AMERICAN COASTAL INSURANCE Corp: Form 10-Q for the period ended Jun 30, 2025

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Unaudited Condensed Consolidated Financial Statements and related notes appearing elsewhere in this Form 10-Q, as well as with the Consolidated Financial Statements and related footnotes under Part II. Item 8 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."

EXECUTIVE SUMMARY

Overview

American Coastal Insurance Corporation (referred to in this document as we, our, us, the Company or ACIC) is a holding company primarily engaged in commercial property and casualty insurance business with investments in the United States. We conduct 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 “American Coastal Insurance Corporation,” which is the preferred brand identification for our Company.

Our Company’s primary source of 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 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 Unaudited Condensed Consolidated Financial Statements above.

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 11.0% from 3,964 policies in-force at June 30, 2024 to 4,402 policies in-force at June 30, 2025. As of June 30, 2025 and 2024, all of our policies in-force are in the state of Florida.

The following discussion highlights significant factors influencing the consolidated financial position and results of operations of American Coastal Insurance Corporation. 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.

AMERICAN COASTAL INSURANCE CORPORATION

2025 Highlights

(1) In order to reconcile the net income to the core income measure, we included the tax impact of all adjustments using the 21% corporate federal tax rate.

(2) Core income, a measure that is not based on GAAP, is reconciled above to net income, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this Form 10-Q is in "Definitions of Non-GAAP Measures" below.

AMERICAN COASTAL INSURANCE CORPORATION

Consolidated Net Income

(1) Loss ratio, net is calculated as losses and loss adjustment expense (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 this component separately from our loss expenses.

(3) Combined ratio is the sum of the loss ratio, net and the expense ratio, net. 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-Q is 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 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 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.

Net income (loss) excluding the effects of amortization of intangible assets, income (loss) from discontinued operations, realized gains (losses) and unrealized gains (losses) on equity securities, net of tax (core income (loss)) is a non-GAAP measure, which is computed by adding amortization, net of tax, to net income (loss) and subtracting income (loss) from discontinued operations, net of tax, realized gains (losses) on our investment portfolio, net of tax, and unrealized gains (losses) on our equity securities, net of tax, from net income (loss). Amortization expense is related to the amortization of intangible assets acquired, including goodwill, through mergers and therefore the expense does not arise through normal operations. Investment portfolio gains (losses) and unrealized equity security gains (losses) vary independent of our operations. 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 net income (loss). The core income (loss) measure should not be considered a substitute for net loss and does not reflect the overall profitability of our business.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

When we prepare our consolidated financial statements and accompanying notes in conformity with GAAP, we must make estimates and assumptions about future events that affect the amounts we report. Certain of these estimates result from judgments that can be subjective and complex. As a result of that subjectivity and complexity, and because we continuously evaluate these estimates and assumptions based on a variety of factors, actual results could materially differ from our estimates and assumptions if changes in one or more factors require us to make accounting adjustments. During the six months ended June 30, 2025, we reassessed our critical accounting policies and estimates as disclosed in Note 2 to the Notes to Unaudited Condensed Consolidated Financial Statements and our Annual Report on Form 10-K for the year ended December 31, 2024. We have made no material changes or additions with regard to those policies and estimates.

RECENT ACCOUNTING STANDARDS

Please refer to Note 2 in the Notes to Unaudited Condensed Consolidated Financial Statements for a discussion of recent accounting standards that may affect us.

AMERICAN COASTAL INSURANCE CORPORATION

ANALYSIS OF FINANCIAL CONDITION - JUNE 30, 2025 COMPARED TO DECEMBER 31, 2024

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our accompanying unaudited condensed consolidated interim financial statements and related notes, and in conjunction with the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2024.

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 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.

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, cash equivalents, restricted cash and investment portfolio totaled $726,243,000 at June 30, 2025, compared to $540,811,000 at December 31, 2024.

The following table summarizes our investments, by type:

We classify all of our fixed-maturity investments as available-for-sale. Our investments at June 30, 2025 and December 31, 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 June 30, 2025 and December 31, 2024 consisted of mutual funds and common stock. At June 30, 2025, approximately 86.8% of our fixed maturities were U.S. Treasuries or corporate bonds rated “A” or better, and 13.2% were corporate bonds rated “BBB” or "BB".

AMERICAN COASTAL INSURANCE CORPORATION

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 two separate placements:

1. 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; and

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 or numbered windstorms and earthquakes.

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 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 the likelihood of a catastrophic 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-201-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 projected total insured value at September 30, 2025 of $60 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 agreement (the “CAT Agg” agreement) to mitigate our catastrophe frequency risk. This agreement provides coverage for in-force, new and renewal business. 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, the Company 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 the Company's 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.

AMERICAN COASTAL INSURANCE CORPORATION

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.

(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 06/01/2025.

(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 06/01/2024.

The table below outlines our external quota share agreements in effect for the six months ended June 30, 2025 and 2024.

(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 is reduced from 20% to 15% effective 06/01/2025 - 06/01/2026.

Reinsurance costs as a percentage of gross earned premium during the three and six months ended June 30, 2025 and 2024 were as follows:

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 Unaudited Condensed Consolidated Statements of Comprehensive Income. 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:

Current year catastrophe losses disaggregated between named and numbered storms and all other catastrophe loss events are shown in the following 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 9 in our Notes to Unaudited Condensed 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

AMERICAN COASTAL INSURANCE CORPORATION

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 $219,242,000 and $322,087,000 as of June 30, 2025 and December 31, 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 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 10 in our Notes to Unaudited Condensed Consolidated Financial Statements for additional information regarding our losses and loss adjustments.

AMERICAN COASTAL INSURANCE CORPORATION

RESULTS OF OPERATIONS - COMPARISON OF THE THREE MONTH PERIODS ENDED JUNE 30, 2025 AND 2024

ACIC net income for the three months ended June 30, 2025 increased $7,388,000, or 38.8%, to net income of $26,442,000 for the second quarter of 2025 from $19,054,000 for the same period in 2024. Of this income, $28,037,000 is attributable to continuing operations for the three months ended June 30, 2025, an increase of $8,964,000 from $19,073,000 for the same period in 2024. Quarter-over-quarter revenues increased, driven by an increase in gross premiums earned and decrease in ceded premiums earned. This was offset by increased expenses quarter-over-quarter, driven by an increase in policy acquisition costs. In addition, the Company's provision for income taxes increased quarter-over-quarter. The Company's loss from discontinued operations also contributed to this change in net income, increasing $1,576,000 quarter-over-quarter, as the sale of IIC was completed during the quarter. The details of this change in discontinued operations can be seen in Note 4 above.

Revenue

Our gross written premiums remained relatively flat, decreasing $1,103,000, or 0.5%, to $228,346,000 for the second quarter ended June 30, 2025 from $229,449,000 for the same period in 2024. The breakdown of the quarter-over-quarter changes in both direct written and assumed premiums and new and renewal policies are shown in the tables below.

($ in thousands)

(1) Assumed premium written for 2025 included commercial property business assumed from unaffiliated insurers that was subsequently cancelled.

Expenses

Expenses for the three months ended June 30, 2025 increased $5,714,000, or 12.8%, to $50,294,000 from $44,580,000 for the same period in 2024. The increase in expenses was primarily due to an increase in policy acquisition costs. This was offset by a decrease in general and administrative expenses, while losses and LAE incurred remained relatively flat. The details of these changes can be seen below.

The calculations of our loss ratios and underlying loss ratios are shown below.

(1) Underlying loss and LAE is a non-GAAP 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 document is in the "Definitions of Non-GAAP Measures" section of this Form 10-Q.

AMERICAN COASTAL INSURANCE CORPORATION

The calculations of our expense ratios are shown below.

Loss and LAE increased by $263,000, or 1.7%, to $15,540,000 for the second quarter of 2025 from $15,277,000 for the second quarter of 2024. Loss and LAE expense as a percentage of net earned premiums decreased 4.3 points to 19.8% for the second quarter of 2025, compared to 24.1% for the second quarter of 2025. Excluding catastrophe losses and prior year reserve development, our gross underlying loss and LAE ratio for the second quarter of 2025 would have been 10.2%, compared to 10.5% for the second quarter of 2024.

Policy acquisition costs increased by $10,318,000, or 74.0%, to $24,257,000 for the second quarter of 2025 from $13,939,000 for the second quarter of 2024, due to a decrease in reinsurance ceding commission income of $5,756,000, driven by a decrease in our quota share cession rate from 40% to 20%, effective June 1, 2024 and from 20% to 15%, effective June 1, 2025. External management fees also increased by $4,500,000, primarily as the result of a one percent increase in the management fee and profit share accrual pursuant to the renewal terms of the contract with AmRisc, LLC (AmRisc).

General and administrative expenses decreased by $4,160,000, or 34.8%, to $7,778,000 for the second quarter of 2025 from $11,938,000 for the second quarter of 2024, driven by a non-recurring employee retention tax credit refund of $2,939,000 submitted to the Internal Revenue Service in 2022 and received during the second quarter of 2025. This non-recurring refund was previously disclosed in our Quarterly Report on Form 10-Q, filed on May 8, 2025, as a gain contingency. In addition, external spending for professional and consulting services decreased $1,873,000 quarter-over-quarter.

AMERICAN COASTAL INSURANCE CORPORATION

RESULTS OF OPERATIONS - COMPARISON OF THE SIX MONTH PERIODS ENDED JUNE 30, 2025 AND 2024

ACIC net income for the six months ended June 30, 2025 increased $5,137,000, or 12.0%, to $47,790,000 from $42,653,000 for the same period in 2024. Of this income, $47,748,000 is attributable to continuing operations for the six months ended June 30, 2025, an increase of $4,966,000 from $42,782,000 for the same period in 2024. Year-over-year revenues increased 17.3%, driven by an increase in net premiums earned. This increase in revenue was offset by increased policy acquisition costs year-over-year, partially offset by decreased general and administrative expenses and losses and LAE incurred.

Revenue

Our gross written premiums increased $12,148,000, or 2.9%, to $426,198,000 for the six months ended June 30, 2025 from $414,050,000 for the same period in 2024, driven by the increase in new and renewal policies shown below. The breakdown of the quarter-over-quarter changes in both direct written and assumed premiums and new and renewal policies are shown in the tables below.

($ in thousands)

(1) Assumed premium written for 2025 included commercial property business assumed from unaffiliated insurers that was subsequently cancelled.

Expenses

Expenses for the six months ended June 30, 2025 increased $16,752,000, or 20.8%, to $97,372,000 from $80,620,000 for the same period in 2024. The increase in expenses was primarily due to an increase in policy acquisition costs year-over-year. This was partially offset by decreased general and administrative expenses and loss and LAE incurred year-over-year. The details of these changes can be seen below.

(1) Underlying loss and LAE is a non-GAAP 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 document is in the "Definitions of Non-GAAP Measures" section of this Form 10-Q.

AMERICAN COASTAL INSURANCE CORPORATION

The calculations of our expense ratios are shown below.

Loss and LAE decreased $822,000, or 3.0%, to $26,929,000 for the six months ended June 30, 2025 from $27,751,000 for the same period in 2024. Loss and LAE expense as a percentage of net earned premiums decreased 3.6 points to 18.4% for the six months ended June 30, 2025, compared to 22.0% for the same period in 2024. Excluding catastrophe losses and prior year reserve development, our gross underlying loss and LAE ratio for the six months ended June 30, 2025 was 9.3%, an increase of 0.3 points from 9.0% during the six months ended June 30, 2024.

Policy acquisition costs increased $24,189,000, or 102.8%, to $47,723,000 for the six months ended June 30, 2025 from $23,534,000 for the same period in 2024. The primary driver of the decrease was a decrease in ceding commission income of $15,163,000 as the result of the Company's decrease in quota share reinsurance coverage from 40% to 20%, effective June 1, 2024 and from 20% to 15%, effective June 1, 2025. External management fees also increased $8,917,000 as a result of a one percent increase in the management fee and profit share accrual pursuant to the renewal terms of the contract with AmRisc in 2024.

General and administrative expenses decreased $5,906,000, or 25.5%, to $17,284,000 for the six months ended June 30, 2025 from $23,190,000 for the same period in 2024, driven by a non-recurring employee retention tax credit refund of $4,469,000 submitted to the Internal Revenue Service in 2022 and received during the first half of 2025. This non-recurring refund was previously disclosed in our Annual Report on Form 10-K, filed on March 10, 2025, as a gain contingency. In addition, external spending for professional and consulting services decreased $2,540,000 quarter-over-quarter.

LIQUIDITY AND CAPITAL RESOURCES

We generate cash through premium collections, reinsurance recoveries, investment income, the sale or maturity of invested assets, the incurrence of debt and the issuance of additional shares of our stock. We use 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, repurchase stock 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 pays 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 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 its statutory surplus derived from its net operating profit and its net realized capital gains. The Risk-Based Capital (RBC) guidelines published by the National Association of Insurance Commissioners 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 14 in our Notes to Unaudited Condensed Consolidated Financial Statements for additional information.

The Company made a capital contribution of $8,269,000 to its reinsurance subsidiary, Shoreline Re during the six months ended June 30, 2025. During the six months ended June 30, 2024, the Company made capital contributions of $1,265,000 to its reinsurance subsidiary, Shoreline Re. We may make future contributions of capital to our insurance subsidiaries as circumstances require.

During the six months ended June 30, 2025, the Company received a dividend of $23,000,000 from AmCoastal.

In September 2023, we 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

AMERICAN COASTAL INSURANCE CORPORATION

specific amount of Shares but has agreed to act as our sales agent for a commission equal to 3.0% of the gross proceeds from the sales of the Shares. As of June 30, 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.

Cash Flows for the Six Months Ended June 30, 2025 and 2024 (in thousands)

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 six months ended June 30, 2025, we experienced cash inflows of $154,392,000 compared to $250,886,000 during the six months ended June 30, 2024. This change was driven by a decrease in the change in reinsurance payable of $93,500,000 and a decrease in the change in reinsurance recoverable of $40,509,000, partially offset by a decrease in the change in unpaid loss and loss adjustment expenses of $34,920,000. The change in reinsurance payable can be attributed to the pricing change in the renewal of our core catastrophe program in 2025, with the risk adjusted decrease being -12.4%. The change in unpaid loss and loss adjustment expenses and the corresponding reinsurance recoverable balance can be attributed to the continued settlement of catastrophe claims with no similar activity occurring 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 sales of investments. The primary liquidity concerns with respect to these cash flows are the risk of default by debtors and market disruption. During the six months ended June 30, 2025, net sales of investments totaled $25,357,000 compared to net purchases of investments of $152,814,000 during the six months ended June 30, 2024. We also had net proceeds from the sale of our former subsidiary, IIC, of $4,495,000 in 2025.

Financing Activities

The principal cash outflows from our financing activities 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 six months ended June 30, 2025, cash provided by financing activities totaled $774,000, compared to $11,458,000 provided by financing activities for the six months ended June 30, 2024. The decrease in inflow in 2025 is attributed to the proceeds received from the issuance of our common stock, primarily under our at the market program described above during 2024.

OFF-BALANCE SHEET ARRANGEMENTS

At June 30, 2025, we did not have any off-balance sheet arrangements or material changes to our contractual obligations during the quarter.

The Company is exposed to market risks, including interest rate risk related to changes in interest rates in the Company's fixed-maturity securities, credit risk related to changes in the financial condition of the issuers of the Company's fixed-maturities and equity price risk related to changes in equity security prices. These risks are disclosed in Part II, Item 7A. "Quantitative and Qualitative Disclosures about Market Risk" of the Company's Annual Report on Form 10-K for the year ended December 31, 2024. The Company had no material changes in market risk during the quarter ended June 30, 2025.

AMERICAN COASTAL INSURANCE CORPORATION

The Company maintains a set of disclosure controls and procedures designed to ensure that the information required to be disclosed in reports the Company files or submits under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. The Company designed its disclosure controls with the objective of ensuring the Company accumulates and communicates this information to its management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of the Company's management, including its principal executive officer and principal financial officer, the Company conducted an evaluation of the effectiveness of the design and operations of its disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report. Based on the Company's evaluation, the Company's management concluded that its internal control over financial reporting was effective as of June 30, 2025.

Changes in Internal Control over Financial Reporting

During the quarter ended June 30, 2025, there was no change in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation of the Company's internal control performed during the fiscal year ended December 31, 2024, that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

AMERICAN COASTAL INSURANCE CORPORATION

There have been no material changes to the risk factors previously disclosed in Part I. Item 1A "Risk Factors" of the Company's Annual Report on Form 10-K for the year ended December 31, 2024, except as set forth below.

Because we rely on insurance agents, the loss of these agent relationships, particularly our relationship with AmRisc, LLC (AmRisc), or our inability to attract and incentivize new agents could have an adverse impact on our business.

AmCoastal has a managing agency contract (the MGA contract) with AmRisc, pursuant to which AmRisc serves as AmCoastal’s managing general agent for binding and writing commercial residential property lines for condominium, townhome and homeowners association insurance written in Florida. The contract between AmCoastal and AmRisc is exclusive. Under the MGA contract with AmCoastal, AmRisc must produce a certain volume of business for AmCoastal. Therefore, failure of AmRisc to produce the required volume of business could cause us to lose substantial premiums and could require us to seek one or more alternative managing general agents. If we were unable to find a replacement managing general agent, our revenues could decrease, which could have a material adverse effect on our business, financial condition and results of operations. Given the concentration of AmCoastal’s commercial business and operations with AmRisc, AmRisc may have substantial leverage in negotiations with AmCoastal regarding the MGA contract, and amendments to the terms and conditions of the MGA contract or other changes to the commercial relationship between AmRisc and AmCoastal could have a material adverse effect on our business, financial condition and results of operations. Following the termination or expiration of the MGA contract, AmCoastal’s ability to compete for and solicit renewals of business previously underwritten by AmRisc may be limited by legal, commercial and other impediments, including AmRisc’s relationship with other insurance producers that control the business. Such impediments could have a material adverse effect on our financial condition and results of operations due to the concentration of AmCoastal’s business with AmRisc.

As of June 30, 2025, we market our apartment insurance product through a network of 10 independent wholesalers. These wholesalers and their brokers own the customer relationships and are not under our direct control. Our contracts restrict us from directly soliciting their policyholders, and most brokers also represent competing insurers. As a result, we must continually compete for their attention and business. Competitors may offer broader product options, lower premiums, or higher broker commissions. Consequently, our success depends heavily on the strength of our broker relationships and our ability to offer competitive, well-aligned insurance solutions. Losing any of these wholesale relationships—or failing to attract, retain, or motivate new brokers—could negatively impact new business production and retention of in-force policies.