Palomar Holdings, Inc. (NASDAQ:PLMR) Q1 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call shows strong financial performance with record high revenue and improved margins, suggesting operational efficiency. The Q&A highlights conservative guidance but also showcases growth opportunities in residential and commercial sectors. Despite some competitive pressures, the company is well-positioned with new product offerings and a balanced portfolio. The market cap of $2 billion suggests a moderate reaction, leading to a positive stock price movement in the 2% to 8% range over the next two weeks.

Key Financial Performance

Adjusted Net Income $51.3 million (85% increase year-over-year) due to strong operational performance and premium growth.

Adjusted Underwriting Income $51.6 million (increase from $29.2 million year-over-year) reflecting improved underwriting performance.

Adjusted Combined Ratio 68.5% (decrease from 73% year-over-year) due to better loss experience and operational efficiencies.

Adjusted Return on Equity (ROE) 27% (increase from 22.9% year-over-year) driven by strong net income growth.

Gross Written Premiums $442.2 million (20% increase year-over-year) supported by new products and a balanced mix of offerings.

Net Earned Premiums $164.1 million (52% increase year-over-year) due to improved reinsurance and growth in non-fronting lines.

Loss Ratio 23.6% (improvement from previous year) due to favorable development on prior year catastrophe events.

Net Investment Income $12.1 million (69.1% increase year-over-year) attributed to higher yields on invested assets.

Stockholders' Equity $790 million (increase due to consistent profitable growth and capital raises)

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Operating Highlights

New Products: The quarter featured growth driven by new products like crop and casualty.

Crop Franchise Growth: The crop franchise generated $48 million of written premium during the first quarter, an increase of 25% year-over-year.

Casualty Franchise Growth: Casualty gross written premium grew 113% year-over-year, driven by strong performance across various segments.

Market Expansion: The acquisition of Advanced AgProtection closed on April 1st, allowing for increased scale and market opportunity in the crop business.

Geographic Expansion: New teams were added in Illinois, Kansas, and the Dakotas to extend geographic reach.

Operational Efficiencies: The adjusted combined ratio was 68.5% for the first quarter, compared to 73% in the first quarter of 2024.

Talent Acquisition: Key hires were made in underwriting, claims, data, technology, and actuarial departments to support growth.

Strategic Shifts: The company is focusing on a conservative risk appetite, avoiding volatile property segments and increasing resource allocation to specific products.

Guidance Update: Full year 2025 adjusted net income guidance raised to a range of $186 million to $200 million.

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Risk or Challenges

Economic Uncertainty: Global economic uncertainty may impact the company's product portfolio, particularly in property casualty and crop insurance, more than tariffs.

Tariff Impact: Elevated tariffs could increase severity across certain short tail property products, affecting both residential and commercial lines.

Recession Risks: A potential recession could lead to reduced exposures, project delays, lower labor on construction projects, and decreased revenue for real estate brokerages, impacting premium retention and loss severity.

Market Competition: Increased competition in the large commercial market has led to pronounced softening and rate decreases, particularly in commercial all risk, prompting the company to exit this line.

Acquisition Integration: The integration of acquired companies, such as Advanced AgProtection, poses challenges but is essential for scaling the crop business.

Fronting Business Decline: A significant decline in the fronting business due to the runoff of the Omaha National partnership is expected to impact premium growth.

Reinsurance Dependency: The company relies on reinsurance for managing risk, and any unfavorable changes in reinsurance terms could affect profitability.

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Guidance & Outlook

Palomar 2X Strategic Imperative: The company is focused on executing the Palomar 2X strategic imperative, which aims to double adjusted net income within three to five years while maintaining an ROE above 20%.

Integration and Operation: Successful onboarding of new teammates at First Indemnity of America and the acquisition of Advanced AgProtection to enhance crop business.

Building New Market Leaders: Strong growth in the casualty franchise and crop franchise, demonstrating traction on this initiative.

Risk Appetite: Commitment to a conservative risk appetite, avoiding volatile property segments and focusing on profitable growth.

Talent Acquisition: Investments in top talent across various departments to support growth and operational efficiency.

Surety Franchise: Integration of FIA and establishment of a Surety franchise expected to generate $100 million of written premium over time.

Adjusted Net Income Guidance: Raised full year 2025 adjusted net income guidance to a range of $186 million to $200 million from $180 million to $192 million.

Return on Equity (ROE) Guidance: Midpoint of guidance implies an adjusted ROE of 23%.

Crop Premium Target: On track to meet or exceed $200 million full year target for crop premiums.

Loss Ratio Guidance: Expect loss ratio to be in the low 30s for the year.

Acquisition Expense Ratio Guidance: Expect acquisition expense ratio to be around 11% for the year.

Net Earned Premium Ratio Guidance: Expect net earned premium ratio to be around 40% for the year.

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Shareholder Return Plan

Share Repurchase Program: None

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Key Q&A

Q:Can you help us think through the flat to down 5% that you’re assuming in your outlook? What would push that down 15%?

A:All placements to date have come in better than our forecast of flat to 5%. We were still trying to assess the impact of the wildfires in Los Angeles on the global reinsurance market. The guidance incorporates Capon being down 15%, Laulima being a little better than projections, and the rest of the core program being maybe 2.5% down at the midpoint or flat to down 5%. There’s conservatism there.

Q:Could you talk about the thought process around splitting out Laulima separately and renewing that one separately from the core June 1st program?

A:It stems from our desire for Laulima to be a true standalone entity where we serve as the attorney in fact manager and generate fees. Long term, it will be independent, and it helps reinsurers deploy more limit without feeling they have to pick one versus the other.

Q:Could you talk about the growth in residential and commercial sides?

A:We feel good about mid to high teens growth. The 23% growth was close between commercial and residential, but commercial was previously growing at 40-50%. There’s pressure in larger commercial accounts, but residential has tailwinds from awareness and partnerships.

Q:How much of the acceleration in the casualty book was due to underlying market growth versus your ramp being more successful?

A:It was a little bit of both. New underwriters catalyzed growth across the casualty book, and the market is a bit dislocated, creating opportunities for us.

Q:Can you provide specifics on the crop premium spread from Q3 to Q4?

A:In Q3, we expect about 65% to 75% of the earned premium, and in Q4 about 15% to 25%. The crop premium is weighted in the second half of the year.

Q:Are you seeing competitors take bigger layers in commercial quake?

A:It’s more about increased competition rather than competitors taking bigger layers. There’s more competition from MGAs with excess capital.

Q:Is the commercial all risk program gone now?

A:It’s a little bit of let’s keep a toe in the water. We will have a modicum of that, but we are focusing on quake or builders’ risk for better returns.

Q:Are the expenses for the crop business operating or acquisition expenses?

A:Those are operating expenses, with a higher operating expense ratio expected in Q2.

Q:For which accident years did the inland marine reserve releases show up?

A:It was spread out through the last few years, primarily driven by E&S.

Q:What are the potential pressure points of your earnings outlook?

A:The headwind is going to be commercial property due to competition and rate pricing down, but we have a strong residential property business to balance it.

Q:How much of the inland marine and property book has excess national areas?

A:The most pricing pressure has come from the large commercial segment, but we have strong rates flowing through the personalized products.

Q:Is $50 million a good way to think about the next few quarters for fronting?

A:Yes, Q1 was about $48 million, Q2 about $44 million, and Q3 about $30 million.

Q:Is there any headwind or tailwind in terms of commodity pricing for the $200 million crop premium expectation?

A:Commodity prices are stable, and we’re focused on yields.

Q:How will the loss ratio trend for crop in Q3?

A:It will be a blend of expectations and actual results, with more clarity expected in Q4.

Q:Review of Unclear Management Responses

A:Management avoided giving a direct answer regarding the specific accident years for the inland marine reserve releases, stating it was spread out without specifying further. Additionally, there was a lack of clarity on the exact impact of commodity pricing on the crop premium expectation.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

PLMR Transcript

Palomar Holdings, Inc. (PLMR) Q3 2025 Earnings Call Transcript

Positive11-7

The company demonstrated strong financial growth across various segments, including a 170% increase in the casualty business and a doubling of crop franchise premiums. Positive guidance, such as raising adjusted net income expectations and strong growth projections for the crop business, supports optimism. The Q&A session reinforced confidence with no unclear responses, and the market's positive reaction to new partnerships and strategic growth plans further boosts sentiment. Given the company's small-cap status, these factors suggest a strong positive stock price movement.

Palomar Holdings, Inc. (PLMR) Q2 2025 Earnings Call Transcript

Positive8-5

The earnings call reveals strong financial performance, with significant growth in written premiums and investment income. Despite challenges in the Commercial Earthquake segment, management remains optimistic about growth opportunities in Casualty, Crop, and Surety. The raised guidance and strategic partnerships, like Neptune, signal positive market sentiment. While there are some concerns about competition and pricing pressures, the overall outlook, including raised guidance and strategic growth areas, suggests a positive stock price reaction in the short term.

Palomar Holdings, Inc. (NASDAQ:PLMR) Q1 2025 Earnings Call Transcript

Positive5-7

Earnings call transcript: Palomar Holdings Q1 2025 sees strong EPS beat

Positive5-6

The earnings call reflects strong financial performance with an 85% increase in adjusted net income and a 20% rise in gross written premiums. Despite a 43% drop in premiums, the company raised its adjusted net income guidance, indicating optimism. The Q&A section reveals some uncertainties, but overall, the financial health and raised guidance suggest a positive outlook. The market cap suggests a moderate stock price reaction, likely within the 2% to 8% range.

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