On February 14, 2024, Palomar Holdings Inc (PLMR, Financial) released its 8-K filing, detailing a strong finish to 2023 with significant increases in gross written premiums, net income, and improved combined ratios. The company, a provider of specialty property insurance products, including residential and commercial earthquake insurance, has demonstrated robust growth and operational efficiency in a challenging market environment.
Financial Performance and Challenges
Palomar's Q4 gross written premiums surged by 26.8% to $303.2 million, while full-year premiums grew by 29.4% to $1.1 billion. This growth reflects the company's successful expansion into new lines of business and its ability to navigate a hard property cat reinsurance market. The company's net income for Q4 increased to $25.9 million, up from $18.8 million in the same period last year, marking a 38% increase. Adjusted net income, which excludes certain non-recurring items, also saw a significant rise of 32.8% to $28.0 million for the quarter.
Despite these achievements, Palomar faces challenges such as potential volatility in catastrophe loss ratios and the need to maintain underwriting discipline in a competitive insurance landscape. The company's strategic initiatives, including diversification and the introduction of new products, aim to mitigate these risks and reduce earnings volatility.
Key Financial Metrics
Palomar's total loss ratio improved to 19.1% in Q4, down from 22.4% in the previous year, primarily due to a decrease in catastrophe losses. The combined ratio, a key measure of underwriting profitability, also improved to 74.2% from 75.5%. The adjusted combined ratio, which excludes certain items, improved to 68.8% from 71.4%. These ratios underscore the company's effective cost management and underwriting performance.
Net investment income increased by 58.9% to $7.0 million, reflecting higher yields and a larger investment portfolio. The effective tax rate for Q4 was 22.6%, down from 24.9% in the prior year, due in part to non-deductible executive compensation expense.
Balance Sheet and Shareholder Returns
As of December 31, 2023, stockholders' equity stood at $471.3 million, up from $384.8 million at the end of 2022. The annualized return on equity was 23.2%, and the adjusted return on equity was 25.1%, both increases from the previous year's figures. These returns reflect the company's strong profitability and capital efficiency.
Outlook and Commentary
Looking ahead to 2024, Palomar anticipates adjusted net income to be between $110 million and $115 million. This forecast includes an estimated $3.5 million in losses from the recent catastrophic California flooding. Mac Armstrong, Chairman and CEO, expressed confidence in the company's strategic direction and its ability to achieve profitable growth in the coming years.
"The fourth quarter provided a strong end to what was a stellar 2023. We are especially proud of record gross written premium and adjusted net income, strong top and bottom-line growth and numerous initiatives that led to diversification and reduced earnings volatility," said Armstrong.
Palomar's earnings report demonstrates a company on the rise, with a clear strategy for growth and a strong financial foundation. Investors and stakeholders can look forward to continued progress as the company executes its strategic plan and capitalizes on market opportunities.
For more detailed financial information and to listen to the earnings call, interested parties can visit Palomar's investor relations website.
Explore the complete 8-K earnings release (here) from Palomar Holdings Inc for further details.
