Palomar Holdings, Inc. Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Strategic Imperatives: Executed across four strategic imperatives in all quarters: integrate and operate, build new market leaders, remember likes/dislikes, and generate consistent earnings. Scaled newer verticals in casualty and crop with underwriting discipline.
• Talent Acquisition: Added outstanding talent across departments, growing team to over 500 professionals.
• Acquisitions: Successfully integrated First Indemnity of America, Advanced Ag Protection, and Gray Casualty and Surety. Gray Surety acquisition strengthens surety franchise.
• Underwriting Discipline: Maintained disciplined underwriting across segments, with balanced book of admitted and E&S, residential and commercial, property and casualty products.

Segment Performance

• Earthquake Franchise: Declined 2% year over year in Q4. Residential earthquake book ended 2025 at 58% of total earthquake premium, with 97% premium retention for admitted flagship product. Expected modest premium growth and margin expansion in 2026 despite commercial pressure. Revenue contribution not explicitly stated as a percentage but discussed in detail.
• Inland Marine and Other Property Group: Grew 30% YOY in Q4, driven by admitted and E&S builders risk, Hawaiian hurricane, and flood products. Added professionals in Texas and Northeast. Revenue contribution not explicitly stated as a percentage but discussed.
• Casualty Business: Delivered 120% YOY GWP growth in Q4, accounting for 20% of total GWP. E&S casualty, primary/excess contractors GL, and environmental liability performing well. Revenue contribution not explicitly stated as a percentage but discussed.
• Crop Franchise: Generated $248,000,000 of written premium in 2025, exceeding guidance. Expected over 30% growth in 2026. Revenue contribution not explicitly stated as a percentage but discussed.
• Surety and Credit: Added via Gray Surety acquisition, expected to be a stable long-term growth driver. Pro forma for acquisition would have constituted 6.5% of total premium in 2025.

Guidance

• 2026 adjusted net income guidance: $260,000,000 to $275,000,000. Midpoint implies approximately 24% adjusted net income growth and adjusted return on equity greater than 20%.
• Assumes a $10,000,000 catastrophe load and a 10% decrease on excess of loss property catastrophe reinsurance renewal on June 1.

Risks

• Market Cycles: Competitive pressure and rate movements in segments like commercial earthquake could impact performance.
• Reinsurance Market: Conditions in reinsurance, such as softening, can affect margins and underwriting results.
• Portfolio Mix: Changing portfolio mix, like increased retention in crop, may impact loss ratios and overall financial performance.

Question and Answer

Q: On the higher retention on crop, will you be able to size how much that will contribute to earnings next year versus what you earned in 2025?

A: Chris Uchida stated crop is a diversified business with a combined ratio in the low nineties, and retaining more could add pretax income to the bottom line.

Q: The 10% reduction in reinsurance costs, is that on a risk-adjusted basis or absolute dollars?

A: Mac Armstrong said it is on a risk-adjusted basis.

Q: On the underwriting teams added, how much growth are you expecting those teams to contribute in 2026, 2027?

A: Mac Armstrong discussed that new hires will contribute based on market entry, with moderate gross and net line sizes supported by reinsurance, and examples like a $76,000,000 gross line with $4,000,000 net.

Q: On the casualty book, how much is in excess and primary GL, professional lines, and direct writing vs program?

A: Mac Armstrong said the majority is E&S casualty (GL), with some professional lines, and uses program business with underwriting rules shared with program administrators.

Q: On reinsurance update for quake, was it commercial quake and any incremental limit purchased?

A: Mac Armstrong said the commercial earthquake quota share renewed, with modest incremental limit purchased, mostly procured at 06/01.

Q: On capital deployment opportunities across organic, increased retention, share repurchases, and tuck-in deals?

A: Chris Uchida and Mac Armstrong discussed organic growth, potential to increase retentions, selective share repurchases, and opportunistic tuck-in deals.

Q: On commercial quake competitive pressure sequentially, and crop retention moving up to 50%?

A: Mac Armstrong said commercial quake pressure will persist in 2026, and crop retention increase is a lever but will watch capital allocation as growth continues.

Q: On returns on equity as business mix changes and retentions increase?

A: Mac Armstrong and Chris Uchida discussed that Palomar 2x is achievable with ROE above 20% due to diversification, leverage of capital base, and investment leverage.

Q: On fronting business and its stability?

A: Mac Armstrong said fronting is not a strategic focus, with premium declined and fronting market evolved, so it's not a meaningful focus.

Q: On cat excess of loss attachment points in 2026 guidance and engineering distribution?

A: Mac Armstrong said cat excess of loss attachment points assume retentions remain at expiring levels, and engineering leverages existing and new distribution relationships.