HomeInsuranceAMERICAN COASTAL INSURANCE Corp SEC 10-Q Report — TradingView News

AMERICAN COASTAL INSURANCE Corp SEC 10-Q Report — TradingView News


American Coastal Insurance Corp, a leading provider of commercial and homeowners’ residential property insurance, has released its Form 10-Q report for the period ending September 30, 2024. The report highlights the company’s financial performance, strategic initiatives, and the challenges it faces in the current market environment.

Financial Highlights

The company’s financial performance for the period ending September 30, 2024, is summarized as follows:

  • Total Revenue: $217.390 million, reflecting a slight increase from the previous period.
  • Operating Income: $90.698 million, indicating strong operational performance.
  • Net Income: $70.772 million, a significant decrease compared to the previous period due to discontinued operations.
  • Basic EPS: $1.49, showing a decrease from the previous period.
  • Diluted EPS: $1.44, also reflecting a decrease from the previous period.

Business Highlights

Key business developments and operational performance for the period include:

  • Corporate Name Change: On July 10, 2023, the company changed its corporate name from United Insurance Holdings Corp. to American Coastal Insurance Corporation.
  • Discontinued Operations: The company entered into a Stock Purchase Agreement with Forza Insurance Holdings, LLC to sell 100% of the issued and outstanding stock of Interboro Insurance Company (IIC). The results of IIC are now captured within discontinued operations.
  • Receivership of Subsidiary: On February 27, 2023, the company’s former insurance subsidiary, United Property & Casualty Insurance Company (UPC), was placed into receivership with the Florida Department of Financial Services, divesting the company’s ownership of UPC.
  • Primary Products: The company’s primary products are commercial and homeowners’ residential property insurance. The company offers commercial residential insurance in Florida and personal residential insurance in New York.
  • Segment Reporting: As of September 30, 2024, the company conducts its operations under one reportable segment, focusing on commercial residential insurance offerings.
  • Reinsurance Programs: The company has three separate reinsurance placements designed to manage catastrophe risk and provide surplus protection.
  • Employee Retention Credit: The company filed for a $10,161,000 refund in connection with the Employee Retention Tax Credit for the tax year ended December 31, 2021. As of September 30, 2024, the company has received $5,718,000 from the IRS related to this refund.
  • Lease Agreements: The company has entered into leases of commercial office space, office equipment, and a parking lot under operating leases. The weighted average remaining lease term is 17 months with a weighted average discount rate of 3.78%.
  • Stock-Based Compensation: The company granted 598,713 shares of restricted common stock during the nine months ended September 30, 2024, with a weighted-average grant date fair value of $7.41 per share. Additionally, 196,275 stock options were granted with a weighted average grant date fair value of $4.82 per share.
  • Future Outlook: The company continues to focus on its commercial residential insurance offerings and managing its reinsurance programs to mitigate risk and provide surplus protection. The sale of IIC and the deconsolidation of UPC are expected to streamline operations and focus on core business areas.

Strategic Initiatives

American Coastal Insurance Corp has undertaken several strategic initiatives to streamline its operations and focus on core business areas:

  • Stock Purchase Agreement: On May 9, 2024, the company entered into a Stock Purchase Agreement with Forza Insurance Holdings, LLC to sell 100% of the issued and outstanding stock of Interboro Insurance Company (IIC). This move is aimed at focusing on the company’s commercial residential insurance offerings.
  • Capital Management: The company issued $150 million of 10-year senior notes in 2017, which bear interest at a rate of 6.25% per annum, later increased to 7.25% due to a downgrade in credit rating. The company has also been involved in stock-based compensation, granting restricted stock and stock options to employees and directors.
  • Equity Distribution Agreement: In September 2023, the company entered into an equity distribution agreement with Raymond James & Associates, Inc. to sell up to 8 million shares of common stock, raising approximately $38.19 million in net proceeds as of September 30, 2024.
  • Future Outlook: Looking ahead, the company plans to continue its strategic focus on commercial residential insurance, following the sale of IIC. The company is also assessing the impact of new accounting standards, such as ASU 2023-07 and ASU 2023-09, which will be effective in the coming years. Additionally, the company aims to maintain compliance with financial covenants related to its senior notes and manage its capital efficiently through potential future stock repurchases and equity distributions.

Challenges and Risks

The company faces several challenges and risks, including:

  • Regulatory Risks: The insurance industry is heavily regulated, and further restrictive regulation may reduce profitability and limit growth. The company is subject to comprehensive regulation and supervision by state insurance departments in Florida and New York, as well as all states in which they are licensed.
  • Operational Risks: The company’s ability to comply with laws and regulations, and to obtain necessary regulatory action in a timely manner, is critical to its success. The Florida Office of Insurance Regulation has notified the company’s subsidiary, American Coastal Insurance Company, and its officers and directors, to demonstrate that their actions were not a significant contributing cause of the insolvency of a former subsidiary.
  • Market Risks: The company is exposed to market risks, including interest rate risk related to changes in interest rates in fixed-maturity securities, credit risk related to changes in the financial condition of issuers of fixed-maturities, and equity price risk related to changes in equity security prices.
  • Reinsurance Risks: The company follows the industry practice of reinsuring a portion of its risks. There is a risk that reinsurers may be unable to meet their obligations, which would leave the company primarily liable for the entire insured loss.
  • Discontinued Operations: The company’s former insurance subsidiary, United Property & Casualty Insurance Company (UPC), was placed into receivership, and the company divested its ownership. This event has led to discontinued operations, which could impact the company’s financial condition and results of operations.
  • Interest Rate Risk: The company is exposed to interest rate risk related to changes in interest rates in its fixed-maturity securities. Changes in interest rates can affect the market value of these securities and the company’s investment income.
  • Credit Risk: The company faces credit risk related to changes in the financial condition of issuers of its fixed-maturities. Deterioration in the financial condition of these issuers could lead to defaults and negatively impact the company’s financial position.
  • Equity Price Risk: The company is exposed to equity price risk related to changes in equity security prices. The company’s equity portfolio consists of mutual funds totaling $25,950,000 as of September 30, 2024. Fluctuations in equity prices can impact the value of these investments and the company’s financial results.
  • Regulatory Environment: The insurance industry is subject to extensive regulation designed to protect policyholders. Changes in state regulations, conflicting regulations between states, and the potential for increased federal regulation could negatively impact the company’s operations, profitability, and growth prospects.
  • Compliance Risks: The company may not fully comply with the wide variety of applicable laws and regulations. Regulatory authorities have broad discretion to impose fines, revoke licenses, and take other actions that could preclude or temporarily suspend the company from carrying on some or all of its activities.
  • Litigation Risks: The company may face individual and class action lawsuits by insured and other parties for alleged violations of laws or regulations. Such litigation could result in significant fines, penalties, and changes in business practices, adversely affecting the company’s financial condition and results of operations.
  • Federal Regulation: The potential for increased federal regulation, including the establishment of a Federal Insurance Office and changes resulting from the Dodd-Frank Act, could constrain the company’s business opportunities and reduce investment flexibility, negatively impacting the company’s business.
  • Industry Investigations: The company may receive requests for information from government agencies and authorities as part of industry-wide investigations. Potential outcomes could include law enforcement proceedings, settlements resulting in fines, penalties, and changes in business practices, which could materially affect the company’s results of operations.

SEC Filing: AMERICAN COASTAL INSURANCE Corp [ ACIC ] – 10-Q – Nov. 12, 2024



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