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Palomar Holdings, Inc. (PLMR)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 was Palomar’s strongest quarter to date: adjusted EPS of $1.87 and total revenues of $174.6M, both above Street, with an adjusted combined ratio of 68.5% and adjusted ROE of 27.0% .
  • Results beat consensus on adjusted EPS ($1.87 vs $1.60*) and total revenues ($174.6M vs $161.8M*), supported by a higher net earned premium ratio (43.7%), favorable cat development, and strong growth in casualty and Hawaii hurricane .
  • FY25 adjusted net income guidance was raised twice: to $186–$200M with Q1 results, then to $195–$205M after the June 1 reinsurance placement delivered ~10% risk‑adjusted rate decreases and incremental earthquake limit (now $3.53B) .
  • Near‑term catalysts: reinsurance savings and expanded limits, continued casualty momentum, and Q3 seasonal crop dynamics (combined ratio mid‑to‑upper 70s) that investors should model explicitly .

What Went Well and What Went Wrong

What Went Well

  • Record adjusted net income ($51.3M) and adjusted EPS ($1.87), with adjusted combined ratio improving to 68.5% from 73.0% YoY; management emphasized “continued execution of Palomar 2X” and a 27% adjusted ROE .
  • Product growth breadth: Earthquake +23.2% YoY GWP, Casualty +112.7%, Inland Marine & Other Property +29.1%; Hawaii hurricane grew 82% with +26% rate on renewals .
  • Reinsurance achievements: upsized $525M Torrey Pines Re cat bond at the low end of indicated range and executed standalone Laulima XOL; later completed June 1 placement at ~10% risk‑adjusted rate decrease and increased FY guidance .

What Went Wrong

  • Fronting continues to be a headwind: GWP down 43.1% YoY; runoff headwinds quantified at ~$48M in Q1, ~$44M in Q2, and ~$30M in Q3 .
  • Competitive pressure in large commercial property (Commercial All Risk) and rate softening in commercial quake layered/shared; Palomar has “all but exited” CAR to protect returns, keeping only a small toe‑hold .
  • Expense ratios trending higher as the company invests ahead of crop seasonality and organizational scale: other underwriting expense ratio expected to be ~8% for FY25, highest in Q2 due to Advanced AgProtection integration timing .

Financial Results

Sequential and Trend Comparison

MetricQ3 2024Q4 2024Q1 2025
Total Revenues ($USD Millions)$148.5 $155.8 $174.6
Net Earned Premiums ($USD Millions)$135.6 $144.9 $164.1
Diluted EPS (GAAP, $)$1.15 $1.29 $1.57
Diluted Adjusted EPS ($)$1.23 $1.52 $1.87
Loss Ratio (%)29.7% 25.7% 23.6%
Expense Ratio (%)50.8% 50.2% 49.5%
Combined Ratio (%)80.5% 75.9% 73.1%
Adjusted Combined Ratio (%)77.1% 71.7% 68.5%

YoY Comparison (Q1 2025 vs Q1 2024)

MetricQ1 2024Q1 2025
Total Revenues ($USD Millions)$118.5 $174.6
Net Earned Premiums ($USD Millions)$107.9 $164.1
Diluted EPS (GAAP, $)$1.04 $1.57
Diluted Adjusted EPS ($)$1.09 $1.87
Loss Ratio (%)24.9% 23.6%
Expense Ratio (%)52.0% 49.5%
Combined Ratio (%)76.9% 73.1%
Adjusted Combined Ratio (%)73.0% 68.5%

Actual vs Consensus (Q1 2025)

MetricQ1 2025 ActualQ1 2025 Consensus
Adjusted EPS ($)$1.87 1.602*
Total Revenues ($USD Millions)$174.6 161.8*
# EPS Estimates—7*
# Revenue Estimates—4*

Values retrieved from S&P Global.*

Segment Breakdown (GWP by Product)

ProductQ1 2024 ($USD Millions)Q1 2025 ($USD Millions)YoY Change
Earthquake$105.7 $130.2 +23.2%
Casualty$51.9 $110.5 +112.7%
Inland Marine & Other Property$76.9 $99.3 +29.1%
Fronting$94.8 $53.9 -43.1%
Crop$38.7 $48.2 +24.6%
Total$368.1 $442.2 +20.1%

KPIs

KPIQ3 2024Q4 2024Q1 2025
Net Earned Premium Ratio (%)34.3% 39.0% 43.7%
Annualized ROE (%)19.7% 19.5% 22.6%
Annualized Adjusted ROE (%)21.0% 23.1% 27.0%
Cat Loss Ratio (%)9.5% 5.6% -0.3%
Cat Losses ($USD Millions)$12.9 $8.1 ($0.5)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted Net Income ($USD Millions)FY 2025$180–$192 $186–$200 Raised
Adjusted Net Income ($USD Millions)FY 2025$186–$200 $195–$205 Raised (post June 1 reinsurance)
Net Earned Premium Ratio (%)FY 2025~40% (commentary) ~40% (affirmed) Maintained
Loss Ratio (%)FY 2025N/ALow 30s Established
Acquisition Expense / Gross Earned Premium (%)FY 2025~11% ~11% (Q2 higher due to crop staffing timing) Maintained with Q2 timing
Other Underwriting Expense / Gross Earned Premium (%)FY 2025~7.2% (Q4 actual) ~8% (FY, highest in Q2) Raised (investment spending)
Reinsurance Pricing Assumption6/1/2025Flat to down 5% Achieved ~10% down risk‑adjusted; expanded limits Better than assumed
Q3 Combined RatioQ3 2025N/AMid‑to‑upper 70s (crop seasonality) New seasonal guidance
Catastrophe Losses in GuidanceFY 2025~$8M cat loss in Q4’24 context Additional $8–$12M remainder of year Established

Earnings Call Themes & Trends

TopicQ3 2024 (Prior-2)Q4 2024 (Prior-1)Q1 2025 (Current)Trend
Earthquake growth+19.4% GWP YoY +20.2% GWP YoY +23.2% GWP YoY; residential strength; commercial rates softening Accelerating growth; mix tilting to residential
Hawaii HurricaneGrowth, diversification noted Continued contribution +82% growth; +26% rate on renewals; standalone Laulima XOL Strong growth, reinsurance optimized
Casualty momentum+90.7% GWP YoY +111.9% GWP YoY +112.7% GWP YoY; net limits ~$0.913M; rate +~11% E&S Sustained high growth with disciplined net lines
FrontingDown 10.5% YoY; headwinds -33% YoY -43.1% YoY; runoff headwinds quantified (Q1 $48M, Q2 $44M, Q3 $30M) Headwind peaking Q1–Q3’25
CropQ3 seasonal ramp; +48.0M premium Modest Q4 (seasonality) $48.2M Q1; target ~$200M FY; AAP acquisition integration Scaling; will drive Q3 apex in ratios
ReinsurancePlanning for 6/1 tower Outlook embed cat losses Torrey Pines Re $525M; 6/1 assumption flat to -5%; later achieved ~-10% Pricing improving; capacity expanding
Tariffs/MacroNot discussedNot discussedTariffs monitored; limited impact; recession bigger near‑term risk New macro commentary; prudent stance

Management Commentary

  • “Record adjusted net income... 69% adjusted combined ratio, and a 27% adjusted ROE... continued execution of the Palomar 2X strategic imperative... same‑store premium growth rate was 37%.” — Mac Armstrong (CEO) .
  • “We are pleased to secure $525 million of earthquake limit through our sixth and largest Torrey Pines Re... pricing ~15% down risk‑adjusted... Laulima treaty priced favorable... positioned to achieve, if not exceed, flat to down 5% assumption.” — Mac Armstrong .
  • “We expect Q3 to be the low point of net earned premium ratio... highest loss dollars and loss ratio... combined ratio mid‑to‑upper 70s, primarily due to crop.” — T. Christopher Uchida (CFO) .
  • “We have all but exited Commercial All Risk... better to allocate property/cat capital to quake or builders risk.” — Mac Armstrong .

Q&A Highlights

  • Reinsurance pricing and guidance: Achieved better-than-assumed placements (cat bond ~-15%, Laulima favorable), with conservatism retained until full $2B+ EQ limit placed; plan to update after June 1 .
  • Strategic rationale for standalone Laulima treaty: build a fee‑based, stand‑alone entity; peril diversification for reinsurers increases deployable limit .
  • Earthquake mix and growth: Residential strong with record new business; small commercial more insulated; large commercial layered/shared facing increased competition and rate pressure .
  • Casualty growth drivers: talent hires, distribution breadth, market dislocation in E&S casualty; disciplined attachment points and net lines (~$0.913M average) .
  • Fronting runoff quantification: ~$48M Q1 headwind, ~$44M Q2, ~$30M Q3; peak impact in Q1–Q3 .
  • Crop seasonality and loss ratio: majority earned in Q3 (~65–75%); crop loss ratios higher (~80%); Q3 ratios will reflect blended actuals and expectations .

Estimates Context

  • Q1 2025 adjusted EPS: $1.87 actual vs $1.60* consensus; total revenues: $174.6M actual vs $161.8M* consensus; beats driven by stronger net earned premium ratio and favorable loss ratio (cat development and reserve conservatism) .
  • FY 2025 consensus EPS: ~7.73* prior to June 1 placement; company raised FY25 adjusted net income guidance to $195–$205M post‑renewal, implying upside risk to estimates if casualty/crop momentum and reinsurance savings persist .

Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Palomar delivered a clean beat on adjusted EPS and revenue, with operating metrics trending better sequentially and YoY; the beat is quality (underwriting and investment income) .
  • Reinsurance renewal outcomes are a material positive: ~10% risk‑adjusted rate decreases, lower hurricane retention ($11M), and expanded earthquake limit to $3.53B; guidance raised accordingly .
  • Fronting runoff is a known, quantified headwind through Q3; underlying non‑fronting lines (Earthquake, Casualty, Hawaii hurricane) are driving profitable growth .
  • Model Q3 seasonality carefully: expect apex in combined ratio (mid‑to‑upper 70s) due to crop; ratios normalize in Q4 .
  • Expense ratios will be modestly higher in Q2 from crop integration and broader investments; long‑term scale should improve efficiency within Palomar 2X framework .
  • Product mix shift toward residential property and casualty under disciplined net lines supports earnings consistency amid commercial property competition .
  • Near‑term trading catalyst: June 1 reinsurance savings and guidance raise; medium‑term thesis: diversified specialty portfolio, disciplined risk appetite, and capital allocation driving ROE >20% and consistent beats (10th straight) .