Palomar Holdings Q3 2025 Earnings Call: Contradictions in Crop Growth, Earthquake Pricing, Catastrophe Outlook, and Fronting Impact

Date of Call: November 7, 2025

Financials Results

• Revenue: $597.2M gross written premium, up 44% YOY (56% growth excl. runoff); gross earned premium $518.8M vs $395.9M prior year; net earned premium $225.1M, up 66% YOY
• EPS: $2.01 per diluted share (adjusted), compared to $1.23 prior-year (adjusted); adjusted net income $55.2M, up 70% YOY

Guidance:

• Raising 2025 adjusted net income guidance to $210M–$215M (midpoint implies >59% growth and ~24% adjusted ROE)
• Expect net earned premium ratio in the low-to-mid 40s for full year 2025
• Expect full-year loss ratio around ~30% (includes expected mini-cats)
• Full-year acquisition expense ratio ~11%–12%
• Crop premium guidance revised to $230M for 2025; targeting $500M intermediate and $1B long-term

Business Commentary:

* Record Financial Performance:

- Palomar Holdings reported record gross written premium of $597.2 million for Q3 2025, up 44% year-on-year, and 70% growth in adjusted net income.
- The growth was driven by strong performance in various lines of business, including Earthquake, Inland Marine, and Other Property, and Casualty.

• Earthquake Segment Performance:
• The company's Earthquake franchise grew 11% year-over-year in Q3, with a robust 88% policy retention rate.

• Growth was attributed to healthy new business production and strong policy retention, aided by a 10% inflation guard.

• Inland Marine and Other Property Growth:

• The Inland Marine and Other Property category experienced 50% year-over-year growth in Q3, with significant contributions from Hawaii hurricane and residential flood products.

• This growth was supported by strong market demand and the partnership with Neptune Flood.

• Casualty Segment Expansion:

• Palomar's Casualty business delivered 170% year-over-year gross written premium growth in Q3, representing a significant sequential improvement.

• This growth is attributed to disciplined underwriting, maintaining net limits below $1 million, and leveraging quota share reinsurance.

• Surety Market Expansion:

• The acquisition of Gray Casualty and Surety Company is expected to enhance Palomar's surety platform, providing access to attractive markets like Texas, Florida, and California.
• This acquisition aims to strengthen the company's position in the Surety market and complement existing operations, supporting the Palomar 2X initiative.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted "record gross written premium, record adjusted net income, the 12th consecutive earnings beat," raised 2025 adjusted net income guidance to $210M–$215M, reported adjusted combined ratio 74.8% (vs 77.1% prior year) and annualized adjusted ROE 25.6% (vs 21% prior year), and described multiple scaling/growth initiatives (Gray Surety, crop expansion).

Q&A:

• Question from Jon Paul Newsome (Piper Sandler & Co., Research Division): I was hoping you could talk a little bit more about the market opportunity in Surety and maybe a little bit more specifically about exactly who you may or may not be competing with and it is an ordinarily pretty broad class of the business.
  Response: Gray acquisition plus FIA creates a national surety platform (~$100M in-force), expands Sunbelt/Northeast footprint, enables cross-sell and larger T-listed capacity (current ~$12M), and targets top‑20 market position via regional expansion and scale.

• Question from Jon Paul Newsome (Piper Sandler & Co., Research Division): Maybe you could talk as well about the potential future of the Crop business — can it grow organically and where may that go?
  Response: Crop is a growth priority: raised 2025 premium target to $230M, targeting $500M intermediate and $1B long‑term through talent, technology and geographic/product expansion.

• Question from Andrew Andersen (Jefferies LLC, Research Division): Just on the net income guidance, I didn't hear anything about cat. Is there anything embedded within that?
  Response: Yes — guidance includes expected mini‑cats; Q3 had ~$1.9M of cats and the full‑year loss‑ratio guidance (~30%) incorporates anticipated cat activity, assuming no major catastrophes.

• Question from Andrew Andersen (Jefferies LLC, Research Division): Commercial earthquake risk prices fell ~18% this quarter — are we past the peak deceleration of rate or should we expect continued softening over the next 12 months?
  Response: Rates continue to soften (large accounts most pressured) but not expecting a reversal; residential quake (61% of earthquake book) plus softer cat reinsurance and portfolio mix should allow continued growth despite ongoing commercial rate pressure.

• Question from Mark Hughes (Truist Securities, Inc., Research Division): Did I hear properly that net-to-gross should continue to increase — step up in Q4 and further in H1 next year?
  Response: Yes — Q3 is the low point for net earned premium ratio; it should step up in Q4 and continue rising into next year due to XOL timing and seasonal crop cessions.

• Question from Mark Hughes (Truist Securities, Inc., Research Division): The impact from the Omaha National termination in 3Q — what was that headwind and where does the fronting trend stand now?
  Response: Omaha National reduced fronting written premium by roughly $30M in 3Q last year; that headwind has run its course and underlying fronting trends will be clearer in Q4.

• Question from Mark Hughes (Truist Securities, Inc., Research Division): You mentioned a pipeline of quake relationships — is that new or ongoing?
  Response: It's ongoing — >20 carrier earthquake partnerships with lumpy conversions; execution has improved and management expects 1–2 additional partnership deals in 2026.

• Question from Meyer Shields (Keefe, Bruyette, & Woods, Inc., Research Division): Help us think about the underlying loss ratio excluding reserve development and major catastrophes — what should we model?
  Response: Underlying loss ratio expected around 30% for the year (±1–2 points), moving up modestly due to growth in more‑attritional lines; no material adverse trend or unexpected deterioration.

• Question from Meyer Shields (Keefe, Bruyette, & Woods, Inc., Research Division): Can you describe the healthcare liability book you're writing — exclusions and target composition?
  Response: New healthcare liability line launched with an experienced hire, structured conservatively with gross limits ~ $5M (net < $2M), targeting ~60% hospital, 25% managed‑care E&O and 15% allied‑health, supported by reinsurance to capture favorable market pricing.

• Question from Meyer Shields (Keefe, Bruyette, & Woods, Inc., Research Division): How sticky are the flood policies you're writing while the NFIP is shut down?
  Response: Flood policies show strong renewal stickiness historically and now, with rising new‑business demand and growing confidence in the private market's ability to deliver compared with NFIP uncertainty.

• Question from Pablo Singzon (JPMorgan Chase & Co, Research Division): Given Palomar 2X, is it fair to assume you're planning similar medium‑term growth in net underwriting income (e.g., ~20–30% per year)?
  Response: Yes — management views a 20–30% medium‑term growth trajectory for net underwriting income as consistent with Palomar 2X, leveraging retention, net earned premium expansion and investment levers.

• Question from Pablo Singzon (JPMorgan Chase & Co, Research Division): At what point will you need to 'reload' with hires or M&A to sustain current growth versus organic ramping of past hires?
  Response: Primary plan is organic growth via targeted hires, geographic/product expansion and adjacencies; opportunistic M&A (like Gray) will be used when it accelerates entry or brings needed capabilities.

Contradiction Point 1

Crop Business Growth and Premium Timing

It involves differing expectations regarding the growth trajectory and premium timing for the Crop business, which directly impacts revenue projections and investor expectations.

What’s the future outlook for the Crop business? - Jon Paul Newsome (Piper Sandler & Co.)

2025Q3: Mac Armstrong highlighted the growth in the Crop business, with plans to reach $500 million in premiums within a few years and $1 billion ultimately. - Mac Armstrong(CEO)

How is the Crop business impacting premium and loss bookings compared to normal patterns? - Meyer Shields (Keefe, Bruyette, & Woods, Inc.)

2025Q2: Crop premium and losses came in earlier than expected, impacting Q2. The season has been favorable, with more premium reported than usual. - Toshio Christopher Uchida(CFO)

Contradiction Point 2

Commercial Earthquake Pricing Outlook

It involves differing perspectives on the outlook for Commercial Earthquake pricing, which affects underwriting strategies and revenue projections.

Will commercial rates stabilize or continue to decline? - Andrew Andersen (Jefferies LLC)

2025Q3: Mac Armstrong acknowledged the continued softening but clarified that residential earthquake, which is 61% of the book, provides leverage and stability. - Mac Armstrong(CEO)

Can you discuss the growth of Earthquake in residential vs. commercial segments and the Commercial Earthquake pricing outlook? - Peter B. Knudsen (Evercore ISI Institutional Equities)

2025Q2: Residential Earthquake is larger and has a 6% to 7% growth rate due to its inflation guard and strong retention. Commercial Earthquake faces more pressure, with large commercial accounts seeing significant rate declines. - D. McDonald Armstrong(CEO)

Contradiction Point 3

Rate Pressure and Market Conditions

It involves differing perspectives on market conditions and the pressure on rates, impacting expectations for future growth and profitability.

Will commercial rates stabilize or continue to decline? - Andrew Andersen (Jefferies LLC)

2025Q3: Mac Armstrong acknowledged the continued softening but clarified that residential earthquake, which is 61% of the book, provides leverage and stability. The overall mix and leverage across the portfolio will allow for growth despite ongoing rate pressure. - Mac Armstrong(CEO)

Are competitors increasing layers or intensifying competition within layers in commercial quake insurance? - Mark Hughes (Truist Securities)

2025Q1: More competition in large layered and shared accounts, with London markets and traditional reinsurers entering. Balanced book strategy helps control risk and maintain relationships. - Mac Armstrong(CEO)

Contradiction Point 4

Catastrophe (Cat) Loss Expectations

It involves differing expectations about catastrophe losses, which can significantly impact financial performance and investor expectations.

Does the net income guidance include any catastrophe-related adjustments? - Andrew Andersen (Jefferies LLC)

2025Q3: Chris Uchida mentioned that $1.9 million in cat losses was included in the quarter, and the current guidance does not anticipate major catastrophes for the year. The loss ratio expectations have been updated to be more favorable, around 30% for the year. - Chris Uchida(CFO)

Are you assuming any improvement in reinsurance pricing this year in your guidance? - Jon Paul Newsome (Piper Sandler)

2024Q4: The guidance range assumes a low end of flat renewal to a high end of down 5%. The market is digesting the wildfire impact, so it's prudent to be conservative. We have excess of loss renewals favorable at 1/1 at a 15% reduction. - D. Armstrong(CEO)

Contradiction Point 5

Fronting Business Impact

It involves differing expectations about the impact of the Omaha National partnership on the Fronting business, which can affect revenue and strategic direction.

How has the Omaha National partnership affected the Fronting business? - Mark Hughes (Truist Securities)

2025Q3: Chris Uchida mentioned that the impact of the Omaha National partnership ended, and results in the fourth quarter will reflect the underlying performance in Fronting. - Chris Uchida(CFO)

What is the outlook for fronting in 2025? - Andrew Andersen (Jefferies)

2024Q4: Fronting will be impacted by the loss of the Omaha National deal but should be flat to slightly up on a same-store basis. It will be disproportionately impacted in the first half of the year. - D. Armstrong(CEO)