Palomar Holdings Signals Confident Growth After Record Year

Palomar Holdings ((PLMR)) has held its Q4 earnings call. Read on for the main highlights of the call.

Palomar Holdings’ latest earnings call carried a distinctly upbeat tone, as management highlighted record growth, rising profitability, and stronger reinsurance terms while acknowledging a handful of pressure points. Executives framed 2025 as a year of scale and diversification, arguing that investments in crop, surety, and talent set up durable earnings power despite softer spots in commercial earthquake and higher near-term ratios.

Record Full-Year Financial Performance

Palomar reported a standout 2025, with gross written premium climbing 32% to $2.0 billion and adjusted net income jumping 62% to $216.1 million. Adjusted diluted EPS rose 54% to $7.86 and adjusted return on equity improved to a robust 25.9%, up from 22.2% in 2024, underscoring strong capital efficiency.

Strong Q4 Results and Momentum

Fourth quarter numbers reinforced the full‑year strength, with adjusted net income up 48% year over year to $61.1 million, or $2.24 per share. Q4 gross written premium grew 32% to $492.6 million while net earned premium surged 61% to $233.5 million, powering a 52% increase in adjusted underwriting income to $62.3 million.

High-Quality Underwriting Metrics

Underwriting quality remained a key theme, as Palomar’s full‑year adjusted combined ratio improved to 72.7% from 73.7% in 2024, signaling disciplined pricing and risk selection. In Q4, the adjusted combined ratio was a similar 73.4% and annualized adjusted ROE reached about 26.9%, well above the prior‑year quarter’s 23.1%.

Crop Franchise Outperformance

The crop business materially outperformed internal expectations, writing $248 million of premium versus an initial $200 million target and even beating a revised $230 million goal. Management highlighted a loss ratio under 80%, crop production of $40 million in Q4, rising retention to 50% net of reinsurance, and projected crop premium growth above 30% in 2026 toward an intermediate $500 million target.

Reinsurance Improvements and Favorable Pricing

On the reinsurance front, Palomar renewed four quota share treaties at January 1 with better economics, including improved ceding commissions in primary and excess casualty. Commercial earthquake quota share and earthquake excess of loss programs were renewed at more than 15% risk‑adjusted reductions, lowering cost of risk and supporting returns even amid pockets of rate pressure.

Strategic M&A and Product Expansion

The acquisition of Gray Casualty and Surety marked another step in Palomar’s diversification push, adding a scaled surety platform with roughly $110 million of pro forma 2025 written premium. Management described Gray as the third specialty franchise closed in the period, broadening the company’s product mix and helping reduce dependence on any single line.

Talent, Scale and Operational Initiatives

Palomar continued to invest in people and capabilities, growing headcount to over 500 professionals, particularly in underwriting, claims, data, and actuarial roles. The company launched an engineering practice for construction and infrastructure and is rolling out AI tools to streamline underwriting, optimize portfolios, and drive automation and operational efficiency.

2026 Guidance Reflects Continued Growth

Management’s 2026 outlook calls for adjusted net income of $260 million to $275 million, implying roughly 24% growth at the midpoint and an adjusted ROE above 20%. The guidance bakes in $8 million to $12 million of catastrophe losses, assumes about a 10% risk‑adjusted reduction in excess‑of‑loss property catastrophe reinsurance at the June renewal, and anticipates net earned premium and combined ratios drifting higher as crop and surety expand.

Commercial Earthquake Rate Pressure

Not all markets are favorable, with commercial earthquake facing about 15% rate declines amid intense competition that management expects could persist through much of 2026. Q4 earthquake premium slipped 2% year over year, though executives noted this was muted by a one‑time unearned premium benefit in 2024, and they stressed ongoing discipline in writing new business.

Higher Loss Ratio and Attritional Losses in Q4

The company’s Q4 loss ratio rose to 30.4% from 25.7% a year earlier, largely due to higher attritional losses tied to rapid growth in casualty and crop portfolios. Looking ahead, Palomar’s 2026 guidance calls for a full‑year loss ratio in the mid‑to‑upper 30s, up from about 28.5% in 2025, reflecting both portfolio mix shift and higher assumed catastrophe load.

Rising Expense Ratios This Quarter

Expense metrics ticked higher in the quarter, with acquisition costs at 13.0% of gross earned premium versus 10.9% a year ago and other underwriting expenses at 8.1% versus 7.2%. Management linked the increase to business mix and deliberate investment in talent and systems, cautioning that these could weigh on near‑term expense leverage even as they aim to support scalable growth.

Crop Retention Raises Portfolio Ratios

Palomar’s decision to push crop retention to 50% effective January 1, 2026, up from about 30%, is expected to add pretax earnings but also lift headline loss and combined ratios. With crop typically running a combined ratio in the low 90s, management reminded investors that higher portfolio ratios will not necessarily signal weaker performance, but rather a bigger contribution from a profitable albeit higher‑ratio line.

Acquisition Financing and Near-Term Accretion

The Gray Surety deal closed at an estimated $311 million and was financed mainly through a $300 million term loan bearing interest at a spread over short‑term rates. Given the added interest expense and integration timing, executives expect Gray to be only modestly accretive in 2026, with more meaningful earnings contribution targeted as the franchise scales into 2027.

Rate Softness in Certain Commercial Property Segments

In commercial property, management flagged selective rate softness, particularly in large excess and surplus builders risk accounts where pricing is drifting down in the low single digits. Some of this is being offset by double‑digit pending increases in areas like Hawaii hurricane and truck cargo, but the comments signal a more nuanced market than the broad hardening seen in recent years.

Uncertainty Around Reinsurance Assumptions

While Palomar’s guidance assumes a 10% risk‑adjusted reduction on its mid‑year property catastrophe excess‑of‑loss reinsurance, executives acknowledged this remains subject to market conditions and exposure growth. They noted that some early renewals have come in better than expected, but emphasized that reinsurance outcomes are inherently variable and will be closely monitored as the portfolio expands.

Forward-Looking Guidance and Investor Takeaways

Overall, 2026 guidance paints a picture of continued top‑line growth and strong, if slightly moderated, profitability as the mix shifts toward crop and surety and as investment spending continues. Investors will be watching how Palomar balances reinsurance savings, competitive pressures in commercial earthquake and select property lines, and integration of Gray Surety while still targeting mid‑70s combined ratios and ROE north of 20%.

Palomar’s earnings call left the impression of a company leaning into profitable growth while carefully managing evolving risks and market dynamics. Record results, strong underwriting, and favorable reinsurance terms are being reinvested into new franchises, technology, and talent, and the tone suggested confidence that these moves can sustain attractive returns even as ratios edge higher and select segments soften.