Palomar Holdings Signals Confident Growth in Earnings Call

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

Palomar Holdings’ latest earnings call struck a notably upbeat tone as management detailed strong premium growth, expanding earnings, and a fortified balance sheet. Executives acknowledged rising loss and expense ratios and competitive pressures in key lines, but emphasized disciplined underwriting, conservative reserving, and enhanced risk transfer as reasons they remain confident about sustaining profitable growth.

Strong Top-Line Growth

Palomar reported a 42% year-over-year jump in gross written premiums to $629.8 million, reflecting broad-based momentum across all five product categories. Net earned premiums surged 59% to $261.4 million, underscoring not just volume growth but also higher retention as the company leans further into its own balance sheet.

Earnings and Profitability Expansion

Adjusted net income climbed 23% to $63.1 million, or $2.31 per diluted share, while adjusted underwriting income rose 22% to $62.8 million. The company delivered an annualized adjusted return on equity of 26.6% and an adjusted combined ratio of 76%, signaling that Palomar is scaling its franchise without sacrificing profitability.

Segment-Level Outperformance

Growth was particularly pronounced in specialty lines, with crop premiums up 82%, casualty up 55%, and surety and credit soaring 131% year over year. Inland marine and property premiums advanced 47%, while the earthquake franchise posted 3% growth, supported by roughly 97% retention in residential quake and steady new business inflows.

Balance Sheet, Capital and Shareholder Returns

Palomar ended the quarter with about $1.6 billion in cash and invested assets and a fixed-income duration just over four years, reflecting a conservative investment stance. The company repurchased 190,255 shares for $23.1 million and secured a new two-year $200 million buyback authorization, with net written premiums-to-equity around 1.1 times and shareholders’ equity at $959 million.

Reinsurance and Risk Transfer Execution

Management highlighted the completion of six reinsurance treaty placements with better economics and the issuance of the seventh Torrey Pines Re catastrophe bond. The $410 million fully collateralized bond provides multi-year protection for California earthquake and standalone Hawaii hurricane, with risk-adjusted pricing roughly 15% lower and casualty quota shares renewed at more favorable ceding commissions.

Acquisitions and Platform Build

The integration of Gray Surety, now rebranded as Palomar Casualty and Surety, is progressing smoothly and expanding the company’s reach in the federal project market through new de-listing authority exceeding $72 million. Management credited acquisition activity with broadening the product mix and adding scale in surety, positioning the platform for continued specialty growth.

Investment Income and Yield Improvement

Net investment income jumped 49% year over year to $18.0 million as higher rates and portfolio repositioning flowed through the income statement. The portfolio generated a 4.9% yield in the quarter, and new investments carried average yields above 5%, providing a growing income tailwind without stretching risk.

Higher Combined and Loss Ratios

The adjusted combined ratio rose to 76% from 68.5% a year ago, and from 73.4% sequentially, as the business mix shifted toward lines with higher attritional loss content. The total loss ratio increased to 33.3% from 23.6%, reflecting the rapid expansion of casualty and crop, though management framed the rise as consistent with their growth strategy and pricing.

Attritional and Catastrophe Activity

Losses and loss adjustment expenses climbed to $87.1 million, almost entirely driven by $86.8 million of attritional losses with only $0.3 million tied to catastrophe events. The quarter included about $3 million from Hawaii flooding, and executives noted that expanding casualty and crop portfolios naturally bring higher, but manageable, ongoing loss activity.

Expense Pressure from Mix and Integration

Palomar’s acquisition expense ratio increased to 14.0% from 12.3%, while other underwriting expenses rose to 8.5% from 7.5%, partly due to surety’s cost structure and Gray’s integration. The company also recorded about $6.1 million of amortization on acquired intangibles and indicated that these integration-related costs will continue near term before efficiencies emerge.

Competitive Pricing Headwinds in Commercial Property and Earthquake

Management flagged meaningful rate pressure in commercial property and earthquake, with commercial quake pricing down roughly 18% on renewals and new business. Excess national property and large county and E&S property are seeing rate cuts in the 12% to 15% range, and Palomar expects commercial quake softness to persist through 2026 but believes residential strength will help balance the portfolio.

Casualty Pricing Moderation and Reserve Composition

Certain casualty lines are seeing moderating rate momentum as new competitors enter the market, tempering pricing power. However, over 85% of Palomar’s casualty reserves are booked as incurred but not reported, revealing a conservative reserving posture that may limit near-term reserve releases but aims to keep adverse development risk in check.

Crop Exposure and Weather Risks

The 82% surge in crop premiums brings opportunity but also weather-related risk, especially amid drought conditions in winter wheat regions such as Oklahoma and Kansas and pressure on PRF products in the Mountain West and Plains. Palomar noted that most retained crop exposure is tied to Midwest corn and soybeans, where planting was just beginning, leaving the season’s loss outcome still uncertain.

Net Earned Premium Ratio Shift

Net earned premiums as a share of gross rose to 51.9% from 43.7%, and from 48.2% sequentially, reflecting higher retention and evolving quota share structures. Management linked this shift to reinsurance timing and the Gray acquisition, noting that while it boosts earnings power, it also increases exposure variability across the treaty year and heightens the importance of disciplined risk management.

Guidance and Forward Outlook

Looking ahead, Palomar raised its 2026 adjusted net income guidance to a range of $262 million to $278 million, implying about 25% earnings growth and ROE above 20% while baking in $8 million to $12 million of catastrophe losses. For the nearer term, the company is targeting an adjusted combined ratio in the mid-70s, a loss ratio in the mid-to-upper 30s, a net earned premium ratio in the upper-40s, and modest improvements in acquisition and underwriting expense ratios as scale and integration benefits accrue.

Palomar’s earnings call painted a picture of a specialty insurer leaning into growth while carefully managing new risks and rising competition. Investors heard a story of expanding premiums, robust profitability, enhanced risk transfer, and a confident guidance raise, tempered by higher loss and expense ratios and cyclical pricing headwinds that management insists are well under control.