Palomar Holdings (PLMR): The Overlooked Infrastructure Powerhouse Fueling the AI Revolution

The artificial intelligence (AI) revolution is often framed as a story of algorithms and silicon. But beneath the headlines lies a far more tangible reality: AI's insatiable demand for energy, resilient infrastructure, and specialized construction. From data centers guzzling megawatts to renewable energy projects powering AI clusters, the physical backbone of this digital transformation is as critical as the code itself. Yet investors rarely consider the companies that insure and enable this infrastructure. Enter Palomar Holdings (PLMR), a specialty insurer quietly positioned to benefit from the AI infrastructure boom—despite being overlooked by most market participants.

The Hidden Link Between AI and Infrastructure

AI's growth hinges on two pillars: energy and construction. Training large language models requires exascale computing, which in turn demands massive power. This has spurred a surge in renewable energy projects—solar farms, wind parks, and grid upgrades—to meet AI's energy needs. Simultaneously, AI infrastructure requires specialized construction, from data centers to undersea cables, often managed by engineering, procurement, and construction (EPC) firms. These projects are inherently risky: natural disasters, supply chain disruptions, and regulatory hurdles can derail multi-billion-dollar ventures.

This is where Palomar comes in. While the company does not directly insure energy infrastructure or EPC projects, its inland marine and property insurance lines cover critical components of AI infrastructure. For instance, Palomar's residential and commercial builders' risk policies protect construction sites, including those for data centers. Its inland marine coverage safeguards high-value equipment transported to AI facilities. Moreover, its recent partnership with Neptune Flood—a leader in AI-driven flood insurance—positions it to insure AI hubs in flood-prone regions, a growing concern as climate risks intensify.

Palomar's Strategic Moves: A Blueprint for Growth

Palomar's 2025 results underscore its ability to capitalize on infrastructure-related risks. Gross written premiums surged 28.8% year-over-year to $496.3 million, driven by disciplined underwriting and expansion into high-growth segments. Its casualty and crop insurance divisions, while not directly tied to AI, demonstrate the company's capacity to scale in niche markets—a skill that could translate to insuring AI infrastructure.

The company's Neptune Flood partnership is particularly noteworthy. By integrating Neptune's AI-based underwriting technology, Palomar has enhanced its ability to price flood risk with precision, a critical capability for insuring AI facilities in vulnerable locations. This partnership also aligns with broader trends: as AI hubs expand into regions with aging infrastructure or climate vulnerabilities, demand for specialized insurance will rise.

Palomar's acquisition of Advanced AgProtection (AAP) further illustrates its strategic agility. While AAP focuses on crop insurance, the acquisition brought a digital platform that could be adapted to manage AI infrastructure policies. The company's emphasis on technology-driven infrastructure—whether through AI, data science, or scalable platforms—positions it to pivot into new markets as AI's physical demands evolve.

Why PLMR Is Undervalued

Despite these strengths, Palomar remains under the radar. The market has fixated on its core earthquake and crop insurance segments, overlooking its broader infrastructure exposure. For example, its Hawaii hurricane line grew 39% in Q2 2025, driven by rate increases and selective expansion—a model that could be replicated in AI infrastructure hotspots. Additionally, Palomar's reinsurance strategies, including a 10% risk-adjusted rate decrease on its core excess of loss treaty, have stabilized earnings and reduced volatility, making it an attractive long-term play.

Investment Thesis: A Long-Term Play on AI's Physical Layer

Palomar's financials tell a compelling story. With $1.3 billion in cash and invested assets, a 73.1% adjusted combined ratio, and a share repurchase program of $150 million, the company is both resilient and growth-oriented. Its leadership has set a target of $198–208 million in adjusted net income for 2025, a 15–20% increase from prior guidance.

For investors, the key is to see beyond Palomar's current segments. As AI infrastructure spending accelerates, the company's expertise in insuring high-risk, high-value projects will become increasingly valuable. Its partnerships with Neptune Flood and AAP, combined with its track record of disciplined underwriting, position it to capture a growing share of the AI infrastructure insurance market.

Conclusion: The Infrastructure Play No One Sees

The AI revolution is not just about software—it's about the energy grids, data centers, and construction projects that make it possible. Palomar Holdings, with its focus on infrastructure-related risks and strategic use of technology, is uniquely positioned to benefit from this shift. At a valuation that still reflects its traditional insurance roots, PLMR offers a compelling opportunity for investors willing to look beyond the obvious. In a world where AI's physical layer is as critical as its digital one, Palomar is the unsung hero of the infrastructure boom.