Palomar Holdings’ Earnings Call Highlights Profitable Growth

Palomar Holdings ((PLMR)) has held its Q1 earnings call. Read on for the main highlights of the call.

Palomar Holdings’ latest earnings call struck an upbeat tone, as management balanced robust growth with a candid view of rising costs and competitive pressures. Executives highlighted strong premium expansion, higher earnings and returns, and a fortified balance sheet, arguing that disciplined underwriting and conservative reserving leave the company well positioned despite loss ratio and expense headwinds.

Strong Top-Line Growth

Gross written premium surged 42% year over year to $629.8 million, underscoring broad-based momentum across the portfolio, including the company’s flagship earthquake business. Net earned premiums climbed an even faster 59% to $261.4 million, reflecting higher retention and the impact of reinsurance structures, as Palomar continues to scale its specialty platform.

Earnings and Profitability Expansion

Adjusted net income rose 23% to $63.1 million, or $2.31 per diluted share, signaling that the company is converting top-line gains into meaningful bottom-line growth. Adjusted underwriting income increased 22% to $62.8 million, driving an annualized adjusted return on equity of 26.6% and an adjusted combined ratio of 76%, which management framed as evidence of sustainable profitability.

Segment-Level Outperformance

Growth was particularly strong in newer and diversified lines, with crop premiums up 82%, casualty 55%, and surety and credit a striking 131% year over year, while inland marine and property rose 47%. The earthquake franchise still expanded, posting 3% premium growth, with residential earthquake showing about 97% retention and robust new business, helping offset rate pressure in commercial quake.

Balance Sheet, Capital and Shareholder Returns

Palomar emphasized its financial flexibility, with cash and invested assets around $1.6 billion and a fixed-income portfolio duration just over four years. The company repurchased 190,255 shares for $23.1 million in the first quarter, and the board approved a new two-year $200 million buyback program, supported by a net written premium-to-equity ratio near 1.1 times and shareholders’ equity of $959 million.

Reinsurance and Risk Transfer Execution

Management completed six reinsurance treaty placements with improved economics, reinforcing the risk-transfer backbone of its model. It also issued the seventh Torrey Pines Re catastrophe bond, a $410 million fully collateralized multi-year structure covering California earthquake and standalone Hawaii hurricane, with risk-adjusted pricing down roughly 15% and casualty quota shares renewing at higher ceding commissions.

Acquisitions and Platform Build

Integration of the Gray Surety acquisition, now rebranded as Palomar Casualty and Surety, is progressing and expanding the platform’s reach in federal projects via new de-listing authority above $72 million. Management underscored that acquisition activity is broadening the product mix and scaling surety, positioning the company to capitalize on infrastructure and construction-related demand.

Investment Income and Yield Improvement

Net investment income jumped 49% year over year to $18.0 million, benefiting from higher yields across the portfolio. The overall portfolio yield reached 4.9% for the quarter, and the average yield on new investments exceeded 5%, providing a growing income tailwind that supports earnings even as claims and expenses rise.

Higher Combined and Loss Ratios

Not all trends were favorable, as the adjusted combined ratio rose to 76% from 68.5% a year earlier and from 73.4% in the prior quarter, signaling cost and loss pressure. The total loss ratio increased to 33.3% from 23.6%, largely due to higher attritional losses associated with rapid growth in casualty and crop lines, which management framed as manageable but closely monitored.

Attritional and Catastrophe Activity

Losses and loss adjustment expenses reached $87.1 million, almost entirely attritional at $86.8 million, with only $0.3 million tied to catastrophes. The quarter included about $3 million of catastrophe losses from flooding in Hawaii, reinforcing that even modest cat events can add volatility when layered on expanding casualty and crop exposure.

Expense Pressure from Mix and Integration

Operating leverage showed some strain, with the acquisition expense ratio rising to 14.0% from 12.3% and other underwriting expenses increasing to 8.5% from 7.5% year over year. Management attributed the higher ratios to business mix, especially surety, and two months of Gray’s underwriting expenses, while warning that amortization of acquisition intangibles, about $6.1 million this quarter, will continue.

Competitive Pricing Headwinds in Commercial Property & Earthquake

Palomar noted meaningful pricing pressure, with commercial earthquake rates down roughly 18% on renewals and new business, and excess national property and large county or E&S property seeing 12%–15% rate declines. The company expects commercial quake pricing weakness to persist through 2026, but believes strength in residential earthquake and other lines will help offset the downturn.

Casualty Pricing Moderation and Reserve Composition

Certain casualty lines are facing a moderating rate environment as new entrants intensify competition, potentially limiting future pricing power. Management highlighted that more than 85% of casualty reserves are incurred but not reported, a conservative stance that bolsters balance sheet strength but could keep reported reserves volatile and limit near-term reserve releases.

Crop Exposure and Weather Risks

The 82% surge in crop premiums brings opportunity but also weather-driven uncertainty, particularly amid drought conditions in winter wheat regions like Oklahoma and Kansas and pressure on PRF products in the Mountain West and Plains. Palomar said most of its retained exposure is in Midwest corn and soybeans, where planting had only just begun, leaving the ultimate loss experience still evolving.

Net Earned Premium Ratio Shift

Net earned premiums rose to 51.9% of gross written premium from 43.7% a year ago and 48.2% sequentially, reflecting changes in reinsurance timing, quota share structures, and the Gray acquisition. While higher retention supports earnings, management cautioned that it also increases exposure variability over the treaty year, heightening the importance of reinsurance discipline and capital management.

Forward-Looking Guidance and Outlook

Management lifted its 2026 adjusted net income guidance to a range of $262 million to $278 million, with the midpoint implying roughly 25% year-over-year earnings growth and a return on equity above 20%, even after assuming catastrophe losses. For the nearer term, they anticipate an adjusted combined ratio in the mid-70s, a loss ratio in the mid-to-upper 30s, a net earned premium ratio moving into the upper 40s, and slight improvements in acquisition and underwriting expense ratios as scale benefits and integration efficiencies build.

Palomar’s earnings call painted the picture of a specialty insurer leaning into growth but not blind to the risks that come with it, from higher attritional losses to competitive pricing pressure. Investors heard a consistent message of discipline: the company is accepting some near-term volatility in loss and expense ratios in exchange for diversified expansion, while relying on conservative reserving, robust reinsurance and a strong balance sheet to protect long-term returns.