Palomar Holdings, Inc. Q3 FY2025 earnings call

• Strong Financial Results: Record gross written premium, adjusted net income, 12th consecutive earnings beat, and 4th adjusted net income guidance increase in 2025.
• Portfolio Construction: Specialty products mix of admitted and E&S residential/commercial P&C risk for balance and earnings consistency; newer businesses like crop and surety diversify the book.
• Acquisition: Acquisition of Gray Casualty and Surety Company enhances surety platform, adds scale, and access to key markets, supporting the Palomar 2X initiative.
• Segment-Specific Performances: Earthquake growth, Inland Marine and Other Property acceleration, Casualty growth, Crop franchise scaling, and Fronting impact from partnership termination.

Earthquake Franchise

• Book of admitted and E&S residential and commercial earthquake products grew 11% year-over-year in Q3, with residential earthquake making up 61% of the total earthquake book.

Inland Marine and Other Property

• Grew 50% year-over-year, driven by admitted and residential property products like Hawaii hurricane (up ~20%), E&S flood, and Builders Risk (up 53%).

Casualty

• Gross written premium grew 170% year-over-year, with strong performance in excess and primary general casualty, Environmental Liability (up 119%), and Real estate E&O (up 65%).

Fronting

• Premium declined 32% year-over-year due to the termination of the Omaha National partnership.

Crop Franchise

• Gross written premium was $120 million in Q3, doubling year-over-year, with plans to reach $230 million in 2025 and $500 million in the intermediate term.

Gray Casualty and Surety Company

• Acquisition enhances Palomar's surety platform, adding scale and access to markets like Texas, Florida, and California. It supports the Palomar 2X initiative to double adjusted net income in 3-5 years.

• Raised 2025 adjusted net income guidance to $210 million to $215 million from $198 million to $208 million. Midpoint implies adjusted ROE of 24%.
• Aim to double adjusted net income in 3-5 years (2022 cohort in 3 years, 2023 cohort in 2 years).
• Expect net earned premium ratio to be in low to mid-40s for full year, loss ratio around 30% for the year.

• Market cyclicality affecting P&C products.
• Rate pressure in commercial earthquake market.
• Competition in certain segments like crop and casualty.
• Dependence on reinsurance terms and market conditions.

Q: Talk about market opportunity in Surety and competition.

A: Gray Surety complements existing Palomar Surety, strong in Sunbelt regions like Texas, Florida, California. Aim to reach top 20 status via expansion, cross-selling, and balance sheet strength.

Q: Future of Crop business.

A: Crop business is growing, aiming for $500M in the intermediate term, driven by service, technology, and talent investment.

Q: Net income guidance and cat impact.

A: Cats included in loss ratio expectations, no major cats expected in the near term.

Q: Commercial earthquake rate trend.

A: Continued softening, but residential earthquake book and softening property cat reinsurance market hedge against rate pressure.

Q: Earthquake pipeline.

A: Ongoing course of business with over 20 carrier partnerships, seeking new strategic opportunities for earthquake exposure.

Q: Healthcare liability book.

A: Launched with Frank Castro, targeting hospital liability, managed care E&O, and Allied Health, with good timing due to rate opportunities.

Q: Flood policy stickiness.

A: Strong stickiness historically, and increased interest during federal program shutdown due to private market credibility.

Q: Growth trajectory and reloading.

A: Organic growth via talent investment, geographic expansion, and opportunistic M&A; Gray acquisition supercharged surety growth for sustained pace.