Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Palomar Holdings Inc (PLMR, Financial) achieved record gross written premium and adjusted net income, with a 40% and 47% year-over-year increase, respectively.
- The company successfully placed its June 1 excess of loss reinsurance program at attractive rates, below initial expectations.
- Palomar Holdings Inc (PLMR) signed an agreement to acquire First Indemnity of America Insurance Company, diversifying its portfolio and creating a new growth driver.
- The company raised its full-year 2024 adjusted net income guidance range to $124 million to $130 million, marking the fifth consecutive quarter of raised guidance.
- AM Best upgraded Palomar Holdings Inc (PLMR)'s financial strength rating to an A from an A-, underscoring its financial stability and strategic success.
Negative Points
- The company experienced elevated catastrophe losses from Texas severe convective storm and tornado activity, impacting its Builder's risk book.
- Palomar Holdings Inc (PLMR) will face a decline in fronting premium as one of its key partners, Omaha National, secured the requisite license to do business in California without a front.
- The inland marine and other property product growth slowed from the first quarter's rate due to a focus on curtailing exposure in hurricane-exposed regions.
- The company noted that certain pockets of its casualty book, such as private company D&O, are experiencing softer pricing.
- Palomar Holdings Inc (PLMR) slightly increased its earthquake retention to $20 million, which could impact its financials in the event of a significant earthquake.
Q & A Highlights
Q: Could you give us more thoughts on casualty reserves and concerns about rising inflation rates?
A: Mac Armstrong, CEO: We are confident in our underwriting, loss picks, and risk management. We avoid severity-exposed classes and maintain modest limits. We are getting rate increases in excess liability and real estate E&O, and we have experienced industry veterans managing our books. We have not touched our reserves yet, indicating a conservative approach.
Q: Can you talk about the competitive environment for your business mix?
A: Mac Armstrong, CEO: The earthquake market remains attractive with strong rates. Inland marine and other property segments are seeing increased competition, but we are focusing on expanding our footprint. Casualty lines are growing well with adequate rates. Crop market consolidation presents opportunities, and fronting remains competitive.
Q: What is the impact of the lost fronting business?
A: T. Christophe Uchida, CFO: The total portfolio for the lost fronting business is around $165 million to $168 million. We will start losing this business in the third quarter, impacting our growth over the next several quarters. However, fronting is a lower-margin product, and we have a healthy pipeline of opportunities to replace the lost business.
Q: How is the dislocation in the California personal lines market affecting your earthquake business?
A: Mac Armstrong, CEO: The dislocation continues to benefit us, with 38% E&S growth in residential quake in the second quarter. The admitted homeowners market remains dislocated, providing a tailwind for us. Partnerships with companies like Cincinnati Financial are also contributing to new business.
Q: How are you thinking about the loss ratio for next year given the changes in your business mix?
A: T. Christophe Uchida, CFO: The loss ratio is moving up as expected due to growth in lines with attritional losses like casualty and inland marine. We expect the attritional loss ratio to be around 21% to 25% for the year, with 2% to 3% for catastrophe losses. We are reserving conservatively, especially in the casualty book.
Q: Can you provide more details on the Surety deal for FIA and any other lines you are considering entering?
A: Mac Armstrong, CEO: We believe in organic growth but found FIA to be a unique opportunity. We aim to expand their geographic and distribution footprint using our capital and resources. We will maintain their underwriting and claims handling philosophy. We remain open to opportunistic acquisitions.
Q: What is the expected benefit from the recent AM Best upgrade?
A: Mac Armstrong, CEO: The upgrade enhances our position as a counterparty and trading partner, potentially opening new lines of business and distribution sources. It will also help in recruiting talent. While it's hard to quantify the exact benefit, we will leverage it to the best of our ability.
Q: How should we think about the inflation guard for earthquake policies and the commercial earthquake market?
A: Mac Armstrong, CEO: The inflation guard is a locked-in underwriting guideline that we have no intention to change. Jon Christianson, President: We are seeing no change in buyer behavior due to the inflation guard. The commercial earthquake market continues to see strong rates and opportunities.
Q: Is there any overlap in FIA's agency network and your contractor-related liability lines?
A: Mac Armstrong, CEO: Currently, there is not much overlap. FIA is Northeast-heavy, while our contractors GL is Western US-heavy. There may be potential for cross-selling in the future.
Q: Did you retain any underwriting risk from Omaha National?
A: T. Christophe Uchida, CFO: Yes, we retained between 5% and 7% of the underwriting risk, but this will not continue going forward.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
