Press Release|Insurance

KBRA Affirms Ratings for American Coastal Insurance Corp and its Key Operating Subsidiaries

11 Oct 2023   |   New York


KBRA affirms the insurance financial strength rating (IFSR) of A- for American Coastal Insurance Company (AmCoastal). KBRA also affirms the issuer rating of BB+ for American Coastal Insurance Corporation (ACIC) and the debt Rating of BB+ on ACIC's $150 million 10-year 6.25% senior unsecured notes due 2027. The outlooks for these ratings have changed from Negative to Stable. In addition, KBRA affirms the A- IFSR for Interboro Insurance Company (IIC) and maintains the Negative Outlook.

The change in outlook from Negative to Stable for AmCoastal and ACIC reflects the complete divestiture of ACIC’s ownership of United Property & Casualty Insurance Company (UPCIC) following UPCIC’s entry into receivership in February 2023. ACIC recorded $234.4 million in net income from discontinued operations in 2023 as a result of the divestiture which significantly improved the financial health of the consolidated entity. The commercial residential business of AmCoastal continues to report strong results which are no longer subject to any drag from UPCIC. The Stable Outlook reflects KBRA’s expectation that AmCoastal will continue to maintain adequate risk-based capitalization while executing its business plan. Additionally, it is KBRA’s expectation that the company will maintain robust reinsurance programs with strong counterparties and maintain its high credit quality investment portfolio. The outlook also reflects KBRA’s expectation that ACIC’s financial leverage will continue to improve, driven by strong earnings in the commercial lines business. The Negative Outlook for IIC reflects the continued deterioration in surplus and risk-based capitalization metrics from continued underwriting losses in 2022 and the first half of 2023 and the relatively small cushion within company’s current reinsurance program relative to modelled historical weather events. The outlook also reflects the diminished strategic importance of IIC to the American Coastal group given the company’s intent to sell IIC and become a commercial lines focused company. If the expected benefits from planned rate increases do not translate into materially improved underwriting results in the near-term, negative rating action is likely. Positively impacting the ratings are AmCoastal’s low commercial lines loss ratios, conservative investment portfolio, sound catastrophe reinsurance program, and favorable market position. AmCoastal has had low combined ratios every year since inception except for 2019-2021 when it was part of a pooling arrangement with ACIC’s former subsidiaries, UPCIC and Family Security Insurance Company. AmCoastal is the top writer of commercial residential insurance in the state of Florida behind Citizens. The company is well protected against hurricanes and earthquakes in the state of Florida with its reinsurance program protecting against the 1-in-153 year return period. Factors negatively impacting the ratings are the companies’ exposure to event risk, heavy reliance on reinsurance, and high financial leverage. Both Amcoastal and IIC are single state operators in states with high catastrophe exposure. The experienced management team has a strong background in the Florida property insurance markets, but the organization has gone through significant workforce reductions following the liquidation of UPCIC.

Factors that could positively impact the rating include: sustained operating profitability, controlled geographic expansion into other states outside of Florida, a steady trend in organic surplus growth, or a favorable change in risk profile. Factors that could negatively impact the rating include: deterioration in risk adjusted capitalization and/or underwriting leverage, the inability to obtain reinsurance on acceptable terms and pricing, causing an increase in loss exposure, a reduction in the company’s ability to underwrite policies or a drag on earnings, a material decline in the credit quality of the reinsurance panel and/or inability to collect on reinsurance causing a material adverse effect on operating results and overall financial condition, an unfavorable change in risk profile, or further deterioration in financial leverage.

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