ACIC’s combined ratio worsens to 65% on higher policy acquisition costs

By Michael Loney

May 9 - (The Insurer) - American Coastal Insurance Corporation has reported a 11.8 percentage point deterioration in its Q1 combined ratio to 65.0% because of higher policy acquisition costs resulting from lower ceding commission income.

St Petersburg, Florida-based ACIC reported core income of $20.7 million for the quarter, down from $24.4 million in the prior year period. Core income per diluted share fell to $0.42 from $0.50.

In an investor presentation, ACIC said the decrease was the result of higher PAC due to lower ceding commission income as the result of the decrease in quota share reinsurance coverage.

This was offset by lower ceded earned premiums resulting from the step down of the 40% gross catastrophe quota share effective June 2023 to 20% effective June 2024.

The combined ratio deteriorated to 65.0% from 53.2% in Q1 2024 due to higher PAC, while the underlying combined ratio worsened 15.3 points to 68.2%.

Nasdaq-listed ACIC’s share price was down 5% as of around 10:40 a.m. ET on Friday, following the results being released after markets closed the previous day.

Total gross written premium increased 7.2%, to $197.9 million for the quarter, up from $184.6 million for the first quarter of 2024.

The net expense ratio increased to 48.3% from 33.3%.

ACIC had no catastrophe losses in the quarter and $2.2m of favourable prior year reserve development.

PAC increased by $13.9 million, or 144.8%, to $23.5 million for the first quarter, from $9.6 million for Q1 2024.

This decrease in quota share reinsurance coverage lowered the company's overall ceding ratio at 57.9% in Q1 2025 from 61.0% in Q1 2024, as replacement excess of loss coverage was more cost-effective than the 20% quota share contract that was not renewed.

External management fees also increased as a result of a one percent increase in the management fee agreed to in American Coastal’s contract renewal with AmRisc in 2024 and the increase in direct written premiums.

In a statement, CEO Bradford Martz said: “We achieved our target combined ratio of 65% and delivered a return on equity over 30% in the first quarter of 2025.”

In an investor presentation, the company said the commercial property insurance market in Florida continued to soften during the first quarter of 2025.

It said average premium in-force decreased 3.1%, but account retention remained strong at 88.4% leading to growth in policies, premiums, and total insured values compared to December 31, 2024.

On an investor call on Thursday, Martz said the underwriting environment for newer, well-maintained low-rise garden-style condos further inland in Florida, where American Coastal is focused, remains relatively healthy and competitive.

“This is evidenced by the fact that we are currently open to new business and passing on savings in the form of lower rates to our policyholders without sacrificing margins that allow us to underwrite this risk,” he said.