Palomar Holdings’ Earnings Call Contradictions: Loss Ratio Outlooks and Crop Year Stabilization Timing at Odds

Date of Call: Aug 5, 2026

Financials Results

• Revenue: Gross written premium increased 27% year-over-year to $630.5 million.
• EPS: Adjusted earnings per share grew 34% to $2.36 per diluted share, compared to $1.76 in the prior year quarter.
• Operating Margin: Adjusted combined ratio was 76.7%, compared to 73.1% in the prior year quarter and 76% sequentially.

Guidance:

• Full-year adjusted net income guidance increased to $270 million to $280 million, implying ~27% growth at the midpoint.
• Adjusted combined ratio for 2026 expected to increase to the mid-70s.
• Loss ratio for 2026 expected in the mid- to upper-30s.
• Net-earn premium ratio expected to increase into the upper 40s for 2026.
• Full-year crop premium outlook raised to over $400 million for 2026, up from ~$320 million.

Business Commentary:

Strong Financial Performance and Growth:

• Palomar Holdings Incorporated reported record adjusted net income of $63.8 million, or $2.36 per share, for Q2 2026, reflecting a 31% increase year-over-year.
• This growth was driven by the strength of their diversified specialty portfolio, higher net earned premiums, disciplined underwriting, and strong investment income.

Diversification and Profitability:

• Gross written premium increased 27% year-over-year, with adjusted earnings per share growing 34%.
• The company's diversified portfolio, which includes property, casualty, and crop insurance, allowed them to maintain strong profitability and navigate changing market conditions effectively.

Crop Insurance and Innovation:

• The crop insurance segment saw a significant 96% increase in gross written premium year-over-year, with the launch of PLMR.farm, an innovative AI-developed policy administration platform.
• The growth in this segment was driven by strong production, continued investment in technology, and successful operational execution.

Reinsurance Strategy and Capital Management:

• Palomar added approximately $421 million of incremental limit through reinsurance, bringing their total coverage to $3.92 billion for earthquake events.
• The company maintains a disciplined and flexible capital allocation strategy, which includes opportunistic share repurchases and a quarterly dividend to return capital to shareholders.

Reserve Development and Underwriting Discipline:

• The company reported favorable prior year development, with a total of $14.3 million in favorable development primarily from inland marine and property, and crop business.
• This was attributed to their conservative reserving philosophy and strong underwriting performance, which allows them to react to bad news quickly and good news deliberately.

Sentiment Analysis:

Overall Tone: Positive

• We delivered another strong quarter highlighted by record adjusted net income, our 15th consecutive earnings beat... Our diversified portfolio remains one of Palomar's greatest strengths... We are increasing our full-year adjusted net income guidance to $270 million to $280 million.

Q&A:

• Question from David Motormaden (Evercore): Could you unpack the specific lines and accident years that contributed to the favorable casualty reserve development?
  Response: The release was primarily from an older fronted workers' compensation program (Omaha National) where Palomar had a risk participation of 7-10%. The overall casualty book remains young with 84% of reserves held in IB&R, reflecting a conservative reserving philosophy.

• Question from David Motormaden (Evercore): What is the outlook for the accident-year loss ratio excluding catastrophes and how should we think about loss ratios heading into next year given the mix shift?
  Response: The loss ratio is expected to remain in the mid- to high-30s for 2026, in line with expectations. While the ratio may increase next year due to mix (particularly faster-growing, higher-loss-ratio lines like crop), favorability is expected on the expense side and net-earn premium ratio to offset some of the increase.

• Question from David Motormaden (Evercore): Where is the 25-year combined ratio for crop and how is the 2026 crop year developing?
  Response: The 25-year industry combined ratio is around 80%, with 2026 performing in line with historical averages and industry trends. The current 2026 year is expected to be booked at ~100% net in Q2, with losses truing up later in the year as premium is earned.

• Question from Mark Hughes (Truist): How much more rollover of existing books is there and is there a pipeline of new opportunities?
  Response: Rollover continues in Q3 and Q4, though less pronounced than earlier in 2026. There is a pipeline of potential new program rollovers, though with higher scrutiny due to market conditions.

• Question from Mark Hughes (Truist): How would you describe competition in the surety business and is there upward pressure on commission rates?
  Response: Surety is competitive, especially for smaller bonds, but Palomar is not seeing significant rate pressure. Growth is strong (236% YOY), and the firm is well-positioned with a larger T-listing and improved reinsurance.

• Question from Pablo Singson (JP Morgan): Should we expect reserve releases to grow over time to support Palomar2x growth?
  Response: Reserve releases have been a trend over the last six quarters due to conservative initial reserving. While Palomar hopes this continues, the primary drivers of Palomar2x are business growth and underwriting performance.

• Question from Pablo Singson (JP Morgan): How are you thinking about reinsurance strategy given the environment and slower growth potential?
  Response: Strategy is line-by-line: casualty treaties keep session percentages flat to capture origination upside; property treaties increase net retention to improve margins; catastrophe retentions are maintained at technical levels to ensure adequate risk transfer.

• Question from Paul Newsom (Piper Sandler): Are there any conservative assumptions in the back half of the year within the earnings guidance?
  Response: No, the guidance reflects continued strong execution. Q1 and Q2 grew 27%, and the full-year guidance is raised. The firm is confident in growth, capital management (buybacks, dividend), and delivering ~27% earnings growth for the year.

Contradiction Point 1

Outlook on Future Loss Ratios

Contradiction on whether loss ratio increases are a near-term concern or a longer-term expectation.

David Motormaden (Evercore) - David Motormaden (Evercore)

2026Q2: The mix shift is expected to drive the loss ratio higher in the future. - Mac Armstrong and Chris Uchida

Could you unpack the favorable casualty reserve development, including specific lines and accident years, and provide the outlook for the accident-year loss ratio excluding catastrophes, as well as how the mix shift should influence loss ratios heading into next year? - Paul Newsom (Piper Sandler)

2026Q2: The overall direction of the business remains positive... The increasing loss ratio is driven by strong crop performance, which is a good thing... - Mac Armstrong

Contradiction Point 2

Booking of 2026 Crop Year Losses

Contradiction on the timing of when the 2026 crop loss ratio is expected to stabilize.

David Motormaden (Evercore) - David Motormaden (Evercore)

2026Q2: The loss ratio is expected to 'true up' in the latter half of the year and into the next year as premium is earned. - Chris Uchida and Mac Armstrong

What is the current status of the 25-year combined ratio and the 2026 booking in the crop business? - Pablo Singson (JP Morgan)

2026Q2: The 2026 crop year appears to be in line with historical norms and expectations. - Mac Armstrong

Contradiction Point 3

Casualty Loss Ratio Outlook

Contradiction on the direction of future loss ratios due to business mix.

David Motormaden (Evercore) - David Motormaden (Evercore)

2026Q2: The mix shift is expected to drive the loss ratio higher in the future, but this will be partially offset by expected favorability in the expense ratios and the net earned premium ratio. - Mac Armstrong and Chris Uchida

Could you unpack the favorable casualty reserve development, including specific lines and accident years, and provide the outlook for the accident-year loss ratio excluding catastrophes, as well as how to think about loss ratios heading into next year given the mix shift? - Andrew Andersen (Jefferies LLC)

2026Q1: Given the immaturity of many casualty books (often only 1-3 years of development), the company is inclined to hold sessions flat for now. - Mac Armstrong

Contradiction Point 4

Crop Business Performance and Booking

Contradiction on the booking practice and expected loss ratio for the current crop year.

Does David Motormaden (Evercore) have a question? - David Motormaden (Evercore)

2026Q2: The current 26th crop year (2026) is being booked at approximately 100% net retention in the early quarters... The 2026 crop year appears to be in line with historical norms and averages. - Chris Uchida and Mac Armstrong

What is the current status of the 25-year combined ratio in the crop business, and what are the 2026 booking projections? - Meyer Shields (KBW)

2026Q1: Drought impacted winter wheat products in states like Oklahoma and Kansas in Q1. However, these products are heavily reinsured. - Mac Armstrong

Contradiction Point 5

Loss Ratio Guidance and Key Drivers

Contradiction on the direction and explanation for loss ratio expectations.

David Motormaden (Evercore) - David Motormaden (Evercore)

2026Q2: The overall loss ratio expectation for 2026 remains in the mid-to-high 30s... The mix shift is expected to drive the loss ratio higher in the future... - Mac Armstrong and Chris Uchida

Could you unpack the favorable casualty reserve development and provide the outlook for the accident-year loss ratio excluding catastrophes, considering the mix shift? - David Motemaden (Evercore ISI)

20260212-2025 Q4: ...The company is taking 50% more risk in the Crop book in 2026 versus 2025, which operates at a higher loss ratio (~80%). The combined ratio is expected to improve to the mid-70s for 2026... - D. Armstrong and T. Uchida