8-K: American Coastal Insurance Fortifies Catastrophe Reinsurance Program with Increased Coverage and Reduced Costs for 2025/26

American Coastal Insurance Corporation announced the successful renewal of its core catastrophe reinsurance program for 2025/26, securing increased coverage limits while achieving a significant risk-adjusted cost reduction.

Summary

• American Coastal Insurance Corporation (ACIC), through its subsidiary American Coastal Insurance Company (AmCoastal), renewed its core catastrophe reinsurance program effective June 1, 2025.
• For 2025/26, ACIC purchased approximately $1.676 billion of occurrence-based limit in aggregate, representing a 3.9% increase from the $1.614 billion purchased for the 2024/25 program.
• The program provides an estimated first event limit of $1.33 billion, an increase of 5.4% from the prior year.
• Coverage is sufficient for approximately a 1-in-201-year event, and in excess of a 1-in-100-year event followed by a 1-in-50-year event in the same season.
• First event retention increased to $29.75 million (12.6% of stockholders equity as of December 31, 2024), up from $20.5 million (12.2% of stockholders equity as of December 31, 2023) in the 2024/25 program.
• Second event retention increased to $18.5 million (7.9% of stockholders equity as of December 31, 2024), up from $13 million (7.7% of stockholders equity as of December 31, 2023).
• ACIC elected 90% coverage for the Florida Hurricane Catastrophe Fund (FHCF) Reimbursement Contract, projected to provide approximately $534.1 million of Florida-only coverage attaching at $299.9 million and exhausting at $834.0 million.
• An external quota share was placed at a 15.0% cession rate with an unaffiliated reinsurer holding an AM Best rating of A+.
• The provisional cost of ACIC's 2025/26 catastrophe excess of loss reinsurance programs (excluding the 15.0% quota share and potential reinstatement premium) is approximately $201.85 million, representing a risk-adjusted open market rate decrease of 12.2% from the 2024/25 program.
• The maximum reinstatement/additional premium exposure is $5.9 million, a decrease of $10.5 million or 64.0% from the 2024/25 program.

Sentiment

Score: 8

Explanation: The successful renewal of the core catastrophe reinsurance program with increased coverage and a significant reduction in risk-adjusted cost, coupled with a substantial decrease in potential reinstatement premiums, indicates a very positive outcome for the company's risk management and financial stability, despite a slight increase in retention.

Positives

• Increased occurrence-based limit by 3.9% to approximately $1.676 billion, enhancing overall coverage.
• Increased estimated first event limit by 5.4% to $1.33 billion, providing stronger protection for initial large events.
• Achieved a significant risk-adjusted open market rate decrease of 12.2% for the catastrophe excess of loss reinsurance programs, indicating more favorable pricing.
• Maximum reinstatement/additional premium exposure decreased substantially by 64.0% to $5.9 million, reducing potential future liabilities.
• Secured robust coverage sufficient for approximately a 1-in-201-year event and multiple severe events in the same season.
• Placed an external quota share with an A+ rated unaffiliated reinsurer, diversifying risk and strengthening the reinsurance structure.

Negatives

• First event retention increased by $9.25 million to $29.75 million (12.6% of stockholders equity), meaning the company retains more initial risk.
• Second event retention increased by $5.5 million to $18.5 million (7.9% of stockholders equity), increasing the company's exposure for subsequent events.

Risks

• Exposure to windstorms named or numbered by the National Hurricane Center in Florida.
• Potential for multiple catastrophic events in the same season, which could exhaust reinsurance layers and trigger reinstatement premiums.
• The provisional cost of reinsurance programs is subject to change based on actual exposure at September 30, 2025.

Future Outlook

The provisional cost of ACIC's 2025/26 catastrophe excess of loss reinsurance programs is subject to change based on actual exposure at September 30, 2025.

Management Comments

• B. Bradford Martz, President & Chief Executive Officer, signed the report on behalf of American Coastal Insurance Corporation.

Industry Context

The renewal of catastrophe reinsurance programs is a critical annual process for property insurers, particularly those operating in high-risk zones like Florida. The ability of American Coastal Insurance to secure increased coverage limits while simultaneously achieving a significant risk-adjusted cost reduction suggests a potentially more favorable reinsurance market for well-managed entities or strong negotiating power, which could provide a competitive advantage in an industry often facing rising reinsurance costs and capacity constraints.

Comparison to Industry Standards

• Securing coverage for a 1-in-201-year event and a 1-in-100-year event followed by a 1-in-50-year event demonstrates a robust risk transfer strategy, potentially exceeding the coverage levels of some industry peers who might opt for lower protection to reduce premiums.
• A 12.2% risk-adjusted rate decrease for catastrophe reinsurance is a notable achievement, especially in the Florida market which has experienced hardening rates and increased scrutiny from reinsurers in recent years. This suggests ACIC may have outperformed many competitors in securing favorable terms.
• The placement of a 15.0% external quota share with an AM Best A+ rated reinsurer aligns with industry best practices for diversifying risk and ensuring strong counterparty credit quality.
• While the increase in first event retention to 12.6% of stockholders' equity is a negative, it is a common trade-off in the reinsurance market where insurers assume more initial risk to achieve lower overall premium costs. This percentage should be compared to peers to assess its relative impact.

Stakeholder Impact

• Shareholders: Enhanced financial stability due to robust catastrophe coverage and reduced reinsurance costs could positively impact shareholder value and reduce earnings volatility.
• Customers: Stronger reinsurance coverage ensures the company's ability to pay claims even after severe catastrophic events, providing greater security and confidence for policyholders.
• Employees: A financially stable company with strong risk management provides a more secure employment environment.

Next Steps

• The provisional cost of the 2025/26 catastrophe excess of loss reinsurance programs will be finalized based on actual exposure at September 30, 2025.

Key Dates

Recommendation

Keywords

American Coastal Insurance, ACIC, reinsurance, catastrophe, CAT program, Florida, hurricane, insurance, risk management, property insurance, excess of loss, quota share, FHCF, retention