American Coastal Insurance Corp (ACIC) Double Down

An Incredibly High-Quality Insurer Trading at 3.5x P/E

Aryann Gupta, Nithin Mantena

Key Ratio and Statistics

Recommendation Strong Buy P/B 2.46x
Market Cap $381.5M 2024E P/E 2.9x
Share Price $8.69 2025E P/E 2.6x
Intrinsic Value per Share $26.50 Payback Period 3.5x
Upside 204.9% Date 12/12/2023

Executive Summary: American Costal is a small-cap property and casualty insurer based in St. Petersburg, Florida. They’re
exclusively focused on garden-style condominiums that have above-average risk characteristics and sell windstorm insurance
policies to the HOAs that represent them. AmCo’s underwriting superiority is derived from its exclusive relationship with
AmRisc. AmCo is now de-consolidated from UPC, a lower-quality personal lines insurer, whose losses in the past have been
subsidized by AmCo’s underwriting profits. We believe AmCo to be the most undervalued insurer in Florida. We believe that
it trades at a forward PE of ~2.9x, a payback period of just 3.5 years, and strong growth thereafter.

Since originally pitching the company a month ago, we have worked extensively to verify the quality of ACIC. We have
focused our research on hurricane risk, reinsurance, hard market environment, management, equity offering, and NY personal
lines exposure. The mediums through which we conducted our research were interviews with multiple P&C insurance experts,
review of the most recent quarterly earnings and filings, asking management questions during Q3 call, discussions with HOAs,
use of a wayback machine/software to evaluate ACIC’s history, extensive simulations, academic papers, and calls with fund
managers who own ACIC.

After our research, we have maintained very high conviction in the company and recommend increasing the size of the
position in the portfolio.

Reinsurance

We had the opportunity to speak to Professor Woollams of Columbia University. He is an expert in the management of
commercial property and casualty insurance claims spending nearly two decades at AIG as President of Global Commercial
Claims. In addition, we spoke to Shiwen Jiang, an insurance actuary at Berkshire Hathaway Specialty Insurance who has over
three decades of experience in the actuarial sciences for P&C insurance. Shiwen was also able to provide general insight on
Berkshire’s P&C reinsurance strategy.

High Reinsurance Capacity with Low Attachment Points

A major determining factor in the risk of an insurance business is the quality of their reinsurance stack. We were of the belief
that the two most important numbers to pay attention to when analyzing the reinsurance stack (figure 2) was the size of the
stack at the upper end (approx. $1 billion for ACIC) and the risk of the stack being depleted (1 in 167 year hurricane event for
ACIC). However, after further due diligence, we have identified new metrics that can be used to evaluate the quality of a
reinsurance stack.

ACIC has an attachment/retention point of $10 million per event. This means that for each event, ACIC pays the first $10
million and then the reinsurance kicks in. In most years, we can expect ACIC to spend their full $10 million retention. This
year management has stated that even with the impacts of Idalia which crossed over Florida, current loss estimates are well
below the reinsurance retention limit.

An actuarial expert suggested that we compare each insurance companies' attachment/retention limit to their
policyholder/equity surplus. Currently, ACIC, even with a low equity base, because of the loss-sharing agreement with UPC,
has a 12x equity to retention limit which is far above average in Florida but still below the very best catastrophe insurance
companies in the US. Figure 1 below shows the equity to retention limits for various competitors in the Florida P&C market.
We included Palomar as it is a very high-quality comp on the West Coast that insurers against earthquakes and hurricanes.

Equity to Retention
Publicly Traded Florida Insurers ($mm) ACIC ACIC 24e Palomar UVE HRTG
Equity 120.65 202.34 383.25 288.00 151.00
Retention Limit 10.00 12.50 17.50 45.00 70.00
Equity to Retention Limit 12.06 16.19 21.90 6.40 2.16

Figure 1: Equity to Retention Table

Figure 2: American Coastal Reinsurance Stack

In addition, Shiwen Jiang explained to us the 3-module actuarial simulation used for insurance and reinsurance to calculate this
1 in 167-year probability that can be seen in figure 2. The first module is the event/hurricane simulation. This module allows
actuaries to simulate the formation, movement, and dynamics of hurricanes. The simulation varies the diameter, wind speed,
pressure, and location of the hurricanes for many years (>100,000 in some cases). The data used in these simulations is almost
entirely historical with minimal considerations for the future. Since reinsurance agreements are only in place for 1-year at a
time, past data has a very strong correlation with hurricane risk for the next year. This 1 in 167-year number that can be found
on ACIC’s website comes from running this simulation. Therefore, this number only correlates well with the risk of the
reinsurance stack being fully utilized for the next few years. This number should not be used to extrapolate any further that a
few years as climate change along with other unforeseeable factors could change this probability. Shiwen Jiang instead
suggested that we compare this 1 in 167 number across competitors to evaluate how ACIC’s stack stacks up. At the
competitors that we looked at, the lowest stack indicated a 1 in 100 probability while the highest stack (Palomar) indicated a 1
in 250-year probability. ACIC sits comfortably in the middle. In addition, ACIC’s superior performance during large hurricane

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events and disciplined insurance strategy (remember that ACIC has never turned a loss in their 15 year operating history due
to their focus on garden style condominiums) leads us to believe that the are overstating the risk of hurricanes to ACIC.

Reinsurers have many considerations when selling reinsurance to specific P&C insurance companies. These considerations,
simulated using the 3-module model, include the type of construction of the insured properties, location, etc. In addition,
reinsurers have relationships with insurers. While these relationships tend to be stronger the larger the client as a percentage of
total insurance book, these reinsurers will often have the same actuaries underwriting the same insurance companies year over
year. For example, one actuary may be tasked with just managing the insurance book for ACIC and a handful of other
insurers. The fact that reinsurers likely have an established relationship with ACIC means that ACIC will get reinsurance rates
that consider the low total value insured at risk for the company. To quantify this, we looked at total reinsurance expenses as a
percentage of gross premiums written for the top P&C insurance companies in Florida over the last decade.

Coming into reinsurance negotiations, management often has a plan as to what type of reinsurance stack they want. For
example, they will likely have a target max size, retention/attachment point, percent quota share versus excess loss, and
approximate price. If ACIC is not able to negotiate the exact terms that they want the first time around, they can always
renegotiate at a higher price. If after final negotiations, ACIC does not have a reinsurance stack that sufficiently covers the risk
they are exposed to, management always has the option to underwrite lower levels for that year. Because of the long-track
record of underwriting discipline that Mr. Peed has shown, his firm understanding of risk created through founding and
running AmRisc, and low combined ratios, we believe that Mr. Peed would decrease gross premiums written if a poor
reinsurance stack was negotiated. The quality of the insurance stack has been integrated into our financial model in both direct
and indirect ways. Directly we have assumed 1 named event per year causing 12.5 million in retention to be used up.
Additionally, we have modeled private XOL reinsurance expenses as a percent of GPW increasing from 19% in 2024 to 23%
in the out year. Using Crystal Ball, we have simulated both retention points and private XOL reinsurance costs across 1,000+
scenarios with even 3 standard deviation results leading to extremely strong upside (indicates lack of model sensitivity to these
rates).

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Dynamic Rate Adjustability in Response to Reinsurance Market Trends

Professor Levich asked us to look at how non-Florida catastrophe events affect reinsurance capacity in Florida (e.g., in Japan).
Leading on from this question, Professor Levich was concerned that this could lead to a set of circumstances where overall
reinsurance costs rise but rates do not rise in Florida.

The first answer is that a significant portion of American Coastal’s reinsurance stack is obtained from the Florida Optional
Reinsurance Assistance Program (FORA) and Florida Hurricane Catastrophe Fund (FHCF). They have inured reinsurance
from FORA and FHCF. The FHCF reinsurance is particularly significant given that it covers them $665.2m xs $305.1m. This
is shown in Figure 3. Both these reinsurance programs are inherently Florida-focused and thus are not impacted by CAT
events in the rest of the world.

Figure 3: FORA/FHCF Reinsurance Stack

When talking to Professor Woollams one of the concerns he brought up was how sustainable programs like FORA/FHCF are
both in terms of durability and ability to pay if there is a black swan event. For that reason, we spent more time looking at how
FHCF is funded and maintained. The primary question being what their ability is to pay claims, and how will that look going
forward.

The FHCF is a tax-exempt trust fund created by the State of Florida in 1993 that is designed to be self-supporting and self-
funded. The FHCF is administered by the State Board of Administration of Florida under Section 215.555 of the Florida
Statutes. All participating insurers, like ACIC, pay the FHCF annual reimbursement premiums as consideration for the
reimbursement coverage that FHCF provides. The reimbursement premiums are based on insured values of covered
properties (as reported annually to the FHCF).

The annual reimbursement contract provides for reimbursement of a percentage of an insurer’s residential hurricane losses in
excess of its retention which is determined under a statutory formula. Reimbursement is provided at one of three percentage
levels (90%, 75%, or 45%) which is selected in advance by the insurer seeking coverage. This means that once an insurer’s
losses from residential hurricane damage exceed their retention level, the FHCF will cover either 90%, 75%, or 45% of the
additional losses, depending on what level the insurer has chosen.

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The FHCF obtains its funding from the following available potential sources:
1) Accumulated and current year reimbursement premiums
2) Recoveries from reinsurance and other risk-transfer mechanisms
3) Pre-event bond proceeds and other pre-event liquidity resources
4) Proceeds of post-event revenue bonds or bank loans issued
5) Investment earnings or accumulated reimbursement premiums

It is important to note that the actual and potential obligations of the FHCF are limited by statute. For the contract year June
1, 2023 – May 31, 2024, the maximum potential liability of the FHCF is $17 billion, with projected available total liquid
resources of approximately $7.7 billion, which is comprised of $4.2 billion of project year-end fund balance and $3.5 billion of
pre-event bond proceeds.

The projected available total liquid resources of $7.7 billion is $9.3 billion below the maximum potential liability, which would
therefore require additional financing. In addition, the FHCF statute limits the Fund’s reimbursement liability to its actual
claims-paying capacity, which may depend on the financial market conditions at the time of sale if any post-event revenue
bonds are needed to pay claims. The $9.1 billion retention is the maximum loss amount retained by the industry below the
FHCF coverage layer. Figure 4 summarizes this graphically.

Figure 4: FHCF Statutory Limits & Estimated Claims-Paying

Verisk and RMS are companies that provide catastrophe modelling services. Their models are used to estimate potential losses
from hurricanes, while using company-by-company data which includes analysis based on model results by ZIP code and type
of business and each individual company retention, company limit, and coverage selection. The data shown in the table below
is for the approximately 150 participating insurers where each insurers has its own retention and coverage limits, and therefore
each participating insurers has its own unique probabilities of triggering its FHCF coverage and reaching its FHCF coverage
limit.

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 FHCF Layer Ground Up Losses for Average Verisk, RMS Return Times (Yrs) for Aggregate Verisk,
Layer Loss ($ in B) Company Retention Limit ($ in B) RMS Company Retention Limit
$1bn FHCF Layer 1.00 7.90 8.00
Projected Fund Balance Exhausted 4.20 14.10 13.00
$5bn FHCF Layer 5.00 15.20 14.00
Pre-Event Bonds Exhausted 7.70 19.30 17.00
$10bn FHCF Layer (Ian Level) 10.00 23.30 21.00
Maximum Statutory Limit 17.00 98.20 240.00

Figure 5: FHCF Projected Return Times & Ground Up Losses

In the context of Figure 5, the “Return Times” column is the estimated number of years between hurricane events that cause
losses equal to the corresponding number in the column named “FHCF Layer Loss”. The “Company Retention Limit” is the
predetermined amount of loss that the insurance company is responsible for covering before the FHCF’s coverage begins.

Figure 6: FHCF Adjusted Simulated Losses

While looking at Figure 4 there appears to be a shortfall of $9.3bn. There is also $3.5bn in outstanding pre-event bonds. The
reason both are not concerns is because FHCF can levy emergency assessments on all property and casualty insurance lines,
similar to a statewide sales tax on an essential product with an underlying premium base of $72.6 billion. While the FHCF
statute does limit the amount of assessment that can be levied – 6% for losses attributable to one contract year and 10% for
losses attributable to all years – these percentages, when applied to the current assessment base of $72.6 billion, mean the
FHCF could levy annual assessments of as much as $4.36bn for losses form hurricanes occurring in one contract year and as
much as $7.26bn for losses from hurricanes occurring over all contract years.

The strength of this revenue stream is the primary reason the three major rating agencies – Moody's, Standard & Poor’s and
Fitch – rate FHCF’s current debt as Aa3, AA, and AA, respectively.

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 FHCF Post-Event Estimated Borrowing Capacity
($ in Billions) BofA Citi JPM MS WF Average
Borrowing Estimates
Tax-Exempt:
0-12 Months 1.75 2.25 4.50 4.24 3.50 3.25
12-24 Months 2.50 2.25 4.50 3.00 2.50 2.95
Total tax-exempt 4.25 4.50 9.00 7.24 6.00 6.20

Taxable:
0-12 Months 4.00 3.25 5.50 6.00 3.50 4.45
12-24 Months 4.00 3.25 5.50 4.00 2.50 3.85
Total Taxable 8.00 6.50 11.00 10.00 6.00 8.30

Figure 7: Expected Post-Event Borrowing Capacity

The FHCF’s finances will be significantly stretched next year if we have any hurricane comparable to Irma or worse. This
would most likely wipe out the entirety of their “equity” and also into their $3.5bn Series A 2020 bonds. This extrapolation is
based on Figure 6. Running out of surplus while not ideal would not be disastrous. FHCF will be forced to rely on their post-
event bonds. In the case of Hurricane Wilma FHCF was able to raise approximately $30bn of post-event bonds, so they could
do this again in theory. The post-event borrowing is somewhat constrained by the post-event borrowing that is estimated by
banks and is highlighted in Figure 7.

There is also the implicit backing of the state. The Florida State Government is very highly rated (AAA rated) and had a record
surplus for FY2021-2022 of $22.8bn USD.

We do not see FHCF posing any idiosyncratic risk to AmCo, but rather potentially a systemic risk to the industry but that too
with very limited impacts given that it would be industry-wide.

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Strategic Risk Mitigation through Quota Share with Reinsurers

From 2019 to 2021, AmCo was in a loss-sharing agreement with UPC. This loss-sharing agreement caused AmCo’s equity
base to reach low levels of approximately 70 to 80 million dollars. Because of this low equity base, AmCo was forced to enter
into a strategic quota share agreement with Berk Re and Arch Re. A quota share agreement is a type of reinsurance that
contrasts with the standard excess of loss agreement. One can think of it as reinsurance companies purchasing temporary
equity in AmCo. Mechanically, AmCo cedes a portion of their gross premiums earned and at the same time the reinsurance
companies agree to pay an equal portion of the losses and expenses.

Currently, AmCo is in a 40% quota share agreement. This quota share agreement would be destructive to shareholders if
maintained for long periods of time. This is especially true during hard markets where catastrophe insurance prices are very
attractive. However, with ACIC’s recent equity offering and increased profitability in years to come, we believe that AmCo
should be able to return to a purely excess of loss reinsurance stack by 2026e. To forecast when AmCo would be able to
reduce their quota share agreement, we forecasted the net premiums earned (NPE, total premiums written less reinsurance
costs) to retained earnings ratio. HCI, the second highest quality P&C insurer in Florida, has a NPE to retained earnings ratio
in normalized years of 2x. Palomar, a very high-quality catastrophe insurance comp on the east coast, has a ratio of just .5x
today with a lower ratio in soft market years. Management at ACIC as well as insurance analysts like to see a ratio below 2x
and probably closer to 1x for the long term. Using LTM data, AmCo has an NPE to equity ratio of 2.7x which is far above the
2x target and the core reasoning behind implementing a quote share agreement. Figure 8 shows these ratios across the comp
set.

NPE to Equity 2014 2015 2016 2017 2018 2019 2020 2021 2022 Average
ACIC 1.9x 1.5x 1.2x 0.9x 0.9x 1.0x 1.9x -5.5x -1.9x 1.3x
UVE 12.7x 5.3x 3.9x 3.7x 4.1x 4.2x 4.1x 4.9x 10.6x 5.9x
HCI 2.1x 1.5x 1.1x 1.0x 1.1x 1.2x 1.5x 1.7x 1.9x 1.5x
HRTG 1.3x 1.6x 1.3x 0.9x 0.9x 0.8x 0.9x 1.0x 1.1x 1.1x
Palomar 0.1x 0.1x 0.1x 0.2x 0.3x 0.4x 0.5x 0.3x
Figure 8: NPE to Equity Comps Table

Looking forward, we believe that AmCo with a 40% quota share in 2023e (12 months ended in July 2024) should have close to
$200 million in equity and a NPE to equity ratio of just 1.2x, far below the industry standard in Florida and safely below
management’s upper bound. It is this drastic drop in NPE to equity ratio in 2023e that is allowing us to forecast a decrease in
the quota share as % of GPE from approximately 35% in 2023-2024 to 25% in 2024-2025, 15% in 2025-2026, and 5% in
2026-2027. We have sanity checked these numbers using the ceding ratio which we have included in figure 9 below.

Figure 9: Historical CPE to GPW for American Coastal

As hinted at briefly, AmCo is currently issuing equity. While issuing equity at a time when the share price of ACIC is extremely
undervalued would be seen as value destructive, management believes that this additional equity will lead to more value
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creation by allowing AmCo to get out of this high quota share agreement faster than currently expected. Below we have
conducted an analysis to determine whether this equity offering creates value or not. Simply, we compared the value of ACIC’s
shares with and without the equity offering, attempting to keep the risk between the two scenarios equal by adjusting the quota
share accordingly.

While there were many measures of risk that we could have used, we determined that looking at NPE to equity was the most
logical choice. In both scenarios, we would expect management to target reaching a NPE to equity ratio below 1x by 2025e.
This is the factor that we will be trying to hold constant in the two scenarios with the independent variable being the quota
share percentage.

In figure 10 below, you can see the two scenarios. The first shows what we believe the quota share agreement will be with the
$20,000,000 equity offering. In this scenario, we can see that AmCo will be able to return to a NPE to equity ratio below 1x
between 2024 and 2025 fiscal years. The second scenario shows what the quota share agreement would have to be when
accounting for the lower level of net income caused by no equity raise. We also included the ceding ratios which can be sanity
checked against figure 9. Specifically, you would want to see the ceding ratio come back down to normalized levels such as
those from 2013 to 2019.

When comparing the valuations between the two scenarios (figure 11), we can see that the equity offering does not
substantially decrease the intrinsic value of ACIC after accounting for the share dilution. The point of this exercise is to show
that the equity offering does not destroy significant value, something that the market likely thinks is true and/or sees as a sign
of weakness in the company.

Equity Offering & Quota Share Analysis 2022 2023 2024 2025 2026 2027 2028 2029 2030
With Equity Offering
Quota Share Amount 0% 35% 25% 15% 5% 0% 0% 0% 0%
NPE to Equity 2.7x 1.2x 1.1x 0.8x 0.6x 0.5x 0.5x 0.4x 0.4x
Ceding Ratio (sanity check) -55% 67% 55% 48% 44% 43% 44% 44% 45%

Without Equity Offering (adj. quota share)

Quota Share Amount 0% 40% 32.5% 25% 5% 0% 0% 0% 0%
NPE to Equity 2.7x 1.2x 1.2x 0.9x 0.8x 0.6x 0.6x 0.5x 0.5x
Ceding Ratio (sanity check) 55% 72% 63% 58% 44% 43% 44% 44% 45%

Figure 10: Historical CPE to GPW for American Coastal

ACIC Value ACIC Value

Equity Value 1,131,583,951 Equity Value 1,193,906,835
DSO (with equity offering) 42,478,686 DSO (with equity offering) 45,058,744
Equity Value per Share 26.64 Equity Value per Share 26.50
Current Share Price 8.69 Current Share Price 8.69
Upside 206.55% Upside 204.91%

Figure 11: Equity Offering Analysis

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Hurricane Risk

Hurricanes clearly pose the largest risk for the company and investment going forward. While almost all of this risk is covered
by a thorough analysis that we did on the reinsurance stack, we wanted to further clarify the risk through analysis of past and
current hurricanes and how they impacted ACIC. In addition, we have created a simple simulation that allows us to see the
impact of named events on our financial model over the forecasting period.

General Hurricane Trends

There are many misconceptions that people hold about hurricanes. Some of the common misconceptions are that destructive
hurricanes occur frequently (availability bias), their frequency is increasing rapidly because of warming temperatures in the
Atlantic (misinformation), and that Florida hurricanes cause state-wide damage.

What is true is that the average number of named category 3, 4, and 5 hurricanes is .31 per year in Florida (National Hurricane
Center, Hurricane database), their frequency has remained unchanged over the last 200 years with no apparent trend due to
warming oceans (Nature Climate Change, peer reviewed paper), and that hurricanes take specific paths that cause centralized
damage (ex. Idalia, Michael, Ian, etc).

Importantly though, hurricanes are increasing in severity due to both higher wind speeds and increased population density in
coastal areas. According to a recent study the chance of a “Katrina-like TV and a Harvey-like TV impacting the United States
within 15 days of each other is non-existent in the control simulation for over 1,000 years … but is projected to have an
annual occurrence probability of 1% by the end of the century under the high emission scenario.”

Figure 12 below was used to calculate the hurricane frequency by decade in Florida. As can be seen, the average number of
categories 3, 4, and 5 hurricanes per year to make landfall in Florida is just .31. In total there have been just 26 category 3, 4,
and 5 hurricanes in the past 100 years in Florida. We have not included category 1 and 2 hurricanes as they have a low to
nonexistent potential to severely damage infrastructure. Typically, these hurricanes heavily dissipate by the time they make
landfall and there is not a substantial amount of data on these hurricanes as they are less tracked than the larger ones.

Figure 12: Hurricane Frequency by Decade in Florida

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The second misconception that people have is that hurricanes are occurring more often. This is not true as backed by both the
data we found as well as academic papers. Below in figure 13 we can see the number of hurricanes per decade in the US over
the last 175 years. Both the per decade rolling average of hurricanes from categories 1,2, 3, 4, and 5 and categories 1, 2, and 3
in the US has not meaningfully changed over the time frame we looked at.

Figure 13: Hurricane Frequency by Decade in the US

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Specific Hurricane Analysis

In this section, we look to provide analysis as to specific hurricanes that have impacted ACIC and Florida. We will go in
chronological order for the hurricanes starting with Irma in 2017 and finishing with Idalia which occurred this year.

The key aspects that we want you to keep in mind while looking at these hurricanes are the strength of the hurricane, the path
it took, the damage that those two aspects caused, and the impact on ACIC.

Irma (September 2017)

Hurricane Irma was the most damaging hurricane since Andrew. Looking at figure 14, the hurricane took a unique path
traveling near vertically along the west coast of Florida as a category 1, 2, and 3 hurricane and then traveled into the Atlantic as
a category 5. Irma caused $50 billion dollars in damage. To give context, Hurricane Katrina Sandy caused $70 billion in
damage to the US and Katrina caused $160 billion putting Irma up there against some of the most damaging hurricanes to the
US. Below is an image of the path that Irma took. Orange dots signify category 3 and 4 while red signifies category 5.

While it is hard to estimate what percent of the reinsurance stack was used up in Hurricane Irma’s case, ACIC was able to
maintain a combined ratio of 78% which is 20% below the average combined ratio in the industry.

Figure 14: Hurricane Irma’s Path Figure 15: Hurricane Michael’s Path

Hurricane Michael (October 2018)

Hurricane Michael was a very damaging hurricane that took a more unique path across the Florida panhandle (figure 15). The
hurricane was of category 5 strength when it hit Florida’s panhandle. Michael caused approximately 18.4 billion dollars in loss.
This compares to Irma which caused $50 billion dollars in loss exemplifying the significance that the path has on total damage
incurred.

During 2018, ACIC has a combined ratio of 86% which is far below the industry average.

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Hurricane Ian (September 2022)

Ian was a large category 5 hurricane which passed directly over highly populated areas of Florida where ACIC does business.
Look to figure 16 to see the path of Ian. It was the costliest Florida weather disaster on record surpassing that of Katrina and
Sandy and the deadliest to hit Florida since 1935. The hurricane caused $110 billion in damage which is 75% more than Irma
and twice that of Michael. The period between 2019 and 2021 exemplifies that hurricanes do not have to happen every year.
However, a lack of hurricanes in past years doesn’t stop sudden and large hurricanes from forming in the future.

While Ian passed over areas where ACIC insures and was of extreme strength, the hurricane only used up 20% of the
reinsurance stack according to management. This is fairly incredible and indicates that management is targeting properties with
a very low total insured value at risk.

Figure 16: Hurricane Ian’s Path Figure 17: Hurricane Idalia’s Path

Hurricane Idalia (August 2023)

Idalia made landfall in Florida as a category 4. The hurricane missed most of the highly populated regions, taking a similar path
to that of Michael. Early projections put the losses at $3 to $5 billion.

According to management “American Coastal was largely unimpacted by Idalia with our current loss estimate well below the
reinsurance attachment point of $10 million. American Coastal's commercial segment underlying combined ratio was 48.9% in
the third quarter and 54.3% year-to-date, down from 57.7% and 66.1%, respectively, year-over-year. Hurricane Idalia
represented a gross loss incurred of approximately $4 million and $2.5 million net of reinsurance with the remaining $3.3
million of catastrophe losses stemming from a couple of current year PCS events.”

Summary

The path and intensity of a hurricane is important when determining the impact to ACIC. However, even in cases where
category 5 hurricanes pass over highly populated areas of Florida, ACIC tends to be highly protected because of their large
reinsurance stack, low retention points, and low total value insured at risk because of the building codes that they target.

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3 Event Scenario

Something important to note is that ACIC is protected for up to two named events through their reinsurance stack. While the
specific mechanics of this two-event protection are unclear to us, any losses stemming from a third named event would
technically not be covered by the stack.

Keep in mind though that typically insurance companies can use parts of their unused 1st event stack to protect against future
hurricanes. For example, if there was a small named hurricane that only used up 10 million the 1-billion-dollar stack, that
wouldn’t cause the stack to become void if another larger hurricane occurred. Additionally, ACIC would always have the
option to purchase additional reinsurance throughout the year if needed. Lastly, a third named event could be insignificant to
ACIC such as Idalia, leading to very limited losses.

To evaluate the risk of a 3-event year, we ran a simulation using Crystal Ball that calculates the probability of a 3-hurricane
scenario occurring over the next 7 years (forecasting period). We utilized a Poisson distribution (figure 19) with mean of .31 to
estimate the number of hurricanes that would occur per year. After running our model over 10,000 trials, we estimate that a 3-
hurricane scenario would occur <3% of the time. This means that only 3% of the time will a 3-event scenario occur over the
next 7 years. If we look at just the next 3 years (the payback period) the probability is lowered to just 1%. In fact, there is a
10% chance that no category 3, 4, or 5 hurricane hits Florida over the next 7 years. This analysis does not include various
tropical storms or category 1 or 2 hurricanes that could hit Florida as these are insignificant events in relation to the $1 billion
reinsurance stack.

Simulation

In addition, to the smaller simulations that we ran, we ran a larger simulation for our financial model. The key variable that we
sensitized was the # of named events per year in Florida. We then tried to evaluate what other variables in our model were
correlated with the number of named events per year. We came to the conclusion that there were 5 other key variables in our
model that we wanted to sensitize and correlate. Figure 18 shows these variables.
Simulation Variables
# of Named Events
In our model, we have built in functionality to change the number of cat event per year. This is the core assumption we want
Relevance in Model
to sensitize. Many of the other assumptions we are sensitizing are either correlated significantly with the number of events.

Simulation Inputs/Assumptions Poisson distribution with rate of .31. This assumes 73% chance of 0 hurricanes, 23% of 1, 3.5% of 2, and .4% of 3.

Change in Property Market Valuations

Increases or decreases in property values is one factor that determines rates on insurance. There has been a studied positive
Relevance in Model
correlation between the size and number of hurricanes and property market values in Florida.
Normal distribution with mean of 0-3% depending on year and standard deviation of 1%. We positively correlated these
Simulation Inputs/Assumptions
values for each year with the last 3 years of # of named events.
Changes in Hard/Soft Market Pricing
Due to changes in reinsurance capacity, the insurance marker has cyclical pricing. The largest of driver of hard/soft market
Relevance in Model
pricing is the severity and frequency of named events in the future. 3 hurricanes ---> higher chance of hard market.
Maximum extreme distribution with scale of 2% and likeliest values of 0% in 2024, -15% in 2025, -20% in 2026, -10% in 2027,
Simulation Inputs/Assumptions
and 0% thereafter. We positively correlated these values for each year with the last 3 years of # of named events.
Private Excess of Loss Reinsurance Expense
Forecasting private XOL expense as a percentage of gross premiums written (GPE) with the assumption that as # of named
Relevance in Model
events increases, reinsurance costs should increase (supply-side).

Simulation Inputs/Assumptions Normal distribution centered around 19% to 25% of GPE depending on year with a standard deviation of 1%.

Per Event Retention

The retention is the $ value at which the reinsurance kicks in. Any losses below this point are paid directly by ACIC. We
Relevance in Model
believe there is minimal correlation between the retention point at # of named events.

Simulation Inputs/Assumptions Lognormal distribution with location of 8, mean of $12.5 million, and standard deviaton of $5 million.

Per-Event Loss Adjustment Expenses

Per-Event LAE provides an estimate for the costs of assessing damages per hurricane. This cost has averaged $15 million
Relevance in Model
reaching highs of around $27.5 for large hurricanes such as Ian.

Simulation Inputs/Assumptions Lognormal distrubtion with location of 0, mean of $15 million, and standard deviation of %7.5 million.

Figure 18: Simulation Variables Summarized

14
In our model, we assumed that a three-event year over the forecasting period would wipe out the entire company and all of its
past earnings leading to total loss on the investment. We believe that this assumption is highly conservative and unrealistic as
in reality the third hurricane would likely be covered by the remainder of the insurance stack and could be like Idalia which
only caused four million in losses. Lastly, the assumption that a third hurricane, regardless of the year it occurs, would lead to
total loss on the investment is unrealistic as the company will have likely built up or paid out past year retained earnings.

Our model also attempts to consider extreme hurricane events that use up the entire stack. We did this by assuming that if one
of these extreme hurricanes (1/167-year events) occurred anytime over the 7-year forecasting period, it would lead to total loss
on the investment. For the same reasons that the three-event year scenario wiping out the entire company is unrealistic, we
believe that a 1/167 year hurricane wiping out the entire investment is also unrealistic. This is because ACIC would have
additional equity balances to be able to pay out these claims and would have likely paid out a substantial amount of money by
later years. Additionally, we believe that ACIC targets customers who are uniquely protected from such extreme events.

We ran our simulation over 1000 trials. Figure 20 shows the distribution of outcomes for our investment in various scenarios.
The mean upside was approximately 210 to 220%. The left tail represents the outcomes where there is either a 1/167
hurricane or 3 event year anytime over the forecasting period. For the reasons described above, we believe that our model
significantly overstates the downside potential in these scenarios.

Figure 19: Possion Distribution representing

Hurricanes per Year in Florida

Figure 20: 1000 Trial Simulation of Upside

15
Hard Market Conditions

Hard Market Conditions Continue to Persist

When talking to Professor Woollams of Columbia he made it very clear that no market participant in the insurance market can
know exactly how long a hard market will last. According to past data, hard markets last four years whereas soft markets can
lost for up to 8 years.

Dan Peed continues to see Florida as a hard insurance market. He expects that to remain the case in both the near and
intermediate term. Dan Peed sees the commercial segment being an earnings leader for the foreseeable future.

“While the hard market creates challenges it also creates excellent opportunities for ACIC.” – Dan Peed, CEO of American Coastal

Figure 21: Q3 2023 Commercial Lines Premium &Total Insured Value

For the commercial lines segment (AmCo) gross written premiums were up 22.3% this quarter. We wanted to get a better
understanding of the split between what’s driving this. Price or Volume? Figure 21 from the IR deck helped answer that
question and management also addressed this. This figure shows a pretty incredible trend in that ACIC was able to insure less
homes (indicated by lower total insured value at risk) while collecting significantly more premiums.

“The volume is down, which is reflected by the TIV. It is down 14% and the rates are up around 35-6%.”
- Dan Peed

Thus, we are further convicted in the hard market that Florida is in currently and the pricing power edge that this gives AmCo.
These only serve to further mitigate underwriting risk and increase AmCo’s underwriting edge over other CAT insurers in
Florida. At the same time, we gained further conviction in Dan Peed’s underwriting discipline.

16
 Figure 22: Trend in Named Windstorm Deductibles

Figure 23: Trend in All Other Perils Deductibles

This argument is further supported by looking at the deductibles that HOAs are being forced to take for both AOP and
Named Windstorms (figure 22 and 23). Deductibles are simply the amount of money that the insured party must pay before
their insurance policy starts paying for expenses that they are covered for. It is obvious why deductibles increasing is good for
AmCo. This is purely a creation of the extremely hard market in Florida.

Our view and data were also further confirmed by Shiwen Jiang, an actuarial expert. Shiwen, from his experience in the market
currently sees no sign that rates will go down immediately. They might go up at a slower rate but are only expected to further
harden.

We also thought it would be useful to assess how AmCo’s primary competitors: HRTG, UVE and HCI, are doing in this hard
market where AmCo is able to deliver their current results.

HRTG:
- In the third quarter they incurred a net loss which was driven by the losses following Hurricane Idalia in the Florida
Panhandle
- Losses were close to $40m net for both Maui wildfires
- Premiums in force overall are $1.3bn
- They are looking to diversify out of Florida, they emphasize that 73.5% of the total insured value falls outside Florida
- However, for Q3 they grew their commercial residential premiums-in-force by 75.3%
- They do want to grow in commercial residential properties in Florida
- They continually mention they are focused on making sure that they are nor overly concentrated in any one areas in
Florida
17
UVE:
- Hurricane Idalia made Florida landfall, all losses are comfortably absorbed by UVE’s retention
- They have started to slowly increase new business in additional territories
- They lost money in Q3 2023, the loss per share was $0.16/share
- Idalia was set as a $45m loss, that is combined with another $10-$15m in losses

HCI:
- HCI is also a significant beneficiary of the hard market in Florida with higher average premium policy being the main
driver of improved earnings
- For Q3 they reported pretax income of $20m
- They did acquire UPC’s book in Georgia, North Carolina, South Carolina, Connecticut, New Jersey, Massachusetts
and Rhode Island so they are not a pure play Florida CAT insurer
- HCI is looking to enter the commercial residential insurance space, but they are awaiting regulatory approval. They are
aiming to commence operations in early 2024. This is primarily due to the lucrative nature of commercial residential
properties.

18
Unwavering Confidence in American Coastal’s Leadership

Professor Levich questioned our faith in management when we pitched ACIC last month. He asked how Mr. Peed could have
agreed to the loss-sharing agreement with UPC which led to subpar financial results and was inherently detrimental for
American Coastal.

To better understand the dynamic, it is important to provide more background on the current CEO, Dan Peed. Dan Peed
founded AmRisc, the business AmCo currently partners with, in 2000 as a specialty MGA to write commercial property
catastrophe. Dan Peed grew AmRisc from a claim sheet business plan to writing close to $2.5 billion of premium. Dan Peed
has grown AmRisc from scratch to the largest windstorm MGA and the fourth largest MGA overall in America. Dan Peed
was the President, CEO, and finally Vice Chairman for his final year at AmRisc until he retired at the end of 2019.

Dan Peed, while at AmRisc, founded AmCo as a subsidiary of AmRisc. At the time in 2007, Dan saw a void developing in the
Florida commercial-residential property insurance sector. There was a large hole in the property insurance market for 1-to-6
story, garden-style condominiums, and homeowner association properties. While demand for high-rise commercial policies
with large premiums was being better met by major carriers, garden-style premiums of $50,000/year were not large enough to
attract new entrants. Post 2004-2005 many of the major insurance carriers and smaller carriers were either no longer
comfortable underwriting hurricane risk or realized that they did not the proper underwriting skills to underwrite hurricane
risk under state-admitted guidelines and as a result stopped offering policies to certain segments of the market.

Since its founding AmRisc raised significant sums of capital from BB&T to help fuel growth and thus BB&T had become the
majority shareholder by 2012 with Dan Peed only owning a small portion of AmRisc. Following this BB&T corporation
agreed to sell American Coastal Insurance Company to Dan Peed and other members of the AmRisc management team in
May of 2015.

As part of this management led buyout it was agreed that AmRisc will remain AmCo’s exclusive MGA serving the Florida
condominium property insurance market. The management team continued to manage the operations of AmCo while also still
staying on at AmRisc. What is important to note about the shared management team is that while they average more than
twenty years of insurance experience, their distinctive competence in the underwriting of condominium association business
comes from the fact that management team is dominated by structural engineers. They not only underwrite condominiums, in
their previous careers, they have been involved in the development, inspection and approval of loss prevention systems for
condominiums, as well as most other commercial property structures. When AmRisc was initially formed, the principals
leveraged the knowledge gained through their engineering education and related structural evaluation and building expertise to
evaluate and underwrite secondary and tertiary characteristics of the structural aspects of condominiums in addition to the
primary ones that insurance professionals review.

It is not entirely clear as to why Dan Peed agreed to the merger of effective equals between AmCo and UPC. But there is
some indication that we can gain from a call in August of 2016 which preceded the merger. The likely rationale for the merger
was that UPC and AmCo could be complementary with lots of synergies which would have led to an enhanced earnings
profile and improved margins for the combined entity. This was primarily driven by scale given that it would put the combined
entity over the $1 billion mark in premiums which would also help to optimize reinsurance spend. While in hindsight, it is very
easy to see how this merger was not particularly favorable to AmCo, at the moment it would have been impossible for Dan
Peed to predict UPC’s shift towards becoming an ‘InsurTech’ company. This is arguably what led to UPC’s demise. Dan Peed
was very committed to the merger which is demonstrated by the fact that he voluntarily agreed to adopt a 3-year lockup for
the vast majority of the stock he received as a result of the combination of AmCo and UPC.

As part of this merger Dan Peed had no purview of UPC and was solely restricted to AmCo. However, he was on the Board
of Directors as Vice Chair. Only in June of 2020 did Dan act along with the support of the board of directors to oust John
Forney. As soon as Dan took over there was a marked change in the way that UIHC was run. In the Q2 2020 Earnings Call
there was an immediate focus on the necessity of focusing on generating an underwriting profit.

Dan stated very clearly that he was committed to generating a consistent non-cat underwriting profit before pursuing any kind
of topline growth. This meant that a significant number of unprofitable lines were cut. This is very clearly demonstrated in the
19
Figure below which shows the TIV of the combined entity decreasing while rates were increasing. The decrease in TIV can be
attributed just fewer policies being written in the UPC business.

Figure 24: Investor Presentation from November 2022

While Dan did try to save and turn around UPC, it was too late and UPC’s fate caught up two years later with UPC being put
into runoff and receivership. This was finalized and consummated in February of 2023 when the Florida Department of
Financial Services (DFS) agreed to carve out UPC and all of its liabilities from the UIHC parent and leave UIHC with the two
current subsidiaries AmCo and IIC.

When looking at management and trying to assess them, we think that the most important thing is the alignment of incentives.
Factors that ensure shareholders will not be victims of the principal-agent problem. The incentives are very clearly aligned
given that Dan Peed owns 53% of all outstanding shares.

CEO Compensation
Publicly Traded Florida Insurers 2021 2022
Company
United Insurance Holdings Corp. $0 $0
Universal Insurance Holdings $3,540,547 $3,578,393
HCI Group $7,736,699 $1,031,115
Heritage Insurance Holdings $3,014,296 $2,365,485

Figure 25: Comps’ CEO Compensation

This is further reaffirmed by Figure 25 which breaks down the compensation of the CEOs of all Florida-focused P&C comps.
Unlike his peers, Dan Peed did not accept a salary as CEO, and each year received just $161,900 in board fees for his services
as Chairman. The same cannot be said of the CEOs of UVE, HCI, and HRTG. Thus, the argument can very strongly be made
that Dan Peed is the least greedy CEO among the peer group.

We also see a very strong capital allocation framework within AmCo. Brad Martz, the CFO of American Coastal sees three
buckets for any excess cash that they develop at the HoldCo level.

20
“The financial engineering elements are in that whether it’s stock repurchase, debt repurchase, whatever can generate the highest return. And we’ll
look at continuing to provide capital to American Coastal so that we can get off the quota share and retain more of the underwriting profit. All three
of those are fuel for earnings growth and higher returns on capital.” – Brad Martz, CFO of American Coastal

It is reassuring to see management giving very clear clarity on what retained earnings will be used for going forward.

In summary, Dan Peed has historically run ACIC (the company he had purview over) very well, took swift action to control
and contain UPC losses when he usurped power, and is closely aligned with public minority shareholders.

21
Interboro Insurance Company

We had not covered ACIC’s continued operation of Interboro Insurance Company (hereon referred to as IIC) throughout the
pitch. This is because when he had originally pitched ACIC we had believed that IIC would provide 0 NPV to the DCF. This
is a personal lines insurer that was a remnant of UIHC and had not been divested along with the Florida business that was put
into runoff. IIC’s policies are written exclusively in New York with roughly 18,000 policies focused on homeowners and fire
insurance products. This segment was excluded throughout the pitch because it only accounts for 7% of gross premiums
earned for the AmCo+IIC entity (as of September 30th, 2023).

We were somewhat concerned by IIC as it had contributed over $8.7mm in losses in the 9 months ending September 30th,
2023. But in the Q3 earnings call, we got greater clarity on the future of IIC. ACIC has executed a non-binding term sheet
with a third party to acquire IIC at GAAP book value at the time of closing. Management expects the sale to close within 5
months of today.

Management indicated that the current GAAP book value of IIC is $23mm. We have 2 more quarters of earnings and think it
would be conservative to extrapolate another $3m in losses (size of their retention shown in figure 26) and, therefore, a sale at
BV of $20 million. This is the most conservative figure given that we are not factoring in the 13% rate increases that IIC has
filed for with the New York Insurance Legislator. Management also expects some slight appreciation in the book value of IIC.

Figure 26: Interboro Insurance Company Reinsurance Stack

Management is very inclined to pursue a sale of this segment and is confident that they will be able to, and we think it will not
be a drag on earnings from Q1 2024 onwards.

22
New Managing General Agent

As was mentioned in the prior section covering management, Dan Peed was the founder and longtime CEO of AmRisc. Now
that the deconsolidation of UPC is finally complete, Dan has indicated that he is in the early stages of creating a new MGA
business under the American Coastal corporate umbrella. While there is very little information on this in the public domain,
we had the opportunity to talk to Jon Cukierwar who runs Sohra Peak Capital, a L/S fund also long ACIC. Jon has had the
opportunity to meet Dan Peed multiple times and has said that Dan Peed is “100% in on the MGA idea”.

“There are tremendous opportunities in any type of property, habitational or non-habitational, especially in Florida because of the capacity
constraints. And the lack of disciplined, experienced CAT property underwriting.” – Brad Martz, CFO of American Coastal

We also have gotten clarity that this new MGA would not compete in any way with AmRisc, as doing so could potentially
jeopardize their current exclusivity agreement with AmRisc. Dan Peed plans to leverage his expertise and AmCo’s IT assets
and historical data from both the commercial and personal lines segments to underwrite windstorm policies for one or several
new verticals. This would be strictly as an MGA meaning that ACIC would not be taking on additional policy risk. Insteads,
the policies would be sold to partner carriers in exchange for commission revenue.

Jon indicated to us that this MGA could underwrite $300m in GPW. When talking to Jon he said that Dan particularly saw a
gap in MGAs for the residential market for homes worth between $750k to $3mm.

This is something that we have decided not to model out given we are not certain of exact timelines, but rather see it as a very
strong call option. Our estimates for the NPV of this MGA range from $300m to $400m.

23
Historical Statements:

3rd Quarter 2023 Results

Three Months Ended Sep 30, 2023 Nine Months Ended Sep 30, 2023
Commercial Lines Personal Lines Other Total Commercial Lines Personal Lines Other Total
Gross Premiums Earned 157.80 8.00 165.80 435.60 32.80 468.40
Ceded Premiums Earned (107.50) (2.40) (109.90) (232.70) (9.50) -242.1
Net Premiums Earned 50.30 5.60 55.90 202.90 23.40 226.3
Investment & Other Revenue 1.90 0.80 2.70 (1.20) 2.40 1.2
Unrealized G(L) on Equities 0.20 0.00 0.20 0.80 0.00 0.8
Total Revenue 52.40 6.40 58.80 202.50 25.80 228.3

Underlying Loss & LAE 8.00 3.20 11.30 38.00 9.80 47.8
Current year CAT Loss & LAE 4.90 1.00 5.80 13.20 1.80 15
Prior year development (3.10) (0.20) (3.30) (11.20) (0.50) -11.7
Total Loss 9.80 4.00 13.80 40.00 11.10 51.1
Operating & Interest Expense 16.60 7.70 3.00 27.20 72.20 24.80 9.00 106
Total Expenses 26.40 11.70 3.00 41.10 112.20 35.90 9.00 157.1
Other Income (Loss) 0.00 (0.20) (0.20) 0.00 1.40 0.20 1.2
Income (Loss) before Tax 25.90 (5.50) (3.00) 17.50 90.20 (8.70) (9.20) 72.4
Income tax expense (benefit) 3.10 7.3
Net Income (Loss) From Continuing Operations 14.40 65.1

Net Loss Ratio 19.50% 71.20% 24.70% 19.70% 47.60% 22.60%

Net Expense Ratio 33% 138.10% 44.00% 35.60% 105.90% 43.20%
Combined Ratio 52.50% 209.30% 68.70% 55.30% 153.50% 65.80%
CAT Loss 9.70% 17.20% 10.50% 6.50% 7.80% 6.60%
PY Development (F)/U -6.20% -4.40% -6.00% -5.50% -1.90% -5.20%
Underlying Combined Ratio 48.90% 196.50% 64.20% 54.30% 147.70% 64.40%

In the 3rd quarter, the book value per share increased to $2.78. Net income for the quarter was $14.4mm. The personal lines
segment which we talked about was a drag on earnings and contributed to a pre-tax loss of $5.5mm. Another important thing
to note is that operating expenses are down 45.7% year over year on a quarterly basis given that they are ceding a higher
proportion of their gross premiums earned. This is exactly what we had modelled out.

24
ACIC Historical Unconsolidated Statements
Irma Michael Loss Sharing Period with UPC Ian
2013A 2014A 2015A 2016A 2017A 2018A 2019A 2020A 2021A 2022A
Gross Premiums Written 285,547,000 308,170,000 312,964,000 275,322,000 235,202,000 249,187,000 ########## ########## ########## 463,070,000
Ceded Premiums Earned (117,714,000) (133,410,000) (140,843,000) (135,138,000) (107,241,000) (108,892,000) ########## ########## ########## (253,088,000)
Net Premiums Earned 167,833,000 174,760,000 172,121,000 140,184,000 127,961,000 140,295,000 ########## ########## ########## 209,982,000

Losses Incurred
(1) Direct Business 12,924,610 8,373,018 22,783,711 36,104,050 51,173,258 136,944,805 109,279,695
(2) Reinsurance Assumed 0 0 0 0 0 81,232,464
(3) Resinsurance Recovered 8,138,869 329,950 14,327,388 12,296,744 11,207,303 105,644,684 132,172,659
(4) Net Payments (1 + 2 - 3) 4,785,741 8,043,068 8,456,323 23,807,306 39,965,955 31,300,121 58,339,500

(5) Net Losses Unpaid Current Year 9,446,345 11,941,166 19,904,323 26,714,000 31,429,773 36,861,991 77,254,739
(6) Net Losses Unpaid Prior Year 11,611,071 9,446,345 6,182,179 19,904,323 26,713,980 31,429,773 87,308,025
(7) Losses Incurred Current Year (4 + 5 - 6) 2,621,015 10,537,889 22,178,467 30,616,983 44,681,748 36,732,339 48,286,214

Claims Ratio 1.56% 6.03% 12.89% 21.84% 34.92% 26.18% 23.00%

Loss Adjustment Expenses

Direct 79,540,873
Reinsurance Ceded 52,346,528
Net LAE 16,594,727 17,106,772 20,412,400 17,303,602 2,251,309 15,032,244 27,194,345

Other Underwriting Expenses

Comission and Brokerage 42,167,715 42,751,047 45,531,807 17,018,840 32,318,969 44,924,539 51,184,513
SG&A 26,710,070 31,690,103 27,674,473 20,976,024 22,092,890 19,337,446 45,943,892
Taxes, Licenses & Fees 9,153,730 2,037,185 6,670,908 7,802,818 4,913,229 3,307,110 11,652,406
Miscellaneous Expenses 174,768 1,298,974 1,802,414 58,146

Total Expenses 78,031,515 76,478,335 79,877,188 63,276,052 62,875,371 84,403,753 136,033,302

Expense Ratio 46.49% 43.76% 46.41% 45.14% 49.14% 60.16% 64.78%

Underwriting Result 70,585,743 70,637,004 49,652,945 46,290,965 20,403,881 19,158,908 25,662,484

Combined Ratio 48.06% 49.79% 59.29% 66.98% 84.05% 86.34% 87.78%

Investment Income 1.2% 1.1% 1.5% 3.1% 4.4% 5.2%

Net Investment Income Earned 2,013,563 1,948,180 2,667,062 4,333,372 5,649,424 7,259,924 5,199,171
Net Realized Capital Gains (Losses) Less Capital Gains Tax 0 0 2,233 9,082 65,053 (173,214) (5,156,927)
Net Investment Gain (Loss) 2,013,563 1,948,180 2,669,295 4,342,454 5,714,477 7,086,710 42,244

Other Income
Net Gain (Loss) From Agents' or Premium Balances Charged Off 0 0 0 0 (5,926) 1,000 (9,943)
Finance and Service Charges Not Included in Premiums 0 0 0 0 0 0 0
Aggregate Write-Ins for Miscellaneous Income 0 0 0 0 0 2,295 1,179,531
Total Other Incomes 0 0 0 0 (5,926) 3,295 1,169,588

Net Income Before Dividends, After Cap Gains Tax & Before
72,599,306
Taxes 72,585,184 52,322,240 50,633,419 26,112,432 26,248,913 26,874,316

Federal & Foreign Income Taxes Incurred 25,739,335 24,385,078 18,156,037 15,031,945 8,430,796 5,345,921 10,358,775

Net Income 46,859,971 48,200,106 34,166,203 35,601,474 17,681,636 20,902,992 16,515,541

*NB: 2019-2021 Financials Excluded Due to UPC Loss Sharing Agreement

25
Valuation

Operating Build
Operating Build (Fiscal Year Beginning June) 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E
Stub 0.50 1.50 2.50 3.50 4.50 5.50 6.50 7.50
Gross Premium Written 736,281,300 802,546,617 734,330,155 627,852,282 593,320,407 622,986,427 654,135,748 686,842,536
% Change Attribution to ∆ in Property Valuations 0.00% 0.00% 2.00% 2.50% 3.00% 3.00% 3.00%
% Change Attribution to ∆ in Market Share 9.00% 6.50% 3.50% 2.00% 2.00% 2.00% 2.00%
% Change Attribution to ∆ in Hard/Soft Market Pricing 0.00% -15.00% -20.00% -10.00% 0.00% 0.00% 0.00%
% Change YoY in Gross Premiums Written 59% 9.00% -8.50% -14.50% -5.50% 5.00% 5.00% 5.00%

Gross Premium Earned 736,281,300 802,546,617 734,330,155 627,852,282 593,320,407 622,986,427 654,135,748 686,842,536
% Change YoY

Private XOL Reinsurance Expense (133,728,477) (149,096,924) (143,138,535) (138,127,502) (142,396,898) (155,746,607) (163,533,937) (171,710,634)
% of GPE -18% -19% -19% -22% -24% -25% -25% -25%
One-Time FORA Price Negotiation 10,000,000
YoY Change in TIV
FORA/FHCF Reinsurance Expense (100,000,000) (94,000,000) (96,820,000) (104,081,500) (111,367,205) (119,162,909) (127,504,313) (136,429,615)
-6% 3% 8% 7% 7% 7% 7%
Total XOL Reinsurance Expense (233,728,477) (243,096,924) (239,958,535) (242,209,002) (253,764,103) (274,909,516) (291,038,250) (308,140,249)
Quota Share Reinsurance Expense (257,698,455) (200,636,654) (110,149,523) (31,392,614) 0 0 0 0
% of Gross Premium Earned 35.00% 25.00% 15.00% 5.00% 0.00% 0.00% 0.00% 0.00%
Net Premiums Earned 244,854,368 358,813,038 394,222,096 354,250,666 339,556,304 348,076,911 363,097,498 378,702,287
Reinsurance % (Insurance Ceded) 67% 55% 46% 44% 43% 44% 44% 45%

Less: Commission and Brokerage Costs to AmRisc 184,070,325 200,636,654 183,582,539 156,963,071 148,330,102 155,746,607 163,533,937 171,710,634
%Commission & Brokerage Paid 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00%
Add: Ceding Commissions from QS 87,617,475 68,216,462 37,450,838 10,673,489 0
% of QS 34.00% 34.00% 34.00% 34.00% 34.00% 34.00% 34.00% 34.00%
Net Policy Acquisition Costs 96,452,850 132,420,192 146,131,701 146,289,582 148,330,102 155,746,607 163,533,937 171,710,634

Attritional Losses, Gross before Quota Share (55,221,098) (60,190,996) (55,074,762) (47,088,921) (44,499,030) (46,723,982) (49,060,181) (51,513,190)
% of GPE -7.5% -7.5% -7.5% -7.5% -7.5% -7.5% -7.5% -7.5%
Attritional Losses, Losses Borne by QS Reinsurers 19,327,384 15,047,749 8,261,214 2,354,446 0 0 0 0
% of GPE 2.6% 1.9% 1.1% 0.4% 0.0% 0.0% 0.0% 0.0%
Less: Attritional Losses (35,893,713) (45,143,247) (46,813,547) (44,734,475) (44,499,030) (46,723,982) (49,060,181) (51,513,190)

CAT Lossess
Number of Named Events 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0
(1) CAT Losses, Direct 50,000,000 52,000,000 53,560,000 57,577,000 61,607,390 65,919,907 70,534,301 75,471,702
(2) American Coastal per-event Retention 7,500,000 12,500,000 12,500,000 12,500,000 12,500,000 12,500,000 12,500,000 12,500,000
(3) American Coastal per-event LAE 15,000,000 15,000,000 15,000,000 15,000,000 15,000,000 15,000,000 15,000,000 15,000,000
(4) CAT Losses, Losses Borne by Reinsurance, XOL (20,000,000) (27,000,000) (28,560,000) (32,577,000) (36,607,390) (40,919,907) (45,534,301) (45,534,301)
(5) CAT Losses, Losses Borne by Reinsurance, Quota Share (7,875,000) (6,875,000) (4,125,000) (1,375,000) 0 0 0 0
Less: Net CAT Losses Borne by American Coastal (2 + 3 + 5) (14,625,000) (20,625,000) (23,375,000) (26,125,000) (27,500,000) (27,500,000) (27,500,000) (27,500,000)
(10,500,000) (25,375,000) (27,875,000) (29,125,000) (31,625,000) (31,625,000) (31,625,000) (31,625,000)
Investmet Income 12,487,573 16,361,875 16,990,972 14,665,978 14,261,365 14,688,846 15,322,714 15,905,496
interest rate% 5.1% 4.6% 4.3% 4.1% 4.2% 4.2% 4.2% 4.2%

Interest Expense 11,250,000 11,250,000 11,250,000 11,250,000 11,250,000 11,250,000 11,250,000 11,250,000

Pre-Tax Income 99,120,377 165,736,474 183,642,821 140,517,587 122,238,537 121,545,168 127,076,094 132,633,959

Federal & Foreign Income Taxes Incurred 20,815,279 34,804,660 38,564,992 29,508,693 25,670,093 25,524,485 26,685,980 27,853,131

Net Income 78,305,098 130,931,814 145,077,828 81,008,893 96,568,444 96,020,683 100,390,115 104,780,827

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Net Income Valuation

ACIC Net Income Valuation

As of 12/11/2023
Year 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E
Period 0.63 1.63 2.63 3.63 4.63 5.63 6.63 7.63
Net Income 42,334,436 130,931,814 145,077,828 81,008,893 96,568,444 96,020,683 100,390,115 104,780,827
PV Of Net Income 40,417,463 116,070,239 119,420,027 61,916,906 68,534,967 63,276,462 61,428,340 59,533,317
PV of Stage 1 590,597,721

Final-Year Net Income 104,780,827

Exit Multiple 10x
Terminal Value 1,047,808,275
PV of TV 595,333,166

ACIC Value
Equity Value 1,185,930,888
• We utilized a discounted net income valuation as converting from net income to
DSO (with equity offering) 45,058,744 cash flow is very difficult to accurately do.
Equity Value per Share 26.32
• We utilized an exit PE multiple of 10x, in line with HCI. However, ACIC could
Current Share Price 8.69 reasonably deserve a slightly higher multiple than HCI due to better management
Upside 202.87% and stickier customer relationships.

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Appendix

Exhibit 1: Thank You Message

We would like to thank Jon of Sohra Peak Capital immensely for his research on American Coastal which has both enabled us
and inspired us to pursue further research. We are also extremely grateful to Jon for having taken the time out on multiple
occasions to talk to us or answer our questions.

Aryann Gupta & Nithin Mantena

Exhibit 2: Trip to American Coastal Headquarters in St. Petersburg, Florida

Exhibit 3: Definitions

Gross Premium & Net Premium: The amount of premium received by the insurance company as a result of underwriting
various polices is the gross premium. Out of this total premium, some amount is used to pay reinsurance premiums. The
amount of money left after paying the reinsurance premium is called the net premium.

Unearned Premium: An unearned premium is the premium amount that corresponds to the time period remaining on an
insurance policy. In other words, it is the portion of the policy premium this has not yet been earned by the insurance
company because the policy still has some time before it expires. This can be thought of as deferred revenues.

Ceded Premiums: Ceded premiums refer to the premiums paid by the insurer to another insurer for reinsurance protection.

Excess of Loss: Excess of loss reinsurance is a type of reinsurance in which the reinsurer compensates the ceding company
for losses that exceed a specified limit. This is a form of non-proportional reinsurance. 10 xs 25, is interpreted as the reinsurer
is responsible for the next $25mm of losses that occur after the initial $10mm in losses.

Insurance-to-Value: The amount approximating the replacement cost of insured property.

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Quota Share Treaty: A quota share treaty is a form of pro-rate reinsurance (proportional) in which the insurer and reinsurer
share premiums and losses according to a fixed pre-determined percentage.

Loss Adjustment Expense (LAE): Loss adjustment expense is a cost that insurance companies incur when investigating and
settling an insurance claim. There are two types of LAEs – allocated and unallocated. Allocated costs accumulate during active
claim investigations whereas unallocated costs are part of the investigation overhead.

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