American Integrity Insurance Group, Inc. (AII) Earnings Call Transcript & Summary

Thank you. Hello and thank you for standing by. My name is Joel and I will be your conference operator today. At this time, I would like to welcome everyone to the American Integrity Insurance Group second quarter 2026 earnings conference call. All lines have been placed on mute to prevent any background noise. the speaker's remarks there will be a question and answer session. If you would like to ask a question please press star 1 to raise your hand. To withdraw your question press star 1 again. As a reminder this call is being recorded. But before we begin, please note that today's remarks may contain forward-looking statements, including comments about the company's outlook, strategy, plans, and expected performance. These statements are based on current expectations and assumptions and are subject to risks and uncertainties that may cause actual results to differ materially. A full discussion of the risk factors can be found in the company's SEC filings, including its most recently filed annual report on Form 10. and quarterly report on form 10-Q. Management undertakes no obligation to update any forward-looking statements. Furthermore, today's remarks may contain non-GAAP financial measures. A reconciliation of non-GAAP financial measures to their most comparable GAAP measures is included in the company's quarterly press release and can also It can also be found on its website at www.aii.com. References to American Integrity or the company prior to the consummation of the IPO refer to American Integrity Insurance Group LLC and after the consummation of the IPO refer to American Integrity Insurance Group Inc. With that, I'll turn the call over to American Integrity's founder and chief executive officer, Bob Ritchie. Please go ahead.

Thank you and good morning everyone. We had an outstanding second quarter with record performance across several important measures. meaningful acceleration across our major strategic growth initiatives. Last quarter, we wrote approximately 43,000 voluntary new business policies during the quarter. This is a company record, first time ever. representing growth of approximately 54% compared with the second quarter of last year. and 44% sequentially from the first quarter of this year. compared with the second quarter of last year. And 44% sequentially from the first quarter quarter of this year. And at the same time, we generated a record 46.4 million of income before taxes. record for the entire company for a single quarter. I'm happy to report we also entered the quarter with more than $1 billion of enforced premium and approximately 462,000 policies enforced. These are both important milestones and they demonstrate the scale our platform is achieving. Taken together, we believe these results demonstrate the increasing strength of American Integrity's organic growth engine. It's never been stronger. The platform we have built for over two decades, is generating meaningful voluntary growth through our established distribution relationships. And while the improved Florida insurance environment is allowing us to expand thoughtfully in the markets and risk categories where we have significant experience and underwriting expertise. Now, as we discussed last quarter, we believe voluntary market opportunities, expansion into very attractive segments of the Florida market and thoughtfully selected geographic expansion throughout the Southeast, All three of these will drive our growth. We believe that the second quarter provided further evidence that these initiatives are working and more importantly, our momentum is broad-based. As many of you know, over these last several quarters, we have consistently highlighted three primary areas of opportunity. Number one, the Tri-County region of Florida. Number two, middle-aged homes. And number three, our expansion states in the southeast. During the second quarter, I'm pleased to report that every one of these initiatives continues to gain meaningful traction. Let's start with Tri-County. We wrote more than 7,600 voluntary new business policies during the quarter. Now, this compares to the 200 in the prior year period. That's obviously a 40X increase. Second, in middle-age homes, we wrote more than 9,000 voluntary new business policies during the quarter. This compares to fewer than 450 in the prior year period. That's a 21x increase. These are particularly attractive areas for us because they represent markets and risks where we have considerable underwriting expertise and experience, historical data, and importantly, very deep and longstanding existing agency relationships. So we're not pursuing growth by moving outside our core competencies. as the economics of the Florida insurance market have improved, we're expanding participation in markets that we know very well. Importantly, our voluntary growth is being generated through our traditional distribution channels and underwriting platform. And we believe that type of growth creates a broader, more sustainable, and increasingly diversified earnings engine for American integrity. Outside of Florida, production also accelerated very meaningfully as we we continued to expand our presence across the Southeast. During the second quarter, new business policies written in Georgia, South Carolina and North Carolina increased 40% year over year, from a 23% increase year over year in just Q1 2026. Momentum is happening. These markets complement our existing builder and agency distribution relationships, and they provide another avenue for disciplined organic growth. While these markets remain a relatively small portion of our overall portfolio today. We believe they represent a very attractive opportunity to generate profitable growth while we further diversify our business over time. These markets also allow us to deepen our relationships with existing homeowner affiliated agents and other distribution partners, both nationally and regionally. already know American integrity and want to do more business with us across multiple markets. Another important driver of our success continues to be our distribution network. What is particularly notable about our recent growth is that it is being driven primarily by longstanding agency relationships. than brand new distribution partnerships for markets such as tri-county middle-aged homes Our agency partners already know our underwriting philosophy, they understand our operating platform, and they're ready to respond as we expand our appetite for these risks. We continue to hear a consistent message from our agents. They value stability, responsiveness, and ease of doing business. We're also seeing increased engagement from agency partners who are looking to consolidate more of their business with a smaller number of trusted carriers and we're one of them. We believe our service level, our underwriting consistency, Our longstanding commitment to the market positioned us extremely well to capture a larger share of business within existing agency relationships. This is a very important competitive advantage. It is unique to American integrity. Much of our strongest growth, again, is coming from these established relationships. So we believe this allows us not only to generate more submissions, more volume, but also to attract very high-quality business from partners who understand who we are and what we write. that is the value of the distribution franchise but it's taken over 20 years to build This leads to another really important point. The evidence continues to reinforce our view. that Florida's legislative reforms are producing the intended results from the reform almost four years ago. Litigation activity for the entire industry, and especially for us, continues a solid decline. Loss-cost trends remain very favorable, and reinsurance pricing has meaningfully improved. At the same time, consumers are beginning to benefit with increased insurance availability and more moderate pricing. We view the current environment as evidence of a very healthy and sustainable marketplace. and there is not irrational competition. Importantly, as consumers increasingly experience these benefits, I believe the reforms become more durable over time. From our perspective, durability creates a much more stable operating environment for both insurers and policyholders. So despite a somewhat softer market environment nationally, our premium for policy remains generally stable across our portfolio, given the next shift of our portfolio. growth and higher valued homes, Tri-County, middle-aged homes, and commercial residential business. have largely offset modest rate reductions elsewhere in the book. Additionally, our inflation guard provides support as rates modestly decline. Overall, we believe we are entering the second half of this year. We'll go into it. from a position of considerable strength. We're generating record voluntary production. We're expanding successfully and thoughtfully across multiple growth channels. for benefiting from favorable market dynamics, all while maintaining very attractive underwriting economics. We believe that combination is expanding the long-term earning power of American integrity.

With that, let me now turn the call over to John. Thanks, Bob. I'll spend a few minutes going a bit deeper on what we're seeing in the business and how that is translating into our results, and then provide an update on our recently completed catastrophe reinsurance renewal. Starting with our results, we continue to see strong growth in our core Florida market and across our expansion statement. in the Southeast. During the second quarter, gross premiums written increased 13.8% to approximately 327 million. Retention continued to climb to 84.4% up from 83.6% in the first quarter. And policies in force increased to approximately 462,000, up 15.7% year-over-year, and 5.6% sequentially from the first quarter. The growth reflects strong voluntary production across the business. Looking first at tri county production levels are encouraging, but we remain substantially under penetrated relative to the size of the opportunity as a reminder tri county represents approximately 28% of Florida households while accounting for only a modest portion of our current policies and force. We believe this represents. substantial opportunity for profitable growth over time. In addition, approximately one-third of our Florida Voluntary New Business gross premium written production during the quarter came from tri-county policies, compared with only a very small contribution in the prior year quarter, highlighting the momentum we are currently seeing in the market. We believe we have strong support from our distribution partners, increasing consumer demand and favorable economics that will allow us to pursue growth while maintaining our underwriting discipline. The same is true for middle-aged homes. As we've discussed previously, this was historically the core of our business and an area where we have deep underwriting experience and longstanding agency relationships. We reduced our participation in this market during the height of Florida's litigation crisis, and the legislative reforms have enabled us to reenter this segment in a measured and profitable way. Since expanding our participation, the results have been very encouraging. Middle-aged homes represented 24% of our voluntary new business gross written premium during the quarter compared to approximately 4% in the prior year period. We view this as an attractive opportunity because it combines significant market size with an area where we have considerable operating history and underwriting expertise. Importantly, we believe both Tri-County and Middle-Aged Homes provide meaningful growth opportunities without requiring us to depart from our core underwriting competencies. Outside of Florida, our expansion states continue to gain traction. During the second quarter, new business policies written in Georgia, South Carolina, and North Carolina increased 40% year over year, while new business gross premiums written increased 50%. These states represented approximately 18% of voluntary new business policies and 10% of voluntary new business gross premiums written during the quarter. While still a relatively small contributor to our overall portfolio today. We believe these results demonstrate the portability of our distribution relationships and operating model. When we entered these new states, we led with our H. O. 3 product. Given the success we have experienced thus far, we are now evaluating opportunities to broaden our product offerings outside Florida, including products such as dwelling and marine where our agents have demonstrated demand. We intend to approach that expansion with the same discipline. we have applied to our geographic growth. Turning to reinsurance, I am very pleased with the outcome of our June 1 catastrophe access of loss renewal. We successfully renewed our program with meaningful risk-adjusted rate reductions at the upper end of the 15 to 20 percent declines observed in the market while maintaining our target protection levels and improving our overall retention structure. Despite approximately 19% growth in peak season exposure, our first event retention remained unchanged at 35 million. Additionally, our aggregate four event retention declined from 95 million to 75 million, further improving our net risk profile. We also maintained our program at a targeted one in 130-year probable maximum loss level. We believe this outcome reflects both favorable market conditions and the strength of our long-standing reinsurance relationships. The renewed program provides approximately $3 billion of total catastrophe protection, including approximately $2.25 billion of third-party coverage for a single catastrophic event. In short, we achieved lower risk adjusted pricing, maintained our targeted protection level and reduced our aggregate retention, all while growing peak season exposure by approximately 19%. We believe that is an excellent outcome. The improved economics of the renewal reflect both favorable reinsurance market conditions and the continued benefits of Florida's legislative reforms. We continue to believe reinsurance tailwinds will be an important contributor to earnings and capital generation moving forward. We appreciate the long-standing support of all of our reinsurance partners. Before turning things over to Brian, I want to briefly remind investors that our expected annual catastrophe reinsurance cost remains consistent with the $430 to $440 million range we provided in connection with our June 1st renewal announcement. To conclude, we believe the operating environment remains highly constructive. Production is strong, our major growth initiatives continue to gain traction, our geographic expansion is progressing, and our renewed and reinsurance program provides strong protection with improved economics. With that, let me turn the call over to Brian to through the financials. Thanks, John. We generated net income of $34.1 million or $1.74 per diluted share and adjusted net income of $34.9 million or $1.78 per diluted share during the second quarter. This compares to net income of $27.5 million or $1.75 $1.62 per diluted share and adjusted net income of $31.3 million or $1.84 per diluted share in the prior year period. Income before taxes was $46.4 million, an increase of 93% from $24.1 million in the prior year quarter and the highest quarterly level in the company's history. The comparison to the prior year period was influenced by elevated citizens takeout activity during 2025, which created a temporary benefit to earnings and our IPO in the second quarter of 2025, which resulted in one-time expenses. Turning to premiums, gross premiums written increased to $326 billion. compared to $287 million in the prior year period, representing an increase of 13.8%. This growth was driven by continued expansion in the voluntary market across our key growth initiatives. Growth premiums earned increased 8.3% to $242.3 million compared to $223.7 million in the prior year period. The premiums earned decreased to 137.6 million compared to 157.6 million in the prior year period driven primarily by the reduction in our non-catastrophe quota share session from 40% to 25% beginning January 1, 2026. As a result, net premiums earned increased 58.2% to 104.7 million compared to 66.2 million in the prior year period. There are two important forces driving this step up in net earned premiums, strong underlying growth in the business and our decision to retain a greater portion of the economics of that business following the quota share reduction. We believe the combination is allowing more of the value created by our underwriting platform to accrue to American integrity and its stockholders. Net investment income increased 30.8% to $6.3 million compared to $4.8 million in the prior year period. Shortly after quarter end, we deployed just shy of $200 million of cash into high-quality fixed income securities, which positions us well for continued growth in investment income going forward. We expect our duration of approximately two years, our credit quality, and asset mix to remain largely consistent with how we previously managed our investment. investments following the reallocation of cash. Loss and loss adjustment expenses increased $33.2 million compared to $21.2 million in the prior year period. Primarily reflecting growth in net premiums earned driven by continued voluntary production and the reduction in our non cap quota share arrangement. Our net loss ratio was 30.6% consistent with 30.6% in the prior year period. Our net underlying loss and loss adjustment expense ratio was 30.6%. down from 33.1% in the prior year period. There were no CAT losses and no prior year development recognized during the quarter. Our growth underlying loss and loss adjustment expense ratio was 18.1% during the quarter, which we continue to view as a very attractive result and feel good about both the quality and pricing of the business we are writing today. Policy acquisition expenses increased to $17.4 million compared to $6.3 million in the prior year period. The increase was primarily driven by record levels of the voluntary new business production, the absence of citizens takeout windfall, which carries minimal upfront acquisition costs, costs and lower seating commission income resulting from the reduction in our quota share. General and administrative expenses decreased to 18.2M compared to 22.9M in the prior year period, primarily driven by the absence of one time IPO expenses recognized in the second quarter of 2025. Partially offset by the reduction of our quota share. Our expense ratio decreased to 32.8% compared to 42.3% in the prior year period. The combined ratio for the quarter was 63.4% compared to 72.9% in the prior year period. We believe the 63.4% combined ratio demonstrates the attractive underwriting economics of the business, particularly alongside the strong growth we generated during the quarter. Return on equity was 38.7% in the quarter compared to 45.1% in the prior quarter and adjusted return on equity was 39.6% in the quarter compared to 51.3% in the prior quarter. As a reminder, the reduction of the quarter share increased revenue and earnings, but also increased the absolute dollars of expenses given lower seating commission income and fewer non-CAT losses seated away. This, along with citizens takeout benefits in 2025, make the year-over-year changes in some line items and ratios less directly comparable. We believe the underlying trajectory of our business remains strong. Stepping back, we believe the quarter demonstrates a powerful combination of strong organic growth, disciplined underwriting, and increasing retention of the economics generated by our platform. Turning to our balance sheet, shareholders' equity increased to $369.5 million at quarter end compared to $337 million at year end. Book value per share increased to $18.86, presenting growth of 22.3% year-over-year and 10.1% since Q1 2026. We view book value growth as an important measure of the value we are creating for our stockholders. The increase in shareholders equity reflects strong earnings generation and continued growth in the business. And we believe our capital position provides substantial flexibility as we pursue the opportunities ahead of us.

I'll turn the call back to the operator to open the line for questions. We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question is from Michael Phillips with Oppenheimer. Your line is now open. Please go ahead.

Thank you. Good morning, everybody, and congrats on the quarter. The first question is on the middle home business, you know, it's new for you or not new for you, but for you back into it as that continues to grow and become a bigger part of your overall book. How do you compare the margin on that business to what's been your traditional business so far? Michael, Bob, Richie, thank you for the question. I'm going to start out and John, you can amplify it. I want to assure you the way we're pricing underwriting, selecting, binding and renewing these middle age rules is entirely consistent with our combined ratio plans. With the pure premium that we're observing and most importantly. with the way that the underwriting team is looking at these risks and also ensuring that as it reaches potentially on the older part of its average age, that a new work will be applied. So net net.

visions on this book as others john can you amplify that yes just to expand on that we we model and expect uh the underlying gross loss ratio to be a few points higher than uh the overall portfolio but as bob said the premium we're collecting accommodates for that so we're very happy with the business that we're generating and the long-term profitability of that segment.

I'll also tell you, I'll give you an example. Go ahead. No, Bob, I didn't mean to cut you off. Sorry. Okay. No, that's OK. Orange County, Orlando. We're back in a substantial market share opportunity where before the reform happened, for protection, we had to reduce that. So in many cases, we're riding with the same agents, even some of the same homes. I am really bullish about middle-aged homes and what it's driving for us. Okay, yes, thank you. That's very helpful. The second question, Bob, is I want to ask you a little bit about one of the comments you made at the end of your opening remarks. You said, I can't think of the exact words, but something about as reforms become more durable over time in Florida, when I was talking I guess what I was thinking was that reporting on the forms are here, it seems to be the proof that they're working. That may be already hard and durable. And the reason I asked Bob is, you know, The reforms have been in place for a few years now, and I wonder if the rate environment has kept up with the benefits we've seen from the reforms, often there's a lag when those two things happen. And maybe some of the lag has been, hey, we're not sure the reforms are going to stay, they're going to work. And I think now there's confidence that they are. But I wonder, that's why I'm asking, you know, what you meant by is reforms to become more durable. Sure. So my comments were not meant to be either tentative or temporary. My comments relate directly to the strength of Florida. in as much as both public and private investors are returning. Now, as respects the rate environment, three things drive rate increases. The, what I call the lawyer tax, which the 2022 slash 23 reforms more than solved. Those have been worked through system largely with all carriers in the form of rate reductions because the lost costs are left. But what's also a dynamic for rate increases are reinsurance that John talked about and then of course inflation. Inflation is not zero, so we're still pegging it because of the increase in and increase in coverage A. Reinsurance has enjoyed a remarkable reduction and for that we have positioned product so that as you look at the entire pricing dynamic that has been accomplished. So my comment on it is in no way meant that it's tentative yet to be realized. It's the strength of the investors that are returning to Florida that truly is allowing for new markets, allowed us to go public, and has restored confidence throughout the world with investors and reinsurers. That's the topic. Okay, that's super clarification. Thank you for that. And again, correct on the quarter.

I appreciate the question. Your next question is from Tommy McJoint with KBW. Your line is now open. Please go ahead. Hey, good morning. Thanks for taking our questions.

To start off, in the third quarter of last year when there was no major hurricane loss, the quota share reinsurance created some noise resulting in a big upswing in the net underlying loss ratio. Can you talk about what we can expect in that net underlying loss ratio in the third quarter of this year if, knock on wood, we get a similarly benign weather pattern?.

I'm going to ask John to start out, and John, you can rely upon Brian for some of the optics.

Brian why don't you take this one. Yes. Yes. So Tommy the quota share is a non-cat quota share but it actually allows us to see that some de minimis cat losses to that treaty. So what you said was correct whereby in a clean cat year, that kind of creates a little bit of elevated, um, core loss ratio in that quarter but then what happens is we actually get that back through increased seating commission going forward but we don't kind of settle that until the end of the treaty which would be in q4 so there is a little bit of timing dynamics there.

Okay, got it. That makes sense. And then switching over, you're generating very strong ROEs this year. But you're still growing net premiums pretty significantly too, especially with the quota share reinsurance coming down. Can you talk about your capacity for how much room you still have to grow? Should we be simply looking at premium leverage or are there other measures that can help frame your capacity?.

Yes, thanks for the question, Tommy. Look, we feel very good about the trajectory of our growth, and we certainly have the capital to continue to do that. We'll see what the wind season has in store for us, but you should feel pretty confident that we can continue to execute with our confidence.

current capital base. When you look at all the numbers in terms of gross net writings, RBC ratios, all very, very healthy. We got the wherewithal, we've got the capital to continue this remarkable and historic growth rate.

Thank you. Your next question is from Paul Newsome with Piper Sandler. Your line is now open. Please go ahead.

Good morning. Thanks for the call. Maybe a few additional thoughts on in color on new products that you're implementing. You know, it sounds like these are a little bit different from maybe demographic. on fire as being sort of more modest homes. And I'm curious as well about the impact that would have on sort of the overall portfolio, particularly from a, you know,.