Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Successful renewal of core catastrophe reinsurance program with added coverage, enhancing protection against high-severity and moderate events.
- Divestiture of Interboro Insurance Company, simplifying operations and focusing on profitable commercial lines.
- Strong liquidity position with cash and investments growing 83.6% to $573 million.
- Net income from continuing operations projected to grow significantly in the second half of 2024, with an estimated range of $85 million to $95 million.
- Participation in the October 27, 2024 Citizens commercial residential takeout, potentially supplementing growth.
Negative Points
- Net income decreased by $7.5 million year-over-year due to higher ceded earned premiums from the 40% gross catastrophe quota share.
- Combined ratio increased by 1.8 points from the same period last year, indicating higher costs relative to premiums earned.
- Market conditions in Florida commercial residential marketplace are softening, potentially impacting margins.
- Increased general and administrative expenses partially offset the decrease in policy acquisition costs.
- Potential significant impact on earnings from catastrophe losses, with retention for a first event at $16.2 million after tax.
Q & A Highlights
Q: Can you explain the trends in Total Insured Value (TIV) and policy count, and what we are seeing on slide 11?
A: Certainly. On slide 11, we demonstrate that year-over-year premium relative to TIV is holding strong. We expect slight increases in the total insured value line and small decreases in the premium line, narrowing the gap in future periods. The risk versus return profile remains very good. The decrease in TIV and policy count is due to disciplined underwriting and reducing exposure in peak zones. We are well-positioned to add exposure growth, especially with the new reinsurance program in place.
Q: Regarding the '24-'25 catastrophe reinsurance program, can you clarify the net maximum reinstatement exposure and how it affects retention?
A: The net maximum reinstatement exposure of $14 million is a pretax number and is amortized over the remaining term of the treaty period. If an event happens, the retention would be $16.2 million plus the portion of reinstatement due. The reinstatement cost is spread over the remaining term, while the loss is recognized immediately.
Q: How does the coverage differ between the second and third events in the reinsurance program?
A: The coverage amounts for the second and third events depend on the size of the first event. After a first event, we would provide guidance on the estimated loss and remaining reinsurance available. The specifics can vary, but we aim to communicate clearly to the market.
Q: Do you have any comments on the impact of Tropical Storm Debby?
A: Debby was primarily a rain event, not a wind event. Our commercial residential portfolio has been resilient to similar events in the past. We have one small claim under deductible. Flooding, which we do not cover, was the main issue, but wind damage is expected to be minimal.
Q: Can you provide more details on the financial performance and key metrics for the quarter?
A: American Coastal had a strong quarter with a net income of $19.1 million. Core income was $19.6 million, a decrease due to higher ceded earned premiums. Gross premiums earned grew to $155.5 million, and the combined ratio was 64.9%. Operating expenses decreased, driven by a reduction in policy acquisition costs. Cash and investments grew to $573 million, and stockholders' equity increased to $223 million.
Q: What is the outlook for net income from continuing operations and net premiums earned for the full year 2024?
A: We estimate net income from continuing operations, excluding catastrophes, to be between $85 million and $95 million for the full year, implying earnings growth of 43% to 77% in the second half of 2024. Net premiums earned are estimated to be between $285 million and $300 million, implying revenue growth of 33% to 46% in the second half of the year.
Q: How is the market environment for Florida commercial residential insurance, and what are your expectations for margins?
A: The market is showing signs of softening, but it is not materially impacting our expected margin. We believe a 65% underlying combined ratio is achievable despite lower rates and increased competition. We are maintaining disciplined underwriting and pricing.
Q: Can you elaborate on the plans to participate in the October 27, 2024, Citizens commercial residential takeout?
A: We have identified a few hundred policies that fit our underwriting criteria and received approval to participate in the takeout. While we may only get a fraction of the identified policies, we are excited about the opportunity to supplement our growth through this process.
Q: What are the key highlights of the core catastrophe reinsurance renewal effective June 1, 2024?
A: We successfully renewed our core catastrophe reinsurance program, adding $100 million of limit on top of our tower and third event coverage. This structure, along with the replacement of the FORA layer in the private market and reduction of the quota share from 40% to 20%, is expected to positively impact revenue and earnings growth.
Q: How has the investment portfolio performed, and what is the strategy going forward?
A: Our investment portfolio is 99.4% NAIC Level 1 and Level 2 securities. In the second quarter, we invested $150 million in fixed securities. Our strategy is to maintain a high-quality portfolio responsive to market conditions within our risk tolerance.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
