Q3 2024 American Coastal Insurance Corp Earnings Call
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Speaker Change: Greetings and welcome to American Coastal's third quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.
Speaker Change: I would now like to turn the conference over to your host, Karin Daly, Vice President, the Equity Group, and American Coastal's IR representative. Please go ahead.
Speaker Change: Svetlana Castle, Bennett Martz, Karin Daly
A replay will be available for approximately 30 days following the call. Additionally, you can find copies of the latest earnings release and presentation in the investor section of the company's website.
Speaker Change: Speaking today will be Chairman of the Board and Chief Executive Officer R. Daniel Peed, President Bennett Bradford Martz, and Chief Financial Officer Svetlana Castle.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: Factors that could cause actual results to differ materially may be found in the company's filings with the US Securities and Exchange Commission.
Speaker Change: in the risk factor section of their most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q.
Speaker Change: 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 statement. With that, it's my pleasure to turn the call over to Mr. Daniel Peed. Dan, you may begin.
Daniel Peed: Thank you, Karin. The third quarter of 2024 saw the emergence of the active Atlantic hurricane season that was predicted starting with Hurricanes Debbie and Helene.
Daniel Peed: Then, just after the third quarter ended, Hurricane Milton made landfall in Central Florida, impacting millions of Floridians, including AmCoastal staff.
Speaker Change: In preparation for Hurricane Milton, American Coastal activated its Business Continuity Plan and I am pleased to report that our operations continued seamlessly, meaning there were no disruptions to policyholders and we were prepared to immediately respond to claims.
Speaker Change: Significant cleanup and restoration efforts continue and American Coastal is proud to have supported relief efforts through monetary donations and paid time off for employees who volunteered.
Speaker Change: Svetlana Castle, Bennett Martz, Karin Daly
Speaker Change: As we previously announced, we estimate that we will retain approximately $3.8 million in after-tax losses stemming from Debbie and Helene and $16.2 million in after-tax losses retained in Milton.
Speaker Change: in the fourth quarter.
Speaker Change: This compares favorably against our peers and enables a strong underwriting profit in the third quarter.
Speaker Change: Furthermore, American Coastal has an exceptional and steady underlying combined ratio, along with the significantly increased total revenue of $82.1 million in the third quarter. This stems from favorable reinsurance pricing as well as the reduction of the quota share from 40% to 20%.
Speaker Change: We expect the new non-cap margin run rate, as measured by the underlying combined ratio, as well as the strong revenue growth to continue in future quarters.
Speaker Change: Thank you for watching!
Speaker Change: Finally, I'm pleased to announce that American Coastal successfully participated in its first ever Takeout from Citizens. The Takeout added policies to our condo book and signaled the launch of a new apartment program.
Speaker Change: We are excited for the future and pleased that you are here to learn more about American Coastal. With that, I will turn the call over to Brad Martz, President of ACIC.
Speaker Change: Svetlana Castle, Bennett Martz, Karin Daly
Brad Martz: Thanks, Dan, and hello. Today I'll provide additional color on the recent hurricane losses and also review our forward-looking guidance for the remainder of 2024. Then I'll turn it over to our CFO.
Speaker Change: Svetlana Castle, Bennett Martz, Karin Daly
Speaker Change: Pages three and four of our earnings presentation highlight additional details on the name windstorms that Dan mentioned made landfall in Florida so far this year. Hurricane Debbie was a category one storm in August with minimal wind damage.
Speaker Change: To date, we've only received 15 claims and estimated a gross loss of a million dollars with a net impact of about $600,000 after tax in the third quarter.
Speaker Change: Hurricane Helene was a much stronger Category 4 storm in September, but made landfall in the Big Bend region, resulting in very minor wind damage to our risk portfolio.
Speaker Change: Helene also caused extensive flood damage on the west coast of Florida but flood is not a covered peril by our hurricane policies.
Speaker Change: To date, we've received 26 claims for Haleen and estimated our gross loss at $5 million, which translates to a net loss of about $3.2 million after tax.
Speaker Change: Like Debbie, Helene was within our retention and not considered an event for our core Catastrophe Excessive Loss Reinsurance Program.
Speaker Change: Hurricane Milton, on the other hand, was a Category 3 storm in October that caused significant wind damage to our portfolio given its landfall in Sarasota County. As of today, we've received 154 claims and expect about 200 in total.
Speaker Change: and have estimated the ultimate gross loss to be between $150 million and $200 million.
Speaker Change: Milton appears to be trending towards the bottom of that range. It may even be below our guidance, but will certainly exceed our 20.5 million retention, making it our first event seeded to the core Catastrophe Access the Lost Reinsurance Program this year.
Speaker Change: Net of Reinsurance and Income Tax Benefit, Milton will result in a $16.2 million net loss in the fourth quarter.
Speaker Change: Lastly, the company will also incur roughly $13 million of additional seeded premiums earned between October 2024 and May of 2025 to reinstate the limit used by Milton.
Speaker Change: This means that we have nearly our full reinsurance tower in place for any future events. So ACIC is very well protected against potential subsequent events.
Speaker Change: such as Raphael, and if any additional hurricanes impact Florida this year, our net retention would drop to $10.3 million net of reinsurance and income tax benefit for the next two named wind storms, should they occur.
Speaker Change: Thank you for watching!
Speaker Change: Svetlana Castle, Bennett Martz, Karin Daly
Speaker Change: to include the actual results for the third quarter as well as the impact of Hurricane Milton on the fourth quarter of 2024. While I'm pleased to say we expect to remain profitable in the fourth quarter and post a strong result for the full year, considering the increased level of hurricane activity impacting Florida,
Speaker Change: Comparison to the prior periods is obviously impacted by the fact that American Coastal did not incur any hurricane losses or reinstatement premium costs in 2023.
Speaker Change: With that, I'd now like to turn it over to Lana.
Speaker Change: Svetlana Castle, Bennett Martz, Karin Daly
Svetlana Castle: Thank you, Brett, and hello. I'll provide a financial update but encourage everyone to review the company's press release, earnings and investor presentations, and Forum 10Q for more information regarding our performance.
Svetlana Castle: As reflected on page 5 of the earnings presentation, American Coastal had a strong quarter with a net income of $28.1 million.
Speaker Change: Core income was $26.9 million, which is an increase of $11.4 million year-over-year as a result of lower-received earned premiums from the step-down of our Gross Catastrophe Quarter share from 40% to 20%, effective June 1, 2024.
Speaker Change: Page 6 of the presentation shows that growth premium earned grew $2.4 million to $160.2 million.
Speaker Change: Our combined ratio was 57.7%, which is below our 65% target and a decrease of 5 points from 62.7% in the same period last year.
Speaker Change: We feel our reserve position is strong.
Speaker Change: As shown on page 6 of our presentation, operating expenses increased $9.5 million.
Speaker Change: This was primarily driven by $7.3 million or 53.7% increase in policy acquisition costs due to a decrease in seeding commission income because of the quarter-share step-down mentioned earlier.
Speaker Change: General and administrative expenses also contributed to this increase, increasing 2.2 million or 36.7 percent.
Speaker Change: These increased costs were in line with expectations and were more than offset by the decrease in the previously mentioned seeded premiums earned.
Speaker Change: The result is an increase in earnings before tax of $18.4 million year-over-year. This is a direct result of our executed initiative to retain more of our underwriting profit.
Speaker Change: Page 9 shows balance sheet highlights. Cash and investments grew 83.1% to $571.1 million, reflecting the company's strong liquidity position.
Speaker Change: Stockholders' equity increased 53.8% to $259.6 million, driven by strong underwriting results. Book value per share is $5.38, a 49.2% increase from year-end.
Speaker Change: High liquidity and stronger capitalization resulted in significant improvement to our leverage ratios. The company is in a strong position to meet policyholder obligations from the recent catastrophe losses.
Speaker Change: I will now turn it over to Brad Martz for closing remarks.
Brad Martz: Thanks Lana. We appreciate your interest in ACIC and look forward to sharing more information with you at our upcoming virtual Investor Day at 11 a.m. on December the 4th. That completes our prepared remarks.
Speaker Change: today and we are now happy to take any questions.
Speaker Change: Thank you.
Speaker Change: At this time, we'll be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
Speaker Change: You may press star 2 if you would like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: One moment, please, while we pull for questions.
Speaker Change: Svetlana Castle, Bennett Martz, Karin Daly
Speaker Change: Svetlana Castle, Bennett Martz, Karin Daly
Speaker Change: Svetlana Castle, Bennett Martz, Karin Daly
Speaker Change: As a reminder, if you would like to ask a question, please press star then one on your touchtone phone.
Speaker Change: Svetlana Castle, Bennett Martz, Karin Daly
Speaker Change: Svetlana Castle, Bennett Martz, Karin Daly
Speaker Change: Svetlana Castle, Bennett Martz, Karin Daly
Speaker Change: Svetlana Castle, Bennett Martz, Karin Daly
Speaker Change: There appears to be no questions at this time. I'd like to turn the call back to Dan Peed for closing remarks.
Speaker Change: Svetlana Castle, Bennett Martz, Karin Daly
Daniel Peed: Many thanks and thanks to all of you for your time and your interest in American Coastal.
Speaker Change: We are excited for our future opportunities and looking forward to our continuing profitable growth.
Speaker Change: With that...
Speaker Change: Thanks again.
Speaker Change: Svetlana Castle, Bennett Martz, Karin Daly
Speaker Change: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Speaker Change: Svetlana Castle, Bennett Martz, Karin Daly
Speaker Change: Svetlana Castle, Bennett Martz, Karin Daly
Speaker Change: Svetlana Castle, Bennett Martz, Karin Daly
Speaker Change: Thanks for watching and don't forget to like and subscribe!
Speaker Change: [music]
Speaker Change: During the Civil War, the castle was permanently abandoned, and was used by the Germans when West Germany was completely disbanded and the country was under German, and further work continued to build new buildings and town halls in addition to the located bed paths and hallways. After the war, further work was done on building more buildings, and traditionally specific buildings were built around the castle.
Speaker Change: Svetlana Castle, Bennett Martz, Karin Daly
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Speaker Change: and her grandson, Lenny. Vote for Lenny Glick.