothing that we're really prepared to discuss right now. Sure, sure, that makes sense. And just one last quick question on the COTA share. So is that expected to sort of go down this year?
From the E&S side of business or.
Uh huh.
Yeah.
Essentially like for example, in some reinsurance opportunities or stuff like that but nothing that we're really prepared to.
To discuss right now.
Sure sure that makes sense and then just one last quick question on the quota shares does that is that expected to sort of go down this year and if you could give us sort of any sort of like clarity on what that ends up being for this I mean, but the new renewal and fixed one of this year.
Robert Daniel Peed: And if you could give sort of any sort of like clarity on what that ends up being for this, I mean, for the new renewal on 6-1 this year? I would prefer that I say, so we can't really provide any specific numbers, but we have stated in the past that we had a 40% quota share on June 1st of 23, and then we would expect that to go down to, you know, eventually 25%, 15%, 0% in the course of two to three years. So I would say that our expectation going into 6-1-24 is for that to go down by a third. Quarters here.
I would prefer that I mean, so we can't really provide any specific numbers, but we have stated in the past that.
We did a 40% quota share at June 1st of 'twenty, three and then we would expect that to.
Go go down to you know eventually 25%, 15% zero percent in the course of two to three years. So I would say that would be our expectation going into six 124.
<unk> is for that to go down by a third to half the quota share component.
Robert Daniel Peed: Sure, sure. Thank you so much. Thank you so much, Dan. Great, thank you.
Sure sure let me start and thank you so much Dan.
Okay. Thank you.
Operator: Thank you. The next question is coming from Bill Dezellem from Tyaton Capital. Your line is now live.
Thank you next question is coming from build to sell them from Titan capital. Your line is not a life.
Bennett Bradford Martz: Thank you. First of all, would you please discuss your view of the reinsurance market specifically as it relates to your renewal? June Renewal. Yes, certainly. We did issue a press release describing, you know, some of the details of the January 1st all other payrolls cap or AOP cap placement. We did about $100 million to limit, so it's significantly smaller than our hurricane-focused core catastrophe reinsurance program done at mid-
Hi, Thank you first of all would you. Please discuss your view of the reinsurance market.
Specifically as it relates to your renewal.
June renewal.
Yes, certainly we did issue a press release describing.
Some of the details of the the January 1st all other perils cat or a O P. Cat placement, we did spend $100 million of limits are significantly smaller than our our hurricane.
Focus Cork catastrophe reinsurance program done at mid year.
Bennett Bradford Martz: But we did see, you know, just under a 10% risk-adjusted rate decrease on that limit, and we did buy more limits. So, you know, my comments were pointing towards, you know, we do expect to see some, you know, more capacity available. The feedback we got at both 1-1 and 2-1 was that, you know, capacity is available, and reinsurers are hungry. They're remaining disciplined. So, you know, we have to be cognizant and mindful of that. But, you know, last year's program was, I, distressed, right?
We did see you know just under a 10% risk adjusted rate decrease on that limit.
And we did buy more limit so you know.
My comments, where we're guiding towards you know, we we do expect to see some some or more capacity available. The feedback we got at both one one to one.
Was that capacity is available reinsurers are hungry, they're remaining discipline. So you know.
We we have to be cognizant and mindful of that but you know last years program was was.
Aye.
Distressed right, we still had the the cloud of uncertainty hanging over the company regarding the the disposal of our former affiliate United property casually.
Bennett Bradford Martz: We still have the cloud of uncertainty hanging over the company regarding the disposal of our former affiliate, United Property & Casualty, and it definitely impacted the pricing and the capacity available to us, as well as other terms and conditions. But now we see that that is further away in the rearview mirror, and we've proven that we've got a very strong company in the book of business. I think we're in a much better overall negotiating position. We respect our reinsurance partners immensely, we need their support, and we're playing long ball with them for sure. So while this is an annual opportunity to drive terms, and I do think we're a little bit in a cedence market at the moment, we'll have more details for you in the coming months. And secondarily, you've highlighted a number of things that you are doing. Would you please walk through, for 2024 specifically, what you see as your most important strategic initiative? Sure. Number one is underwriting profitability. That's always been job one. That's never going to change.
And it it definitely impacted the pricing and the capacity available to us as well as other terms and conditions. So we see now that that is further away in the rearview mirror and we've proven that we've got a very strong company and book of business I think.
We're in a much better negotiate overall negotiating position, but you know we will.
We respect our reinsurance partners immensely we need their support and.
We're playing long ball with them for sure. So while this is an annual opportunity to to drive terms and I do think we're a little bit in our cedent.
Market at the moment.
You know well, we'll have more details for you in the coming months.
Thank you and then secondarily are.
You've highlighted a number of things that you are doing would you. Please walk through for 2024, specifically what you see as your most important strategic initiatives.
Sure number one is our underwriting profitability and that's always job one that's never going to change a number two is developing Oh, you know pathways for earnings growth that doesn't mean topline growth that means earnings growth so that can.
Bennett Bradford Martz: Number two is developing pathways for earnings growth. That doesn't mean top-line growth. It means earnings growth. So that can come in the form of fee income. It can come in the form of deploying capital intelligently, whether it's direct assumed or reinsurance to earn strong returns on capital.
Come in the form of fee income.
Can come in the form of deploying capital intelligently, whether it's direct assumed or a reinsurance to earn.
Bennett Bradford Martz: The third, I would say, is to continue to support and complete the runoff of discontinued operations. So we still have a couple of things on our to-do list there, most notably Interboro, getting that sold, and continuing to support the Department of Financial Services in any way we can. And then lastly, it's building bench strength.
Strong returns on capital.
The third I would say is to continue to support and complete the runoff of discontinued operations. So we still have a couple of things on our to do list. There are most notably in a birth I'm getting that are sold in and continuing to support.
The department of financial services in any way, we can and then lastly, it's building bench strength.
Bennett Bradford Martz: I think we showed everyone in January that we're serious about that, naming two new executive officers. Svetlana Castle joins us as our new chief financial officer. I've known her for a long time and am very, very excited she's joined our team. She will likely be participating on this call next quarter. She's here with us today, listening in and learning and getting up to speed on how we operate. But she's a terrific hire. And we also promoted from within and created a new position of Chief Compliance and Risk Officer, and that title is pretty self-explanatory. Given what we went through in 2023, there's going to be an increased emphasis on risk management and compliance at the company going forward. So those are my top four.
I think we showed everyone in January that we're serious about that naming two new named executive officers.
<unk> spent lot of castle joins us as our new Chief Financial Officer, I've known her a long time and I'm very very excited she has joined our team.
She will.
Likely be participating on this call next quarter. She is here with us today are listening in and learning and getting up to speed on how we operate but she's she's a terrific hire and we also promoted from within.
And created a new position of chief compliance and risk officer.
And that title is pretty self explanatory given what we went through in 2023, there's going to be increased emphasis on risk management and compliance at the company going forward.
So those are my top four.
Robert Daniel Peed: Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to Dan for any further closing comments. Okay, thanks everybody for your time and your interest in our company and your time on this call. And that ends our call. Thanks again. Thank you. That does conclude today's teleconference webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.
Thank you we've reached end of our question and answer session I'd like to turn the floor back over to Dan for any further or closing comments.
Okay. Thanks, everybody for your your time and your interest in our company.
And your time on this call.
And that ends our call. Thanks again.
Thank you that does conclude today's teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.
Yeah.