PLMR

Business Context and Reporting Period

Palomar Holdings, Inc. (PLMR) is a specialty property and casualty insurance holding company. This Form 10-Q covers the quarterly period ended March 31, 2026. The Company operates through a single segment and distributes products including Earthquake, Inland Marine and Property, Casualty, Crop, and Surety & Credit insurance. During the quarter, the Company completed the acquisition of Gray Surety (renamed Palomar Casualty & Surety Company) on January 31, 2026, for approximately $314.8 million.

Key Financial Metrics

Material Changes vs. Prior Period

• Premium Growth: Gross written premiums increased 42.4% year-over-year, driven by growth in Casualty, Inland Marine and Property, and Crop lines, as well as the inclusion of the Gray Surety acquisition.
• Underwriting Performance: The GAAP combined ratio increased to 84.5% from 73.1%. The loss ratio rose to 33.3% (from 23.6%) due to higher attritional losses and the inclusion of the acquired business. The expense ratio increased to 51.2% (from 49.5%) due to higher commissions and operational costs.
• Acquisition Impact: The acquisition of Gray Surety contributed $12.0 million in revenue and a $1.2 million net loss for the quarter. Acquisition-related expenses of $7.4 million were recorded.
• Debt Financing: The Company entered a new $450 million credit agreement in January 2026, drawing $297.4 million on the term loan to fund the acquisition and general corporate purposes. Interest expense increased significantly to $3.2 million from $0.1 million.
• Investment Portfolio: Net investment income increased 49.0% to $18.0 million due to a larger portfolio balance and higher yields. However, the portfolio recorded net unrealized losses of $13.9 million in Other Comprehensive Income (OCI).

Guidance, Outlook, and Risks

• Share Repurchases: The Board approved a new $200 million share repurchase program effective May 6, 2026, replacing the previous program. Approximately $89.6 million remained available under the prior program as of March 31, 2026.
• Reinsurance: The Company maintains robust reinsurance coverage, including $1.2 billion in catastrophe bonds for earthquake events. Retention is $20 million for earthquakes and $11 million for hurricanes/other perils.
• Key Risks:
  • Catastrophe Exposure: Significant concentration in California (25.0% of GWP) exposes the Company to seismic and wildfire risks.
  • Reinsurance Dependency: Reliance on third-party reinsurers and the insurance-linked securities market; failure of reinsurers to pay could materially impact results.
  • Reserve Adequacy: Loss reserves are estimates subject to variability; unfavorable development could reduce earnings.
  • Regulatory Environment: Extensive state and Bermuda regulations limit dividend distributions and capital movements.

Investor Verification Checklist

• Acquisition Integration: Verify the preliminary purchase price allocation for Gray Surety, specifically the valuation of intangible assets ($50.2 million) and goodwill ($121.2 million).
• Debt Covenants: Confirm compliance with the new 2026 Credit Agreement financial covenants, including the permissible debt-to-capital ratio and minimum risk-based capital requirements.
• Investment Portfolio Quality: Review the $29.6 million in gross unrealized losses on fixed maturity securities to assess credit quality versus interest rate impacts.
• Loss Reserve Development: Monitor the $10.3 million favorable prior-year loss development reported; assess sustainability given the increase in attritional losses.
• Reinsurance Capacity: Verify the status of the $1.2 billion in catastrophe bonds and the renewal terms for expiring reinsurance treaties.