Palomar Holdings, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless noted. Palomar is a specialty property and casualty insurer, including earthquake, fronting, inland marine and other property, casualty, and crop products. It reports one segment.
Financial and operating results
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Gross written premiums | $368.1 million | $250.1 million; up 47.2% |
| Net written premiums | $139.9 million | $79.8 million; up 75.4% |
| Net earned premiums | $107.9 million | $83.2 million; up 29.6% |
| Total revenue | $118.5 million | $89.2 million; up 32.9% |
| Income before taxes | $34.4 million | $22.6 million; up 51.8% |
| Net income / diluted EPS | $26.4 million / $1.04 | $17.3 million / $0.68 |
| GAAP combined ratio | 76.9% | 77.9% |
| Operating cash flow | $33.1 million | $17.4 million |
Gross written premiums grew with higher policy volume, retention, expansion of distribution, and new partnerships. Casualty premiums rose to $51.9 million from $12.2 million; crop contributed $38.7 million versus none in the prior-year quarter. Ceded premiums increased 33.9% to $228.2 million, but ceded premiums fell to 62.0% of gross written premiums from 68.1%. Net earned premiums were 35.6% of gross earned premiums, down from 37.0%, reflecting growth in quota-share and fronting business.
The loss ratio was 24.9% versus 24.8%; the expense ratio improved to 52.0% from 53.1%. The adjusted combined ratio was 73.0% versus 73.3% (a company-defined non-GAAP measure). Net investment income increased 39.4% to $7.1 million. Net realized and unrealized investment gains were $3.0 million versus $0.1 million, driven primarily by unrealized equity-security gains; these gains contributed to reported earnings.
Balance sheet, cash flow, and capital
At March 31, 2024, total assets were $1.885 billion, investments were $704.6 million, stockholders’ equity was $501.7 million, and cash and cash equivalents were $61.4 million ($61.8 million including restricted cash). Operating cash flow was $33.1 million; investing activities used $16.3 million and financing activities used $6.9 million. The quarter included $9.6 million of net credit-line repayments.
Borrowings were $43.0 million, all through the collateralized Federal Home Loan Bank facility, down from $52.6 million at year-end. There were no U.S. Bank revolving-facility borrowings; the facility limit is $100 million, with $15 million pledged and unavailable. The company reported compliance with debt covenants. Management stated that liquidity and expected cash sources should meet requirements for at least the next 12 months and beyond, and reported $766.4 million in cash and investment securities available at quarter-end.
Gross loss and loss adjustment expense reserves were $402.2 million, with $292.0 million of recoverables on unpaid losses; net reserves were $110.2 million. Aggregate reinsurance recoverables were $320.6 million. Stockholders’ equity increased from $471.3 million at December 31, 2023. Available-for-sale fixed maturities had a fair value of $663.0 million against amortized cost of $697.5 million; accumulated other comprehensive loss was $26.5 million.
Material changes, outlook, and risks
- Losses and loss adjustment expenses rose 29.9% to $26.8 million. Catastrophe losses were $3.4 million, primarily flood-related; the catastrophe loss ratio increased to 3.1% from 2.2%. The company recorded $0.5 million of adverse prior-year development, mainly from attritional severity in certain discontinued lines, versus $3.4 million in Q1 2023.
- Acquisition and other underwriting expenses increased with business growth. Management cited higher payroll, technology, and stock-based compensation costs. No formal full-year earnings or premium guidance is provided in the supplied filing text; management cautions that quarterly results are not necessarily indicative of full-year results.
- Reinsurance protection includes a $17.5 million catastrophe-event retention and stated limits of $2.71 billion for earthquake, $800 million for Hawaii hurricane, and $100 million for continental U.S. hurricane events. A $400 million earthquake catastrophe bond is scheduled to run through June 1, 2024; renewal or replacement terms are not specified here.
- Key risks include catastrophe frequency and severity, climate and inflation effects, reserve-estimate uncertainty, reinsurer payment and availability, and investment-market risk. California represented 42.7% of Q1 gross written premiums. Fixed-maturity securities had $36.6 million of gross unrealized losses; management attributed most to interest rates and said it did not intend, nor expect to be required, to sell before recovery of amortized cost.
- Insurance-subsidiary dividend capacity is subject to regulatory limits. The $100 million share-repurchase program ended March 31, 2024; no repurchases occurred in Q1. Ordinary-course legal proceedings were not expected by management to have a material adverse effect. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Investor verification priorities
- Assess whether premium growth—particularly in casualty, crop, and fronting—translates into durable net earned premiums and underwriting returns as reinsurance costs and ceded business evolve.
- Review reserve development, catastrophe exposure, and the collectability and timing of the $320.6 million in reinsurance recoverables.
- Verify the renewal or replacement of the earthquake catastrophe bond expiring June 1, 2024, and the cost and availability of the broader reinsurance program.
- Separate recurring underwriting and investment income from the quarter’s equity investment gains, and monitor fixed-maturity unrealized losses and interest-rate sensitivity.
- Consider California concentration, regulatory limits on subsidiary distributions, and the distinction between reported liquidity and funds available at the holding-company level.