Palomar Holdings, Inc. Reports Third Quarter 2024 Results
LA JOLLA, Calif., Nov. 04, 2024 (GLOBE NEWSWIRE) -- Palomar Holdings, Inc. (NASDAQ:PLMR) ("Palomar" or "Company") reported net income of $30.5 million, or $1.15 per diluted share, for the third quarter of 2024 compared to net income of $18.4 million, or $0.73 per diluted share, for the third quarter of 2023. Adjusted net income(1) was $32.4 million, or $1.23 per diluted share, for the third quarter of 2024 as compared to $23.3 million, or $0.92 per diluted share, for the third quarter of 2023.
Third Quarter 2024 Highlights
Gross written premiums increased by 32.2% to $415.0 million compared to $314.0 million in the third quarter of 2023
Net income of $30.5 million compared to $18.4 million in the third quarter of 2023
Adjusted net income(1) increased 39.3% to $32.4 million compared to $23.3 million in the third quarter of 2023
Total loss ratio of 29.7% compared to 18.8% in the third quarter of 2023
Catastrophe loss ratio(1) of 9.5% compared to -0.6% in the third quarter of 2023
Combined ratio of 80.5% compared to 75.8% in the third quarter of 2023
Adjusted combined ratio(1) of 77.1% compared to 70.9%, in the third quarter of 2023
Adjusted combined ratio excluding catastrophe losses(1) of 67.6% compared to 71.5%, in the third quarter of 2023
Annualized return on equity of 19.7% compared to 17.7% in the third quarter of 2023
Annualized adjusted return on equity(1) of 21.0% compared to 22.3% in the third quarter of 2023
(1) See discussion of "Non-GAAP and Key Performance Indicators" below.
Mac Armstrong, Chairman and Chief Executive Officer, commented, "I am very pleased with our third quarter results as they clearly demonstrate our successful efforts to deliver consistent earnings and returns. In a quarter that experienced a heightened level of cat activity, we delivered 39% adjusted net income growth, a 77% adjusted combined ratio, and a 21% adjusted ROE. Our results further validate the concerted efforts that we have undertaken to diversify the business, reduce the volatility in our earnings base and profitably grow. We continued to generate robust top line growth achieving 32% gross written premium growth, driven by strength in our Earthquake and Casualty products as well as strong growth from our burgeoning Crop business. Importantly, our same-store(2) premium growth rate was 38%, demonstrating the strong underlying momentum that exists across our portfolio of specialty insurance products.
Mr. Armstrong continued, "We have numerous energizing opportunities and initiatives associated with our Palomar 2X strategy. To capitalize on them, we successfully raised $116 million in August. A portion of the proceeds will fund our acquisition of First Indemnity of America Insurance Company and our entry into the surety market. We will use the remaining proceeds for organic growth and selected increases in risk participation in product categories including Crop and Earthquake. Our diversification into attractive lines with limited correlation to the P&C cycle such as Crop and Surety will further position Palomar to deliver consistent earnings growth over time."
(2) Excludes the impact of lines of business exited or discontinued during the quarter.
Underwriting Results Gross written premiums increased 32.2% to $415.0 million compared to $314.0 million in the third quarter of 2023, while net earned premiums increased 58.1% compared to the prior year's third quarter.
Losses and loss adjustment expenses for the third quarter were $40.3 million, comprised of $27.4 million of attritional losses and $12.9 million of catastrophe losses from Hurricanes Beryl, Debby, and Helene. The loss ratio for the quarter was 29.7%, comprised of an attritional loss ratio of 20.2% and a catastrophe loss ratio(1) of 9.5% compared to a loss ratio of 18.8% during the same period last year comprised of an attritional loss ratio of 19.4% and a catastrophe loss ratio(1) of -0.6%.
Underwriting income(1) for the third quarter was $26.4 million resulting in a combined ratio of 80.5% compared to underwriting income of $20.7 million resulting in a combined ratio of 75.8% during the same period last year. The Company's adjusted underwriting income(1) was $31.0 million resulting in an adjusted combined ratio(1) of 77.1% in the third quarter compared to adjusted underwriting income(1) of $25.0 million and an adjusted combined ratio(1) of 70.9% during the same period last year. The Company's adjusted combined ratio excluding catastrophe losses(1) was 67.6% compared to 71.5% during the same period last year.
Investment Results Net investment income increased by 56.0% to $9.4 million compared to $6.0 million in the prior year's third quarter. The increase was primarily due to higher yields on invested assets and a higher average balance of investments held during the three months ended September 30, 2024 due to proceeds from our August 2024 secondary offering and cash generated from operations. The weighted average duration of the fixed-maturity investment portfolio, including cash equivalents, was 3.86 years at September 30, 2024. Cash and invested assets totaled $1,017.5 million at September 30, 2024. During the third quarter, the Company recorded $2.7 net realized and unrealized gains related to its investment portfolio as compared to net realized and unrealized losses of $1.4 million during the same period last year.
Tax Rate The effective tax rate for the three months ended September 30, 2024 was 20.8% compared to 24.9% for the three months ended September 30, 2023. For the current quarter, the Company's income tax rate differed from the statutory rate due primarily to the tax impact of the permanent component of employee stock options.
Stockholders' Equity and Returns Stockholders' equity was $703.3 million at September 30, 2024, compared to $421.3 million at September 30, 2023. For the three months ended September 30, 2024, the Company's annualized return on equity was 19.7% compared to 17.7% for the same period in the prior year while adjusted return on equity(1) was 21.0% compared to 22.3% for the same period in the prior year. There were no share repurchases during the three months ended September 30, 2024.
Full Year 2024 Outlook For the full year 2024, the Company expects to achieve adjusted net income of $124 million to $128 million. This range includes additional catastrophe losses incurred during the fourth quarter of 2024 of approximately $8 million related to Hurricane Milton.
Conference Call As previously announced, Palomar will host a conference call Tuesday, November 5, 2024, to discuss its third quarter 2024 results at 12:00 p.m. (Eastern Time). The conference call can be accessed live by dialing 1-877-423-9813 or for international callers, 1-201-689-8573, and requesting to be joined to the Palomar Third Quarter 2024 Earnings Conference Call. A replay will be available starting at 4:00 p.m. (Eastern Time) on November 5, 2024, and can be accessed by dialing 1-844-512-2921, or for international callers, 1-412-317-6671. The passcode for the replay is 13747528. The replay will be available until 11:59 p.m. (Eastern Time) on November 12, 2024.
Interested investors and other parties may also listen to a simultaneous webcast of the conference call by logging onto the investor relations section of the Company's website at http://ir.palomarspecialty.com/. The online replay will remain available for a limited time beginning immediately following the call.
About Palomar Holdings, Inc. Palomar Holdings, Inc. is the holding company of subsidiaries Palomar Specialty Insurance Company ("PSIC"), Palomar Specialty Reinsurance Company Bermuda Ltd., Palomar Insurance Agency, Inc., Palomar Excess and Surplus Insurance Company ("PESIC"), and Palomar Underwriters Exchange Organization, Inc. Palomar's consolidated results also include Laulima Reciprocal Exchange, a variable interest entity for which the Company is the primary beneficiary. Palomar is an innovative specialty insurer serving residential and commercial clients in five product categories: Earthquake, Inland Marine and Other Property, Casualty, Fronting, and Crop. Palomar's insurance subsidiaries, Palomar Specialty Insurance Company, Palomar Specialty Reinsurance Company Bermuda Ltd., and Palomar Excess and Surplus Insurance Company, have a financial strength rating of "A" (Excellent) from A.M. Best.
To learn more, visit PLMR.com.
Non-GAAP and Key Performance Indicators
Palomar discusses certain key performance indicators, described below, which provide useful information about the Company's business and the operational factors underlying the Company's financial performance.
Underwriting revenue is a non-GAAP financial measure defined as total revenue, excluding net investment income and net realized and unrealized gains and losses on investments. See "Reconciliation of Non-GAAP Financial Measures" for a reconciliation of total revenue calculated in accordance with GAAP to underwriting revenue.
Underwriting income is a non-GAAP financial measure defined as income before income taxes excluding net investment income, net realized and unrealized gains and losses on investments, and interest expense. See "Reconciliation of Non-GAAP Financial Measures" for a reconciliation of income before income taxes calculated in accordance with GAAP to underwriting income.
Adjusted net income is a non-GAAP financial measure defined as net income excluding the impact of certain items that may not be indicative of underlying business trends, operating results, or future outlook, net of tax impact. Palomar calculates the tax impact only on adjustments which would be included in calculating the Company's income tax expense using the estimated tax rate at which the company received a deduction for these adjustments. See "Reconciliation of Non-GAAP Financial Measures" for a reconciliation of net income calculated in accordance with GAAP to adjusted net income.
Annualized Return on equity is net income expressed on an annualized basis as a percentage of average beginning and ending stockholders' equity during the period.
Annualized adjusted return on equity is a non-GAAP financial measure defined as adjusted net income expressed on an annualized basis as a percentage of average beginning and ending stockholders' equity during the period. See "Reconciliation of Non-GAAP Financial Measures" for a reconciliation of return on equity calculated using unadjusted GAAP numbers to adjusted return on equity.
Loss ratio, expressed as a percentage, is the ratio of losses and loss adjustment expenses, to net earned premiums.
Expense ratio, expressed as a percentage, is the ratio of acquisition and other underwriting expenses, net of commission and other income to net earned premiums.
Combined ratio is defined as the sum of the loss ratio and the expense ratio. A combined ratio under 100% generally indicates an underwriting profit. A combined ratio over 100% generally indicates an underwriting loss.
Adjusted combined ratio is a non-GAAP financial measure defined as the sum of the loss ratio and the expense ratio calculated excluding the impact of certain items that may not be indicative of underlying business trends, operating results, or future outlook. See "Reconciliation of Non-GAAP Financial Measures" for a reconciliation of combined ratio calculated using unadjusted GAAP numbers to adjusted combined ratio.
Diluted adjusted earnings per share is a non-GAAP financial measure defined as adjusted net income divided by the weighted-average common shares outstanding for the period, reflecting the dilution which could occur if equity-based awards are converted into common share equivalents as calculated using the treasury stock method. See "Reconciliation of Non-GAAP Financial Measures" for a reconciliation of diluted earnings per share calculated in accordance with GAAP to diluted adjusted earnings per share.
Catastrophe loss ratio is a non-GAAP financial measure defined as the ratio of catastrophe losses to net earned premiums. See "Reconciliation of Non-GAAP Financial Measures" for a reconciliation of loss ratio calculated using unadjusted GAAP numbers to catastrophe loss ratio.
Adjusted combined ratio excluding catastrophe losses is a non-GAAP financial measure defined as adjusted combined ratio excluding the impact of catastrophe losses. See "Reconciliation of Non-GAAP Financial Measures" for a reconciliation of combined ratio calculated using unadjusted GAAP numbers to adjusted combined ratio excluding catastrophe losses.
Adjusted underwriting income is a non-GAAP financial measure defined as underwriting income excluding the impact of certain items that may not be indicative of underlying business trends, operating results, or future outlook. See "Reconciliation of Non-GAAP Financial Measures" for a reconciliation of income before income taxes calculated in accordance with GAAP to adjusted underwriting income.
Tangible stockholders' equity is a non-GAAP financial measure defined as stockholders' equity less goodwill and intangible assets. See "Reconciliation of Non-GAAP Financial Measures" for a reconciliation of stockholders' equity calculated in accordance with GAAP to tangible stockholders' equity.
Safe Harbor Statement Palomar cautions you that statements contained in this press release may regard matters that are not historical facts but are forward-looking statements. These statements are based on the company's current beliefs and expectations. The inclusion of forward-looking statements should not be regarded as a representation by Palomar that any of its plans will be achieved. Actual results may differ from those set forth in this press release due to the risks and uncertainties inherent in the Company's business. The forward-looking statements are typically, but not always, identified through use of the words "believe," "expect," "enable," "may," "will," "could," "intends," "estimate," "anticipate," "plan," "predict," "probable," "potential," "possible," "should," "continue," and other words of similar meaning. Actual results could differ materially from the expectations contained in forward-looking statements as a result of several factors, including unexpected expenditures and costs, unexpected results or delays in development and regulatory review, regulatory approval requirements, the frequency and severity of adverse events and competitive conditions. These and other factors that may result in differences are discussed in greater detail in the Company's filings with the Securities and Exchange Commission. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof, and the Company undertakes no obligation to update such statements to reflect events that occur or circumstances that exist after the date hereof. All forward-looking statements are qualified in their entirety by this cautionary statement, which is made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Contact Media Inquiries Lindsay Conner 1-551-206-6217
Investor Relations Jamie Lillis 1-203-428-3223 Source: Palomar Holdings, Inc.
Summary of Operating Results:
The following tables summarize the Company's results for the three and nine months ended September 30, 2024 and 2023:
Three Months Ended
September 30,
2024
2023
Change
% Change
($ in thousands, except per share data)
Gross written premiums
$
414,977
$
313,998
$
100,979
32.2
%
Ceded written premiums
(255,267
)
(203,336
)
(51,931
)
25.5
%
Net written premiums
159,710
110,662
49,048
44.3
%
Net earned premiums
135,646
85,817
49,829
58.1
%
Commission and other income
715
465
250
53.8
%
Total underwriting revenue (1)
136,361
86,282
50,079
58.0
%
Losses and loss adjustment expenses
40,315
16,139
24,176
149.8
%
Acquisition expenses, net of ceding commissions and fronting fees
41,469
27,004
14,465
53.6
%
Other underwriting expenses
28,129
22,390
5,739
25.6
%
Underwriting income (1)
26,448
20,749
5,699
27.5
%
Interest expense
(87
)
(867
)
780
(90.0
)%
Net investment income
9,408
6,029
3,379
56.0
%
Net realized and unrealized gains (losses) on investments
2,734
(1,376
)
4,110
(298.7
)%
Income before income taxes
38,503
24,535
13,968
56.9
%
Income tax expense
8,006
6,103
1,903
31.2
%
Net income
$
30,497
$
18,432
$
12,065
65.5
%
Adjustments:
Net realized and unrealized (gains) losses on investments
(2,734
)
1,376
(4,110
)
(298.7
)%
Expenses associated with transactions
84
229
(145
)
(63.3
)%
Stock-based compensation expense
4,117
3,589
528
14.7
%
Amortization of intangibles
389
390
(1
)
(0.3
)%
Tax impact
91
(725
)
816
(112.6
)%
Adjusted net income (1)
$
32,444
$
23,291
$
9,153
39.3
%
Key Financial and Operating Metrics
Annualized return on equity
19.7
%
17.7
%
Annualized adjusted return on equity (1)
21.0
%
22.3
%
Loss ratio
29.7
%
18.8
%
Expense ratio
50.8
%
57.0
%
Combined ratio
80.5
%
75.8
%
Adjusted combined ratio (1)
77.1
%
70.9
%
Diluted earnings per share
$
1.15
$
0.73
Diluted adjusted earnings per share (1)
$
1.23
$
0.92
Catastrophe losses
$
12,924
$
(533
)
Catastrophe loss ratio (1)
9.5
%
(0.6
)%
Adjusted combined ratio excluding catastrophe losses (1)
67.6
%
71.5
%
Adjusted underwriting income (1)
$
31,038
$
24,957
$
6,081
24.4
%
(1)- Indicates Non-GAAP financial measure- see above for definition of Non-GAAP financial measures and see below for reconciliation of Non-GAAP financial measures to their most directly comparable measures prepared in accordance with GAAP.
Nine Months Ended
September 30,
2024
2023
Change
% Change
($ in thousands, except per share data)
Gross written premiums
$
1,168,239
$
838,406
$
329,833
39.3
%
Ceded written premiums
(692,620
)
(542,789
)
(149,831
)
27.6
%
Net written premiums
475,619
295,617
180,002
60.9
%
Net earned premiums
365,796
252,164
113,632
45.1
%
Commission and other income
2,035
1,781
254
14.3
%
Total underwriting revenue (1)
367,831
253,945
113,886
44.8
%
Losses and loss adjustment expenses
97,583
54,696
42,887
78.4
%
Acquisition expenses, net of ceding commissions and fronting fees
109,072
78,740
30,332
38.5
%
Other underwriting expenses
84,165
63,962
20,203
31.6
%
Underwriting income (1)
77,011
56,547
20,464
36.2
%
Interest expense
(1,052
)
(2,952
)
1,900
(64.4
)%
Net investment income
24,506
16,690
7,816
46.8
%
Net realized and unrealized gains (losses) on investments
5,768
(103
)
5,871
NM
Income before income taxes
106,233
70,182
36,051
51.4
%
Income tax expense
23,625
16,877
6,748
40.0
%
Net income
$
82,608
$
53,305
$
29,303
55.0
%
Adjustments:
Net realized and unrealized (gains) losses on investments
(5,768
)
103
(5,871
)
NM
Expenses associated with transactions
557
229
328
143.2
%
Stock-based compensation expense
11,905
10,737
1,168
10.9
%
Amortization of intangibles
1,168
1,092
76
7.0
%
Expenses associated with catastrophe bond
2,483
1,640
843
51.4
%
Tax impact
(734
)
(1,582
)
848
(53.6
)%
Adjusted net income (1)
$
92,219
$
65,524
$
26,695
40.7
%
Key Financial and Operating Metrics
Annualized return on equity
18.8
%
17.6
%
Annualized adjusted return on equity (1)
20.9
%
21.7
%
Loss ratio
26.7
%
21.7
%
Expense ratio
52.3
%
55.9
%
Combined ratio
78.9
%
77.6
%
Adjusted combined ratio (1)
74.5
%
72.1
%
Diluted earnings per share
$
3.19
$
2.10
Diluted adjusted earnings per share (1)
$
3.56
$
2.59
Catastrophe losses
$
19,724
$
3,432
Catastrophe loss ratio (1)
5.4
%
1.4
%
Adjusted combined ratio excluding catastrophe losses (1)
69.2
%
70.8
%
Adjusted underwriting income (1)
$
93,124
$
70,245
$
22,879
32.6
%
NM - not meaningful
(1)- Indicates Non-GAAP financial measure- see above for definition of Non-GAAP financial measures and see below for reconciliation of Non-GAAP financial measures to their most directly comparable measures prepared in accordance with GAAP.
Condensed Consolidated Balance sheets
Palomar Holdings, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (unaudited) (in thousands, except shares and par value data)
September 30,
December 31,
2024
2023
(Unaudited)
Assets
Investments:
Fixed maturity securities available for sale, at fair value (amortized cost: $896,775 in 2024; $675,130 in 2023)
$
882,980
$
643,799
Equity securities, at fair value (cost: $32,987 in 2024; $43,003 in 2023)
40,196
43,160
Equity method investment
2,499
2,617
Other investments
5,207
—
Total investments
930,882
689,576
Cash and cash equivalents
86,479
51,546
Restricted cash
105
306
Accrued investment income
7,495
5,282
Premiums receivable
326,674
261,972
Deferred policy acquisition costs, net of ceding commissions and fronting fees
86,408
60,990
Reinsurance recoverable on paid losses and loss adjustment expenses
58,889
32,172
Reinsurance recoverable on unpaid losses and loss adjustment expenses
360,164
244,622
Ceded unearned premiums
298,509
265,808
Prepaid expenses and other assets
104,831
72,941
Deferred tax assets, net
4,019
10,119
Property and equipment, net
409
373
Goodwill and intangible assets, net
11,147
12,315
Total assets
$
2,276,011
$
1,708,022
Liabilities and stockholders' equity
Liabilities:
Accounts payable and other accrued liabilities
$
75,424
$
42,376
Reserve for losses and loss adjustment expenses
497,438
342,275
Unearned premiums
739,623
597,103
Ceded premium payable
235,157
181,742
Funds held under reinsurance treaty
25,056
13,419
Income taxes payable
—
7,255
Borrowings from credit agreements
—
52,600
Total liabilities
1,572,698
1,236,770
Stockholders' equity:
Preferred stock, $0.0001 par value, 5,000,000 shares authorized, 0 shares issued and outstanding as of September 30, 2024 and December 31, 2023
—
—
Common stock, $0.0001 par value, 500,000,000 shares authorized, 26,452,242 and 24,772,987 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively
3
3
Additional paid-in capital
486,198
350,597
Accumulated other comprehensive loss
(10,139
)
(23,991
)
