Income Taxes

12 Months Ended

Dec. 31, 2025

Income Tax Disclosure [Abstract]

Income Taxes

15)INCOME TAXES

The Company files a consolidated federal income tax return with all subsidiaries, including our former subsidiary, UPC.

The following table summarizes the provision for income taxes:

	Year Ended December 31,
	2025		2024		2023
Federal:
Current	$	21,289	$	17,992	$	11,798
Deferred		7,388		401		(2,908	)
Provision for Federal income tax expense		28,677		18,393		8,890
State:
Current		4,379		4,446		3,128
Deferred		2,896		957		(2,562	)
Provision for State income tax expense		7,275		5,403		566
Provision for income taxes	$	35,952	$	23,796	$	9,456

Income tax expense is included in the financial statements as follows:

	Year Ended December 31,
	2025		2024			2023
Continuing operations	$	35,939	$	25,340		$	10,876
Discontinued operations		13		(1,544	)		(1,420	)
Reported income tax provision	$	35,952	$	23,796		$	9,456

The actual income tax expense attributable to continuing operations differs from the expected income tax expense attributable to continuing operations computed by applying the combined applicable effective federal and state tax rates to income before the provision for income taxes as follows:

	Year Ended December 31,
	2025						2024						2023
	Amount			Percent			Amount			Percent			Amount			Percent
Pretax income
United States	$	104,127					$	89,659					$	77,220
Foreign		38,607						12,000						18,860
Total pretax income		142,734						101,659						96,080
US federal statutory tax rate		29,974			21.0	%		21,348			21.0	%		20,176			21.0	%
State and local income tax, net of federal income tax effect(1)		6,353			4.5			4,550			4.5			1,032			1.1
Foreign tax effects
Bermuda
Foreign tax statutory exemption		7			—			(56	)		(0.1	)		(188	)		(0.2	)
Cayman Islands
Foreign rate differential(2)		(8,114	)		(5.7	)		(2,464	)		(2.4	)		(3,773	)		(3.9	)
Effects of cross-border tax laws
US tax on foreign insurance income		8,107			5.7			2,520			2.5			3,961			4.1
Changes in valuation allowance		(17,810	)		(12.5	)		(8,881	)		(8.7	)		(10,678	)		(11.1	)
Nontaxable or nondeductible items
Unrealized gain on outside basis of subsidiary		16,819			11.8			8,970			8.8			—			—
Other items		603			0.4			(647	)		(0.7	)		346			0.3
Reported income tax expense	$	35,939			25.2	%	$	25,340			24.9	%	$	10,876			11.3	%

(1) For the years ended December 31, 2025 and 2023, the state of Florida makes up the majority (greater than 50%) of our state and local income tax effects. For the year ended December 31, 2024, the states of Florida and Louisiana make up the majority (greater than 50%) of our state and local income tax effects.

(2) The foreign rate differential is calculated by taking pretax net income times the foreign tax rate less the US federal statutory rate. For the years ended December 31, 2025, 2024, and 2023, our foreign tax rate is 0% and the US federal statutory rate is 21%. For the years ended December 31, 2025, 2024 and 2023, our pretax income related to the Cayman Islands is $38,639,000, $11,732,000, and $17,966,000, respectively.

Information regarding our income tax payments, net of refunds, can be found in the supplemental cash flows information section of our Consolidated Statement of Cash Flows above.

Deferred income taxes, which are included in other assets or other liabilities as appropriate, reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

As of December 31, 2025, we had net operating loss (NOL) carryforwards. The amount and timing of realizing the benefits of NOL carryforwards depend on future taxable income and limitation imposed by tax laws. There is no expiration for $2,000 of our Federal NOL carryforward. The remaining $6,767,000 of our Federal NOL carryforward will begin expiring in 2042 and will fully expire by the end of 2042. There is no expiration for $2,000 of our Florida NOL carryforward. The remaining $6,473,000 of our Florida NOL carryforward will begin expiring in 2042 and will fully expire by the end of 2042. Our other state NOL carryforwards of $3,065,000 will begin expiring in 2043 and will fully expire by the end of 2044. The unused business tax credits of $1,610,000 will begin expiring in 2037 and will fully expire by the end of 2040.

The table below summarizes the significant components of our net deferred tax asset (liability):

	December 31,
	2025			2024
Deferred tax assets:
Unearned premiums	$	7,019		$	6,985
Unrealized loss		244			3,575
Tax-related discount on loss reserve		275			620
R&D tax credit carryforward		1,610			1,610
Investments		2,712			2,592
Bad debt expense		328			848
Equity compensation		1,143			797
Dual consolidated loss carryforward		4,406			4,737
Net operating loss carryforward		1,702			7,740
Outside basis in subsidiary		12,360			32,138
Other		114			1,205
Total pre-allowance deferred tax assets		31,913			62,847
Valuation allowance		(20,246	)		(43,212	)
Total deferred tax assets		11,667			19,635
Deferred tax liabilities:
Deferred acquisitions costs		(17,668	)		(14,108	)
Intangible assets		(842	)		(1,616	)
Prepaid expenses		(487	)		(472	)
Investments		(67	)		(131	)
Fixed assets		(155	)		(377	)
Total deferred tax liabilities		(19,219	)		(16,704	)
Net deferred tax asset (liability)	$	(7,552	)	$	2,931

Net deferred tax asset (liability) is included in the financial statements as follows:

	Year Ended December 31,
	2025			2024
Continuing operations	$	(7,552	)	$	2,931
Discontinued operations		—			—
Net deferred tax asset (liability)	$	(7,552	)	$	2,931

We had a valuation allowance of $20,246,000 and $43,212,000 at December 31, 2025 and 2024, respectively. At December 31, 2025, the entire valuation allowance is attributable to our continuing operations. The change in valuation allowance includes a $20,895,000 decrease in valuation allowance charged to continuing operations tax expense and a $2,071,000 decrease of valuation allowance on our FAS 115 assets which is charged to other comprehensive income. In assessing the net realizable value of deferred tax assets, we consider whether it is more likely than not that we will not realize some portion or all of the deferred tax assets. The ultimate realization of deferred tax assets depends upon the generation of future taxable income during the periods in which those temporary differences become deductible. We considered taxable income (loss), reversals of temporary items, projected future taxable income and tax planning strategies in making this assessment.

As of June 30, 2022, the Company established a valuation allowance against its capital deferred tax inventory, which included unrealized gains and losses on investments (FAS 115 balances). Under ASC 740-10-45-20, the effect of a change in the beginning-of-the-year balance of a valuation allowance should be charged to income from continuing operations. Changes in deferred tax on FAS 115 balances are generally charged to Accumulated Other Comprehensive Income (AOCI), so booking a portion of the valuation allowance to deferred tax expense creates a disproportionate tax effect on AOCI. As a result of the valuation allowance, the Company has a disproportionate tax effect on AOCI beginning with the period ending June 30, 2022. When the Company releases this disproportionate tax effect, it results in an income tax benefit in the income statement. The Company is using the “aggregate portfolio approach” to clear the disproportionate tax effect. Under this approach, the disproportionate tax effect remains intact as long as the

investment portfolio remains. Only upon the disposal of the entire portfolio is the disproportionate tax effect cleared from AOCI. During 2024, the disproportionate tax effects related to the portfolio of UPC (an entity no longer included in the Consolidated financial statements of the Company) were cleared from the Company’s AOCI account and charged to discontinued operations. The disproportionate tax effects attributable to the remaining investment portfolio of the Company remain intact as of December 31, 2025.

The statute of limitations related to our consolidated Federal income tax returns and our Florida income tax returns expired for all years up to and including 2021; therefore, only the 2022 through 2025 tax years remain subject to examination by the taxing authorities. During the year ended December 31, 2023, we were examined by the IRS regarding tax years 2018, 2019 and 2020. This exam was completed in 2023, and no adjustments were proposed.

ACIC’s reinsurance subsidiaries, which are based in the Cayman Islands and Bermuda, made an irrevocable election under section 953(d) of the U.S. Internal Revenue Code of 1986, as amended, to be treated as a domestic insurance company for U.S. Federal income tax purposes. As a result of this election, our reinsurance subsidiaries are subject to United States income tax on its worldwide income as if it were a U.S. corporation.

The following is a reconciliation of the beginning and ending amount of unrecognized tax benefits for the year ended December 31, 2025:

	December 31, 2025
Balance at January 1	$	666
Decrease based on tax positions related to prior years		—
Balance at December 31	$	666

Included in the balance at December 31, 2025 was $666,000 of unrecognized tax benefits that, if recognized, would affect the annual effective tax rate.