• Adjusted Net Income Growth: 39% increase.
• Adjusted Combined Ratio: 77%.
• Adjusted Return on Equity (ROE): 21%.
• Top Line Growth: 32% increase.
• Same Store Sales Growth: 38%.
• Gross Written Premiums: $415 million, 32% increase.
• Net Earned Premiums: $135.6 million, 58% increase.
• Loss Ratio: 29.7%.
• Net Investment Income: $9.4 million, 56% increase.
• Stockholders Equity: $703.3 million.
• Full Year Adjusted Net Income Guidance: $124 to $128 million.

• Warning! GuruFocus has detected 2 Warning Sign with PLMR.

Release Date: November 05, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Palomar Holdings Inc (NASDAQ:PLMR) reported a 39% growth in adjusted net income for the third quarter, demonstrating strong financial performance despite high catastrophe activity.
• The company achieved a 32% top-line growth driven by solid execution across its book of business, particularly in earthquake and casualty segments.
• Palomar Holdings Inc (NASDAQ:PLMR) successfully raised $160 million through a primary equity issuance to diversify its specialty insurance franchise and strengthen its balance sheet.
• The company maintained a strong adjusted return on equity of 21%, showcasing its ability to deliver consistent earnings.
• Palomar Holdings Inc (NASDAQ:PLMR) continues to attract industry-leading talent, enhancing its organizational capabilities and supporting its growth initiatives.

Negative Points

• The company's fronting business experienced an 11% decline in premiums due to the separation from Omaha National, impacting growth in this segment.
• Palomar Holdings Inc (NASDAQ:PLMR) faced elevated catastrophe losses from hurricanes, which affected its financial performance.
• The all-risk book was a primary driver of catastrophe losses in the quarter, indicating potential volatility in this line of business.
• The company anticipates challenges in replacing lost business in the fronting segment with new partnerships, which may affect future growth.
• There is increased competition in the commercial earthquake market, leading to plateauing rates and potential pressure on growth.

Q & A Highlights

Q: What are the growth prospects for Palomar's earthquake business next year, considering the California Earthquake Authority's decision not to renew a portion of its reinsurance? A: Mac Armstrong, CEO, stated that Palomar is optimistic about the growth prospects for both residential and commercial earthquake insurance. The company expects to sustain growth in the high teens to 20% range for 2024 and continue growing in the 10% range next year. Residential earthquake insurance is expected to grow more on a relative basis compared to commercial, but both segments will be balanced. The availability of reinsurance capacity following the California Earthquake Authority's changes is expected to support this growth.

Q: How much of the improvement in the earned premium ratio is due to the mix of business versus reinsurance pricing, and what are the expectations for this ratio going forward? A: Chris Uchida, CFO, explained that the improvement in the earned premium ratio is driven by a combination of factors, including rate, mix, and the performance of the excess of loss placement. The third quarter is expected to be the low point for the net earned premium ratio, and it is anticipated to increase incrementally in the fourth quarter and into the first quarter of next year. The expectation is for continued growth in net earned premium dollars through the end of 2024 and into 2025.

Q: Has Palomar's property business been profitable over time, and is the reduction in exposure more about reducing volatility or addressing profitability issues? A: Mac Armstrong, CEO, stated that the property portfolio has generally been profitable, with some lines performing exceptionally well, such as builders risk and excess national property. However, there are underperforming lines like flood and all-risk, which have been more volatile. The company has reduced exposure in these areas to manage volatility and improve risk-adjusted returns.

Q: Is the crop business a net diversifier for Palomar's portfolio, or does it add to property exposures? A: Jon Christianson, President, confirmed that the crop business is a great diversifier for Palomar's portfolio. The primary risk for crops is drought, which is uncorrelated with the rest of the property book. This diversification complements Palomar's existing business and is expected to be a steady contributor to earnings.

Q: What is the expected level of catastrophe losses as a percentage of the combined ratio, and how does this compare to historical expectations? A: Mac Armstrong, CEO, noted that the current year's catastrophe losses are slightly elevated compared to historical expectations due to severe weather events. The company aims to reduce its continental hurricane exposure in 2025, which should lower the catastrophe load. Historically, the expected catastrophe load has been around 3 to 4 points, and Palomar aims to return to that level with underwriting changes.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.