American Coastal Insurance Corp. Releases 2024 10-K Report
American Coastal Insurance Corporation (ACIC), a key player in the commercial property insurance sector, recently unveiled its 2024 Form 10-K report. The report provides a comprehensive overview of the company’s financial health, operational achievements, strategic moves, and the hurdles it navigates within the current market landscape. ACIC is currently undergoing a significant strategic adjustment, with a primary focus on becoming a specialized commercial underwriter, particularly in areas susceptible to catastrophes, such as Florida.
Financial Performance
- Total Revenue: ACIC reported total revenues of $296.7 million, marking a 12.2% increase compared to the prior year. This growth was driven by enhanced gross premiums earned and net investment income.
- Net Income (Loss): The company experienced a notable downturn in net income, recording $75.7 million compared to $309.9 million the previous year. This decrease was primarily due to the absence of a one-time gain from the deconsolidation of a former subsidiary.
- Net Income (Loss) Per Diluted Share: Net income per diluted share stood at $1.54, down from $6.98 in the prior year, reflecting the overall reduction in net income.
- Losses and Loss Adjustment Expenses: Losses and loss adjustment expenses increased by 48.5% to $69.3 million, mainly due to higher catastrophe losses.
- General and Administrative Expenses: These expenses rose by 19.2% to $44.8 million, driven by increased overhead costs and professional service fees.
Business Highlights
- Revenue Segments: ACIC primarily generates revenue from commercial property insurance, with commercial policies accounting for 94.2% of the total gross written premium in 2024. Personal residential products, offered through Interboro Insurance Company (IIC) in New York, accounted for 5.8% of the total gross written premium.
- Geographical Performance: Florida represents ACIC’s primary market, where it writes the majority of its insurance policies. As of December 31, 2024, the company had 4,099 policies in force in Florida, a slight decrease from 4,208 in 2023. In New York, IIC had 18,961 policies in force, showing a small increase from 18,640 in 2023.
- Sales Units: The company reported a total of 23,060 policies in force as of December 31, 2024, reflecting a 0.9% increase from 22,848 policies in force at the end of 2023. This includes both commercial and personal lines.
Strategic Initiatives and Future Outlook
Following the sale of IIC, ACIC aims to focus exclusively on commercial lines, with AmCoastal expected to be the only operating insurance subsidiary. The company strives to be a top-quartile underwriter of catastrophe-exposed property insurance, mainly in Florida, through its established partnership with AmRisc.
Strategic Shift
ACIC is undergoing a strategic shift toward becoming a specialty commercial underwriter. This is evidenced by the planned sale of Interboro Insurance Company (IIC) to Forza Insurance Holdings, LLC, representing the final step in divesting personal lines and focusing on commercial lines. The company has also merged Journey Insurance Company into American Coastal Insurance Company to streamline operations.
Capital Management
ACIC has been actively managing its capital through various initiatives. The company issued $150 million of senior notes maturing in 2027, with an interest rate increase from 6.25% to 7.25% following a downgrade in credit rating. Additionally, ACIC entered into an equity distribution agreement to sell up to 8 million shares, raising approximately $38.19 million in net proceeds. The company declared dividends totaling $24.1 million in 2024 and received a $14.3 million dividend from its subsidiary, AmCoastal. Furthermore, ACIC made capital contributions to its reinsurance subsidiary, Shoreline Re, and received dividends from AmCoastal.
Future Outlook
Looking ahead, ACIC plans to conclude the sale of IIC to Forza by April 1, 2025, thus completing its transition to a specialty commercial underwriter. The company intends to continue focusing on its commercial lines business and may make further capital contributions to its subsidiaries as needed. ACIC is also exploring opportunities to enhance its investment portfolio and manage its debt obligations effectively.
Challenges and Risks
- Geographic Concentration: ACIC faces significant challenges due to its concentration in Florida, a state prone to catastrophic weather events such as hurricanes. This geographic focus increases the company’s exposure to severe weather risks, which could adversely affect its financial results.
- Catastrophic Events and Climate Change: The company is highly exposed to catastrophic events, particularly in Florida, which could lead to significant losses. Climate change is expected to increase the frequency and severity of these events, potentially raising claims-related costs and reinsurance expenses.
- Regulatory Risks: Changes in state regulations, particularly in Florida, could adversely affect the company’s operations. New laws or regulatory actions could limit the company’s ability to manage risk, adjust pricing, or withdraw from high-risk areas.
- Reinsurance Risks: The availability and cost of reinsurance are critical to ACIC’s risk management strategy. Market conditions could make it difficult to obtain adequate reinsurance, increasing the company’s net exposure to catastrophic losses.
- Operational Risks: The company relies heavily on its relationship with AmRisc for managing its commercial lines. Any disruption in this relationship could significantly impact ACIC’s business operations and financial performance.
- Cybersecurity and Data Protection: ACIC’s reliance on information technology systems exposes it to risks of cyber-attacks and data breaches, which could lead to significant reputational damage and financial losses.
- Financial Strength Ratings: The company’s ability to compete effectively is partly dependent on maintaining strong financial strength ratings. Any downgrade could impact its market position and ability to attract and retain policyholders.
- Market Risks: ACIC is exposed to market risks, particularly interest rate fluctuations, which could affect the returns on its investment portfolio. The company is also subject to credit risks associated with its investments and the potential for declines in asset values. Management is actively monitoring these risks and adjusting its investment strategies to mitigate potential adverse impacts on financial performance.
