Palomar Holdings, Inc. — Form 8-K Summary
Business Context and Reporting Period
Palomar Holdings, Inc. filed a Form 8-K dated May 31, 2019, under Item 8.01 to report the completion of reinsurance programs renewing or commencing June 1, 2019. The filing concerns Palomar’s catastrophe and specialty homeowners reinsurance arrangements.
Key Financial and Risk Metrics
- Palomar renewed $470 million of its core reinsurance program, including the Torrey Pines Re catastrophe bond.
- The company purchased $200 million of incremental limit at the top of its reinsurance tower.
- Effective June 1, 2019, earthquake coverage increased to $1.05 billion.
- The program retained a $5.0 million per-event retention.
- The program includes $331 million of cascading limit and prepaid reinstatements on applicable renewing and new layers.
- As of March 31, 2019, modeled gross losses were $669 million for an earthquake equivalent to the 1994 Northridge earthquake and $580 million for an event equivalent to the 1906 San Francisco earthquake.
- The filing does not provide revenue, profit, cash flow, margins, debt, liquidity, or other traditional financial statement metrics.
Material Changes Versus the Prior Comparable Period
The filing does not provide a prior-period financial comparison. Relative to the prior reinsurance structure, Palomar added $200 million of limit at the top of its tower and established total earthquake coverage of $1.05 billion effective June 1, 2019.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- The additional limit is intended to maintain a cushion above the 1-in-250-year peak-zone probable maximum loss and exceeds simulated losses from any recorded historical event, according to the company.
- Palomar completed the inaugural placement of its Specialty Homeowners Facility, providing quota share and excess-of-loss reinsurance for specialty homeowners business in Texas, Mississippi, and Alabama.
- The facility may be expanded to additional states identified as growth opportunities.
- The reinsurance panel comprises approximately 80 reinsurers, each rated A- or better by A.M. Best or providing collateral.
- Earthquake catastrophe exposure remains a material risk; modeled losses are theoretical estimates and actual losses could differ materially.
Important Facts for Investors to Verify
- Confirm the terms, exclusions, attachment points, and exhaustion points of the $1.05 billion earthquake tower.
- Assess the adequacy of the $5.0 million retention relative to Palomar’s insured exposure and capital.
- Review the credit quality, collateral arrangements, and concentration of the approximately 80 reinsurers.
- Evaluate the Specialty Homeowners Facility’s economics, geographic expansion, and potential effect on earnings volatility.
- Verify the modeled Northridge and San Francisco earthquake loss estimates and the assumptions underlying the 1-in-250-year probable maximum loss.