# AMERICAN COASTAL INSURANCE Corp (ACIC) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from AMERICAN COASTAL INSURANCE Corp's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1401521/000140152124000024/uihc-20231231.htm
Accession: 0001401521-24-000024
Filing date: 2024-03-15
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/ACIC/
All MD&A years: /company/ACIC/mda/
Previous year: /company/ACIC/mda/fy2022/ (FY 2022)
Next year: /company/ACIC/mda/fy2024/ (FY 2024)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing in Part II, Item 8 of this Form 10-K. The following discussion provides an analysis of our results of operations and financial condition for 2023 as compared to 2022. Discussion regarding our results of operations and financial condition for 2022 as compared to 2021 is included in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021 and the Revised Items of our Form 10-K for the year ended December 31, 2022, filed as Exhibit 99.1 to Form 8-K on September 19, 2023. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Actual results may differ materially from those expressed or implied in these forward-looking statements as a result of certain known and unknown risks and uncertainties. See “Forward-Looking Statements.”

OVERVIEW

    American Coastal Insurance Corporation is a holding company primarily engaged in commercial and personal property and casualty insurance business with investments in the United States. On July 10, 2023, we changed our corporate name from United Insurance Holdings Corp. to American Coastal Insurance Corporation. During the periods presented, we conducted our business principally through two wholly-owned insurance subsidiaries: American Coastal Insurance Company (AmCoastal) and Interboro Insurance Company (IIC). Collectively, we refer to the holding company and all our subsidiaries, including non-insurance subsidiaries, as “ACIC,” which is the preferred brand identification for our Company.

Our Company’s primary source of revenue is generated from writing insurance in Florida and New York. Our target market in such areas consists of states where the perceived threat of natural catastrophe has caused large national insurance carriers to reduce their concentration of policies. We believe an opportunity exists for ACIC to write profitable business in such areas. During 2022, we also wrote commercial residential insurance in South Carolina and Texas, however, effective May 1, 2022, we no longer write in these states. In addition, during 2022 we wrote personal residential business in six other states, however on February 27, 2023, our former insurance subsidiary, United Property & Casualty Insurance Company (UPC) was placed into receivership with the Florida Department of Financial Services (the "DFS"), which divested our ownership of UPC. The events leading to receivership and results of this subsidiary, now included within discontinued operations, can be seen in Note 3 of the Notes to Consolidated Financial Statements below.

We have historically grown our business organically, complemented by strategic acquisitions and partnerships, including our acquisitions of AmCo Holding Company, LLC (AmCo) and its subsidiaries, including AmCoastal, in April 2017, IIC in April 2016, and Family Security Holdings, LLC (FSH), including its subsidiary Family Security Insurance Company, Inc. (FSIC), in February 2015, and our strategic partnership with a subsidiary of Tokio Marine Kiln Group Limited (Tokio Marine), which formed Journey Insurance Company (JIC) in August 2018. Effective June 1, 2022, we merged JIC into AmCoastal, with AmCoastal being the surviving entity. Effective May 31, 2022, we merged FSIC into UPC, with UPC being the surviving entity.

As a result of underwriting actions implemented during 2023, as well as the receivership of our former subsidiary UPC by the DFS effective February 27, 2023, our policies in-force decreased by 91.0% from 254,275 policies in-force at December 31, 2022 to 22,848 policies in-force at December 31, 2023. Our 2022 value includes policies attributable to our discontinued operations.

Our business is subject to the impact of weather-related catastrophes on our loss and loss adjustment expenses (LAE). Over the last three years, the frequency of these catastrophes has increased. As a result, we have experienced increased catastrophe losses incurred during the prior three years. During the years ended December 31, 2023, 2022 and 2021, two, two, and four named storms, respectively, made landfall in our geographic footprint, resulting in retained pre-tax catastrophe losses of $729,000, $57,906,000, and $15,696,000, respectively, excluding discontinued operations. In addition, during 2022 and 2021, we increased our loss and LAE reserves as a result of development trends from 2017’s Hurricane Irma, that indicated our ultimate gross loss estimate should be increased.

The following discussion highlights significant factors influencing the consolidated financial position and results of operations of ACIC. In evaluating our results of operations, we use premiums written and earned, policies in-force and new and renewal policies by geographic concentration. We also consider the impact of catastrophe losses and prior year development on our loss ratios, expense ratios and combined ratios. In monitoring our investments, we use credit quality, investment income, cash flows, realized gains and losses, unrealized gains and losses, asset diversification and portfolio duration. To evaluate our financial condition, we consider our liquidity, financial strength, ratings, book value per share and return on equity.

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AMERICAN COASTAL INSURANCE CORPORATION

Consolidated Net Income (Loss)

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2023","","2022","","2021"],["REVENUE:"],["Gross premiums written","","$","670,043","","","$","572,343","","","$","484,527"],["Change in gross unearned premiums","","(34,079)","","","(36,974)","","","(18,768)"],["Gross premiums earned","","635,964","","","535,369","","","465,759"],["Ceded premiums earned","","(354,080)","","","(266,023)","","","(244,630)"],["Net premiums earned","","281,884","","","269,346","","","221,129"],["Net investment income","","10,574","","","7,673","","","5,901"],["Net realized gains (losses)","","(6,808)","","","(6,483)","","","138"],["Net unrealized gains (losses) on equity securities","","814","","","(1,968)","","","1,471"],["Other revenue","","79","","","1,223","","","46"],["Total revenues","","286,543","","","269,791","","","228,685"],["EXPENSES:"],["Losses and loss adjustment expenses","","62,861","","","134,805","","","89,051"],["Policy acquisition costs","","83,346","","","95,318","","","93,199"],["Operating expenses","","10,240","","","13,729","","","16,258"],["General and administrative expenses","","29,489","","","42,281","","","31,420"],["Interest expense","","10,875","","","9,483","","","9,303"],["Total expenses","","196,811","","","295,616","","","239,231"],["Income (loss) before other income","","89,732","","","(25,825)","","","(10,546)"],["Other income","","2,239","","","10,343","","","129"],["Income (loss) before income taxes","","91,971","","","(15,482)","","","(10,417)"],["Provision (benefit) for income taxes","","9,773","","","24,522","","","(6,699)"],["Income (loss) from continuing operations, net of tax","","$","82,198","","","$","(40,004)","","","$","(3,718)"],["Income (loss) from discontinued operations, net of tax","","227,713","","","(429,962)","","","(56,150)"],["Net income (loss)","","$","309,911","","","$","(469,966)","","","$","(59,868)"],["Less: Net loss attributable to noncontrolling interests","","\u2014","","","(111)","","","(1,949)"],["Net income (loss) attributable to ACIC","","$","309,911","","","$","(469,855)","","","$","(57,919)"],["Net income (loss) per diluted share","","$","6.98","","","$","(10.91)","","","$","(1.35)"],["Book value per share","","$","3.61","","","$","(4.21)","","","$","7.20"],["Return on equity based on GAAP net income (loss)","","439.5","%","","(307.4)","%","","(16.9)","%"],["Loss ratio, net (1)","","22.3","%","","50.0","%","","40.3","%"],["Expense ratio (2)(5)","","43.7","%","","56.2","%","","63.7","%"],["Combined ratio (3)(5)","","66.0","%","","106.2","%","","104.0","%"],["Effect of current year catastrophe losses on combined ratio","","5.4","%","","21.5","%","","7.1","%"],["Effect of prior year development on combined ratio","","(4.4)","%","","(4.1)","%","","(2.7)","%"],["Underlying combined ratio(4)(5)","","65.0","%","","88.8","%","","99.6","%"]]
[[/GREPCENT_TABLE]]

(1) Loss ratio, net is calculated as losses and LAE net of losses ceded to reinsurers, relative to net premiums earned. Management uses this operating metric to analyze our loss trends and believes it is useful for investors to evaluate this component separately from our other operating expenses.

(2) Expense ratio is calculated as the sum of all operating expenses less interest expense relative to net premiums earned. Management uses this operating metric to analyze our expense trends and believes it is useful for investors to evaluate these components separately from our loss expenses.

(3) Combined ratio is the sum of the loss ratio, net and expense ratio. Management uses this operating metric to analyze our total expense trends and believes it is a key indicator for investors when evaluating the overall profitability of our business.

(4) Underlying combined ratio, a measure that is not based on GAAP, is reconciled above to the combined ratio, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this Form 10-K can be found in “Definitions of Non-GAAP Measures”, below.

(5) Included in both the expense ratio and the combined ratio is amortization expense predominately associated with the AmCo and IIC acquisitions, which cause comparative differences among periods.

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AMERICAN COASTAL INSURANCE CORPORATION

DEFINITIONS OF NON-GAAP MEASURES

We believe that investors’ understanding of ACIC’s performance is enhanced by our disclosure of the following non-GAAP measures. Our methods for calculating these measures may differ from those used by other companies and therefore comparability may be limited.

Combined ratio excluding the effects of current year catastrophe losses and prior year reserve development (underlying combined ratio) is a non-GAAP measure, that is computed by subtracting the effect of current year catastrophe losses and prior year development from the combined ratio. We believe that this ratio is useful to investors, and it is used by management to highlight the trends in our business that may be obscured by current year catastrophe losses and prior year development. Current year catastrophe losses cause our loss trends to vary significantly between periods as a result of their frequency of occurrence and magnitude, and can have a significant impact on the combined ratio. Prior year development is caused by unexpected loss development on historical reserves. We believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our performance. The most directly comparable GAAP measure is the combined ratio. The underlying combined ratio should not be considered as a substitute for the combined ratio and does not reflect the overall profitability of our business.

Net loss and LAE excluding the effects of current year catastrophe losses and prior year reserve development (underlying loss and LAE) is a non-GAAP measure that is computed by subtracting the effect of current year catastrophe losses and prior year reserve development from net loss and LAE. We use underlying loss and LAE figures to analyze our loss trends that may be impacted by current year catastrophe losses and prior year development on our reserves. As discussed previously, these two items can have a significant impact on our loss trends in a given period. We believe it is useful for investors to evaluate these components both separately and in the aggregate when reviewing our performance. The most directly comparable GAAP measure is net loss and LAE. The underlying loss and LAE measure should not be considered a substitute for net loss and LAE and does not reflect the overall profitability of our business.

34

AMERICAN COASTAL INSURANCE CORPORATION

RESULTS OF OPERATIONS

Consolidated Results

Net income attributable to ACIC for the year ended December 31, 2023 increased by $779,766,000 to $309,911,000, compared to a net loss of $469,855,000 for the year ended December 31, 2022. The increase in net income was primarily driven by a decrease in loss & LAE for the year, as a result of Hurricane Ian making landfall in Florida in 2022, which caused large losses in 2022. In addition, we had an increase in our gross written premiums, an increase in ceded premiums earned, favorable prior year loss development during the year, decreased policy acquisition costs and general and administrative expenses, as described below.

Revenues

Our gross written premiums increased by $97,700,000, or 17.1%, to $670,043,000 for the year ended December 31, 2023, from $572,343,000 for the year ended December 31, 2022, driven by increased written premiums in Florida as we continue to grow our commercial book of business. This was offset by a decrease in written premiums across the personal lines business, driven by the cancellation of the quota share with our former subsidiary, UPC. The breakdown of the year-over-year changes in both direct and assumed written premiums by state and gross written premium by line of business are shown in the table below.

[[GREPCENT_TABLE]]
[["Direct Written and Assumed Premium By State (1)","","2023","","2022","","Change"],["Florida","","$","635,602","","","$","503,815","","","$","131,787"],["New York","","34,334","","","25,101","","","9,233"],["Texas","","(9)","","","3,887","","","(3,896)"],["South Carolina","","\u2014","","","15","","","(15)"],["Total direct written premium by state","","$","669,927","","","$","532,818","","","$","137,109"],["Assumed premium (2)","","116","","","39,525","","","(39,409)"],["Total gross written premium by state","","$","670,043","","","$","572,343","","","$","97,700"],["Gross Written Premium by Line of Business"],["Commercial property","","$","635,709","","","$","508,243","","","$","127,466"],["Personal property","","34,334","","","64,100","","","(29,766)"],["Total gross written premium by line of business","","$","670,043","","","$","572,343","","","$","97,700"]]
[[/GREPCENT_TABLE]]

(1) We are no longer writing in Texas or South Carolina as of May 31, 2022.

(2) Assumed premium written for 2023 primarily included commercial property business assumed from unaffiliated insurers. Assumed premium written for 2022 primarily included personal property business assumed by our former subsidiary, UPC.

[[GREPCENT_TABLE]]
[["New and Renewal Policies(1) By State(2)","","2023","","2022","","Change"],["New York","","20,244","","","33,555","","","(13,311)"],["Florida","","4,255","","","5,497","","","(1,242)"],["Texas","","\u2014","","","32","","","(32)"],["South Carolina","","\u2014","","","2","","","(2)"],["Total","","24,499","","","39,086","","","(14,587)"]]
[[/GREPCENT_TABLE]]

(1) Only includes new and renewal homeowner, commercial and dwelling fire policies written during the year.

(2) We are no longer writing in Texas or South Carolina as of May 31, 2022.

Ceded premiums earned increased by $88,057,000, or 33.1%, to $354,080,000 for the year ended December 31, 2023 from $266,023,000 for 2022. The increase is primarily driven by a $60,804,000 increase in ceded premiums earned from our quota share agreements. This increase can be attributed to the increase in AmCoastal’s quota share reinsurance coverage to 40% in the second quarter of 2023 from 10% during the first half of 2023. In addition, we saw increased costs associated with our Core catastrophe reinsurance program during 2023.

Net investment income increased by $2,901,000, or 37.8%, to $10,574,000 for the year ended December 31, 2023 from $7,673,000 for 2022, driven by increased interest income due to increased holdings and higher interest rates year-over-year.

35

AMERICAN COASTAL INSURANCE CORPORATION

Net realized investment losses and net unrealized gains (losses) on equity securities increased by $2,457,000, or 29.1%, to a net loss of $5,994,000 for the year ended December 31, 2023 from a net loss of $8,451,000 for the year ended December 31, 2022, driven by the liquidation of our fixed maturity securities in an unrealized loss position during 2022 to satisfy liquidity needs. The remainder of this change can be attributed to more favorable market conditions in 2023 resulting in decreased unrealized losses on our investment portfolio.

Expenses

Expenses for the year ended December 31, 2023 decreased $98,805,000, or 33.4%, to $196,811,000, from $295,616,000 for 2022. The decrease in expenses was primarily due to a decrease in loss and LAE as a result of Hurricane Ian making landfall in 2022, which caused a large increase in 2022. The calculations of our combined loss ratios and underlying loss ratios are shown below.

[[GREPCENT_TABLE]]
[["($ in thousands)","Year ended"],["December 31,"],["2023","","2022","","Change"],["Net loss and LAE","$","62,861","","","$","134,805","","","$","(71,944)"],["% of Gross earned premiums","9.9","%","","25.2","%","","(15.3)","pts"],["% of Net earned premiums","22.3","%","","50.0","%","","(27.7)","pts"],["Less:"],["Current year catastrophe losses","$","15,279","","","$","57,906","","","$","(42,627)"],["Prior year reserve favorable development","(12,294)","","","(10,869)","","","(1,425)"],["Underlying loss and LAE (1)","$","59,876","","","$","87,768","","","$","(27,892)"],["% of Gross earned premiums","9.4","%","","16.4","%","","(7.0)","pts"],["% of Net earned premiums","21.2","%","","32.6","%","","(11.4)","pts"]]
[[/GREPCENT_TABLE]]

(1) Underlying loss and LAE is a non-GAAP financial measure and is reconciled above to net loss and LAE, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this Form 10-K can be found in the “Definitions of Non-GAAP Measures” section, above.

The calculations of the Company’s expense ratios are shown below.

[[GREPCENT_TABLE]]
[["($ in thousands)","Year ended"],["December 31,"],["2023","","2022","","Change"],["Policy acquisition costs","$","83,346","","","$","95,318","","","$","(11,972)"],["Operating and underwriting","10,240","","","13,729","","","(3,489)"],["General and administrative","29,489","","","42,281","","","(12,792)"],["Total Operating Expenses","$","123,075","","","$","151,328","","","$","(28,253)"],["% of Gross earned premiums","19.4","%","","28.3","%","","(8.9)","pts"],["% of Net earned premiums","43.7","%","","56.2","%","","(12.5)","pts"]]
[[/GREPCENT_TABLE]]

Loss and LAE decreased by $71,944,000, or 53.4%, to $62,861,000 for the year ended December 31, 2023, from $134,805,000 for the year ended December 31, 2022. Loss and LAE expense as a percentage of net earned premiums decreased 27.7 points to 22.3% for the year ended December 31, 2023, compared to 50.0% for the year ended December 31, 2022. In addition, during the year ended December 31, 2023, prior year reserve favorable development was higher on both catastrophe and non-catastrophe losses. Excluding catastrophe losses and reserve development, our gross underlying loss and LAE ratio for the year ended December 31, 2023 would have been 9.4%, a decrease of 7.0 points from 16.4% during the year ended December 31, 2022.

Policy acquisition costs decreased by $11,972,000, or 12.6%, to $83,346,000 for the year ended December 31, 2023, from $95,318,000 for the year ended December 31, 2022. The primary driver of the decrease in expense was an increase in ceding commission of $36,457,000, driven by the changes in the terms of our quota share reinsurance agreements. This was partially offset by increased external management fees and premium taxes of $21,199,000 and $1,949,000, respectively, both of which fluctuated in conjunction with the year-over-year increase in commercial lines gross written premium.

36

AMERICAN COASTAL INSURANCE CORPORATION

Operating and underwriting expenses decreased by $3,489,000, or 25.4%, to $10,240,000 for the year ended December 31, 2023, from $13,729,000 for the year ended December 31, 2022, driven by decreased costs such as printing, postage, rent and utilities totaling $1,384,000 as we look to reduce our overhead spending. In addition, investments in technology decreased $1,834,000 year-over-year.

General and administrative expenses decreased by $12,792,000, or 30.3%, to $29,489,000 for the year ended December 31, 2023, from $42,281,000 for the year ended December 31, 2022, driven by the impairment of goodwill attributable to the Company’s personal lines operating segment during 2022 totaling $10,157,000. There were no similar transactions in 2023.

We experienced favorable reserve development in the current year and its historical impact on our net loss and net underlying loss ratios is outlined in the following table.

[[GREPCENT_TABLE]]
[["","","Historical Reserve Development"],["($ in thousands, except ratios)","","","2020","","2021","","2022","","2023"],["Prior year reserve favorable development","","","$","2,602","","","$","6,132","","","$","10,787","","","$","12,294"],["Development as a % of earnings before interest and taxes","","","(51.6)","%","","(550.4)","%","","(179.8)","%","","(12.0)","%"],["Consolidated net loss and LAE ratio (LR)","","","49.8","%","","40.3","%","","50.0","%","","22.3","%"],["Prior year reserve favorable development on LR","","","(1.0)","%","","(2.7)","%","","(4.1)","%","","(4.4)","%"],["Current year catastrophe losses on LR","","","16.8","%","","7.1","%","","21.5","%","","5.4","%"],["Underlying net loss and LAE ratio(1)","","","34.0","%","","35.9","%","","32.6","%","","21.3","%"]]
[[/GREPCENT_TABLE]]

(1) Underlying net loss and LAE Ratio is a non-GAAP measure and is reconciled above to the Consolidated net loss and LAE Ratio, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this Form 10-K can be found in the “Definitions of Non-GAAP Measures” section, above.

Commercial Lines Operating Segment Results

Pretax earnings attributable to our commercial lines operating segment for the year ended December 31, 2023 increased by $82,287,000 to pretax income of $118,128,000, compared to pretax income of $35,841,000 for the year ended December 31, 2022. The increase in pretax earnings was primarily due to an increase in revenue driven by increased gross written premium described below. This was partially offset by increased ceded premiums, driven by the changes in our quota share contracts. In addition, all of our expenses related to commercial lines decreased year-over-year, as described below.

Revenues

Our gross written premiums attributable to our commercial lines operating segment increased by $127,466,000, or 25.1%, to $635,709,000 for the year ended December 31, 2023, from $508,243,000 for the year ended December 31, 2022, driven entirely by increased written premiums in Florida as we continue to focus on increasing commercial written premiums and transitioning to a specialty commercial lines underwriter. These increases were partially offset by a decrease in assumed premiums as we wind-down these contracts, as well as a decrease in premiums written in Texas and South Carolina, as we are no longer writing business in these states. The breakdown of the year-over-year changes in both direct and assumed written premiums by state are shown in the table below.

[[GREPCENT_TABLE]]
[["Direct Written and Assumed Premium by State (1)","","2023","","2022","","Change"],["Florida","","$","635,602","","","$","503,815","","","$","131,787"],["Texas","","(9)","","","3,887","","","(3,896)"],["South Carolina","","\u2014","","","15","","","(15)"],["Total direct written premium by state","","$","635,593","","","$","507,717","","","$","127,876"],["Assumed premium (2)","","116","","","526","","","(410)"],["Total gross written premium by state","","$","635,709","","","$","508,243","","","$","127,466"]]
[[/GREPCENT_TABLE]]

(1) We are no longer writing in Texas or South Carolina as of May 31, 2022.

(2) Assumed premium written for 2023 and 2022 is primarily commercial property business assumed from unaffiliated insurers.

37

AMERICAN COASTAL INSURANCE CORPORATION

[[GREPCENT_TABLE]]
[["New and Renewal Policies(1) by State (2)","","2023","","2022","","Change"],["Florida","","4,255","","","5,497","","","(1,242)"],["Texas","","\u2014","","","32","","","(32)"],["South Carolina","","\u2014","","","2","","","(2)"],["Total","","4,255","","","5,531","","","(1,276)"]]
[[/GREPCENT_TABLE]]

(1) Only includes new and renewal commercial policies written during the year.

(2) We are no longer writing in Texas or South Carolina as of May 31, 2022.

Ceded premiums earned attributable to our commercial lines operating segment increased by $97,371,000 or 39.7%, to $342,664,000 for the year ended December 31, 2023 from $245,293,000 for the year ended December 31, 2022. The increase is primarily driven by a $60,804,000 increase in ceded premiums earned from our quota share agreements, driven by changes to our quota share reinsurance contracts resulting in increased cessions to these contracts during 2023. In addition, costs of our core catastrophe reinsurance program increased year-over-year.

Net investment income attributable to our commercial lines operating segment increased by $1,495,000, or 25.5%, to $7,356,000 for the year ended December 31, 2023 from $5,861,000 for 2022. This increase is driven by a $3,513,000 increase in income from our cash and cash equivalent holdings, as a result of increased holdings and higher interest rates experienced year-over-year.

Net realized investment losses and net unrealized gains (losses) on equity securities attributable to our commercial lines operating segment increased by $2,500,000, or 29.5%, to a net loss of $5,977,000 for the year ended December 31, 2023 from a net loss of $8,477,000 for 2022, primarily driven by decreased unrealized losses as a result of favorable market conditions experienced in 2023.

38

AMERICAN COASTAL INSURANCE CORPORATION

Expenses

Expenses attributable to our commercial lines operating segment for the year ended December 31, 2023 decreased $46,281,000, or 25.5%, to $135,363,000 for the year ended December 31, 2023, from $181,644,000 for the year ended December 31, 2022. The decrease in expenses was primarily due to a decrease in loss and LAE as a result of decreased catastrophe losses in 2023. In addition, policy acquisition costs decreased $5,560,000 in 2023, as described below.

[[GREPCENT_TABLE]]
[["($ in thousands)","Year ended"],["December 31,"],["2023","","2022","","Change"],["Net loss and LAE","$","46,299","","","$","87,143","","","$","(40,844)"],["% of Gross earned premiums","7.8","%","","18.8","%","","(11.0)","pts"],["% of Net earned premiums","18.4","%","","39.8","%","","(21.4)","pts"],["Less:"],["Current year catastrophe losses","$","12,783","","","$","43,385","","","$","(30,602)"],["Prior year reserve favorable development","(12,694)","","","(7,899)","","","(4,795)"],["Underlying loss and LAE (1)","$","46,210","","","$","51,657","","","$","(5,447)"],["% of Gross earned premiums","7.8","%","","11.1","%","","(3.3)","pts"],["% of Net earned premiums","18.3","%","","23.6","%","","(5.3)","pts"]]
[[/GREPCENT_TABLE]]

(1) Underlying loss and LAE is a non-GAAP financial measure and is reconciled above to net loss and LAE, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this Form 10-K can be found in the “Definitions of Non-GAAP Measures” section, above.

The calculations of the Company’s commercial lines operating segment expense ratios are shown below.

[[GREPCENT_TABLE]]
[["($ in thousands)","Year ended"],["December 31,"],["2023","","2022","","Change"],["Policy acquisition costs","$","75,436","","","$","80,996","","","$","(5,560)"],["Operating and underwriting","3,008","","","3,926","","","(918)"],["General and administrative","10,620","","","9,579","","","1,041"],["Total Operating Expenses","$","89,064","","","$","94,501","","","$","(5,437)"],["% of Gross earned premiums","15.0","%","","20.4","%","","(5.4)","pts"],["% of Net earned premiums","35.3","%","","43.2","%","","(7.9)","pts"]]
[[/GREPCENT_TABLE]]

Loss and LAE attributable to our commercial lines operating segment decreased by $40,844,000, or 46.9%, to $46,299,000 for the year ended December 31, 2023, from $87,143,000 for the year ended December 31, 2022. Loss and LAE expense as a percentage of net earned premiums decreased 21.4 points to 18.4% for the year ended December 31, 2023, compared to 39.8% for the year ended December 31, 2022. Excluding catastrophe losses and reserve development, our gross underlying loss and LAE ratio for the year ended December 31, 2023 would have been 7.8%, a decrease of 3.3 points from 11.1% during the year ended December 31, 2022.

Policy acquisition costs decreased by $5,560,000, or 6.9%, to $75,436,000 for the year ended December 31, 2023, from $80,996,000 for the year ended December 31, 2022, driven primarily by an increase in ceding commission of $26,662,000 driven by the changes in the terms of our quota share reinsurance agreements. This was partially offset by increases to management fees and premium taxes of $19,405,000 and $1,706,000, respectively, both of which fluctuated in conjunction with the year-over-year increase in commercial lines gross written premium.

Operating and underwriting expenses attributable to our commercial lines operating segment decreased by $918,000, or 23.4%, to $3,008,000 for the year ended December 31, 2023, from $3,926,000 for the year ended December 31, 2022, driven by decreased operating expenses as we look to reduce our overhead spending.

General and administrative expenses attributable to our commercial lines operating segment increased by $1,041,000, or 10.9%, to $10,620,000 for the year ended December 31, 2023, from $9,579,000 for the year ended December 31, 2022. This increase was driven by a $1,144,000 increase of allocated external fees related to legal, audit, actuarial and tax services provided during the year.

39

AMERICAN COASTAL INSURANCE CORPORATION

Personal Lines Operating Segment Results

Pretax losses attributable to our personal lines operating segment for the year ended December 31, 2023 decreased by $38,300,000 to a pretax loss of $13,854,000, compared to a pretax loss of $52,154,000 for the year ended December 31, 2022. The decrease in pretax net loss was primarily due to a $29,766,000 decrease in gross written premiums, as described below, and a $31,100,000 decrease in losses and LAE during 2023, driven by decreased catastrophe losses. We also experienced a $13,303,000 decrease in general and administrative costs year-over-year, as described below.

Revenues

Our gross written premiums attributable to our personal lines operating segment decreased by $29,766,000, or 46.4%, to $34,334,000 for the year ended December 31, 2023, from $64,100,000 for the year ended December 31, 2022. This decrease was driven primarily by a decrease in assumed premiums, driven by the termination of our quota share agreement between our former subsidiary, UPC and IIC effective December 31, 2022. The change in personal lines direct written and assumed premiums and new and renewal policies of the personal lines operating segment year-over-year can be seen below.

[[GREPCENT_TABLE]]
[["","","2023","","2022","","Change"],["Direct Written Premium","","$","34,334","","","$","25,101","","","$","9,233"],["Assumed Premiums","","\u2014","","","38,999","","","(38,999)"],["Total gross written premium","","$","34,334","","","$","64,100","","","$","(29,766)"],["New and Renewal Policies (1)","","20,244","","","33,555","","","(13,311)"]]
[[/GREPCENT_TABLE]]

(1) Only includes new and renewal homeowner and dwelling fire policies written during the year.

Ceded premiums earned attributable to our personal lines operating segment decreased by $9,314,000 or 44.9%, to $11,416,000 for the year ended December 31, 2023 from $20,730,000 for the year ended December 31, 2022. The decrease is primarily driven by a $9,455,000 decrease in ceded premiums earned from our core catastrophe reinsurance program year-over-year.

Net investment income attributable to our personal lines operating segment increased by $1,360,000, or 77.3%, to $3,119,000 for the year ended December 31, 2023 from $1,759,000 for 2022. This increase is driven by higher interest rates experienced during 2023.

40

AMERICAN COASTAL INSURANCE CORPORATION

Expenses

Expenses attributable to our personal lines operating segment for the year ended December 31, 2023 decreased $53,374,000, or 52.0%, to $49,260,000 for the year ended December 31, 2023, from $102,634,000 for the year ended December 31, 2022. The decrease in expenses was primarily due to a decrease in loss and LAE as a result of decreased catastrophe losses during the year. Additionally, we saw a decrease in general and administrative costs and policy acquisition costs, described below. The calculations of our combined loss ratios and underlying loss ratios are shown below.

[[GREPCENT_TABLE]]
[["($ in thousands)","Year ended"],["December 31,"],["2023","","2022","","Change"],["Net loss and LAE","$","16,562","","","$","47,662","","","$","(31,100)"],["% of Gross earned premiums","40.2","%","","67.0","%","","(26.8)","pts"],["% of Net earned premiums","55.5","%","","94.5","%","","(39.0)","pts"],["Less:"],["Current year catastrophe losses","$","2,496","","","$","14,521","","","$","(12,025)"],["Prior year reserve unfavorable (favorable) development","400","","","(2,970)","","","3,370"],["Underlying loss and LAE (1)","$","13,666","","","$","36,111","","","$","(22,445)"],["% of Gross earned premiums","33.1","%","","50.7","%","","(17.6)","pts"],["% of Net earned premiums","45.8","%","","71.6","%","","(25.8)","pts"]]
[[/GREPCENT_TABLE]]

(1) Underlying loss and LAE is a non-GAAP financial measure and is reconciled above to net loss and LAE, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this Form 10-K can be found in the “Definitions of Non-GAAP Measures” section, above.

The calculations of the Company’s personal lines operating segment expense ratios are shown below.

[[GREPCENT_TABLE]]
[["($ in thousands)","Year ended"],["December 31,"],["2023","","2022","","Change"],["Policy acquisition costs","$","7,910","","","$","14,322","","","$","(6,412)"],["Operating and underwriting","6,809","","","9,367","","","(2,558)"],["General and administrative","17,979","","","31,282","","","(13,303)"],["Total Operating Expenses","$","32,698","","","$","54,971","","","$","(22,273)"],["% of Gross earned premiums","79.3","%","","77.3","%","","2.0","pts"],["% of Net earned premiums","109.6","%","","109.0","%","","0.6","pts"]]
[[/GREPCENT_TABLE]]

Loss and LAE attributable to our personal lines operating segment decreased by $31,100,000, or 65.3%, to $16,562,000 for the year ended December 31, 2023, from $47,662,000 for the year ended December 31, 2022. Loss and LAE expense as a percentage of net earned premiums decreased 39.0 points to 55.5% for the year ended December 31, 2023, compared to 94.5% for the year ended December 31, 2022. Excluding catastrophe losses and reserve development, our gross underlying loss and LAE ratio for the year ended December 31, 2023 would have been 33.1%, a decrease of 17.6 points from 50.7% during the year ended December 31, 2022.

Policy acquisition costs attributable to our personal lines operating segment decreased by $6,412,000, or 44.8%, to $7,910,000 for the year ended December 31, 2023, from $14,322,000 for the year ended December 31, 2022. The primary driver of the decrease in costs was decreased ceding commission of $9,795,000 related primarily to quota share reinsurance agreements no longer in place in 2023. This was partially offset by increased agent commissions, policy administration fees and printing and postage expenses of $1,795,000, $584,000 and $547,000, respectively.

Operating and underwriting expenses attributable to our personal lines operating segment decreased by $2,558,000, or 27.3%, to $6,809,000 for the year ended December 31, 2023, from $9,367,000 for the year ended December 31, 2022, primarily due to decreased expenses related to our investment in technology of $1,187,000. In addition, office utilities and rent expenses decreased $433,000 and $396,000, respectively, driven by decreased office space as we look to reduce our overhead spend.

41

AMERICAN COASTAL INSURANCE CORPORATION

General and administrative expenses attributable to our personal lines operating segment decreased by $13,303,000, or 42.5%, to $17,979,000 for the year ended December 31, 2023, from $31,282,000 for the year ended December 31, 2022, driven by the one-time impairment of goodwill totaling $10,156,000 in 2022. There was no similar impairment during 2023.

42

AMERICAN COASTAL INSURANCE CORPORATION

ANALYSIS OF FINANCIAL CONDITION

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our accompanying consolidated financial statements and related notes in Part II, Item 8 in this Form 10-K.

Investments

The primary goals of our investment strategy are to preserve capital, maximize after-tax investment income, maintain liquidity and minimize risk. To accomplish our goals, we purchase debt securities in sectors that represent the most attractive relative value, and we maintain a moderate equity exposure. Limiting equity exposure manages risks and helps to preserve capital for two reasons: first, bond market returns are less volatile than stock market returns, and second, should the bond issuer enter bankruptcy liquidation, bondholders generally have a higher priority than equity holders in a bankruptcy proceeding. Our investment strategy is the same for both our commercial lines and personal lines operating segments.

We must comply with applicable state insurance regulations that prescribe the type, quality and concentrations of investments our insurance subsidiaries can make; therefore, our current investment policy limits investment in non-investment-grade fixed maturities and limits total investment amounts in preferred stock, common stock and mortgage notes receivable. We do not invest in derivative securities. Large catastrophe losses such as Hurricane Ian in 2022 can present significant liquidity demands to the Company stemming from higher than normal frequency and severity of insurance claims. This can lead to the selling of securities that we intended to hold until maturity and realizing untimely gains or losses.

Two outside asset management companies, which have authority and discretion to buy and sell securities for us, manage our investments subject to (i) the guidelines established by our Board of Directors and (ii) the direction of management. The Investment Committee of our Board of Directors reviews and approves our investment policy on a regular basis.

Our cash and investment portfolios totaled $369,022,000 at December 31, 2023 compared to $340,905,000 at December 31, 2022.

The following table summarizes our investments, by type:

[[GREPCENT_TABLE]]
[["","December 31, 2023","","December 31, 2022"],["","Estimated Fair Value","","Percent of Total","","Estimated Fair Value","","Percent of Total"],["U.S. government and agency securities","$","27,432","","","7.4","%","","$","2,385","","","0.7","%"],["Foreign governments","\u2014","","","\u2014","%","","991","","","0.3","%"],["States, municipalities and political subdivisions","23,865","","","6.5","%","","26,895","","","7.9","%"],["Public utilities","5,134","","","1.4","%","","7,694","","","2.3","%"],["Corporate securities","61,849","","","16.7","%","","83,343","","","24.4","%"],["Mortgage-backed securities","46,310","","","12.5","%","","56,115","","","16.5","%"],["Asset-backed securities","16,113","","","4.4","%","","27,259","","","8.0","%"],["Total fixed maturities","180,703","","","48.9","%","","204,682","","","60.1","%"],["Mutual fund","\u2014","","","\u2014","%","","15,657","","","4.6","%"],["Total equity securities","\u2014","","","\u2014","%","","15,657","","","4.6","%"],["Other investments","16,487","","","4.5","%","","3,675","","","1.1","%"],["Total investments","197,190","","","53.4","%","","224,014","","","65.8","%"],["Cash and cash equivalents","153,762","","","41.7","%","","70,903","","","20.7","%"],["Restricted cash","18,070","","","4.9","%","","45,988","","","13.5","%"],["Total cash, cash equivalents, restricted cash and investments","$","369,022","","","100.0","%","","$","340,905","","","100.0","%"]]
[[/GREPCENT_TABLE]]

We classify all of our investments as available-for-sale. Our investments at December 31, 2023 and 2022 consisted mainly of U.S. government and agency securities, states, municipalities and political subdivisions, mortgage-backed securities and securities of investment-grade corporate issuers. Our equity holdings in 2022 consisted mainly of securities issued by companies in the financial, utilities and industrial sectors or mutual funds. We held no equities as of December 31, 2023. Most of the corporate bonds we hold reflected a similar diversification. At December 31, 2023, approximately 83.2% of our fixed maturities were U.S. Treasuries, or corporate bonds rated “A” or better, and 16.8% were corporate bonds rated “BBB” or “BB”.

43

AMERICAN COASTAL INSURANCE CORPORATION

During the year ended December 31, 2022, as a result of UPC’s plan of run-off, management determined that it was more likely than not that we would be required to sell a portion or all of our fixed-income securities attributable to the entity before recovery of their amortized cost basis. These securities were evaluated and none of the unrealized loss position was the result of a credit loss. As a result, we realized impairment losses of $22,718,000 on these securities. Total shareholders’ equity (deficit) was not impacted by such charge; however, our net loss for the year ended December 31, 2022 worsened and other comprehensive income improved by $22,718,000, before tax impacts, in offsetting amounts. The impact on our net loss is captured within our discontinued operations.

Reinsurance

We follow industry practice of reinsuring a portion of our risks. Reinsurance involves transferring, or “ceding”, all or a portion of the risk exposure on policies we write to another insurer, known as a reinsurer. To the extent that our reinsurers are unable to meet the obligations they assume under our reinsurance agreements, we remain primarily liable for the entire insured loss under the policies we write.

Our catastrophe reinsurance programs are designed primarily by utilizing third-party catastrophe modeling software and consulting with third-party reinsurance experts to project our exposure to catastrophe events. We evaluate modeled expected losses developed by the catastrophe modeling software using our risk portfolio data to estimate probable maximum losses (PML) across multiple return periods and the average annual loss. The Company monitors and manages its catastrophe risk using this model output along with other internal and external data sources, such as our historical loss experience and industry loss experience, to develop our view of catastrophe risk.

Our catastrophe reinsurance coverages consists of three separate placements:

1.AmCoastal’s core catastrophe reinsurance program in effect June 1 through May 31, annually, which includes excess of loss and quota share treaties providing coverage for catastrophe losses from named or numbered windstorms and earthquakes;

2.AmCoastal’s all other perils catastrophe excess of loss agreement in effect January 1, through December 31, annually, which provides protection from catastrophe loss events other than named windstorms and earthquakes; and

3.IIC’s core catastrophe reinsurance program in effect June 1, through May 31, annually, which provides protection from all catastrophe losses.

This reinsurance protection is an essential part of our catastrophe risk management strategy. It is intended to provide our stockholders an acceptable return on the risks assumed by our insurance entities, and to reduce variability of earnings, while providing surplus protection. Although reinsurance agreements contractually obligate our reinsurers to reimburse us for the agreed-upon portion of our gross paid losses, they do not discharge our primary liability. In the event one or more of our reinsurers fail to fulfill their obligation, the surplus of our statutory entities may decline, and we may not be able to fulfill our obligation to policyholders, or we may not be able to maintain compliance with various regulatory financial requirements. Additionally, we face the risk that actual losses incurred from one or more catastrophic events may be above the modeled expected loss resulting in losses exceeding our reinsurance coverage, which may result in a decline in surplus, and as a result we may not be able to fulfill our obligations to policyholders, or we may not be able to maintain compliance with various regulatory financial requirements. The details of our programs and likelihood of a catastrophic event exceeding these three coverages are outlined below.

AmCoastal’s core catastrophe reinsurance program provides occurrence-based coverage up to an exhaustion point of approximately $1,100,000,000 for a first occurrence and $1,300,000,000 in the aggregate. Under this program, our retention on a first and second event is $10,000,000 each, plus $2,250,000 retained separately by our captive. AmCoastal’s program provides sufficient coverage for a 1-in-150-year return period, indicating that the probability of a single occurrence exceeding protection purchased is roughly 0.7% estimated by equally blending the AIR and RMS catastrophe models using long-term catalogs including demand surge. AmCoastal’s program also provides sufficient coverage for a 1-in-100-year event followed by a 1-in-50-year event in the same treaty year, the probability of which is less than 0.1%. While we believe these catastrophe models are very good tools and their output provides reasonable proxies for the probability of exhausting our reinsurance protections, they are imperfect so actual results could vary dramatically from those expected.

AmCoastal’s all other perils catastrophe excess of loss agreement provides protection from catastrophe loss events other than named windstorms and earthquakes up to $101,000,000. This agreement provides sufficient coverage for a 1-in-250-year return period, indicating that the probability of a single occurrence exceeding protection purchased is no more than 0.4%.

44

AMERICAN COASTAL INSURANCE CORPORATION

IIC’s core catastrophe reinsurance program provides coverage up to an exhaustion point of approximately $82,000,000 in the aggregate, with a retention of $3,000,000 per occurrence. Based on IIC’s PML, the program provides sufficient coverage for a 1-in-130 year return period, indicating the probability of a single occurrence exceeding protection purchased is no more than 0.8%. IIC’s program also provides sufficient coverage for a 1-in-100-year event followed by a 1-in-50-year event in the same treaty year, the probability of which is less than 0.1%.

Effective December 15, 2023, we agreed to commute a private reinsurer’s share of core catastrophe reinsurance coverage and replace this gap in coverage with new coverage provided by one of our other private reinsurers. This transaction resulted in additional expense of approximately $6,300,000 for the year ended December 31, 2023, but will result in decreased expense totaling $14,300,000 during the first half of 2024, resulting in a net economic benefit of approximately $8,000,000 net of replacement coverage for the period December 15, 2023 through May 31, 2024.

During the third quarter of 2022, the Company's core catastrophe reinsurance program was impacted by Hurricane Ian. As a result, the Company has approximately $508 million of occurrence limit remaining for Hurricane Ian, all of which is attributable to AmCoastal only. After reinstatement premiums of approximately $15.4 million, the Company, with its former subsidiary UPC, has approximately $980 million of aggregate limit remaining for events subsequent to Hurricane Ian, based on our estimated ultimate net loss subject to the core catastrophe reinsurance program.

During the third quarter of 2022, one of our private reinsurers who held a 100% share of the $15,000,000 in excess of $15,000,000 layer on our all other perils catastrophe excess of loss agreement notified us of their intent to terminate the agreement due to the contractual provision regarding the change in UPC's statutory surplus being greater than 25%. We agreed to a termination and commutation date of September 30, 2022 for this contract. This change resulted in approximately $1,300,000 of ceded premium savings that would have otherwise been due in the fourth quarter of 2022 and the Company retaining all the risk for any non-hurricane catastrophe losses up to $30,000,000, excluding any quota share recoveries.

The table below outlines our quota share agreements in effect for the years ended December 31, 2023 and 2022. The impacts of these quota share agreements on our former subsidiary, UPC's financial statements are included in discontinued operations.

[[GREPCENT_TABLE]]
[["Reinsurer","Companies in Scope (1)","Effective Dates","Cession Rate","States in Scope"],["External third-party","AmCoastal","06/01/2023 - 06/01/2024","40% (2)","Florida"],["External third-party","UPC, FSIC & AmCoastal","06/01/2022 - 06/01/2023","10% (2)","Florida, Louisiana, Texas"],["TypTap","UPC","06/01/2022 - 06/01/2023","100% (3)","Georgia, North Carolina, South Carolina"],["External third-party","UPC, FSIC & AmCoastal","12/31/2021 - 12/31/2022","8% (2)","Florida, Louisiana, Texas"],["HCPCI","UPC","12/31/2021 - 06/01/2022","85%","Georgia, North Carolina, South Carolina"],["External third-party","UPC & FSIC","12/31/2021 - 12/31/2022","25% (4)","Florida, Louisiana, Texas"],["HCPCI / TypTap (5)","UPC","06/01/2021 - 06/01/2022","100% (3)","Connecticut, New Jersey, Massachusetts, Rhode Island"],["External third-party","UPC, FSIC & AmCoastal (6)","06/01/2021 - 06/01/2022","15% (2)","Florida, Georgia, Louisiana, North Carolina, South Carolina, Texas"],["IIC","UPC","12/31/2020 - 12/31/2022","100%","New York"]]
[[/GREPCENT_TABLE]]

(1) Effective May 31, 2022, FSIC was merged into UPC, with UPC being the surviving entity.

(2) This treaty provides coverage for all catastrophe perils and attritional losses incurred. For all catastrophe perils, the quota share agreement provides ground- up protection effectively reducing our retention for catastrophe losses.

(3) This treaty provides coverage on our in-force, new and renewal policies until these states are transitioned to HCPCI or TypTap upon renewal.

(4) This treaty provides coverage on non-catastrophe losses on policies in-force on the effective date of the agreement.

(5) Cessions are split 50% to HCPCI and 50% to TypTap.

(6) This treaty was amended effective December 31, 2020 to include AmCoastal.

45

AMERICAN COASTAL INSURANCE CORPORATION

Reinsurance costs as a percent of gross earned premium during the years ended December 31, 2023 and 2022 were as follows:

[[GREPCENT_TABLE]]
[["","","2023","","2022"],["Non-at-Risk","","(0.4)","%","","(0.6)","%"],["Quota Share","","(20.7)","","","(13.2)"],["All Other","","(34.7)","","","(35.9)"],["Total Ceding Ratio","","(55.8)","%","","(49.7)","%"]]
[[/GREPCENT_TABLE]]

Reinsurance costs as a percent of gross earned premium for our commercial lines and personal lines operating segments during the years ended December 31, 2023 and 2022 were as follows:

[[GREPCENT_TABLE]]
[["","","Personal","","Commercial"],["","","2023","","2022","","2023","","2022"],["Non-at-Risk","","(2.2)","%","","(1.1)","%","","(0.3)","%","","(0.5)","%"],["Quota Share","","\u2014","","","\u2014","","","(22.1)","","","(15.3)"],["All Other","","(25.6)","","","(28.0)","","","(35.2)","","","(37.2)"],["Total Ceding Ratio","","(27.8)","%","","(29.1)","%","","(57.6)","%","","(53.0)","%"]]
[[/GREPCENT_TABLE]]

Please note that the sum of the percentages above will not reconcile to the consolidated percentages as they are calculated using each operating segments’ gross earned premium rather than our consolidated gross earned premium.

We amortize our ceded unearned premiums over the annual agreement period, and we record that amortization in ceded premiums earned on our Consolidated Statements of Comprehensive Loss. The table below summarizes the amounts of our ceded premiums written under the various types of agreements, as well as the amortization of ceded unearned premiums:

[[GREPCENT_TABLE]]
[["","","","Year Ended December 31,"],["","","","","","2023","","2022","","2021"],["Quota Share","","","","","$","(201,315)","","","$","(53,010)","","","$","(75,277)"],["Excess-of-loss","","","","","(219,313)","","","(188,113)","","","(181,595)"],["Equipment, identity theft, and cyber security","","","","","(2,103)","","","(3,067)","","","(1,499)"],["Ceded premiums written","","","","","$","(422,731)","","","$","(244,190)","","","$","(258,371)"],["Change in ceded unearned premiums","","","","","68,651","","","(21,833)","","","13,741"],["Ceded premiums earned","","","","","$","(354,080)","","","$","(266,023)","","","$","(244,630)"]]
[[/GREPCENT_TABLE]]

The breakdown of our ceded premiums written under the various types of agreements, as well as the amortization of ceded unearned premiums for our commercial lines and personal lines operating segments can be seen in the tables below. These values can be reconciled to the table above.

46

AMERICAN COASTAL INSURANCE CORPORATION

Personal Lines Operating Segment

[[GREPCENT_TABLE]]
[["","","","Year Ended December 31,"],["","","","","","2023","","2022","","2021"],["Excess-of-loss","","","","","(8,297)","","","(20,006)","","","(9,886)"],["Equipment, identity theft, and cyber security","","","","","(931)","","","(798)","","","(748)"],["Ceded premiums written","","","","","$","(9,228)","","","$","(20,804)","","","$","(10,634)"],["Change in ceded unearned premiums","","","","","(2,188)","","","74","","","3,060"],["Ceded premiums earned","","","","","$","(11,416)","","","$","(20,730)","","","$","(7,574)"]]
[[/GREPCENT_TABLE]]

Commercial Lines Operating Segment Impact

[[GREPCENT_TABLE]]
[["","","","Year Ended December 31,"],["","","","","","2023","","2022","","2021"],["Quota Share","","","","","(201,315)","","","(53,010)","","","(75,277)"],["Excess-of-loss","","","","","(211,016)","","","(168,107)","","","(171,709)"],["Equipment, identity theft, and cyber security","","","","","(1,172)","","","(2,269)","","","(751)"],["Ceded premiums written","","","","","$","(413,503)","","","$","(223,386)","","","$","(247,737)"],["Change in ceded unearned premiums","","","","","70,839","","","(21,907)","","","10,681"],["Ceded premiums earned","","","","","$","(342,664)","","","$","(245,293)","","","$","(237,056)"]]
[[/GREPCENT_TABLE]]

Current year catastrophe losses disaggregated between named and numbered storms and all other catastrophe loss events are shown in the following table.

[[GREPCENT_TABLE]]
[["","","","","","","","","Number of Events","","Incurred Loss and Loss adjustment expense (LAE) (1)","","Combined Ratio Impact"],["December 31, 2023"],["Current period catastrophe losses incurred"],["Named and numbered storms","","","","","","","","2","","","$","729","","","0.3","%"],["All other catastrophe loss events","","","","","","","","20","","","14,550","","","5.1","%"],["Total","","","","","","","","22","","","$","15,279","","","5.4","%"],["December 31, 2022"],["Current period catastrophe losses incurred"],["Named and numbered storms","","","","","","","","2","","","$","52,076","","","19.3","%"],["All other catastrophe loss events","","","","","","","","11","","","5,830","","","2.2","%"],["Total","","","","","","","","13","","","$","57,906","","","21.5","%"],["December 31, 2021"],["Current period catastrophe losses incurred"],["Named and numbered storms","","","","","","","","4","","","$","4,142","","","1.9","%"],["All other catastrophe loss events","","","","","","","","10","","","11,554","","","5.2","%"],["Total","","","","","","","","14","","","$","15,696","","","7.1","%"]]
[[/GREPCENT_TABLE]]

(1) Incurred loss and LAE is equal to losses and LAE paid plus the change in case and incurred but not reported reserves. Shown net of losses ceded to reinsurers. Incurred loss and LAE and number of events includes the development on storms during the year in which it occurred.

47

AMERICAN COASTAL INSURANCE CORPORATION

The impact of the current year catastrophes to our commercial lines and personal lines operating segments can be seen in the tables below. Please note that the catastrophe events may have impacted both operating segments. As a result, the sum of the number of events in the tables below will not reconcile to the consolidated number of events above. In addition, the combined ratio impact is calculated and sum of the ratios in the tables below will not reconcile to the ratios above.

Personal Lines Operating Segment Impact

[[GREPCENT_TABLE]]
[["","","","","","","","","Number of Events","","Incurred Loss and Loss adjustment expense (LAE) (1)","","Combined Ratio Impact"],["December 31, 2023"],["Current period catastrophe losses incurred"],["Named and numbered storms","","","","","","","","1","","","$","129","","","0.4","%"],["All other catastrophe loss events","","","","","","","","13","","","2,367","","","8.0","%"],["Total","","","","","","","","14","","","$","2,496","","","8.4","%"],["December 31, 2022"],["Current period catastrophe losses incurred"],["Named and numbered storms","","","","","","","","1","","","$","8,903","","","17.7","%"],["All other catastrophe loss events","","","","","","","","11","","","5,618","","","11.1","%"],["Total","","","","","","","","12","","","$","14,521","","","28.8","%"],["December 31, 2021"],["Current period catastrophe losses incurred"],["Named and numbered storms","","","","","","","","3","","","$","3,984","","","8.3","%"],["All other catastrophe loss events","","","","","","","","7","","","2,182","","","4.6","%"],["Total","","","","","","","","10","","","$","6,166","","","12.9","%"]]
[[/GREPCENT_TABLE]]

(1) Incurred loss and LAE is equal to losses and LAE paid plus the change in case and incurred but not reported reserves. Shown net of losses ceded to reinsurers. Incurred loss and LAE and number of events includes the development on storms during the year in which it occurred.

48

AMERICAN COASTAL INSURANCE CORPORATION

Commercial Lines Operating Segment Impact

[[GREPCENT_TABLE]]
[["","","","","","","","","Number of Events","","Incurred Loss and Loss adjustment expense (LAE) (1)","","Combined Ratio Impact"],["December 31, 2023"],["Current period catastrophe losses incurred"],["Named and numbered storms","","","","","","","","1","","","$","600","","","0.2","%"],["All other catastrophe loss events","","","","","","","","10","","","12,183","","","4.9","%"],["Total","","","","","","","","11","","","$","12,783","","","5.1","%"],["December 31, 2022"],["Current period catastrophe losses incurred"],["Named and numbered storms","","","","","","","","2","","","$","43,173","","","19.7","%"],["All other catastrophe loss events","","","","","","","","7","","","212","","","0.1","%"],["Total","","","","","","","","9","","","$","43,385","","","19.8","%"],["December 31, 2021"],["Current period catastrophe losses incurred"],["Named and numbered storms","","","","","","","","4","","","$","158","","","0.1","%"],["All other catastrophe loss events","","","","","","","","10","","","9,372","","","5.4","%"],["Total","","","","","","","","14","","","$","9,530","","","5.5","%"]]
[[/GREPCENT_TABLE]]

(1) Incurred loss and LAE is equal to losses and LAE paid plus the change in case and incurred but not reported reserves. Shown net of losses ceded to reinsurers. Incurred loss and LAE and number of events includes the development on storms during the year in which it occurred.

See Note 10 in our Notes to Consolidated Financial Statements for additional information regarding our reinsurance program.

Unpaid Losses and Loss Adjustments

We generally use the term “loss(es)” to collectively refer to both loss and LAE. We establish reserves for both reported and unreported unpaid losses that have occurred at or before the balance sheet date for amounts we estimate we will be required to pay in the future, including provisions for claims that have been reported but are unpaid at the balance sheet date and for obligations on claims that have been incurred but not reported at the balance sheet date. Our policy is to establish these loss reserves after considering all information known to us at each reporting period. At any given point in time, our loss reserve represents our best estimate of the ultimate settlement and administration costs of our insured claims incurred and unpaid.

Unpaid losses and LAE totaled $370,221,000 and $842,958,000 as of December 31, 2023 and 2022, respectively. Of this total, $347,738,000 and $816,489,000 is related to our commercial lines operating segment, respectively. The remaining $22,483,000 and $26,469,000 is related to our personal lines operating segment, respectively. On a consolidated basis, this balance has decreased from year end as we continue to settle claims related to Hurricane Ian which made landfall in the third quarter of 2022.

Since the process of estimating loss reserves requires significant judgment due to a number of variables, such as fluctuations in inflation, judicial decisions, legislative changes and changes in claims handling procedures, our ultimate liability will likely differ from these estimates. We revise our reserve for unpaid losses as additional information becomes available, and reflect adjustments, if any, in our earnings in the periods in which we determine the adjustments as necessary.

See Note 11 in our Notes to Consolidated Financial Statements for additional information regarding our losses and LAE.

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AMERICAN COASTAL INSURANCE CORPORATION

Discontinued Operations

On February 10, 2023, we announced that a solvent run-off for UPC was unlikely and on February 27, 2023, UPC was placed into receivership with the Florida Department of Financial Services (DFS) which divested our ownership of UPC. As a result, UPC, as well as the activities related directly to supporting the business conducted by UPC, qualifies as a discontinued operation. We have recast our Consolidated Financial Statements to exclude the results of our discontinued operations, in conformity with the U.S. generally accepted accounting principles (GAAP). For more information regarding the results of our discontinued operations, see Note 3 in our Notes to Consolidated Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

We generate cash through premium collections, reinsurance recoveries, investment income, the sale or maturity of invested assets, the issuance of debt and the issuance of additional shares of our stock. We use our cash to pay reinsurance premiums, claims and related costs, policy acquisition costs, salaries and employee benefits, other expenses and stockholder dividends, acquire subsidiaries and pay associated costs, as well as to repay debts and purchase investments.

As a holding company, we do not conduct any business operations of our own and, as a result, we rely on cash dividends or intercompany loans from our management subsidiaries to pay our general and administrative expenses. Insurance regulatory authorities heavily regulate our insurance subsidiaries, including restricting any dividends paid by our insurance subsidiaries and requiring approval of any management fees our insurance subsidiaries pay to our management subsidiaries for services rendered; however, nothing restricts our non-insurance company subsidiaries from paying us dividends other than state corporate laws regarding solvency. Our management subsidiaries pay us dividends primarily using cash from the collection of management fees from our insurance subsidiaries, pursuant to the management agreements in effect between those entities. In accordance with state laws, our insurance subsidiaries may pay dividends or make distributions out of that part of their statutory surplus derived from their net operating profit and their net realized capital gains. The RBC guidelines published by the NAIC may further restrict our insurance subsidiaries’ ability to pay dividends or make distributions if the amount of the intended dividend or distribution would cause their respective surplus as it regards policyholders to fall below minimum RBC guidelines. See Note 16 in our Notes to Consolidated Financial Statements and Part II, Item 5 for additional information.

During the year ended December 31, 2023, we made no capital contributions to our subsidiaries. During the year ended December 31, 2022, we contributed $81,000,000 and $11,200,000 to our former insurance subsidiaries, UPC and FSIC, respectively. The contribution made to FSIC was made prior to the merging of FSIC into UPC. In addition, we contributed $9,574,000 to our reinsurance subsidiary, UPC Re. During the year ended December 31, 2021, we contributed $17,000,000, $8,000,000 and $17,500,000 to our former insurance subsidiaries, UPC, FSIC, and ACIC, respectively.

During 2022, we received a dividend of $26,000,000 from ACIC. During February 2021, we received a dividend of $3,500,000 from IIC.

In September 2023, the Company entered into an equity distribution agreement (the “Agreement”) with Raymond James & Associates, Inc., as agent (the “Agent”), relating to the issuance and sale from time to time by the Company, through the Agent, of up to 8,000,000 shares of the Company’s common stock, par value $0.0001 per share (the “Shares”). Sales of the Shares under the Agreement will be made in sales deemed to be “at the market offerings”. The Agent is not required to sell any specific amount of Shares but agreed to act as the Company’s sales agent for a commission equal to 3.0% of the gross proceeds from the sales of the Shares. As of December 31, 2023, 3,373,000 shares had been sold under the Agreement resulting in commissions paid of approximately $829,000 and net proceeds of approximately $26,792,000 and as of the date of this filing, approximately 4,373,000 shares have been sold under the agreement resulting in commissions paid of approximately $1,181,000 and net proceeds of approximately $38,190,000. The Agreement will terminate upon the issuance and sale of all Shares subject to the Agreement, or the Agreement may be suspended or discontinued at any time. The Company does not plan to sell additional shares under the at-the-market program during the first half of 2024.

On December 13, 2017, we issued $150,000,000 of senior notes (Senior Notes) that will mature on December 15, 2027 and bear interest at a rate equal to 6.25% per annum payable semi-annually on each June 15 and December 15, commencing June 15, 2018. The Senior Notes are senior unsecured obligations of the Company. We may redeem the Senior Notes at our option, at any time and from time to time in whole or in part, at a redemption price equal to the greater of (i) 100% of the principal amount of the Senior Notes to be redeemed and (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon from the date of redemption to the date that is three months prior to maturity. On and after that date, we may redeem the Senior Notes at par. On December 8, 2022, the Kroll Bond Rating Agency, LLC announced a downgrade of our issuer and debt ratings BBB- to BB+. As a result, pursuant to our agreement, the interest rate of our Senior notes increased from 6.25% to 7.25% effective on June 15, 2023.

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AMERICAN COASTAL INSURANCE CORPORATION

As a result of claim activity from the current and prior years, we have an obligation related to the unpaid policyholder losses and unpaid loss adjustment expenses associated with the settling of these claims. As of December 31, 2023, our total obligation related to these claim payments was $370,221,000, of which we estimate $132,176,000 to be short-term in nature (due in less than twelve months), based upon our cumulative claims paid over the last 22 years. While we believe that historical performance of loss payment patterns is a reasonable source for projecting future claim payments, there is inherent uncertainty in this estimated projected settlement, and as a result these estimates will differ, perhaps significantly, from actual future payments.

In addition to our unpaid loss and loss adjustment expenses, as of December 31, 2023 we have outstanding debt obligations related to our notes payable totaling $150,000,000. This is exclusive of interest costs, which we estimate will total $43,500,000 over the life of the debt, based on the current fixed interest rates of these notes. Our short-term obligation related to these notes payable total $10,875,000 in estimated interest payments and no principal payments. For more information regarding these outstanding notes, please see Note 12.

In connection with entering into contracts with our outside vendors, we have minimum obligations due to our vendors over the life of the contracts. Our main vendor obligations are related to underwriting tools, claims and policy administration systems. Our total obligation related to these two categories of obligations are $1,394,000, and $591,000, respectively. Of these obligations, $697,000, and $285,000, respectively are short-term in nature.

Cash Flows for the Year Ended December 31, (in millions)

Operating Activities

The principal cash inflows from our operating activities come from premium collections, reinsurance recoveries and investment income. The principal cash outflows from our operating activities are the result of claims and related costs, reinsurance premiums, policy acquisition costs and salaries and employee benefits. A primary liquidity concern with respect to these cash flows is the risk of large magnitude catastrophe events.

During the year ended December 31, 2023, we experienced cash outflows of $136,003,000 compared to outflows of $173,113,000 during the year ended December 31, 2022. This change in outflows was driven by an increase in net income of $485,333,000, net of adjustments to reconcile net income to cash. This was partially offset by a decrease in changes to our balance sheet operating assets and liabilities of $448,223,000. The change in net income can be attributed to a large net loss experienced by our former subsidiary, UPC, during 2022, as a result of Hurricane Ian exhausting our reinsurance coverage. The change in our operating assets and liabilities can be attributed to the placement of UPC into receivership in 2023 as a result of the loss above, divesting our ownership of UPC during 2023.

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AMERICAN COASTAL INSURANCE CORPORATION

Investing Activities

The principal cash inflows from our investing activities come from repayments of principal, proceeds from maturities and sales of investments. We closely monitor and manage these risks through our comprehensive investment risk management process. The principal cash outflows relate to purchases of investments. Additional cash outflows relate to the purchase of fixed assets. The primary liquidity concerns with respect to these cash flows are the risk of default by debtors and market disruption. During the year ended December 31, 2023, cash provided by investing activities decreased $239,379,000, driven by the divestiture of UPC which resulted in $232,582,000 in cash being removed.

Financing Activities

The principal cash inflows from our financing activities come from issuances of debt and other securities. The principal cash outflows come from repayments of debt and payments of dividends. The primary liquidity concern with respect to these cash flows is market disruption in the cost and availability of credit. We believe our current capital resources, together with cash provided from our operations, are sufficient to meet currently anticipated working capital requirements. During the year ended December 31, 2023, cash provided by financing activities increased by $52,159,000 due primarily to proceeds from the issuance of our common stock in 2023. This increase was partially offset by the return of capital related to our former noncontrolling interest of $18,335,000 during 2022 and a decrease in dividend payments of $2,589,000 since no dividends were declared in 2023.

RECENT ACCOUNTING STANDARDS

Please refer to Note 2(u) in our Notes to Consolidated Financial Statements for a discussion of recent accounting standards that may affect us.

APPLICATION OF CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with GAAP requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported in the consolidated financial statements. The most critical estimates include those used in determining:

•reserves for unpaid losses,

•fair value of investments,

•investment portfolio credit allowances, and

•goodwill.

In making these determinations, management makes subjective and complex judgments that frequently require estimates about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the insurance industry. It is reasonably likely that changes in these estimates could occur from time to time and result in a material impact on our consolidated financial statements.

In addition, the preparation of our financial statements in accordance with GAAP prescribes when we may reserve for particular risks, including litigation exposures. Accordingly, our results for a given reporting period could be significantly affected if and when we establish a reserve for a major contingency. Therefore, the results we report in certain accounting periods may appear to be volatile and past results may not be indicative of results in future periods.

Reserves for Unpaid Losses and LAE

Reserves for unpaid losses and LAE represent the most significant accounting estimate inherent in the preparation of our financial statements. These reserves represent management’s best estimate of the amount we will ultimately pay for losses and we base the amount upon the application of various actuarial reserve estimation techniques as well as considering other material facts and circumstances known at the balance sheet date.

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AMERICAN COASTAL INSURANCE CORPORATION

As discussed in Note 11 in our Notes to Consolidated Financial Statements, we determine our ultimate losses by using multiple actuarial methods to determine an actuarial estimate within a relevant range of indications that we calculate using generally accepted actuarial techniques. Our selection of the actuarial estimate is influenced by the analysis of our historical loss and claims experience since inception. For each accident year, we estimate the ultimate incurred losses for both reported and unreported claims. In establishing this estimate, we reviewed the results of various actuarial methods discussed in Note 11 in our Notes to Consolidated Financial Statements.

Fair Value of Investments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We are responsible for the determination of fair value of financial assets and the supporting assumptions and methodologies. We use quoted prices from active markets and we use an independent third-party valuation service to assist us in determining fair value. We obtain only one single quote or price for each financial instrument.

As discussed in Note 5 in our Notes to Consolidated Financial Statements, we value our investments at fair value using quoted prices from active markets, to the extent available. For securities for which quoted prices in active markets are unavailable, we use observable inputs such as quoted prices in inactive markets, quoted prices in active markets for similar instruments, benchmark interest rates, broker quotes and other relevant inputs. We also have investments in limited partnerships that require us to use the net asset value per share method of valuation to determine fair value.

See “Item 7a. Quantitative and Qualitative Disclosures about Market Risk” for more information regarding the sensitivity of our fixed maturity portfolio to changes in interest rates.

Investment Portfolio Credit Allowances

For investments classified as available for sale, the difference between fair value and cost or amortized cost for fixed income securities is reported as a component of accumulated other comprehensive loss on our Consolidated Balance Sheet and is not reflected in our net loss of any period until reclassified to net loss upon the consummation of a transaction with an unrelated third party. We have a portfolio monitoring process to identify and evaluate each fixed income security whose carrying value may be impaired as the result of a credit loss.

For each fixed-income security in an unrealized loss position, if we determine that we intend to sell the security or that it is more likely than not that we will be required to sell the security before recovery of the cost or amortized cost basis for reasons such as liquidity needs, contractual or regulatory requirements, the security's entire decline in fair value is recorded in earnings.

If our management decides not to sell the fixed-income security and it is more likely than not that we will not be required

to sell the fixed-income security before recovery of its amortized cost basis, we evaluate whether the decline in fair value has

resulted from credit losses or other factors. This is typically indicated by a change in the rating of the security assigned by a

rating agency, and any adverse conditions specifically related to the security or industry, among other factors. If the assessment

indicates that a credit loss may exist, the present value of cash flows expected to be collected from the security are compared to

the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized

cost basis, a credit loss exists and an allowance for credit losses will be recorded in earnings. Credit loss is limited to the

difference between a security's amortized cost basis and its fair value. Any additional impairment not recorded through an

allowance for credit losses is recognized in other comprehensive loss.

If the estimated recovery value is less than the amortized cost of the security, a credit loss exists and an allowance for the difference between the estimated recovery value and amortized cost is recorded in earnings. The portion of the unrealized loss related to factors other than credit remains classified in accumulated other comprehensive loss. If we determine that the fixed income security does not have sufficient cash flow or other information to estimate a recovery value for the security, we may conclude that the entire decline in fair value is deemed to be credit related and the loss is recorded in earnings.

Due to the adoption of Accounting Standards Update (ASU) 2016-01 (ASU 2016-01) as of January 1, 2018, equity securities are reported at fair value with changes in fair value, including impairment write-downs, being recognized in the revenue section of our Consolidated Statements of Comprehensive Loss.

See Note 2(b) in our Notes to Consolidated Financial Statements for further information regarding our credit loss testing.

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AMERICAN COASTAL INSURANCE CORPORATION

Measurement of Goodwill and Related Impairment

Goodwill is the excess of cost over the estimated fair value of net assets acquired. Goodwill is not amortized but is tested

for impairment at least annually or more frequently if events or circumstances, such as adverse changes in the business climate,

indicate that there may be justification for conducting an interim test. We test goodwill for impairment by performing a

quantitative assessment. Goodwill is impaired when it is determined that the carrying value of a reporting segment is in excess of the fair value of that reporting segment. The valuation methodologies utilized are subject to key judgments and assumptions that are sensitive to change. Estimates of fair value are inherently uncertain and represent only management’s reasonable expectation regarding future developments.

Please refer to Note 2(k) and Note 9 in our Notes to Consolidated Financial Statements for further information regarding our measurement of Goodwill and Related Impairment.

RELATED PARTY TRANSACTIONS

There were no related party transactions for the years ended December 31, 2023, 2022 and 2021.