American Integrity Insurance Group, Inc. (AII) Q2 2025 Earnings Call Transcript

Hello and thank you for standing by. My name is Mark 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 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. 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 our outlook, strategy, plans, and expected performance. These statements are based on the current expectations and assumptions and are subject to recent uncertainties that may cause actual results to differ materially. A full discussion of the risk factors can be found in American Integrity's SEC filings, including its most recently filed quarterly report on Form 10-Q. Management undertakes no obligation to update any forward-looking statements. Furthermore, the reconciliation of planned GAAP financial measures to their most comparable GAAP measures is included in the company's quarterly press release and 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 will turn the call over to American Integrity's founder and Chief Executive Officer, Bob Ricci. Please go ahead.

Bob Ricci, Director of American Integrity Insurance Group, LLC Thank you, Mark, and good morning, everyone. I am very pleased to be speaking with you to discuss our second quarter results and our growth initiatives that are designed to further build the value of American integrity for all of our stakeholders. I see a long runway ahead that is anchored in discipline, underwriting, a best-in-class technology platform, and deep, trusted, independent agency relationships. This foundation positions us to thrive in a market that has gone through a transformation given recent legislative and regulatory changes, and it presents significant room for growth that will sustain American integrity for years to come. This can be seen in our second quarter results, where we delivered robust policy growth given our strong distribution network combined with our expansion into underserved but stable counties in Florida. Our strong policy growth was assisted by another quarter of improving retention on renewals that we believe can continue and that bodes positively for growth to come in the quarters ahead. Importantly, we have significant space for voluntary growth in Florida as our rate filings for Miami-Dade and Broward counties were recently accepted and we are set to start writing policies there. The tri-county region of Miami-Dade, Broward, and Palm Beach represents one of the most valuable and concentrated homeowner markets in the state of Florida with approximately 2.37 million occupied housing units in these counties. And this accounts for over 26 percent of the entire state's total households. So this corridor is not only densely populated, yet it's also home to some of the highest property values and insurance premiums in the entire southeast and in fact this tri-county region of three counties would be the 18th largest state in the United States based upon population. American Integrity's tailored product suite designed specifically for Florida's coastal risk including single-family homes, condominiums, and investment and properties aligns with the structural makeup and exposure profiles of this tri-county region. Our growth engine is powered by both citizens depopulation and robust voluntary market expansion, which is allowing us to scale quickly and efficiently into high-yield zip codes while still maintaining our underwriting discipline. Another open-edge market for the company is writing policies on homes with older roofs. Our mix of business has skewed toward new-build homes, given the strength of our builder-agent relationships. And in fact, as we stated before, we've been writing three out of every 10 new roofs on new construction homes in Florida. That said, it has moved our mix of business toward new build roofs, and we see an opportunity to expand our presence in the existing home market with older roofs because of their reforms. This represents a very large and addressable market, and one that is currently underpenetrated by design historically because of the lack of reforms by the company. But now it's a different time frame. So we've started to write policies on older roofs. and we see great potential and will remain focused on the stringent discipline underwriting to ensure we're earning adequate risk-adjusted returns. While we expect Florida will be our core market for many years to come, as we've mentioned before, we've expanded to Georgia and South Carolina given the strength of our builder relationships and happy to report that we're reporting very strong success in growing the policy count in these two states. Additionally, we have recently been approved to write policies in North Carolina and expect to begin writing business in the fourth quarter, still focused primarily on new construction and builders. As you can see, we have really strong competitive barriers in the Strait of Florida, and that has positioned us to succeed, and we're opening large markets that represent untapped potential that will translate to sustained policy growth in the years ahead. So additionally, although our successful IPO in May provides us with the capital to fund this high-return organic growth, we are in a position now and couldn't be more excited with the opportunities that lie ahead. So before we turn to operational highlights, I want to take a moment to recognize a very important milestone in our company's history. Just a very few days ago, we surpassed 400,000 policies in force, 400,000 customers, a number that is both historic and deeply symbolic for every one of us. It's more than just a policy count. It's a statement of trust, scale, and post-IPO momentum. I think it reflects the grit, execution, and values-driven culture that have defined American integrity from day one. So crossing this $400,000 mark tells our employees, our customers, our agents, and now our new investors, that we're not just growing, we're building something enduring, and in the face of a complex market and rising expectations, we're proving that integrity and resilience remain the most powerful growth engines of all. So it's a proud moment for all of us at American Integrity. I want to thank every one of our team members and our partners who helped get us here. Now, let me turn the call to John, who will drill into the details of our growth initiatives.

Thanks, Bob. I'll focus my comments this morning on our looking to the second half. Starting with our results, we continue to be pleased with our ability to grow. In the second quarter, we wrote 20, which is an acceleration of 54 policies that we wrote in the sequential first quarter, 48 policies that we wrote in the second quarter. We also assumed 7,300, which compares to 60. We continue to expect, Through our voluntary and takeout operations, we are expanding our presence in underserved but stable counties with new premium growth, segmentation by construction type, and favorable litigation. At England Central, our retention rate on renewal business improved to 80.9 percent, 78.1 percent, which continues a positive trend that we have been in. We believe this is a sign that the legislative and regulatory reform is a stable and rational market. Taken together, our strong policy led to the increase in 399,000 policies and 920. Our PIF count was up almost 50%. Looking to the second half of the year, we are excited to announce that our rate filings for Miami-Dade and Broward, this is a region where we have essentially not written business in more than a decade and represents a significant market opportunity. As Bob highlighted, more than a quarter of Florida's population lives in the tri-clones in this market is even higher. Importantly, we have our distribution network in place. They will begin writing business. Our ability to turn a market on quickly and begin writing business in Miami-Dade and Broward is largely due to the technology we have developed over time data that allow you to a census block level, input those rates for our agents. We can also provide underwriting parameters and make informed data. Ultimately, our platform enables us to execute our strategy and new initiatives quickly. This positions us to quickly expand into the very... Another new market opportunity is the pending launch of our Florida commercial residential lines. We have been hiring experienced underwriting talent and have the distribution. Additionally, we have filed our rates and expect to begin writing new business. We are taking a caution to conservative underwriting as we enter this new line of business. Lastly, we continue to have good success in South Florida remains our core market. Over 97% of our income. Turning to the market, importantly, consumers will be the beneficiary. We have filed a blended rate decrease of 3% and continue to have an appropriate inflationary the legislative reforms in Florida through our June 1st renewal. As a reminder, we placed our excess of loss for insurance program at a net cost that was below our expectations, representing a meaningful single-digit to low double-digit rate. Thanks, John.

I will briefly share some financial highlights from the second quarter of 2025. Gross premiums written increased by 29.5% to $287 million, compared to $221.6 million in the second quarter of 2024. Gross premiums earned increased by 39.8% to $223.7 million, compared to $160.1 million in the second quarter of 2024. Net premiums earned increased by 63.3% to $66.2 million, compared to $40.5 million in the second quarter of 2024. The increase in gross premiums written, gross premiums earned, and net premiums earned, as compared to the second quarter of 2024, continue to be driven primarily by new and renewal policies written through the voluntary market and from our strategic participation in the Citizens Takeout Program. Seated premiums earned increased by 31.8% to $157.6 million compared to $119.6 million in the second quarter of 2024 due to the increase in gross premiums earned and the placement of our 25-26 Catastrophe Excess of Loss Reinsurance Program. The company purchased more reinsurance coverage compared to prior years, reflecting an increase in in-force premium and total insured value. Net investment income increased 40% to $4.8 million compared to $3.4 million in the second quarter of 2024, driven by an increase in invested assets, primarily due to an increase in cash-in-cash equivalents and fixed maturity securities. Loss and loss adjustment expenses increased 67.6% to $21.2 million compared to $12.6 million in the second quarter of 2024, driven primarily by an increase in gross premiums earned. Our underlying loss and loss adjustment expense ratio was 33.1% for the second quarter of 2025 compared to 32% in the second quarter of 2024. Our first half of 25 underlying loss ratio and LAE ratio was 31.6%, a decrease from 37.4% in the first half of 24. Policy acquisition and other underwriting expenses decreased 4.1% to $6.3 million compared to $6.6 million in the second quarter of 24, driven by lower acquisition costs associated with the citizens' takeouts. Our expense ratio increased 11.1 percentage points to 42.3% for the second quarter from 31.2% in the second quarter of 2024, primarily due to one-time cash and stock-based comp, management fee buyout, and other one-time expenses incurred in connection with the IPO. The combined ratio was 72.9% for the second quarter of 2025, compared to 60.8% for the second quarter of 2024. That said, it's worth noting that our one-time IPO expenses added 23.8 points to the expense and combined ratios in the quarter. For the second quarter of 25, our net income available to common shareholders was $27.5 million, and adjusted net income was $31.3 million. Net income was $1.62 per diluted share, and adjusted net income was $1.84 per diluted share, based on a weighted average common outstanding shares of approximately $17 million. Total shareholders' equity increased 85.9% to $301.9 million as of June 30, 2025, compared to $162.4 million as of December 31, 2024. That's due both to our organic growth and to the benefit of the IPO proceeds. I'll now 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, see the press star followed by the number one on your telephone keypad. And your first question comes from the line of Michael Phillips with Oppenheimer & Co. Inc. Please go ahead.

Thank you. Good morning, everybody. A question around the tri-county expansion. I'm curious if you think that means any changes to personnel or philosophy or anything on the claims department side, even higher value homes and maybe different service level expectations there?

Generally, this is John. Generally speaking, no. Our platform is built to scale both with internal operations, particularly, as you mentioned, claims in that department. In terms of sales force, we have adequate coverage in the southeast part of the state. So generally speaking, no, there should not be any material changes to staffing or needed operational expenses as we expand into the Tri-County region.

I'll also add on, thank you for that call. We're ready-made from a distribution perspective. This is Bob. Based upon our strong builder relationships and national account, we will appoint, and we are appointing, some quality independent agents to supplement that, but I'm happy to tell you that the locomotive is moving already. Yeah, sounds like it is. It's a good opportunity.

A second question on the rate cut and the inflation guard offset. But again, it sounds like you aren't so too concerned at all about kind of your mid to low 30s core loss ratio is phenomenal. But it doesn't sound like you're too worried about pressure on that over the next 18 months or so, given the competitive environment and inflation guards you have in place. But just kind of hear your thoughts on that.

Yeah, certainly we're seeing positive trends on the attritional experience in terms of rate making. and the current 2025 annual filings are in place and either implementing or have been implemented, which equates to that number that we quoted. And you're absolutely right. The inflation factor is offsetting that. And we'll continue to evaluate both our internal actuarial indications along with market conditions as we move into 2026.

I mean, I guess, John, do you think the current, I mean, the last two quarters you've been 30, 31, 32, 33, do you think that's kind of a good run rate for the next year and a half or so, or is that kind of a low bar?

So on a frequency severity basis, from a pure premium perspective, we do believe that we are likely seeing the full benefit of the legislative reform, particularly from a frequency perspective, which has been fairly consistent over the last series of quarters. And even severity has flatlined in spite of inflationary trends.

So from a pure premium standpoint, we do believe that this is probably the full benefit of the legislative reform reflective in the current quarter and this is Bob as forces such as hopefully down the road the high watermarks of reinsurance spend perhaps coming down and other elements improving this operating environment then obviously that ratio is going to change it's a function of math so the important thing and we'll continue to emphasizes with you is giving you specific frequency and severity or that pure premium number, which is the most important barometer in our view.

Okay. And congrats.

Thank you. Your next question comes from the line of Tommy McChoy with KBW. Tommy, please go ahead.

Hey, good morning, guys. Thanks for taking our questions. Um, the first one is a question about the benefits of geographic diversification to your cost of reinsurance. And it sounds like you've spoken on this call about two different drivers of geographic diversification, being one, the expansion into the tri-county area, and then as well as thinking about other states in the southeast. So the question is really, is there a way to think about the amount of premium that you can grow in those new markets without having any incremental costs of reinsurance around that? And that should ultimately feed into a lower sort of cost of reinsurance relative to written premium. What can you share about any numbers around how that benefit looks?

Yeah, this is John. So, specifically within the state of Florida, certainly adding exposure in the southeast part of the state is going to help from an aggregation perspective, which will incrementally aid the PML within the state. Outside of Florida, there really, we don't believe to be a material benefit to the PML by writing in Georgia and South Carolina. It's not punitive, but it certainly is not creative in a positive way for the PML, but certainly running in Tri-County, there is a portion of that business which will be beneficial to the PML on a go-forward basis. But from an operating perspective, it takes leverage off of certain zones within the state of Florida, particularly the southwest region where we do have a sizable market share, which will allow us some time to begin regrowing in Lee County in particular from a new business perspective.

And Tommy, this is Bob, I'll add, so while this Palm Beach County series of takeouts over these last six, eight, nine months created both top line and bottom line profit growth and exposures for us, those 12,000 policies in Palm Beach were the tremendous asset for American integrity, as John has mentioned, to balance the portfolio. We're a market leader. We have 400,000 policies. There are a couple of folks that we compete with in that particular size frame, and we have been heretofore the only major Florida pure play not to participate in Tri-County. So the benefits to us done properly, of course, with risk selection and pricing are abounding. Top line, bottom line, pay amount of premium, reinsurance aggregation, diversification. It's really a remarkable and a fact of us being in a position of properly balancing what a market leader looks like now that we're public.

Thanks for that. And then the second question, why are you able to so meaningfully outpunch your weight class in the new home market? It sounds like you insure three of every 10 homes. I think I heard it's a 30% market share versus just a close to a 10-digit overall market share in Florida. So what is that moat that you guys have in the new home channel, and what prevents competitors from trying to replicate yours?

Thanks for that. When there's a moat, it always has to be defended. We have smart competition. So we estimate three out of ten. Seven out of ten are going elsewhere. But here's been the method for us. Years and years ago, we focused on the Westwoods, the hippos, those builder agents outside of Florida. I'm going to put a name on it. Our EDP of sales and marketing, Dick Dowd, who used to work with at American Modern, joined us six and a half years ago. And Dick Dowd has taken our entry point and created an outstanding depth of share of wallets, especially with agencies like Westwood, with agencies like Hippo and others. And so it has to do also with our technology. We and others have it, too, of course. But to write with builders, you need APIs, and you've got to attend to making business easier for them. So as a tech-enabled company, we certainly have the wherewithal to compete. And that is a moat, not that others don't have it, but many do not. Thirdly, and I think I mentioned this in the first earnings call, look, you work real hard to get your strategic advantages. And then when the opportunity happens based upon market movement, you go for it. And when ASI was purchased by Progressive, which I thought could have been a great thing, I love Progressive, I'm not saying anything negative, ASI was the dominant, the dominant in new builds. We were probably number three. And today we're number one based upon the underwriting appetite for Progressive with Florida residential property. And then the fourth thing is we just aligned all 330 of our employees, especially during the crisis when the heretofore old roofs were risky we lived on that and so we took that crisis we took that that that that absolute necessity to reshape to reform happy to say under brent's leadership and brent and under dick's leadership and brent rattle off um the two of them have led the course and so that's what has caused this and we don't take it for granted it. These are prime movers that anyone would love to have. And so the minute you think you got it, you might lose it. So every day we work hard to please them and to serve. And that's what our mousetrap has been about. Hope that helps you.

It does. Thanks. And then just I'll sneak one last housekeeping one in real quick. Of the 399,000 policies enforced at quarter end, What was the mix between voluntary PIF versus citizens?

Citizens would have made up roughly about 100,000, 110,000 of the mix. And the voluntary was about 289,000 or so.

So, yeah, about 100,000 was citizens. again if you would like to ask a question see the press star followed by the number one on your telephone keypad and your next question comes from the line of mitch rubin with raymond james mitch please go ahead hey thank you guys for taking my call today this is mitch on behalf of greg peters um i was wondering if you could provide some additional color on the favorable reserve development this quarter thanks yes um we saw a favorable development just based upon

On some prior accident years, particularly our non-catastrophe losses came in favorably compared to where we believe that they were, and we were pleased with the results.

All right. Thank you for the answers on that. Could you also talk a little bit more about the expansion into some older roofs and how that's impacting your view on PMLs?

Yeah. So our expansion into older roofs, as we mentioned during the call, is a product of the legislative reform and our belief and conviction that we can now begin to write that segment of the housing stock in Florida. In terms of the impact to PML, certainly newer rooftops are going to have a lower PML compared to older rooftops. However, the premium that we're collecting for those older rooftops compensate for that. but we are being very tactical in terms of how far we're willing to stretch in terms of age of roof particularly, and that is a metric that we continuously monitor and observe.

Well, we have a lot of leeway. This is Bob Ritchie. When you consider that over 80% of our current portfolio is new roofs, and so the impact of PML, number one, is priced, and number two will be very well balanced in the scope of things.

That makes sense. Thank you.

There's no further question at this time. I will now turn the call back over to Bob Ricci for closing remarks.

Well, thank you, Mark, and thanks to all of you for joining our call this morning. Greatly appreciated. We're in a very strong position given our technology platform, given our distribution network, given our balance sheet, and most importantly, our team of 330 dedicated employees that are all on the same side of the fence, pull on the same rope, post-IPO. We have significant room to grow our market share. And as we expand into new markets across Florida, as well as introduce new products, these will sustain our growth for years to come. We're not just doing deals. We don't rely upon takeouts. We're a company that will opportunistically invite that opportunity, but we're a well-oiled distribution machine. And importantly, the legislative changes in Florida have created a more rational market and one that will benefit consumers and carriers and investors over time. So I'm excited with all the opportunities I had and grateful for the trust that you have extended to us with this IPO grateful that you're following our company and I'm looking forward to updating each and every one of you both individually private calls and also on our third quarter call thanks again for your time and your trust it was today's call thank you all for joining you may now disconnect