American Coastal Insurance Corporation (ACIC) Earnings Call Transcript & Summary

American Coastal Insurance Corporation. For those who don't know me, I'm Glen Akselrod with Bristol Capital and Investor Relations partner for the company. Just a quick reminder that today is not an earnings call and the purpose of today's presentation is to give our audience a better overview and understanding of the business through a presentation and questions with management. Today's presentation will be led by Brad Martz, CEO, who is also joined by Lana Castle, CFO; and Alex Baty, VP of Finance and Investor Relations. If you'd like to receive a copy of today's presentation, simply e-mail me at glen@bristolir.com. We'll break for questions and answers at the end of the formal presentation. When we do break, we encourage those questions. As a reminder, we're only going to take questions through the webinar portal. If you're listening over the telephone, please access the web link that we sent earlier to ask a question. You can submit a question using the text box at any time. I'll read the questions on the air for everyone to hear and then Brad or Lana will then answer. I'm not going to reference any names, but simply read the questions asked. And as we have a fairly large audience today, if I can't get to your question online, and it's not yet been addressed during the call in [indiscernible], I'll come back to you by e-mail. I will not read the forward-looking statements, but I do state that they apply, and I reference them on Page 2 of this presentation. With that said, once again, thank you for joining us. Remember, this is fairly informal, and we do encourage questions to help you better understand the business and its growth path. And now I'll turn the call over to Brad to start the discussion and presentation.

Great. Thanks, Glen. Good afternoon, everyone. I'm Brad Martz, President and CEO of ACIC. Thanks for joining us today. Since we covered the forward-looking statements, let's begin on Page 3. We believe ACIC is very well positioned, undervalued and on the verge of creating and enhancing shareholder value through actions our team has taken to invest in our future. We described ACIC as a specialty insurer because of the unique features of our underwriting approach. ACIC became the #1 writer of commercial residential property in Florida because we have highly technical underwriting systems, tools, processes and experienced people. Our core business is ensuring condominium associations in Florida, where ACIC covers the shell or the building envelope, the common areas and ancillary structures from physical damage. We don't cover contents or liability. For other income producing habitational properties like apartments and assisted living facilities, we do the same thing, but also include in price for limited business interruption protection, but also don't cover any liability or flood risk. Underwriting insurance in Florida, the peak zone in the world for hurricane risk is hard. It's even harder to do it profitably on a consistent basis when storm losses occur. Underwriting discipline means knowing how and when to price risk based on hundreds of primary and secondary risk characteristics that drive our view of risk and what profitable business looks like. I'm certain you'll hear other insurance companies talk about how good their underwriting is. But I'm not aware of any other insurer who can say they've earned an underwriting profit every year they've been in business in the Florida property insurance market over the last 19 years, nobody. Our track record and our results are among the best in the insurance industry in terms of both return on equity and profit margin as measured by the combined ratio. While underwriting and risk selection is our primary competitive advantage, catastrophe reinsurance also plays a critical part in protecting earnings and capital from potential volatility. ACIC has a very sophisticated reinsurance program designed to mitigate risk of loss from both catastrophe and non-catastrophe events. Because our track record of disciplined and profitable underwriting is so good, ACIC enjoys a very strong support from the reinsurance market, which allows us to transfer the vast majority of all the risk across our portfolio. We think of the company more like an MGA, transforming risk for the reinsurance industry, not necessarily a traditional insurance company or balance sheet underwriter that is usually retaining all the risks they write. This catastrophe protection means we don't need to hold as much capital, which helps fuel our consistently strong return on equity. As an insider own firm, our interests are aligned with stockholders and our focus is always on sustainable profitability and ROE. Our core condo business in Florida still has some upside and growth potential. But for the most part, it's a mature and stable platform. However, I believe we all believe, ACIC has a huge growth opportunity in front of us beyond our core business. Our operating model is very scalable and flexible, which means it can be applied to other territories beyond Florida as well as other classes of commercial property insurance. We'll talk more about our growth ambitions in a minute. Moving on to Page 4. We are introducing the various companies and brands on this page. AmCoastal is the Florida domiciled Property and Casualty Company, operating on an admitted basis in Florida. The admitted market is the more highly regulated market where companies must file and get approval for their rates, their underwriting rules and their policy forms. In Florida, commercial property over $5 million of total insured value, or TIV, is exempt from following our filed rates, which gives American Coastal full unregulated flexibility over how we price our business. This is the vast majority of what we write. And this is a huge advantage over other personal lines, admitted carriers who often get stuck fighting with regulators over rate levels and rate adequacy because it's the state's job to protect consumers and keep prices affordable, which conflicts with profitability. AmRisc is a managing general agency that was founded by our Executive Chairman and largest shareholder, Dan Pete. Dan formed AmRisc with the intent of AmRisc becoming a leader in commercial property insurance in the United States. He built AmRisc into the biggest and best commercial property underwriter in the U.S. Dan's partner was BB&T, today known as Truist Financial Corporation. So in 2007, Dan convinced BB&T to capitalize American Coastal as a source of dedicated capacity for AmRisc to underwrite profitable commercial property business in Florida. And eventually, American Coastal became so big and successful that Truist decided it shouldn't own a large cat-exposed insurance company. So Dan and the AmRisc management team ultimately swapped equity in AmRisc for ownership of AmCoastal. So I only mentioned this because we often get questions about the strength of this very important relationship. It is an exclusive relationship. And once people know AmCoastal used to be affiliated with AmRisc and was founded and controlled by Dan, it's easier to understand why the relationship is so strong and mutually beneficial. ACIC recently announced a new long-term agreement with AmRisc designed to keep our exclusive arrangement with them in Florida for condo business, more perpetual in nature versus what used to be a rolling 5-year term which was a regulatory constraint and often confused investors about the sustainability of that relationship. But our relationship has never been stronger and continues to grow as evidenced by our announcement in March of this year for American Coastal to provide AmRisc capacity for their nationwide E&S commercial property business. That co-participation arrangement will add roughly $70 million of new premium to ACIC in the first full year of operation, which can be scaled up or down over time, depending on the expected returns on capital from that business as well as the capacity needs of AmRisc. Ultimately, we expect that to grow over time. The key takeaway here is that our core business with AmCoastal and AmRisc is strong and on very solid footing. That leads us to Skyway and ACES specialty insurance company. ACES is just short for American Coastal E&S. These 2 entities are the growth engine for ACIC going forward. Skyway was formed as our wholly owned and controlled MGA platform because we did not want to be solely dependent on AmRisc long term. So we were dependent on them fully until 2024. However, today, Skyway has many of the same underwriting and claims handling capabilities at AmRisc and is now ready to achieve scale. Last year was our first full year of operation. And while we did great by working with the same national wholesale brokers, AmRisc uses to produce our core condo business in Florida. Our exclusive relationship with AmRisc is limited to condos. So it's our intent to use Skyway to underwrite condominium business outside of Florida plus all other classes of commercial property in every state, including Florida. Skyway is our operational growth engine. It has the ability to underwrite for our balance sheet carriers as well as third-party carriers, which is expected to generate service fee income in addition to underwriting profits over time. This is a key differentiator for us. Most MGAs like AmRisc take no risk. They are 100% dependent on third-party carriers to take risk. With Skyway, AmCoastal and ACES, we can do both. We are an MGA with multiple balance sheets that can co-participate or take all the risk. That is unique. This leads us to ACES specialty, our newly formed and licensed E&S insurance company. Excess and surplus lines or E&S is the unregulated insurance market in the United States. E&S carriers have full control over their rates, their rules and forms without any regulatory interference. So E&S is typically where the more complex and more challenging risk to underside reside. Our condo business in Florida doesn't -- also doesn't require an A.M. Best rating because there is no commercial lender or institutional investor requiring one at the condominium association level. So AmCoastal has obtained ratings from KBRA and Demotech instead. However, for all other types of commercial property, the opposite is true. So we formed ACES with the intent of getting it rated by A.M. Best to open up the rest of the commercial property market, we have previously not been able to access. In the short term, meaning the next 1 to 2 years, we intend to partner with other carriers while we work on capitalizing and rating and licensing ACES in the various states where we want to operate. So we can actually grow faster than if we just used ACES alone. So long-term, fronting partnerships, like the one we announced in March with [indiscernible] Fortegra and Arch will not be necessary since ACES gives us the ability to control our own destiny over time. That's the key. Moving to Page 5. This page highlights our key underwriting strategies. All you really need to know here is ACIC targets what we call low rise or garden style buildings, which are generally 3 stories or less with superior risk characteristics. Our average policy typically has 6 buildings with total insured value of about [ $16 million ] per policy and an average policy premium of about $120,000 today. we can write properties of up to $100 million of total insured value, but that's rare. We typically then use sophisticated catastrophe models to aggregate all this exposure and estimate the losses we could expect from thousands of historical and theoretical catastrophe events. This exposure management is essentially how we optimize the risk portfolio for underwriting profitability and also determine how much reinsurance protection to buy. That segues nicely into Page 6, which provides an overview of our core catastrophe reinsurance program designed to protect against hurricane risk. There are 2 parts to our reinsurance program: First part is our retention. Think of that as our deductible and the exhaustion point, which is either measured by an occurrence or an aggregate limit. So on June 1, 2026, for this year's hurricane season, we purchased over $1.7 billion of occurrence limit sufficient to cover a 1-in-286-year first event. The key metric here is the return period. If you're not familiar with that, it's a measure of exceedance probability. So for example, if you divide 1 by 286, that equals 0.35%. In other words, that means for every 10,000 hurricane events we've modeled, only about 35 of them have the potential for losses in excess of the $1.7 billion of occurrence limit we bought. And for comparison purposes, our rating agencies of Demotech and [indiscernible] today really only require us to buy up to the 130-year event return period, significantly lower standard. And most carriers operating in Florida today are buying around the 150-year return period. So ACIC goes well beyond that because of the stress testing we do to protect against worse case scenarios. It's impossible to eliminate 100% of the tail risk in our business, but we always drive to buy as much protection as possible while still earning an acceptable risk-adjusted return on capital. Our retention is simply a function of how much earnings we're comfortable putting at risk for each event and for multiple events in any time period. So our mantra has historically been to try and remain profitable in any 1 quarter after a full event retention and also remaining profitable for the full calendar year even after incurring 3 full retention events. Obviously, these numbers will change over time based on the earnings power of the business, but that illustrates the point. Moving to Page 7. Here, we have summarized our E&S growth story. I think this is the exciting part of today's call. Step 1 was the announcement of the March transaction, which immediately started generating profitable new business for ACIC, but lever 2 is the ACES Skyway platform, which is actually expected to commence operation in the E&S market on or about December 1, 2026. Now that we have received our certificate of authority for ACES and are in the final stages of completing a new fronting partnership with an unaffiliated carrier that will provide Skyway with A-rated paper, which allows us to immediately access their capacity to begin building this new E&S risk portfolio. So Page 8 shows the premium opportunity for the classes of commercial property insurance, we're targeting for ACES in both Florida, Texas and South Carolina. We believe these are the 3 best states to launch our growth initiatives because of our historical experience, the size of the market opportunity, and we expect a return on capital and of course, the relative U.S. hurricane risk compared to other geographies. So if you think about capturing just a 5% market share of this $3.8 billion combined opportunity, that would generate roughly $200 million of profitable new premiums for ACIC. This is how we grow top line and bottom line responsibly and thoughtfully over the next 3 to 5 years. There are obviously more opportunities beyond these 3 states, but we want to fully exploit these markets first before developing additional new products in other markets. So with that, I'm going to now turn it over to our CFO, Lana Castle. Lana?

Thank you, Brad. I'll take over at Page 9 that highlights 2 important measures we use to measure the success of our business. Combined ratio is the measure of our profitability in essence. If you look at an insurance company, the ratio with expenses to its premium and the remainder is what's left to make the margin for the company. Anything 1 to 100 means that the company is profitable. We finished 2025 with a stellar result of 60.1% for combined ratio as of Q2 2026, that is 70.3%. The increase in the combined ratio is largely the ratio of hard and soft market conditions as pricing declined in 2026, although the insurance pricing have come down pretty much dollar for dollar, there is a portion of fixed cost that needs to be covered. So as a result, the ratio did increase, however, it still is a very healthy 70.3%. Internally, we target 75% to 85% depending on the market conditions or as of Q2 of 2026, well below our target, which is very healthy. Core return on equity was 35.2%. It did decline to 21.7% as of Q2 2026, but still a very healthy number and our target is 20% higher in terms of core return on equity. Moving to Slide 10. It just shows how the company has been compounding book value and return capital to shareholders over time. Book value per share has increased from $2.45 to $7.21 from the second quarter of 2023 to the second quarter of 2026, which is a 43% growth over the 3 years. Owned 50% by directors and officers, which show strong alignment with shareholders. Been in the cat business, we think a better ultimate build of the shareholders' value is going to be through special dividends versus the quarterly dividends. We'd like to see how the year develops, given the catastrophe activities in our respective markets and then decide how much of value we want to distribute. In 2024, we distributed $0.50 per share. And in 2025, it was $0.75 per share. The company currently has $150 million of senior debt maturing at the end of 2027. We target less than 25% debt to total capital. As of Q2 of 2026, the ratio was 30.5% as the company continues to build that profitability and remain profitable. That ratio will naturally decrease but also we do plan to repay a portion of our debt at the end of 2027 and refinance the rest. Kroll, which is a very important rating agency for us, upgraded us 2 years in a row in 2025 and then again in Q2 of 2026. Our current ratio is A for AmCoastal, which is insurance subsidiary and ACIC issuer to BBB, and we are currently Demotech rated A. When -- in terms of overall capital management strategy, when we viewed this talk is significantly undervalued, we will initiate the buybacks. We did a portion of authorized buybacks in 2026. We currently have additional outstanding authorization from our Board of Directors, and we will decide when it would pull that trigger. Moving on to Slide 11 on just shows how American Coastal compares to U.S. industry standards and our other peers in the P&C insurance market. Price estimated earnings and price to book value, they trail both U.S. commercial P&C insurers and U.S. specialty P&C insurers. And we do think we have the niche book of business, and we yourselves as our specialty P&C insurance company. The growth initiatives are currently through ACES are going to fully solidify the company's performance as a specialty commercial underwriter. And as we've had the track record of profitability since 2007, which includes the years of catastrophe activities with high frequency as well as high severity losses, we think it will fully position ourselves to be successful in the market and to differentiate ourselves compared to our peers and our competitors. Slide 12 shows a snapshot of our quarterly as well as 6-month results just for comparison purposes. We included 3 as well as 6 months ended. Of course, you can review detailed results in our Q and K filings. But just to highlight a few numbers here, if you look at the columns with 6 months, our gross premium earned was $280 million compared to $328 million as of 2025. That is a result of their decline in pricing environment Net premium earned declined less only 7.8% because being an insurance market we constructure insurance, including their quarter share, which is a portion of reinsurance business in a way that even if the top line is declining, the net premium can still be declining at a slow pace or not decline at all dependent on the reinsurance purchase we select, but we do want to be conservative and to protect policyholder surplus. As a result, we never want to put our earnings at risk. That brings total revenue to $154 million as of June 2026, a 23% decrease from 2025. Consolidated net income was $41 million. [ Core ] Income was $36 million and book value per share at $7.21. Return on equity is 25% as of June 30, 2026. Page 13 shows select balance sheet data as we improve our capitalization that will position us further to grow organically without having to borrow outside funds. Cash and investments at $650 million as of June, total assets, $1.2 billion, and our total stockholders' equity is $341 million. Page 14 shows the executive team of American Coastal. Detailed buyers are available at the website shown. We have deep underwriting expertise, 50% on site-owned and we have a proven record among everybody on the executive team of managing an insurance company through its various cycles. With that, I will turn it over to Alex Baty to conclude our presentation.

Thank you, Lana. I'd just like to recap by saying that we believe that ACIC sees an underappreciated story. Right now, ACIC is at an inflection point. Our mature condo business in the admitted market has been profitable year since inception remains well positioned, providing us with the capital needed to execute our E&S growth initiatives outlined here today. Our reinsurance relationships and programs are strong, making it our active hurricane season an earnings event, not a capital event. We encourage you to review the appendix at the back of the presentation where you'll see more detailed information about these programs. In closing, with approximately 50% inside ownership, our management team is fully aligned with shareholders and committed to American Coastal's success. If you have any follow-up questions after today's webcast, please feel free to reach out to me directly. My contact information is on the last slide of this presentation. Glen, we're now happy to take any audience questions.

Super. Thanks, Alex, and thanks, guys, for the presentation. [Operator Instructions] We do have a number of questions sitting in the queue. So we will get going. First question, Brad. "You described a severe hurricane years as earning events rather than capital events. Can you just clarify what that means in practice? And how does the current reinsurance structure protect the balance sheet?"

Sure. Great question. Obviously, we want to set retention levels that are consistent with the earnings power of the business. So for example, we provided guidance to The Street for 2026, assuming we can earn up to $100 million of pretax earnings this year. That was the guidance. And we obviously included some catastrophe losses in that estimate. We encourage everybody to do their own risk adjustment for catastrophes since they're inherently unpredictable. But what we do is we lay out our various retentions for a first event, for a second event, for a third event, et cetera. So people can stress-test our underlying or baseline earnings any way they want. So in this instance, if I were in your shoes, I would have taken that $100 million, I would have added back what our estimated, sort of, outlook -- or tried to guess what was embedded in that number for net retained catastrophe losses. And then stress tested it for a variety of different scenarios for 1 loss, for 2 losses, for 3 losses. It's highly unusual to have over full retentions in a single state and a single hurricane season. That's only happened once in the last 120 years. So typically, beyond 4 events, we don't really worry about that. But yes, once you get into like 4-plus events, then you're talking about net operating loss and getting into capital, but our retentions are set based on how much expected profitability we're going to have in any quarter or calendar year?

Super. Can you talk about the condos and I guess, properties you ensure how old are these average condos? And are any of them hurricane-resistant?

Yes, of course. I mean when we talk about the risk characteristics that protections, upgrades, whether to roof, windows, doors, are all super, super important. So that, to me, is probably in our view of risk, the year updated is just as important as Europe construction. So if you've got a 30-year-old building that's been past recertification and been fully updated and remodeled, that's different than a 30-year-old building that hasn't, right? So we're obviously going to be targeting the properties that are either newer and/or have been fortified and upgraded. And it all starts with the roof. The roof condition is probably the #1 element when it comes to preventing and mitigating loss severity. So that -- we spent a lot of time focusing on that its geometry. It's roof covering type, its shape, it's age, et cetera, et cetera. So we use aerial imagery to confirm a lot of the stuff. We inspect 100% of every risk we underwrite, so there are no gaps in our data. In fact, one of the large modeling agencies, I won't name which one, that run these license these hurricane models that all insurers and reinsurers use Nationwide came in to validate some of their assumptions about commercial property using our portfolio, knowing that 100% of the risks have been inspected as they were testing some of their assumptions. So it's data quality is super, super important. It's a data-intensive business, and not everyone approaches it that way. A lot of people are just doing pool-based underwriting and playing odds, knowing that there's some good stuff and some junk, but we go the extra mile, we think risk selection is the ultimate determinant of profit or loss in this business because you can buy all the reinsurance you want. If the business isn't performing in line with expectations, your reinsurance support isn't going to last very long. So you got to have a profitable business sort of before reinsurance on a gross basis. And then obviously, that will translate to a strong net result after risk transfer if you've done it right.

Based on your experience and current reading of the market, what is your view on the timing of the potential stabilization in the softer property market.

So we're -- it's interesting. If you were to look at our last earnings presentation from August, we included a slide -- it was the final slide of the presentation, I think it's Slide #17, titled: Historical Pricing Environment. And what I can tell you is that we are, sort of, in the middle of a normalized technical price level. So we track our technical price levels over time. We've done it -- the chart goes back to our inception in 2007. And we can also compare that to rate online indexes for the cost of reinsurance in the United States that are published by various brokers. Guy Carpenters right online index is a very good one. If you haven't seen it before. Guy Carpenter is now Marsh Re as they've rebranded under the Marsh umbrella. But yes, we're in a normalized ROE part of the cycle. So we did enter a -- what I'd call a generational hard market where technical pricing had never -- we've never seen rates that high in our -- since our inception and probably never will, again, that was fueled by a series of bad years from 2017 through 2022. That also fueled just a horrendous litigation environment and climate in Florida, which was ultimately addressed by the Florida legislature and toward reform has worked as advertised, loss severities and frequency litigation have come way down as a result of implementing some of these new rules that have created a much more balanced playing field for insurers and litigation will always be a component of our business. We manage it well. We understand it. But it's far less of a threat to loss development and surprises as it was previously. So now we're getting back to kind of normalized pricing levels. And so for example, at June 30, we view -- we call our technical model view as our program design, right? So think about 100% of technical model prices, sort of, being our baseline expected target loss ratio and return on capital levels and we try not to go below 100% of technical model price. But between 2023, 2024, we peaked out at about 500% of technical model price. But prior to to the run up to that historical hard market level that we've always operated between 100% and 200% of technical model price. That's where it's been. At June 30, we were still about 250% of technical model price. And I think we'll end the year probably closer to 200%, so well within still a normal healthy range. Will it go back down to 100%? It could. We don't know that. That's kind of what we're planning on right now. And the good news about that is even if there is continued rate change to the negative. Our reinsurance costs are changing at an even faster pace. So this year, our average rate change has been essentially around 20% down year-over-year, but our risk-adjusted rate decrease on the reinsurance spend at June 30 was over 30% down risk-adjusted. So we were still able to mostly mitigate and offset some of the -- what we're losing on the growth side to prevent the erosion to net premiums earned after reinsurance costs. So that's the important thing is our pricing is going to move in lockstep with reinsurance costs, and it's always been that way. We can track our technical model price very closely with the cost of reinsurance capital and it tracks perfectly. So that's been the case forever. I don't expect that to ever deviate or change. And that's how we maintain a margin.

Super. Thank you. This next question probably overlaps a little bit with that last answer, but you'll probably expand on it. It's around competition. "With market ebbs and flows and players getting in and getting out, what's your expertise that keeps you healthy versus the larger players?"

Well, our historical track record and expertise and experience is #1, right? We've seen in Florida, there's about 17,000, 18,000 condominium associations in our addressable target market. We've had a chance to underwrite 100% of them. And we believe we've got the best of the bunch. So we're going to defend our best risk as the incumbent, and we're in a very strong position to defend it. Our account retention this year is running near 90% and renewal business is going to be much more profitable than new business. So while we want to write some new business to make up a fact that it's basically impossible to retain 100% of your policies every year. So we got to backfill that natural attrition that does occur from competition. New business just isn't as profitable. It's far more competitive. And with more players, you're just going to see that continue to be under pressure as long as there's excess capacity in the market. So we're going to find different ways to compete. We're going to branch into new areas of commercial property, both in class and in geography that -- where it's not necessarily as crowded, and we can access our unique and super powerful distribution system to get to risk that maybe others can't access. So I think that's the key is just continuing to defend the fort we've built at the top of the hill. And we'll lose a few pieces of castle here and there, but our competitors are -- if and when they win a piece of business, they're doing it at deep, deep discounts at pricing levels that aren't sustainable and aren't profitable, whereas we can remain -- we expect to remain profitable.

I have a couple of questions around this topic. So I'm sort of going to combine it into a general question to discussion. So as it relates to your new businesses, ACES and Texas and South Carolina and as you just described, a profitable Florida business. What is your, I guess, your model on when you're launching these businesses? Are they going to carry the same type of profit profile? Or do you expect that some of these businesses or some of this ACES business is going to incur some loss before it gets to, I guess, some critical mass?

Great question. It will be very, very similar, but slightly less profitable. So I would expect a combined ratio that's 5 to 10 points higher than our traditional Florida condominium business just because of the additional reinsurance costs. buying to the A.M. Best standard requires us to spend a little bit more money. The E&S market also doesn't get the benefit of the Florida hurricane catastrophe fund in Florida, which you only get if you're writing on an admitted basis in Florida. So -- and there is no such Florida hurricane catastrophe fund outside of Florida that's just specific to Florida admitted carriers. So ACES won't have that piece, but that being said, it's the same operating model. It's the same. We're pricing and underwriting the business the same way. We're pricing and targeting each and every risk to a specific return on capital, utilizing our very sophisticated multi-model approach to estimate losses with precision. So that is part of the secret sauce and why we think we can out-select and compete, both inside and outside of Florida in the E&S space.

Super. And I guess as a follow-on to that last question. "given that you're the dominant player in Florida and commercial property market, can you talk about who the dominant players are in those markets and why you specifically chose those markets to start with?"

It's really a popery of different players. It's all the large guys you would expect and we can publish market share statistics in future investor presentations. I won't rattle off all the E&S carriers that are active in those markets. But that being said, we're not -- we have no intent to compete head-to-head with an AIG or a Liberty Mutual or someone like that. That is not our target market. Those guys write some cat, but they write less cat. They don't like the dependency on reinsurance. They don't like the potential volatility. We embrace and lean into the reinsurance market and use that to manage the volatility. So that creates market share gaps. The big guys, whether it's personal lines or commercial, it doesn't matter. It's the same philosophy. The state farms in all States of the world are just they're going to be active in writing in Florida, but they're going to have a smaller market share in a cat-exposed territory than they would a non-catastrophe area like Illinois or New York, right? So there are areas that are less prone to catastrophes, let's put it that way. I don't know if there is a safe haven anymore given the wildfire risk and hailstorm and tornado risk earthquake risk, I mean every geography has got its pros and cons, which requires carriers to be very thoughtful about the capacity they deploy the cat exposed those businesses. So that creates opportunities for quality alternatives like American Coastal.

Super. A couple of questions around this topic. So I'll just sort of ask you to address it in broad strokes. AI, how are you using it? How do you expect to use it as you go forward?

So AI is amazing. We licensed CoPilot and Claude internally. We have been super thoughtful about how we have deployed AI. We have a partnership with a company called [indiscernible] Resaqoan, which is an AI-native underwriting tool that's an engineering-based AI agent essentially that allows us to Xray risk with a level of precision that just hasn't been available previously. And again, it's an engineering-based approach similar to the hurricane models risk tends to be more engineering based versus RMS tends to be more claims and event data-driven base. So they're just different approaches, but we love that verification and accuracy and completeness because we just think it's going to lead to better decisions. So if you think about use case 1 for AI is managing and utilizing data. So [indiscernible] does that perfectly. It's seamlessly integrated into our pricing and policy administration platform. It's enhancing our analytical capabilities and just verifying accuracy and completeness of the data, which is critical to making sure we're pricing risk correctly. Secondly, I think it's helped us immensely in system and -- IT software and system and tool development. So [indiscernible] Quadsana, we're using it. We built -- we built several applications in-house. So why we used to be dependent on third-party software and these onerous licensing agreements. Today, we don't have any of those other than what we pay Anthropic to license that tool. It is a cheap, but compared to what we used to pay some of these other third-party vendors the savings are immense. So we've built some internal systems that is now proprietary scalable technology that has virtually -- has 0 ongoing sort of costs associated with Permian production or licensing fees, so super cost effective. We've used it for audit purposes, so continuous monitoring of controls, things we've used it for compliance purposes, we're rules-based work that used to be monitored and managed by humans and spreadsheets is now all done in systems where our claims compliance tracking system or the CCTs, as we call it, for example, is a great example of that. We're -- it's in the background doing 24/7 monitoring of claim files for compliance with all the Florida rules related to adjudication of claims and there are numerous, numerous rules. And if you get out of line with those, there are serious spines and implications and, of course, litigation risk associated with policyholders when you're out of compliance. So we can use it for peer review. We can use it for enhancing productivity and automating workflows and obviously, speed wins. The faster we can ingest a submission from a broker, it might have 100 buildings in it -- in one policy, it could have 100 buildings and all the buildings are different, different ages and different sizes. And we can adjust that with super quick speed using [indiscernible] or other tools to quote and price at risk and turn it around quickly for the brokers. Time is money. So that's how we're using AI doing more with less.

How far of the reinsurance tower have losses gone in your worst storm years, i.e., how close have you ever been to going through your reinsurance protection?