AMERICAN COASTAL INSURANCE Corp

Previous wording

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, 2023. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Actual results may differ materially from those expressed or implied in these forward-looking statements as a result of certain known and unknown risks and uncertainties. See "Forward-Looking Statements."

Current wording

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, 2023 and the revised items of our Form 10-K for the year ended December 31, 2023, filed as Exhibit 99.1 to Form 8-K on October 4, 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."

Previous wording

On May 9, 2024, the Company entered into a Stock Purchase Agreement (the "Sale Agreement") with Forza Insurance Holdings, LLC ("Forza") in which ACIC will sell and Forza will acquire 100% of the issued and outstanding stock of IIC. The aggregate purchase price for the shares will be equal to IIC's GAAP shareholders' equity on the closing date. Closing is subject to customary closing conditions, including New York Department of Financial Services ("NYDFS") approval of Forza's application for acquisition of control, and NYDFS approval of a new rate and form filing. As a result, IIC results of operations and assets and liabilities are captured within discontinued operations and can be seen in Note 3 of the Notes to Unaudited Condensed Consolidated Financial Statements above.

Current wording

On May 9, 2024, the Company entered into a Stock Purchase Agreement (the "Sale Agreement") with Forza Insurance Holdings, LLC (Forza) in which ACIC will sell and Forza will acquire 100% of the issued and outstanding stock of IIC. The aggregate purchase price for the shares will be equal to IIC's shareholders' equity under U.S. generally accepted accounting principles (GAAP) on the closing date. Closing is subject to customary closing conditions, including New York Department of Financial Services (NYDFS) approval of Forza's application for acquisition of control, and NYDFS approval of a new rate and form filing. As a result, IIC results of operations and assets and liabilities are captured within discontinued operations and can be seen in Note 3 of the Notes to Unaudited Condensed Consolidated Financial Statements above.

Previous wording

Our policies in-force decreased by 5.4% from 23,664 policies in-force at June 30, 2023 to 22,395 policies in-force at June 30, 2024. These values include IIC policies in-force, whose results are captured within discontinued operations. For more information regarding the concentration of our policies in force, please see the discontinued operations and results of operations sections below.

Current wording

Our policies in-force decreased by 1.7% from 23,162 policies in-force at September 30, 2023 to 22,775 policies in-force at September 30, 2024. These values include IIC policies in-force, whose results are captured within discontinued operations. For more information regarding the concentration of our policies in force, please see the discontinued operations and results of operations sections below.

Previous wording

(2) Core income, a measure that is not based on U.S. generally accepted accounting principles (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.

Current wording

(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.

Previous wording

(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.

Current wording

(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.

Previous wording

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, 2024, 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, 2023. We have made no material changes or additions with regard to those policies and estimates.

Current wording

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 nine months ended September 30, 2024, 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, 2023. We have made no material changes or additions with regard to those policies and estimates.

Previous wording

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, 2023.

Current wording

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, 2023 and the revised items of our Form 10-K for the year ended December 31, 2023, filed as Exhibit 99.1 to Form 8-K on October 4, 2024.

Previous wording

Our cash, cash equivalents, restricted cash and investment portfolio totaled $572,580,000 at June 30, 2024, compared to $311,874,000 at December 31, 2023.

Current wording

Our cash, cash equivalents, restricted cash and investment portfolio totaled $571,113,000 at September 30, 2024, compared to $311,874,000 at December 31, 2023.

Previous wording

We classify all of our fixed-maturity investments as available-for-sale. Our investments at June 30, 2024 and December 31, 2023 consisted mainly of U.S. government and agency securities, states, municipalities and political subdivisions, mortgage-backed securities and securities of investment-grade corporate issuers. Our equity holdings as of June 30, 2024 consist of mutual funds. We held no equities as of December 31, 2023. At June 30, 2024, approximately 87.9% of our fixed maturities were U.S. Treasuries or corporate bonds rated “A” or better, and 12.1% were corporate bonds rated “BBB” or "BB", including our investments held in discontinued operations.

Current wording

We classify all of our fixed-maturity investments as available-for-sale. Our investments at September 30, 2024 and December 31, 2023 consisted mainly of U.S. government and agency securities, states, municipalities and political subdivisions, mortgage-backed securities and securities of investment-grade corporate issuers. Our equity holdings as of September 30, 2024 consist of mutual funds. We held no equities as of December 31, 2023. At September 30, 2024, approximately 87.8% of our fixed maturities were U.S. Treasuries or corporate bonds rated “A” or better, and 12.2% were corporate bonds rated “BBB” or "BB", including our investments held in discontinued operations.

Previous wording

AmCoastal’s core catastrophe reinsurance program provides occurrence-based coverage up to an exhaustion point of approximately $1,160,000,000 for a first occurrence and $1,510,000,000 in the aggregate. Under this program, our GAAP retention on a first event is $20,500,000 ($10,000,000 retained by AmCoastal under statutory accounting principles (STAT retained), $10,500,000 retained separately by our captive). We have purchased second and third event retrocession coverage, reducing our second and third event GAAP retentions to $13,000,000 ($10,000,000 STAT retained by AmCoastal, $3,000,000 retained separately by our captive). AmCoastal’s program provides sufficient coverage for approximately a 1-in-184-year return period, indicating that the probability of a single occurrence exceeding protection purchased is roughly 0.5% estimated by equally blending the AIR and RMS catastrophe models using long-term catalogs including demand surge. AmCoastal’s program also provides sufficient coverage for a 1-in-100-year event followed by a 1-in-50-year event in the same treaty year, the probability of which is less than 0.1%. While we believe these catastrophe models are very good tools and their output provides reasonable proxies for the probability of exhausting our reinsurance protections, they are imperfect, so actual results could vary dramatically from those expected.

Current wording

AmCoastal’s core catastrophe reinsurance program provides occurrence-based coverage up to an exhaustion point of approximately $1,260,000,000 for a first occurrence and $1,610,000,000 in the aggregate. Under this program, our GAAP retention on a first event is $20,500,000 ($10,000,000 retained by AmCoastal under statutory accounting principles (STAT retained), $10,500,000 retained separately by our captive). We have purchased second and third event retrocession coverage, reducing our second and third event GAAP retentions to $13,000,000 ($10,000,000 STAT retained by AmCoastal, $3,000,000 retained separately by our captive). AmCoastal’s program provides sufficient coverage for approximately a 1-in-206-year return period, indicating that the probability of a single occurrence exceeding protection purchased is roughly 0.5% estimated by equally blending the AIR and RMS catastrophe models using long-term catalogs including demand surge. AmCoastal’s program also provides sufficient coverage for a 1-in-100-year event followed by a 1-in-50-year event in the same treaty year, the probability of which is less than 0.1%. While we believe these catastrophe models are very good tools and their output provides reasonable proxies for the probability of exhausting our reinsurance protections, they are imperfect, so actual results could vary dramatically from those expected.

Previous wording

IIC’s core catastrophe reinsurance program provides coverage up to an exhaustion point of approximately $82,500,000 in the aggregate, with a retention of $2,500,000 per occurrence. Based on IIC’s PML, the program provides sufficient coverage for two 1-in-130-year events in the same season, indicating the probability of a single occurrence exceeding protection purchased is no more than 0.1%.

Current wording

IIC’s core catastrophe reinsurance program, which is reported under discontinued operations, provides coverage up to an exhaustion point of approximately $82,500,000 in the aggregate, with a retention of $2,500,000 per occurrence. Based on IIC’s PML, the program provides sufficient coverage for two 1-in-130-year events in the same season, indicating the probability of a single occurrence exceeding protection purchased is no more than 0.1%.

Previous wording

The table below outlines our external quota share agreements in effect for the six months ended June 30, 2024 and 2023. The impacts of these quota share agreements on the financial statements of our former subsidiary, UPC, are included in discontinued operations in 2023.

Current wording

The table below outlines our external quota share agreements in effect for the nine months ended September 30, 2024 and 2023. The impacts of these quota share agreements on the financial statements of our former subsidiary, UPC, are included in discontinued operations in 2023.

Previous wording

Reinsurance costs as a percentage of gross earned premium during the three and six month periods ended June 30, 2024 and 2023 were as follows:

Current wording

Reinsurance costs as a percentage of gross earned premium during the three and nine month periods ended September 30, 2024 and 2023 were as follows:

Previous wording

Reinsurance costs as a percentage of gross earned premium for IIC, which is now captured within discontinued operations, during the three and six month periods ended June 30, 2024 and 2023 were as follows:

Current wording

Reinsurance costs as a percentage of gross earned premium for IIC, which is now captured within discontinued operations, during the three and nine month periods ended September 30, 2024 and 2023 were as follows:

Previous wording

Unpaid losses and LAE totaled $211,433,000 and $347,738,000 as of June 30, 2024 and December 31, 2023, respectively. In addition, unpaid losses related to IIC totaled $20,915,000 and $22,483,000 as of June 30, 2024 and December 31, 2023, respectively, which have been classified as discontinued operations.

Current wording

Unpaid losses and LAE totaled $173,322,000 and $347,738,000 as of September 30, 2024 and December 31, 2023, respectively. In addition, unpaid losses related to IIC totaled $21,356,000 and $22,483,000 as of September 30, 2024 and December 31, 2023, respectively, which have been classified as discontinued operations.

Previous wording

In addition, on May 9, 2024, the Company entered into a Sale Agreement with Forza in which ACIC will sell and Forza will acquire 100% of the issued and outstanding stock of IIC. The aggregate purchase price for the shares will be equal to IIC's GAAP shareholders' equity on the closing date. Closing is subject to customary closing conditions, including NYDFS approval of Forza's application for acquisition of control, and NYDFS approval of a new rate and form filing. A comparison of the results of IIC's operations for the three and six months ended June 30, 2024 and 2023 can be seen below.

Current wording

In addition, on May 9, 2024, the Company entered into a Sale Agreement with Forza in which ACIC will sell and Forza will acquire 100% of the issued and outstanding stock of IIC. The aggregate purchase price for the shares will be equal to IIC's GAAP shareholders' equity on the closing date. Closing is subject to customary closing conditions, including NYDFS approval of Forza's application for acquisition of control, and NYDFS approval of a new rate and form filing. A comparison of the results of IIC's operations for the three and nine months ended September 30, 2024 and 2023 can be seen below.

Previous wording

Net loss attributable to IIC for the three months ended June 30, 2024 increased $133,000, or 14.9%, to $1,025,000 for the second quarter of 2024 from a net loss of $892,000 for the same period in 2023. The details of the revenues and expenses that drove this change have been outlined below.

Current wording

Net income attributable to IIC for the three months ended September 30, 2024 increased $1,092,000, or 170.1%, to $450,000 for the third quarter of 2024 from a net loss of $642,000 for the same period in 2023. The details of the revenues and expenses that drove this change have been outlined below.

Previous wording

IIC gross written premiums decreased $1,061,000, or 15.0%, to $6,002,000 for the second quarter ended June 30, 2024 from $7,063,000 for the same period in 2023. This decrease was driven primarily by a decrease in renewals quarter-over-quarter. The change in IIC gross written premiums and new and renewal policies quarter-over-quarter can be seen below.

Current wording

IIC gross written premiums increased $2,516,000, or 25.5%, to $12,402,000 for the third quarter ended September 30, 2024 from $9,886,000 for the same period in 2023. This increase was driven primarily by an increase in renewals quarter-over-quarter. The change in IIC gross written premiums and new and renewal policies quarter-over-quarter can be seen below.

Previous wording

Expenses attributable to IIC for the six months ended June 30, 2024 increased $3,138,000, or 26.3%, to $15,056,000 from $11,918,000 for the same period in 2023. The increase in expenses was primarily due to an increase in our loss and LAE incurred during 2024, driven by increased current year non-catastrophe losses incurred. The details of these changes can be seen below.

Current wording

Expenses attributable to IIC for the three months ended September 30, 2024 increased $180,000, or 2.7%, to $6,954,000 from $6,774,000 for the same period in 2023. The increase in expenses was primarily due to an increase in our loss and LAE incurred during 2024, driven by increased current year non-catastrophe losses incurred, offset by decreased operating and underwriting expenses. The details of these changes can be seen below.

Previous wording

Loss and LAE attributable to IIC increased by $1,217,000, or 26.1%, to $5,887,000 for the second quarter of 2024 from $4,670,000 for the second quarter of 2023. Loss and LAE expense as a percentage of net earned premiums increased 0.8 pts to 91.4% for the second quarter of 2024, compared to 90.6% for the second quarter of 2023. Excluding catastrophe losses and prior year reserve development, our gross underlying loss and LAE ratio for the second quarter of 2024 would have been 66.6%, an increase of 17.0 pts from 49.6% during the second quarter of 2023.

Current wording

Loss and LAE attributable to IIC increased by $506,000, or 12.8%, to $4,448,000 for the third quarter of 2024 from $3,942,000 for the third quarter of 2023. Loss and LAE expense as a percentage of net earned premiums decreased 7.6 pts to 63.5% for the third quarter of 2024, compared to 71.1% for the third quarter of 2023. Excluding catastrophe losses and prior year reserve development, our gross underlying loss and LAE ratio for the third quarter of 2024 would have been 49.0%, an increase of 8.5 pts from 40.5% during the third quarter of 2023.

Previous wording

Policy acquisition costs attributable to IIC remained relatively flat, decreasing by $35,000, or 1.7%, to $1,984,000 for the second quarter of 2024 from $2,019,000 for the second quarter of 2023.

Current wording

Policy acquisition costs attributable to IIC remained relatively flat, increasing by $58,000, or 2.9%, to $2,052,000 for the third quarter of 2024 from $1,994,000 for the third quarter of 2023.

Previous wording

Net loss attributable to IIC for the six months ended June 30, 2024 decreased $955,000, or 45.7%, to $1,135,000 from $2,090,000 for the same period in 2023. The details of the revenues and expenses that drove this change have been outlined below.

Current wording

Net loss attributable to IIC for the nine months ended September 30, 2024 decreased $2,047,000, or 74.9%, to $685,000 from $2,732,000 for the same period in 2023. The details of the revenues and expenses that drove this change have been outlined below.

Previous wording

IIC gross written premiums increased $1,314,000, or 7.5%, to $18,859,000 for the six months ended June 30, 2024 from $17,545,000 for the same period in 2023. This increase was driven primarily by rate increases which took effect in the first quarter of 2024. The change in IIC gross written premiums and new and renewal policies quarter-over-quarter can be seen below.

Current wording

IIC gross written premiums increased $3,830,000, or 14.0%, to $31,261,000 for the nine months ended September 30, 2024 from $27,431,000 for the same period in 2023. This increase was driven primarily by rate increases and underwriting actions making their way through the book of business during 2024. The change in IIC gross written premiums and new and renewal policies quarter-over-quarter can be seen below.

Previous wording

Expenses attributable to IIC for the three months ended June 30, 2024 increased $1,210,000, or 17.1%, to $8,296,000 from $7,086,000 for the same period in 2023. The increase in expenses was primarily due to an increase in our loss and LAE incurred during 2024, driven by increased current year non-catastrophe losses incurred. The details of these changes can be seen below.

Current wording

Expenses attributable to IIC for the nine months ended September 30, 2024 increased $3,318,000, or 17.8%, to $22,010,000 from $18,692,000 for the same period in 2023. The increase in expenses was primarily due to an increase in our loss and LAE incurred during 2024, driven by increased current year non-catastrophe losses incurred. The details of these changes can be seen below.

Previous wording

Loss and LAE attributable to IIC increased $2,138,000, or 29.8%, to $9,319,000 for the six months ended June 30, 2024 from $7,181,000 for the same period in 2023. Loss and LAE expense as a percentage of net earned premiums decreased 17.3 pts to 74.3% for the six months ended June 30, 2024, compared to 91.6% for the same period in 2023. Excluding catastrophe losses and prior year reserve development, our gross underlying loss and LAE ratio for the six months ended June 30, 2024 was 52.6%, an increase of 8.7 pts from 43.9% during the six months ended June 30, 2023.

Current wording

Loss and LAE attributable to IIC increased $2,644,000, or 23.8%, to $13,767,000 for the nine months ended September 30, 2024 from $11,123,000 for the same period in 2023. Loss and LAE expense as a percentage of net earned premiums decreased 12.7 pts to 70.4% for the nine months ended September 30, 2024, compared to 83.1% for the same period in 2023. Excluding catastrophe losses and prior year reserve development, our gross underlying loss and LAE ratio for the nine months ended September 30, 2024 was 51.3%, an increase of 8.6 pts from 42.7% during the nine months ended September 30, 2023.

Previous wording

Policy acquisition costs attributable to IIC increased $357,000, or 9.3%, to $4,182,000 for the six months ended June 30, 2024 from $3,825,000 for the same period in 2023. The primary driver of the increase was an increase in agent commissions and premium taxes of $303,000 and $56,000, respectively, driven by the increase in gross written premium year-over-year.

Current wording

Policy acquisition costs attributable to IIC increased $415,000, or 7.1%, to $6,234,000 for the nine months ended September 30, 2024 from $5,819,000 for the same period in 2023. The primary driver of the increase was an increase in agent commissions and credit card fees of $286,000 and $235,000, respectively, both of which vary with changes in gross written premium year-over-year.

Previous wording

General and administrative expenses attributable to IIC increased $441,000, or 125.6%, to $792,000 for the six months ended June 30, 2024 from $351,000 for the same period in 2023 driven by an increase in the allocation of salary expenses of $301,000 and an increase in external professional service costs such as legal and audit fees totaling $151,000.

Current wording

General and administrative expenses attributable to IIC increased $447,000, or 94.9%, to $918,000 for the nine months ended September 30, 2024 from $471,000 for the same period in 2023, driven by an increase in salary-related expenses of $371,000 and an increase in external professional service costs, such as legal and audit fees, totaling $96,000.

Previous wording

ACIC net income for the three months ended June 30, 2024 increased $1,275,000, or 7.2%, to net income of $19,054,000 for the second quarter of 2024 from $17,779,000 for the same period in 2023. Of this income, $19,073,000 is attributable to continuing operations for the three months ended June 30, 2024, a decrease of $2,171,000 from $21,244,000 for the same period in 2023. Quarter-over-quarter revenues decreased, driven by an increase in ceded premiums earned, partially offset by an increase in gross premiums earned. This was offset by lower expenses quarter-over-quarter, driven by a decrease in policy acquisition costs and operating expenses, partially offset by increased administrative expenses. In addition, the Company's provision for income taxes increased quarter-over-quarter. The continuing operations changes were partially offset by a decrease in the Company's loss from discontinued operations, which decreased $3,446,000 quarter-over-quarter as the deconsolidation of UPC is not impacting the Company in 2024.

Current wording

ACIC net income for the three months ended September 30, 2024 increased $17,551,000, or 166.1%, to net income of $28,119,000 for the third quarter of 2024 from $10,568,000 for the same period in 2023. Of this income, $27,669,000 is attributable to continuing operations for the three months ended September 30, 2024, an increase of $12,654,000 from $15,015,000 for the same period in 2023. Quarter-over-quarter revenues increased, driven by a decrease in ceded premiums earned, and increases in net investment income and unrealized gains on equity securities. This was offset by increased expenses quarter-over-quarter, driven by an increase in policy acquisition costs and general and administrative expenses. In addition, the Company's provision for income taxes increased quarter-over-quarter. The Company's income from discontinued operations, also contributed to this change in net income, increasing $4,897,000 quarter-over-quarter, as the deconsolidation of UPC is not impacting the Company in 2024.

Previous wording

Our gross written premiums decreased $7,373,000, or 3.1%, to $229,449,000 for the second quarter ended June 30, 2024 from $236,822,000 for the same period in 2023. The breakdown of the quarter-over-quarter changes in both direct written and assumed premiums by state, gross written premium by line of business and new and renewal policies by state are shown in the tables below.

Current wording

Our gross written premiums remained relatively flat, decreasing $970,000, or 1.0%, to $93,016,000 for the third quarter ended September 30, 2024 from $93,986,000 for the same period in 2023. The breakdown of the quarter-over-quarter changes in both direct written and assumed premiums by state, gross written premium by line of business and new and renewal policies by state are shown in the tables below.

Previous wording

Loss and LAE decreased by $968,000, or 6.0%, to $15,277,000 for the second quarter of 2024 from $16,245,000 for the second quarter of 2023. Loss and LAE expense as a percentage of net earned premiums increased 3.3 points to 24.1% for the second quarter of 2024, compared to 20.8% for the second quarter of 2023. Excluding catastrophe losses and prior year reserve development, our gross underlying loss and LAE ratio for the second quarter of 2024 would have been 10.5%, an increase of 0.2 points from 10.3% during the second quarter of 2023.

Current wording

Loss and LAE increased by $1,952,000, or 19.9%, to $11,774,000 for the third quarter of 2024 from $9,822,000 for the third quarter of 2023. Loss and LAE expense as a percentage of net earned premiums decreased 3.7 points to 15.8% for the third quarter of 2024, compared to 19.5% for the third quarter of 2023. Excluding catastrophe losses and prior year reserve development, our gross underlying loss and LAE ratio for the third quarter of 2024 would have been 5.1%, unchanged from the third quarter of 2023.

Previous wording

RESULTS OF OPERATIONS - COMPARISON OF THE SIX MONTH PERIODS ENDED JUNE 30, 2024 AND 2023

Current wording

RESULTS OF OPERATIONS - COMPARISON OF THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2024 AND 2023

Previous wording

ACIC net income for the six months ended June 30, 2024 decreased $242,406,000, or 85.0%, to $42,653,000 from $285,059,000 for the same period in 2023. Of this income, $42,782,000 is attributable to continuing operations for the six months ended June 30, 2024, a decrease of $10,027,000 from $52,809,000 for the same period in 2023. Year-over-year revenues decreased, driven by an increase in ceded premiums earned, partially offset by an increase in gross premiums earned. This was offset by lower expenses year-over-year, driven by a decrease in policy acquisition costs and loss and LAE incurred, partially offset by increased administrative expenses. In addition, the Company's provision for income taxes increased year-over-year. The Company's income from discontinued operations decreased $232,379,000 year-over-year as the deconsolidation of UPC is not impacting the Company in 2024. The divestiture of UPC in 2023 drove a gain of $238,440,000 that was non-recurring.

Current wording

ACIC net income for the nine months ended September 30, 2024 decreased $224,855,000, or 76.1%, to $70,772,000 from $295,627,000 for the same period in 2023. Of this income, $70,451,000 is attributable to continuing operations for the nine months ended September 30, 2024, an increase of $2,627,000 from $67,824,000 for the same period in 2023. Year-over-year revenues increased 2%, driven by an increase in gross premiums earned and investment income, partially offset by an increase in ceded premiums earned. This was offset by lower expenses year-over-year, driven by a decrease in policy acquisition costs and loss and LAE incurred, partially offset by increased general and administrative expenses. In addition, the Company's provision for income taxes increased year-over-year. The Company's income from discontinued operations decreased $227,482,000 year-over-year as the deconsolidation of UPC is not impacting the Company in 2024. The divestiture of UPC in 2023 drove a gain of $238,440,000 that was non-recurring.

Previous wording

Our gross written premiums remained relatively flat, increasing $587,000, or 0.1%, to $414,050,000 for the six months ended June 30, 2024 from $413,463,000 for the same period in 2023. The breakdown of the quarter-over-quarter changes in both direct written and assumed premiums by state, gross written premium by line of business and new and renewal policies by state are shown in the tables below.

Current wording

Our gross written premiums remained relatively flat, increasing $383,000, or 0.1%, to $507,066,000 for the nine months ended September 30, 2024 from $507,449,000 for the same period in 2023. The breakdown of the year-over-year changes in both direct written and assumed premiums by state, gross written premium by line of business and new and renewal policies by state are shown in the tables below.

Previous wording

Expenses for the six months ended June 30, 2024 decreased $23,562,000, or 22.6%, to $80,620,000 from $104,182,000 for the same period in 2023. The decrease in expenses was primarily due to a decrease in policy acquisition costs and loss & LAE incurred year-over-year. This was partially offset by increased administrative expenses year-over-year. The details of these changes can be seen below.

Current wording

Expenses for the nine months ended September 30, 2024 decreased $11,728,000, or 8.5%, to $126,692,000 from $138,420,000 for the same period in 2023. The decrease in expenses was primarily due to a decrease in policy acquisition costs and loss & LAE incurred year-over-year. This was partially offset by increased general and administrative expenses year-over-year. The details of these changes can be seen below.

Previous wording

Policy acquisition costs decreased $25,158,000, or 51.7%, to $23,534,000 for the six months ended June 30, 2024 from $48,692,000 for the same period in 2023. The primary driver of the decrease was an increase in reinsurance ceding commission income earned in 2024 of $25,336,000, driven by our commercial lines quota share coverage effective June 1, 2023.

Current wording

Policy acquisition costs decreased $17,822,000, or 28.6%, to $44,476,000 for the nine months ended September 30, 2024 from $62,298,000 for the same period in 2023. The primary driver of the decrease was an increase in reinsurance ceding commission income earned in 2024 of $16,188,000, driven by our commercial lines quota share coverage effective June 1, 2023.

Previous wording

Operating and underwriting expenses decreased $504,000, or 10.3%, to $4,377,000 for the six months ended June 30, 2024 from $4,881,000 for the same period in 2023, primarily due to a decrease of $1,047,000 in overhead costs such as rent, printing, postage, utilities and computer software and service costs year-over-year as a result of cost-saving initiatives. This was partially offset by increased underwriting costs totaling $544,000 year-over-year.

Current wording

Operating and underwriting expenses decreased $470,000, or 6.8%, to $6,492,000 for the nine months ended September 30, 2024 from $6,962,000 for the same period in 2023, primarily due to a decrease of $1,223,000 in overhead costs such as rent, printing, postage, utilities and computer software and service costs year-over-year as a result of cost-saving initiatives. This was partially offset by increased underwriting costs totaling $754,000 year-over-year.

Previous wording

During the six months ended June 30, 2024, the Company made capital contributions of $1,265,000 to its reinsurance subsidiary, UPC Re. We may make future contributions of capital to our insurance subsidiaries as circumstances require. The Company made no capital contributions to its subsidiaries during the six months ended June 30, 2023.

Current wording

During the nine months ended September 30, 2024, the Company made capital contributions of $1,265,000 to its reinsurance subsidiary, UPC Re. We may make future contributions of capital to our insurance subsidiaries as circumstances require. The Company made no capital contributions to its subsidiaries during the nine months ended September 30, 2023.

Previous wording

Cash Flows for the Six Months Ended June 30, 2024 and 2023 (in millions)

Current wording

Cash Flows for the Nine Months Ended September 30, 2024 and 2023 (in millions)

Previous wording

During the six months ended June 30, 2024, we experienced cash inflows of $250,886,000 compared to cash outflows of $232,823,000 during the six months ended June 30, 2023. This change was driven by normal business operations, such as premium collections. Claims payments were offset by reinsurance recovery collections, with the net outflow from these activities totaling approximately $3,542,000. In addition, during the first quarter of 2023, we disposed of UPC, resulting in a gain on disposal adjustment of $238,440,000. There was no similar transaction in 2024.

Current wording

During the nine months ended September 30, 2024, we experienced cash inflows of $241,907,000 compared to cash outflows of $184,889,000 during the nine months ended September 30, 2023. This change was driven by normal business operations, such as premium collections. Claims payments were offset by reinsurance recovery collections, with the net inflow from these activities totaling approximately $18,176,000. In addition, during the first quarter of 2023, we disposed of UPC, resulting in a gain on disposal adjustment of $238,440,000. There was no similar transaction in 2024.

Previous wording

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, 2024, net purchases of investments totaled $152,814,000 compared to net sales of investments of $258,736,000 during the six months ended June 30, 2023. These net sales in 2023 were offset by the disposition of $232,582,000 in cash related to the receivership of UPC.

Current wording

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 nine months ended September 30, 2024, net purchases of investments totaled $162,893,000 compared to net sales of investments of $263,877,000 during the nine months ended September 30, 2023. These net sales in 2023 were offset by the disposition of $232,582,000 in cash related to the receivership of UPC.