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 2025 as compared to 2024. Discussion regarding our results of operations and financial condition for 2024 as compared to 2023 is included in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2024. 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 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 our wholly owned insurance subsidiary, American Coastal Insurance Company (AmCoastal). 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 revenue is generated from writing insurance in Florida. 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. On February 27, 2023, our former insurance subsidiary that wrote personal residential business in six states, 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 4 of the Notes to Consolidated Financial Statements below.
On May 9, 2024, we entered into a Stock Purchase Agreement (the "Sale Agreement") with Forza Insurance Holdings, LLC (Forza) in which ACIC agreed to sell and Forza agreed to acquire 100% of the issued and outstanding stock of IIC. Forza’s application to acquire IIC was approved by the New York Department of Financial Services ("NYDFS") on February 13, 2025, and the sale closed on April 1, 2025. The Company received cash proceeds totaling $25,679,000 from the sale resulting in a loss on disposal of $247,000, net of tax impacts. The Company also recognized a $1,348,000 loss, net of tax impacts, on IIC's fixed maturity portfolio, which was included in accumulated other comprehensive loss on the Company's Consolidated Balance Sheets prior to the sale. As a result, IIC results of operations and assets and liabilities are captured within discontinued operations and can be seen in Note 4 of the Notes to Consolidated Financial Statements below.
We have historically grown our business through strong organic growth, complemented by strategic acquisitions and partnerships, including our acquisitions of AmCo Holding Company, LLC (AmCo) and its subsidiaries, including AmCoastal, in April 2017.
Our policies in-force increased by 5.20% from 4,099 policies in-force at December 31, 2024, to 4,311 policies in-force at December 31, 2025.
Our business is subject to the impact of weather-related catastrophes on our loss and loss adjustment expenses (LAE). During the year ended December 31, 2025, no named storms made landfall in our geographic footprint. During the years ended December 31, 2024 and 2023, five and two named storms, respectively, made landfall in our geographic footprint, resulting in retained pre-tax catastrophe losses of $25,442,000 and $729,000 respectively.
For the years ended December 31, 2025 and 2024, we have consolidated our Operating and Underwriting Expenses and General and Administrative Expenses lines within our Consolidated Statements of Comprehensive Income into the General and Administrative Expenses line. This was done in an effort to align more closely with our peer group for comparability. Accordingly, we have recast our Consolidated Statements of Comprehensive Income for the year ended December 31, 2023 to align with this format. We have also added a new note to our consolidated financial statements, Note 3 , Disaggregation of Relevant Expense Captions, to provide the users of our financial statements with enhanced insight into this expense line.
AMERICAN COASTAL INSURANCE CORPORATION
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.
Consolidated Net Income (Loss)
Year Ended December 31,
REVENUE:
Gross premiums written
Change in gross unearned premiums
Gross premiums earned
Ceded premiums earned
Net premiums earned
Net investment income
Net realized investment gains (losses)
Net unrealized gains on equity securities
Other revenue
Total revenue
EXPENSES:
Losses and loss adjustment expenses
Policy acquisition costs
General and administrative expenses
Interest expense
Total expenses
Income before other income
Other income
Income before income taxes
Provision for income taxes
Net income from continuing operations, net of tax
Income (loss) from discontinued operations, net of tax
Net income
Earnings available to ACIC common stockholders per diluted share
Book value per share
Return on equity based on GAAP net income
Loss ratio, net (1)
Expense ratio (2)
Combined ratio (3)
Effect of current year catastrophe losses on combined ratio
Effect of prior year development on combined ratio
Underlying combined ratio (4)
(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.
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 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 and LAE measure should not be considered a substitute for net and LAE and does not reflect the overall of our business.
AMERICAN COASTAL INSURANCE CORPORATION
RESULTS OF OPERATIONS
Consolidated Results
Net income for the year ended December 31, 2025 increased by $31,119,000 to $106,837,000, compared to net income of $75,718,000 for the year ended December 31, 2024. Drivers of net income for 2025 include increased gross premiums earned and decreased ceded premiums earned, driving an overall increase in revenues. In addition, we saw decreased losses and LAE, partially offset by increased policy acquisition costs. During 2024, the Company's net loss attributable to discontinued operations was $601,000, compared to net income of $42,000 during 2025.
Revenues
Our gross written premiums decreased by $35,283,000, or 5.4%, to $612,522,000 for the year ended December 31, 2025, from $647,805,000 for the year ended December 31, 2024. Gross premium earned increased $9,652,000, or 1.5%, to $648,260,000 for the year ended December 31, 2025 from $638,608,000 for the same period in 2024. Ceded premiums earned decreased $23,210,000, or 6.4%, to $341,408,000 for the year ended December 31, 2025, from $364,618,000 for the same period in 2024. The breakdown of the year-over-year change in these premiums and new and renewal policies are shown in the tables below. More detail regarding our ceded premiums can be seen in our analysis of financial condition below.
($ in thousands)
Year Ended December 31,
Change
Gross premiums written
Change in gross unearned premiums
Gross premiums earned
Ceded premiums written
Change in ceded unearned premiums
Ceded premiums earned
Net premiums earned
Year Ended December 31,
Change
New and Renewal Policies
Ceded premiums earned decreased by $23,210,000, or 6.4%, to $341,408,000 for the year ended December 31, 2025, from $364,618,000 for 2024. The increase is primarily driven by a $51,621,000 decrease in ceded premiums earned from our quota share agreements. This decrease is attributed to the change in AmCoastal’s quota share reinsurance coverage during 2024 and 2025. We had quota share coverage in place at 40% for the first half of 2024, decreasing to 20% effective June 1, 2024. Effective June 1, 2025, this coverage was decreased further to 15%. This decrease was partially offset by a $28,010,000 increase in our catastrophe reinsurance coverage, driven by additional coverage purchased due to exposure growth and the decreased quota share cession rate.
Net investment income increased by $1,411,000, or 6.8%, to $22,206,000 for the year ended December 31, 2025, from $20,795,000 for 2024, driven by increased interest income due to a substantial increase in holdings and higher overall yield on our 2025 portfolio than our 2024 portfolio..
Net realized investment losses and net unrealized gains (losses) on equity securities increased by $4,509,000, or 240.9%, to a net gain of $6,381,000 for the year ended December 31, 2025, from a net gain of $1,872,000 for the year ended December 31, 2024, driven by increased unrealized gains on our equity securities as market conditions were favorable and our holdings increased 40.4% year-over-year.
Expenses
Expenses for the year ended December 31, 2025 decreased $1,899,000, or 1.0%, to $195,162,000, from $197,061,000 for 2024. The decrease in expenses was primarily due to a decrease in loss and LAE as a result of Hurricane Milton making landfall in 2024, which caused a large increase in catastrophe losses due to the $20,500,000 retention incurred from the storm. This was offset by an
AMERICAN COASTAL INSURANCE CORPORATION
increase in policy acquisition costs, the details of which can be seen below. The calculations of our combined loss ratios and underlying loss ratios are shown below.
Year Ended December 31,
Change
Net loss and LAE
% of Gross earned premiums
pts
% of Net earned premiums
pts
Less:
Current year catastrophe losses
Prior year reserve favorable development
Underlying loss and LAE (1)
% of Gross earned premiums
pts
% of Net earned premiums
pts
(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.
Year Ended December 31,
Change
Policy acquisition costs
General and administrative
Total operating expenses
% of Gross earned premiums
pts
% of Net earned premiums
pts
Loss and LAE decreased by $23,279,000, or 33.6%, to $46,040,000 for the year ended December 31, 2025, from $69,319,000 for the year ended December 31, 2024. Loss and LAE expense as a percentage of net earned premiums decreased 10.3 points to 15.0% for the year ended December 31, 2025, compared to 25.3% for the year ended December 31, 2024. In addition, during the year ended December 31, 2025, prior year reserve favorable development was higher on both catastrophe and non-catastrophe losses and catastrophe losses were lower. Excluding catastrophe losses and reserve development, our gross underlying loss and LAE ratio for the year ended December 31, 2025 would have been 7.8%, an increase of 0.4 points from 7.4% during the year ended December 31, 2024.
Policy acquisition costs increased by $26,854,000, or 37.8%, to $97,844,000 for the year ended December 31, 2025, from $70,990,000 for the year ended December 31, 2024. The primary driver of the increase was a decrease in ceding commission income of $17,161,000, driven by the changes in the terms of our quota share reinsurance agreement described above. In addition, external management fees increased $9,807,000, as a result of a one percent increase in the management fee and profit share accrual pursuant to the renewal terms for the contract with AmRisc, LLC, effective June 1, 2024.
General and administrative expenses decreased by $4,293,000, or 9.6%, to $40,463,000 for the year ended December 31, 2025, from $44,756,000 for the year ended December 31, 2024, driven largely by a decrease in external spending for professional and consulting services, audit fees and legal fees totaling $2,471,000 as well as decreased depreciation and amortization of $1,256,000.
We experienced favorable reserve development in the current year and its historical impact on our net loss and net underlying loss ratios is outlined in the following table.
($ in thousands, except ratios)
Historical Reserve Development
Prior year reserve favorable development
Development as a % of earnings before interest and taxes
Consolidated net loss and LAE ratio (LR)
Prior year reserve favorable development on LR
Current year catastrophe losses on LR
Underlying net loss and LAE ratio (1)
AMERICAN COASTAL INSURANCE CORPORATION
(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.
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.
We must comply with applicable state insurance regulations that prescribe the type, quality and concentrations of investments our insurance subsidiary 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, however, we do hold warrants as a result of our surplus note investment. Please see Note 5 for more information.
As of December 31, 2025, one outside asset management company, which has authority and discretion to buy and sell securities for us, manages our investments subject to (i) the guidelines established by our Board of Directors and (ii) the direction of management. Prior to August 2025, we engaged two outside asset management companies. The Investment Committee of our Board of Directors reviews and approves our investment policy on a regular basis.
Our cash and investment portfolios totaled $647,744,000 at December 31, 2025, compared to $540,811,000 at December 31, 2024.
The following table summarizes our investments, by type:
December 31, 2025
December 31, 2024
Estimated Fair Value
Percent of Total
Estimated Fair Value
Percent of Total
U.S. government and agency securities
Corporate securities
Mortgage-backed securities
States, municipalities and political subdivisions
Asset-backed securities
Public utilities
Foreign government
Total fixed maturities
Mutual funds
Other common stocks
Total equity securities
Other investments
Total investments
Cash and cash equivalents
Restricted cash
Total cash, cash equivalents, restricted cash and investments
We classify all of our investments as available-for-sale. Our investments as of December 31, 2025 and 2024 consisted mainly of U.S. government and agency securities, securities of investment-grade corporate issuers, mortgage-backed securities, and states, municipalities and political subdivisions. Our equity holdings as of December 31, 2025 consisted of mutual funds and common stock. We held no equities as of December 31, 2024. Most of the corporate bonds we hold reflected a similar diversification. At December 31,
AMERICAN COASTAL INSURANCE CORPORATION
2025, approximately 82.6% of our fixed maturities were U.S. Treasuries or corporate bonds rated “A” or better, and 17.4% were corporate bonds rated “BBB” or “BB”.
Reinsurance
We follow the 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 coverage consists of three separate placements:
AmCoastal’s core catastrophe reinsurance program, including catastrophe bonds (effective April 2024 and December 2024), 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;
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 or numbered windstorms and earthquakes; and
AmCoastal's catastrophe aggregate excess of loss coverage, in effect Jan 1 through December 31, annually, which provides protection from all catastrophe loss events, including named windstorms, severe convective storms and winter storm events.
This reinsurance protection is an essential part of our catastrophe risk management strategy. It is intended to provide our stockholders with an acceptable return on the risks assumed by our insurance entity, and to reduce the 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 entity 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 to fulfill our obligations to policyholders, or we may not be to maintain compliance with various regulatory financial requirements. The details of our programs and the likelihood of a event exceeding these two coverages are outlined below.
AmCoastal’s core catastrophe reinsurance program provides occurrence-based coverage up to an exhaustion point of approximately $1,330,000,000 for a first occurrence and $1,676,000,000 in the aggregate. Under this program, the Company's GAAP retention on a first event is $29,750,000 ($14,000,000 retained by AmCoastal under statutory accounting principles (STAT retained), $15,750,000 (retained separately by the Company's captive)). The Company has purchased second and third event retrocession coverage, reducing its second event GAAP retention to $18,500,000 ($14,000,000 STAT retained by AmCoastal, $4,500,000 retained separately by the Company's captive) and third event GAAP retention to $3,750,000, based on three $100,000,000 loss events. AmCoastal’s program provides sufficient coverage for approximately a 1-in-203-year return period, indicating that the probability of a single occurrence exceeding protection purchased is roughly 0.5% estimated by blending the AIR 10, AIR 11.5, RMS 22 and RMS 23 catastrophe models using long-term catalogs including demand surge and based on total insured value at September 30, 2025 of $69 billion. 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 $88,200,000 for a first and second event, totaling $176,400,000 in the aggregate. This agreement provides sufficient coverage for approximately a 1-in-450-year return period, indicating that the probability of a single occurrence exceeding protection purchased is no more than 0.2%.
In addition to the programs described above, AmCoastal purchased a new catastrophe aggregate excess of loss coverage (the “CAT Agg” agreement) to mitigate our catastrophe frequency risk. This agreement provides coverage for in-force, new and renewal business.
AMERICAN COASTAL INSURANCE CORPORATION
Effective January 1, 2025, the new CAT Agg agreement provides $40,000,000 of aggregate limit (with a $20,000,000 per occurrence cap) in excess of zero after the $40,000,000 annual aggregate deductible has been met. The CAT Agg agreement limits our losses from all catastrophe loss events, including named windstorms, severe convective storms and winter storm events for the full year ending December 31, 2025.
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 a reduction in expense of approximately $6,300,000 and $15,700,000 during the three and six months ended June 30, 2024, respectively.
Where we think prudent, particularly where premium rates are high relative to the risk, we retain risk whereby AmCoastal purchases reinsurance from Shoreline Re, our captive reinsurance entity. Shoreline Re participates on AmCoastal's all other perils catastrophe excess of loss agreement and AmCoastal's excess per risk agreement. In addition, Shoreline Re participates in a 45% quota share agreement with AmCoastal, which provides coverage for all catastrophe perils as well as attritional losses incurred.
The table below outlines the participation of Shoreline Re for each program, including premium received and capital at risk.
Treaty
Effective Dates
Premium Collected / Cession Rate
Capital at Risk (1)
Quota Share Agreement
All Other Perils Catastrophe
Excess of Loss Agreement
All Other Perils Catastrophe
Excess of Loss Agreement
Excess Per Risk Agreement
Quota Share Agreement (5)
(1) Capital at risk is calculated by taking the aggregate losses Shoreline Re is subject to under the contract, less net premiums earned under the contract.
(2) This treaty provides or provided coverage for all catastrophe perils and attritional losses incurred. For all catastrophe perils, the quota share agreement provides or provided ground-up protection, effectively reducing our retention for catastrophe losses.
(3) Net premiums earned based on estimated subject premiums at June 1, 2025.
(4) This treaty was amended on June 1, 2025 to include reinstatement, resulting in additional premium and aggregate losses.
(5) This treaty was commuted on June 1, 2025 with no impact on our consolidated results.
(6) Net premiums earned based on estimated subject premiums at June 1, 2024.
The table below outlines our quota share agreements in effect for the years ended December 31, 2025 and 2024.
Reinsurer
Companies in Scope
Effective Dates
Cession Rate
States in Scope
External third-party
AmCoastal
Florida
External third-party
AmCoastal
Florida
(1) This treaty provides or provided coverage for all catastrophe perils and attritional losses incurred. For all catastrophe perils, the quota share agreement provides or provided ground-up protection, effectively reducing our retention for catastrophe losses.
(2) The cession rate of this treaty was reduced from 20% to 15% effective June 1, 2025 to May 31 , 2026.
Reinsurance costs as a percentage of gross earned premium during the years ended December 31, 2025 and 2024 were as follows:
Non-at-Risk
Quota Share
All Other
Total Ceding Ratio
AMERICAN COASTAL INSURANCE CORPORATION
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 Income (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:
Year Ended December 31,
Quota Share
Excess-of-loss
Equipment, identity theft, and cyber security
Ceded premiums written
Change in ceded unearned premiums
Ceded premiums earned
Current year catastrophe losses, which are disaggregated between named and numbered storms and all other catastrophe loss events, are shown in the following table.
Number of Events
Incurred Loss and LAE (1)
Combined Ratio Impact
December 31, 2025
Current period catastrophe losses incurred
Named and numbered storms
All other catastrophe loss events
Total
December 31, 2024
Current period catastrophe losses incurred
Named and numbered storms
All other catastrophe loss events
Total
December 31, 2023
Current period catastrophe losses incurred
Named and numbered storms
All other catastrophe loss events
Total
(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 $165,701,000 and $322,087,000 as of December 31, 2025 and 2024, respectively.
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
AMERICAN COASTAL INSURANCE CORPORATION
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 are necessary.
See Note 11 in our Notes to Consolidated Financial Statements for additional information regarding our losses and LAE.
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 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, qualify as a discontinued operation. For more information regarding the results of our discontinued operations, see Note 4 in our Notes to Consolidated Financial Statements.
In addition, On May 9, 2024, we entered into a Stock Purchase Agreement (the "Sale Agreement") with Forza Insurance Holdings, LLC (Forza) in which ACIC agreed to sell and Forza agreed to acquire 100% of the issued and outstanding stock of IIC. Forza’s application to acquire IIC was approved by the New York Department of Financial Services ("NYDFS") on February 13, 2025, and the sale closed on April 1, 2025. The Company received cash proceeds totaling $25,679,000 from the sale resulting in a loss on disposal of $247,000, net of tax impacts. The Company also recognized a $1,348,000 loss, net of tax impacts, on IIC's fixed maturity portfolio, which was included in accumulated other comprehensive loss on the Company's Consolidated Balance Sheets prior to the sale. As a result, IIC results of operations and assets and liabilities are captured within discontinued operations and can be seen in Note 4 of the Notes to Consolidated Financial Statements below.
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 debt 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 subsidiary, including restricting any dividends paid by our insurance subsidiary and requiring approval of any management fees our insurance subsidiary pay to our management subsidiaries for services rendered; however, nothing restricts our non-insurance company subsidiary from paying us dividends other than state corporate laws regarding solvency. Our management subsidiary pays us dividends primarily using cash from the collection of management fees from our insurance subsidiary, pursuant to the management agreements in effect between those entities. In accordance with state laws, our insurance subsidiary 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 risk-based capital (RBC) guidelines published by the National Association of Insurance Commissioners (NAIC) may further restrict our insurance subsidiary’s 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, 2025, the Company made capital contributions of $8,269,000 to its reinsurance subsidiary, Shoreline Re. In addition, the Company made a $15,000,000 contribution to form a new excess and surplus insurance entity, that has not yet begun operations. We may make future contributions of capital to our insurance subsidiary as circumstances require. During the year ended December 31, 2024, the Company made capital contributions of $1,265,000 to its reinsurance subsidiary, Shoreline Re. During the year ended December 31, 2023, we made no capital contributions to our subsidiaries.
During the years ended December 31, 2025 and 2024, the Company received dividends of $23,000,000 and $14,300,000, respectively from our insurance subsidiary, AmCoastal.
AMERICAN COASTAL INSURANCE CORPORATION
In September 2023, the Company entered into an equity distribution agreement (the “Agreement”) with Raymond James & Associates, Inc., as agent (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 has 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, 2025, 4,373,000 shares had 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.
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 from 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 June 15, 2023. On July 21, 2025, the Kroll Bond Rating Agency, LLC announced an upgrade of the Company's issuer and debt ratings from BB+ to BBB-. As a result, pursuant to the Company's indenture, the interest rate of its Senior Notes decreased from 7.25% to 6.25% effective December 16, 2025.
As a result of claim activity from the current and prior years, we have an obligation related to the unpaid policyholder losses and unpaid LAE associated with the settling of these claims. As of December 31, 2025, our total obligation related to these claim payments was $165,701,000, of which we estimate $83,995,000 to be short-term in nature (due in less than twelve months), based upon our cumulative claims paid historically. While we believe that historical performance of loss payment patterns is a reasonable source for projecting future claim payments, there is inherent uncertainty in these estimated projected settlements, and as a result these estimates will differ, perhaps significantly, from actual future payments.
In addition to our unpaid loss and LAE, as of December 31, 2025, 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 $21,750,000 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 our Notes to Consolidated Financial Statements.
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 and other administrative tools. Our total obligation related to these two categories of obligations are $1,937,000, and $250,000, respectively. Of these obligations, $627,000, and $250,000, respectively, are short-term in nature.
Cash Flows for the Year Ended December 31, (in thousands)
Year Ended December 31,
Net cash provided by (used in) operating activities
Net cash provided by (used in) investing activities
Net cash provided by (used in) financing activities
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.
AMERICAN COASTAL INSURANCE CORPORATION
During the year ended December 31, 2025, we experienced cash inflows of $71,025,000 compared to inflows of $243,509,000 during the year ended December 31, 2024. This change was driven by changes in our operating assets and liabilities of $215,474,000, partially offset by an increase in net income, net of adjustments to reconcile net income to cash of $42,990,000. The change in our operating assets and liabilities is attributable primarily to settlements triggered by Hurricane Milton making landfall in the fourth quarter of 2024 with no similar activity occurring in 2025 as well as a large shift in our change in reinsurance payable as our payment schedule normalized in 2024, resulting in similar payments occurring for the same period in 2025.
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, 2025, cash provided by investing activities increased $179,831,000, driven by the purchases of fixed maturities in the prior year.
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, 2025, cash used in financing activities decreased by $12,759,000 to cash used of $1,081,000 from cash used of $13,840,000. This was due primarily to $24,102,000 in dividends declared during 2024 and a decrease in proceeds from the issuance of common stock of $10,847,000 year-over-year.
RECENT ACCOUNTING STANDARDS
Please refer to Note 2(v) 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, 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
AMERICAN COASTAL INSURANCE CORPORATION
amount upon the application of various actuarial reserve estimation techniques as well as other material facts and circumstances known at the balance sheet date.
As discussed in Note 11 in our Notes to Consolidated Financial Statements, we estimate 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 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.
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, 2025, 2024 and 2023.
