Palomar Holdings, Inc. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• 2024 was a banner year with 23% gross written premium growth (39% excluding runoff), 48% adjusted net income growth, and adjusted ROE of 23% in Q4. Record gross written premium and adjusted net income for full year 2024.
• Acquired First Indemnity of America (FIA) at start of 2025 and upgraded to A Excellent by AM Best. Added key leadership roles in 2024.
• Addressed Los Angeles wildfires, noting modest losses within 2025 guidance, and discussed potential tailwinds for residential earthquake business from California Earthquake Authority member attrition.
• Outlined 2025 strategic initiatives: integrate and operate, build new market leaders, and focus on profitable growth within defined appetite, aiming to double 2021 adjusted underwriting income in three years.

Segment Performance

• Earthquake Franchise: Core earthquake franchise grew gross written premiums 20% in Q4. Exited 2024 as the third largest writer of earthquake insurance in North America. Adjusted net income growth and balanced residential/commercial approach.
• Inland Marine and Other Property: Grew 36% year over year. Balanced mix of residential and commercial lines; rate increases from Hawaiian hurricane and residential flood offset commercial property rate softening.
• Casualty Segment: Premium increased 112% year over year. Represents 50% of total portfolio; conservative underwriting with strong rating in excess of loss costs. Q4 casualty book average gross limit $2.4M, average net limit $1.1M.
• Fronting Business: First full quarter after separation from Omaha National, premium declined 33%.
• Palomar Crop: Delivered $15.7M in premiums in Q4 and $116M for full year 2024. Underwriting results strong with estimated underwriting gain on MPCI of ~20%. Finalized 2025 reinsurance treaty with 30% retention.
• FIA Acquisition: Closed at start of 2025; surety is an attractive market segment for long-term growth, though contributions modest in 2025.

Guidance

• 2025 adjusted net income guidance range $180 million to $192 million, including $8 million to $12 million of catastrophe losses.
• Assumes core 6/1 excess of loss reinsurance treaty renews flat to down 5% from 2024 treaty.
• Midpoint of guidance implies adjusted ROE of 23% and aims to double 2022 adjusted underwriting income in three years.

Risks

• Impact of California wildfires on reinsurance market and homeowners market dislocation, with uncertainty in forecasting medium and long-term market impact.
• Dependence on reinsurance pricing and market conditions for financial results, including potential rate decreases or increases affecting profitability.
• Uncertainty in the medium and long-term effects of wildfires on the California homeowners and reinsurance markets.

Question and Answer

Q: What are the reinsurance expectations and opportunities in the California market?

A: Mac Armstrong discussed reinsurance renewals, noting conservative approach due to wildfire impact, and opportunities in residential earthquake from CEA member attrition and commercial builders risk in California.

Q: How does 6/1 reinsurance pricing feed into the outlook?

A: Chris Uchida and Mac Armstrong explained that excess of loss reinsurance is a major expense, and better pricing could positively impact results, with potential savings if renewals come in below 5%.

Q: What drives top-line growth in 2025?

A: Mac Armstrong cited growth in earthquake, inland marine/other property, casualty, and crop segments, with focus on steady contributors and operating leverage in scaled lines.