Palomar Holdings: Running On All Cylinders, Buy The Correction

Palomar Holdings (NASDAQ: PLMR) is defying the headwinds that have plagued the broader insurance sector in 2025. With a 28.8% year-over-year surge in gross written premiums to $496.3 million in Q2 2025 and an adjusted combined ratio of 73.1%—well below the industry average—the company is demonstrating a rare blend of capital efficiency and risk discipline [1]. For investors seeking undervalued risk-adjusted returns in the specialty insurance space, Palomar’s recent performance and strategic moves present a compelling case to “buy the correction” as the stock trades at a discount to its intrinsic value.

Capital Efficiency and Underwriting Excellence

Palomar’s Q2 results underscore its mastery of underwriting discipline. The company’s adjusted net income soared 51.8% to $48.5 million, or $1.76 per diluted share, driven by a 0.0% catastrophe loss ratio—a stark contrast to the 2.8% in Q2 2024 [1]. This resilience is no accident. Palomar’s focus on high-margin casualty and crop lines, combined with a disciplined approach to reinsurance, has allowed it to maintain a 73.1% adjusted combined ratio while peers struggle with volatile loss events.

The $150 million share repurchase program announced in Q2 further signals management’s confidence in capital allocation. At current valuations, the buyback represents a strategic move to enhance shareholder value, particularly as Palomar’s stock trades at a 12% discount to its 52-week high. This discount is puzzling given the company’s 23.9% projected annual revenue growth to $1.3 billion by 2028 [1].

Reinsurance Dynamics as a Catalyst

Palomar’s outperformance in 2025 reinsurance placements is a critical near-term catalyst. The company exceeded initial forecasts for its catastrophe bond (cat bond) and excess-of-loss treaty pricing, securing $525 million in earthquake coverage through its Torrey Pines Re issuance—$100 million above the target [1]. Cat bond pricing, while down 15% on a risk-adjusted basis, remains favorable compared to the broader market, where limited model licensing and climate risk integration challenges persist [2].

The Laulima excess-of-loss treaty for Hawaii hurricane business further illustrates Palomar’s ability to secure cost-effective reinsurance. These placements not only bolster the company’s risk-adjusted returns but also provide a buffer against potential catastrophe losses, which are now factored into its 2025 guidance at $8–$12 million [1].

Valuation and Growth Prospects

Despite its strong fundamentals, Palomar remains undervalued relative to its growth trajectory. The 23.9% CAGR to 2028 implies a compound annual revenue increase of $203.31 million to $1.3 billion, supported by strategic acquisitions and expansion into new insurance segments [1]. With a forward P/E ratio of 10.5x and a P/B ratio of 1.2x, the stock trades at a significant discount to its historical averages and peers in the specialty insurance sector.

The key risk lies in the unpredictability of catastrophe events, but Palomar’s proactive reinsurance strategy and robust capital position mitigate this. The company’s investment income also provides a tailwind, having risen 68% to $13.4 million in Q2 2025 as yields on its portfolio climbed [1].

Conclusion

Palomar Holdings is a rare combination of a high-conviction growth story and a value play. Its capital-efficient underwriting, strategic reinsurance placements, and aggressive buyback program position it to outperform in a sector where risk-adjusted returns are increasingly scarce. For investors willing to look past short-term volatility, the current correction offers a low-risk entry point to a company that’s running on all cylinders.

Source:
[1] Palomar Holdings, Inc. Reports Second Quarter 2025 Results [https://ir.palomarspecialty.com/news-releases/news-release-details/palomar-holdings-inc-reports-second-quarter-2025-results]
[2] Aon Catastrophe Risk Management Survey [https://aon.mediaroom.com/news-releases?item=138487]