Palomar Holdings, Inc. (NASDAQ:PLMR): Consistent Profitable Growth Amidst Challenging Market Conditions

Published on September 24, 2024 | Ticker: PLMR

Palomar Holdings, Inc. (NASDAQ:PLMR) is a specialty insurance company that has demonstrated remarkable resilience and consistent profitable growth in the face of challenging market conditions. The company's unique business model, diversified product portfolio, and disciplined risk management approach have enabled it to navigate the complexities of the insurance industry and deliver impressive financial results.

Financials

In the fiscal year 2023, Palomar reported annual net income of $79.2 million, annual revenue of $375.9 million, annual operating cash flow of $116.1 million, and annual free cash flow of $109.3 million. These strong financial metrics underscore the company's ability to generate consistent profitability and healthy cash flows, even in the midst of industry-wide headwinds.

The first quarter of 2024 was another testament to Palomar's operational excellence. The company reported adjusted net income of $27.8 million, a 36% increase compared to the same period in the prior year. This impressive performance was driven by a 47.2% increase in gross written premiums, which reached $368.1 million, as well as a 29.6% rise in net earned premiums to $107.9 million.

Business Overview

Palomar's diversified product portfolio has been a key contributor to its success. The company's five main business lines - Earthquake, Inland Marine and Other Property, Casualty, Fronting, and Crop - have all demonstrated robust growth, with the Casualty and Crop segments particularly standing out.

Casualty Segment

The Casualty business saw a remarkable 327% year-over-year increase in premiums, driven by strong performance in commercial contractors, general and excess liability, real estate errors and omissions, and miscellaneous professional liability. The company's prudent risk management approach, which includes modest gross and net line sizes and conservative reinsurance loss potential, has enabled it to navigate the Casualty market effectively.

Crop Segment

The Crop segment, which was introduced more recently, also had a very strong start in the first quarter of 2024, writing $38.7 million in premiums. Palomar's partnership with Advanced AgProtection has allowed the company to leverage its data-driven risk management and underwriting expertise to assemble an attractive and geographically diverse crop insurance portfolio.

Earthquake Segment

Palomar's Earthquake franchise, which has long been a cornerstone of its business, continued to deliver solid performance, with premiums growing 13% year-over-year. Excluding a non-recurring premium transfer in the prior year, the Earthquake book grew 18% on a same-store basis. The company remains confident in the growth prospects of this segment, citing new partnerships and a stable pricing environment.

Inland Marine and Other Property Segment

The Inland Marine and Other Property segment also saw robust growth of 46% year-over-year, driven by the company's excess national property, Hawaii Hurricane, and Builders Risk lines of business. Palomar's strategic approach to managing its exposure in hurricane-prone areas and hiring experienced, regionally-focused underwriters has been instrumental in driving this growth.

Recent Developments

Palomar's reinsurance program continues to be a key strength, providing the company with protection against catastrophic events and reducing earnings volatility. The company is currently in the midst of its June 1st reinsurance renewal and is encouraged by the progress made so far, with certain layers of its core tower already bound at risk-adjusted decreases of approximately 5%.

The company's financial position remains strong, with stockholders' equity reaching $501.7 million as of the end of the first quarter of 2024. This milestone achievement has moved Palomar into AM Best Financial Size Category 10, which the company believes will open up new market segments, distribution channels, and help attract top talent.

Outlook

Looking ahead, Palomar has raised its full-year 2024 adjusted net income guidance to a range of $113 million to $118 million, implying 23.5% adjusted net income growth at the midpoint of the range. This guidance assumes a 5% risk-adjusted increase on the company's June 1st core excess of loss reinsurance program, which the company believes it can meet or exceed based on the progress made so far in its renewal negotiations.

Conclusion

Palomar's consistent performance, diversified business model, and prudent risk management approach have positioned the company well to navigate the challenges facing the insurance industry. As the company continues to execute on its growth strategy and capitalize on emerging opportunities, investors can look forward to Palomar's continued success in the years ahead.

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