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Palomar Holdings, Inc. (PLMR)·Q3 2024 Earnings Summary

Executive Summary

  • Q3 2024 delivered robust growth despite elevated catastrophe activity: total revenues rose to $148.5M, diluted EPS reached $1.15, adjusted net income was $32.4M, and adjusted combined ratio was 77.1% . Management emphasized diversification (Crop, Casualty, Surety), consistent earnings, and Palomar 2X execution .
  • The company tightened FY 2024 adjusted net income guidance to $124–$128M (from $124–$130M), incorporating ~$8M of Q4 cat losses from Hurricane Milton; notably, they affirmed the low end despite Q3 cat losses .
  • Key positives: 32% GWP growth to $415.0M; strong Earthquake and Casualty performance; Crop scaled to $59.7M GWP in the seasonally strong Q3; investment income up 56% YoY . Headwinds: loss ratio up to 29.7% (cat 9.5%), combined ratio to 80.5%, Fronting premiums declined due to Omaha National roll-off .
  • Consensus comparison: Management stated they “beat consensus” for the quarter and have done so for eight straight quarters; S&P Global consensus data was unavailable to retrieve numeric estimates due to access limits .

What Went Well and What Went Wrong

What Went Well

  • Strong top-line and underwriting: GWP +32% to $415.0M; adjusted underwriting income $31.0M; adjusted combined ratio 77.1% (ex-cat 67.6%) . “We delivered 39% adjusted net income growth, a 77% adjusted combined ratio, and a 21% adjusted ROE” — Mac Armstrong .
  • Product momentum and diversification: Earthquake GWP +19% YoY; Casualty +91% YoY; Crop $59.7M in Q3 with >$100M YTD; Hawaii Hurricane rate increases (23%) flowing through; Laulima migration reduces hurricane exposure and boosts fee income . “Our same-store premium growth rate was 38%” — Armstrong .
  • Capital and capability build: August equity raise to fund FIA surety acquisition and organic growth; added senior talent (Head of Crop, Head of E&S Casualty, Chief Claims Officer); A.M. Best upgrade to “A” .

What Went Wrong

  • Elevated catastrophe load: Q3 cat losses $12.9M (Beryl, Debby, Helene), cat loss ratio 9.5% (vs -0.6% LY), pushing total loss ratio to 29.7% and combined ratio to 80.5% .
  • Commercial property/all-risk exposure: All-risk drove much of hurricane-season losses and is expected to do so for Hurricane Milton; management is assessing options to reduce continental U.S. windstorm loss potential .
  • Fronting headwinds: Separation from Omaha National (~$168M portfolio) pressured Fronting growth; company must replace lost business over coming quarters .

Financial Results

MetricQ3 2023Q1 2024Q2 2024Q3 2024
Total Revenues ($USD Millions)$90.9 $118.5 $131.1 $148.5
Diluted EPS ($)$0.73 $1.04 $1.00 $1.15
Net Earned Premiums ($USD Millions)$85.8 $107.9 $122.3 $135.6
Loss Ratio (%)18.8% 24.9% 24.9% 29.7%
Expense Ratio (%)57.0% 52.0% 54.2% 50.8%
Combined Ratio (%)75.8% 76.9% 79.1% 80.5%
Adjusted Combined Ratio (%)70.9% 73.0% 73.1% 77.1%
Catastrophe Loss Ratio (%)-0.6% 3.1% 2.8% 9.5%
Adjusted Combined Ratio ex Cat (%)71.5% 69.8% 70.3% 67.6%

Segment GWP ($USD Millions) — Q3 YoY

ProductQ3 2023Q3 2024
Earthquake$113.4 $135.3
Fronting$95.0 $84.9
Inland Marine & Other Property$64.5 $78.7
Crop$11.6 $59.7
Casualty$29.5 $56.3
Total GWP$314.0 $415.0

KPIs and Other Metrics

KPIQ3 2023Q2 2024Q3 2024
Underwriting Income ($USD Millions)$20.7 $25.6 $26.4
Adjusted Underwriting Income ($USD Millions)$25.0 $32.9 $31.0
Annualized ROE (%)17.7% 19.9% 19.7%
Annualized Adjusted ROE (%)22.3% 24.7% 21.0%
Cash & Invested Assets ($USD Millions)N/A$777.9 $1,017.5
Investment Income ($USD Millions)$6.0 $8.0 $9.4
Effective Tax Rate (%)24.9% 22.9% 20.8%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted Net Income (Non-GAAP)FY 2024$124M–$130M (raised on Aug 5) $124M–$128M (tightened on Nov 4) Tightened (lowered top end)
Catastrophe Loss AssumptionQ4 2024Not previously specified in Q2 PRIncludes ~$8M Q4 cat losses from Hurricane Milton Added cat loss assumption

Additional operational outlook:

  • Net earned premium ratio: Q3 is expected to be the low point; trajectory to rise in Q4 and into 2025 as reinsurance seasonality and mix evolve .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Earthquake growthQ1/Q2: High-teens to ~20% growth outlook; strong E&S resi; commercial rates +11–12% Resi E&S +74% YoY in Q3; commercial rates plateau but metrics remain compelling; sustained high-teens growth expected Growth intact; commercial pricing flattens modestly
Reinsurance programQ2: 6/1 XOL renewal at better-than-expected terms; earthquake retention $20M; non-EQ retention cut to $15.5M Expect flat-to-down cat XOL pricing in 2025; treaty ~97% earthquake; tailwind from CEA non-renewal capacity Improving pricing outlook
Casualty expansion & reservesQ2: 281% YoY premium growth; conservative lines and net limits; reserves building +91% YoY in Q3; reserves untouched; rate increases continue across products Continued disciplined growth
Fronting portfolioQ2: Omaha National fronting roll-off (~$168M portfolio), slower fronting growth Premiums -11% YoY; new partnerships in pipeline to backfill Headwind near-term
Crop franchiseQ2: ~$2.2M GWP (seasonally low), ~95% ceded; YTD >$40M; target ~$100–$125M Q3: $59.7M; YTD >$100M; leadership hire (Benson Latham); plans to expand into livestock Q4 Rapid scaling; diversifying earnings
Hawaii Hurricane & LaulimaQ2: 23% rate approval; migration to Laulima to reduce exposure, enhance fees Q3: Rate flowing through renewals; 90% PSIC policies rolled to Laulima Exposure reduced; fee base up
Net earned premium ratioQ1/Q2: Seasonal low in Q3; improvement thereafter; ratio benefited from XOL savings and mix Q3 at 34.3%; expected to rise in Q4 and into 2025 Sequential improvement expected

Management Commentary

  • Strategy and earnings consistency: “We delivered 39% adjusted net income growth, a 77% adjusted combined ratio, and a 21% adjusted ROE… diversify the business, reduce volatility, and profitably grow” — Mac Armstrong .
  • Capital deployment and growth: “We successfully raised $116 million in August… fund FIA acquisition and entry into surety; remaining proceeds for organic growth and increased risk participation in Crop and Earthquake” . Note: On the call, management referenced raising ~$160M via primary equity issuance .
  • Reinsurance outlook: “Catastrophe excess of loss pricing for Palomar should be flat to down next year… 97% of the treaty will be earthquake only” .
  • Crop leadership: “Benson Latham has joined Palomar as Executive Vice President and Head of Crop… conviction that Palomar will become a market leader” .

Q&A Highlights

  • Earthquake growth balance: Management expects sustained high-teens growth in 2025, with resi likely outpacing commercial as rates plateau; 10% inflation guard supports margins in flat-to-down reinsurance markets .
  • Net earned premium ratio path: Q3 is the low point (~34%); ratio should trend higher through Q4 and Q1 2025, with reinsurance renewal “reset” thereafter .
  • Casualty reserves and pricing: Reserves remain conservative; blended rate increases across lines (e.g., excess liability +11% in Q3, with tighter terms) and controlled net line sizes to limit severity .
  • Cat load expectations & portfolio actions: All-risk drove much of hurricane-season losses; management expects cat load to trend toward 3–4 points over time as continental hurricane PMLs are reduced .
  • Fronting contract roll-off: Omaha National (~$168M portfolio) rolling off; management expects slower near-term growth but views this as margin-positive mix shift toward non-fronting lines .

Estimates Context

  • Management stated a Q3 consensus beat and eight straight quarters of beating consensus . S&P Global consensus estimates for EPS/revenue could not be retrieved due to access limits; as a result, numeric beat/miss figures versus consensus are not shown here. Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Earnings quality and diversification: Despite elevated cat activity, Palomar delivered higher revenues and EPS with strong adjusted returns, reflecting disciplined underwriting and the benefits of diversification (Crop, Casualty, Surety) .
  • Guidance discipline: FY 2024 adjusted net income guidance tightened to $124–$128M, explicitly incorporating ~$8M Q4 cat losses, signaling confidence in delivery amid near-term cat headwinds .
  • Mix shift tailwind: Fronting decline and growth in lower-ceded lines (Earthquake, Casualty, Inland Marine) support net earned premium ratio improvement trajectory into 2025 .
  • Reinsurance as a catalyst: Expectation for flat-to-down XOL pricing in 2025 with ~97% earthquake treaty composition and incremental capacity from CEA changes should aid margins and growth .
  • Crop acceleration and leadership: Rapid scaling of Crop (>$100M YTD, $59.7M Q3) with experienced leadership hire positions Palomar to be a meaningful player in a $19B market; near-term Q4 livestock opportunity .
  • Risk actions on property: Management is evaluating further reductions to continental U.S. windstorm exposures and all-risk PMLs after hurricane-season impacts, aiming to normalize cat load toward 3–4 points .
  • Medium-term thesis: Balanced earthquake book (resi/commercial), disciplined casualty expansion, fee-enhancing Laulima migration, and Surety entry (FIA acquisition) underpin sustained ROE >20% target and Palomar 2X progression .