PLMR - Earnings call transcript Q3 2021

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Operator

Good morning, and welcome to the Palomar Holdings, Inc.

Third Quarter 2021 Earnings Conference Call.

During today’s presentation, all parties will be in a listen-only mode.

Following the presentation, the conference line will be open for questions with instructions to follow at that time.

As a reminder, this conference call is being recorded. to call like to now would turn over the Mr. I Chief Financial Uchida, Officer. Chris sir. Please go ahead,

Chris Uchida

Thank good call. operator, Chief our today you, and Mac Executive third participation appreciate is quarter in Officer your and XXXX our earnings Armstrong, With Founder. here morning, me Chairman, everyone. We

will on of a through our As call XX:XX a November the on p.m. replay telephonic available reminder, Time XX, website XXXX. Investor this Eastern of be Relations section

results may me that the expectations, Before include statements everyone of Reform remind contain we Such uncertainties such materially Form forth and pandemic. with by call Securities within of are certain other management's beliefs, other Exchange indicated constitute statements. this to, and meaning update XX-Q Act cause the let prospects. variety or related statements. factors not Including, Such and Private to to risks, and statements implied risks from do these statements report forward-looking future could begin, on limited duty plans COVID-XX our remarks quarterly to We about These any the and that actual subject that are a forward-looking uncertainties not Litigation differ factors undertake estimates, filed those of risks the XXXX. Securities in Commission. but set to

turn believe this call GAAP measure additional our found which a Additionally, evaluating non-GAAP GAAP. over reconciliation these The comparable as discuss this to to accordance the earnings during will today's point, isolation measures of Mac. are not their in U.S. in most should be information useful with in we be I'll we A for prepared non-GAAP release. measures At certain performance. results can presentation considered of substitute or call, our in

Mac Armstrong

everyone. beyond. there, in remainder strategic growth the speak XXXX more detail. I'll morning, to call and back results well quarter as and to I'll our Thank From review initiatives of profitable for results as Today, good the financial our to to Chris third and efforts you, Chris, drive turn our

premium strategic quarter the strong the increasing of numerous We pleased gross growth accomplished Growth another by yet written the with the the sustained XX%. quarter. are premiums enterprise was fueled during growth earthquake Highlights of and Hawaiian products, by business for quarter our and strong with include performance core written third Hurricane in our premium traction premium continued in flood initiatives new among marine Notable the growth markets. new in into and and of products. occurred commercial lines and residential products entering across partnerships

saw also Company, Excess premium its with E&S nascent XXX% written quarter. second success grew and Palomar our the We sequentially continued company, and PESIC. XX% Insurance year-over-year from gross Surplus PESIC

product we Second, further offering. our expanded

launched complement in the flexibility time. and enables admitted with insurance offers market. an we in in into including points risk our E&S And fee to of new fronting entrance the a Palomar, attractive to a we announced incremental limited residential offering. also of product PLMR-FRONT Specifically, business, participate quickly many income. It markets our lines nonrisk-bearing insurance states to in over as of enter new investment us flood access sources to of handful entity the sector September, the U.S. advantages

a through including and few markets recruited experienced incremental Third, subject successfully these across of We and we will more casualty long-term highlight adjacent later commitment my dynamic hires prospects technology our additions and to enterprise, technology new our the departments. in maintain matter growth remarks. of key and talent. experts to Palomar in in I importantly, professionals reinsurance investments the

approximately reinsurance Ida admitted discontinued our which XX% Louisiana four The our from also modest, at of a specialty the retention liability hurricane homeowners fact of in points losses and was from cat the close came result all events basis. loss, loss million well residual Lastly, takes continuing incremental of inside these while lines. we Hurricanes as of risk operations annualized gross on an to excess loss in the experienced $XX.X pre-tax Nicholas that of losses and PG&E of quarter the net from ratio

While moreover, the of the in of and portfolio a constantly had not for one PG&E taken only the the payback very returns ensure results, underwriting loss are less a the impacted to than and geography our XXXX appropriate and positively risk-adjusted XXXX beyond. and XXXX good put review actions catastrophe us course quarter's We year. but we position product earning over by

When operations, of gross XX%. business. impressive Turning to saw written growth our Overall, adjusting all discontinued results XX%. an in Highlights growth runoff across lines was we more year-over-year continued premium the included to our for momentum detail. more even

regulatory earthquake numerous tailwinds, notably franchise California business quarter line XX%. XX% reforms. earthquake, the commercial and largest growing increases, rate and XX% from continues with partnerships quake our growing franchise Our in residential grew market to potential Earthquake of benefit inbound dislocation, homeowners'

XXX% operation and and in and XX% an XX%. prior $XX growing Marine, grew quarter. included flood, Additionally, approaching strong a at which is run million the XXX% year-over-year $XX.X staggering from our million year-over-year delivered premium, grew Other Inland E&S performers sequentially which rate

Rating producers very to prospects market by partnerships but also program, repricing we and is the potential driven entering by not excited are for by are exercise tailwinds expanding our Risk footprint, our NFIP's a as geographic FEMA. We X.X appointing there undertaken into the conditions. products flood only regulatory new carrier Shifting

will increases And insurance remainder Risk was rate the value XXXX. the dislocation is the rate insurers showcasing of year rate XX% average remain are able rate partners. the high-teen XXXX. average E&S they and risk products, premium than products Our throughout that earthquake our continued to the and total increase our renewals of but speaks commercial maintain retention, the portfolio excluding to operations, risk for quarter, on are unique our efficacy seeing Builders discontinued in strong increase was XX%. not course frankly, offer the we rates the into our growth business, specialty the where double material be construction in for again, more only market. were All The in confident distribution also increases of that and X%. We for base Separately, policies in

to continue and on our our visibility extending portfolio, and We to significant our product execute and improve into earnings. underwriting reach striving results progress make

Newer address as real residential E&O market. products tracking demonstrating are ahead estate in such and ability and high-value rapidly plan the of builders to risk our opportunities

quickly products growth. to is nimble enables distribution our new market operating conditions add PLMR-FRONT our model and to Prime Our respond to and partners fuel initiative. us changing example

executed focus Ultimately, business we pipeline with deals changing adhering subsequent dynamics market opportunity represents profitable fronting to partners. believe And of Our period capitalize and in and short team to proven another predictable a already this to has time. on a robust growth. end, created while we our quarter on dislocations two

team. Turning our to

to is Palomar's that side with Marine, and Officer, Heath's was Inland thrilled continue reinsurance Robert strong Gerrit prior strategy, employee our to that and become and his very which building Underwriting April. he a We I'm details into spearhead Chris critical with the strategy am ESG materials. architecting note, his and on bring and a ably to incredible are has of Since spearheading experienced instrumental an more wealth that Sustainability team time been President Jon the ESG of I'm such family. market our several business. second our Christianson, also website, can efforts. the To remain good and component Marine who to Christianson, architect are success, and underwriting team as be key Robert. expertise the of third program. capable Ty, for the his Beyerle, quarter. central investing portal an our casualty tremendous will Palomar, will team ESG Heath's will SVP Expanding led new Palomar we in like spend Reinsurance. shoes. fill this Chris the as understanding of in professionals our President my our Jon distinctive will in all step experience major of prime report I'd side team additions, we to Heath recently underwriting Palomar Cebula, thank and of greatly has moment partner, our But I a teams. our share Chief the a will our work governments both our Jon to bring in plan part role SVP role proud end, Palomar to by to including pleased team. Robert launched I utilize background On we to in related to friend to He industry Palomar's and a fully examples report and to Heath long-term talented was Robben thrilled notable responsible and to our highly Heath successful repository expansion operations. act Inland one our pleased growth and made corporate on recently already developing is from the are and professionals focus of Jon of by Heath, current department. take and and Palomar's have will decision success. that and expertise will similar Palomar's continued Fisher, strong These in knowledge our our we and to as attract of to Jon and into miss COO. departure who our VandeKemp, reinsurance Ty a who Gerrit to at our reinsurance big efforts day efforts, our Chris to and and Thanks instrumental Heath's seasoned Knutzen resign and

forward, you and move be I us, continue forward area an look for to initiatives. future of we to updating As this focus on will

lines XX% add, Our income of considerable we strong mentioned same recognized quarter. discussed the I said, the XX% future That the discontinued levels. to initiatives attritional of pushed below quarter I for ROE in the in top for the target the optimism the losses that that and all cat were and lines on from prospects call will close business. quarter loss of gross of gross also contributed earlier those net the generated Palomar. line of losses results

and property, is losses to annualized an So of losses earned attention hurricane continuing loss attritional closer the points when close loss well E&S four to from namely below business, looking basis, premium. XX%. The ratio at a of lines the our on based steady-state the ratio were from

This had $XXX a million on factoring the premium, of in in $X.X loss evidenced in reduced treaty been incurred risk. by income for the less with periods the million the online. the two than excess earning year quarter. this loss in XX% rate and of one attachment a and the policy point As a payback liability price limit point results PG&E, is full we net of cumulative by profitability When have the acceleration

don't This we complete is PLMR-FRONT impact go-forward the business end quarter. Chris. to effort, will of cover reduce on by I'd the point, the basis. call aggregate noise in While far prime before I taken believe a take I'll it types to the from actions operations be enjoy to are At continue like our of important to events will fourth quarter, book reiterate have with of of back by to impact we runoff base. continue the guidance the the volatility discontinued losses lesser the caused touch that along the out similar turning point to of a examples on the and and earnings and this reinsurance have our in

the our midpoint believe an $XX.X additional for fourth year. the and at for million investments of expectations adjusted $XX.X the net talent, $XX.X remainder ROE XX.X% the we to estimate XXXX year our quarter million systems, adjusted or million in of This equates year. in factors and have will to and make $XX income range. made and infrastructure The range be and full in the expect reinsurance revising the full million are of between We

Chris a XX% turn of As established over in cover aggregate with our With floor I'll our place, the reminder, to discuss more to detail. for equity. a we call that, have results adjusted approximately in on return

Chris Uchida

incur when as portion, periods calculated as figure, such to using net options requires to Thank common you, share any profitable us we include I'm to method. This per methodology periods my share equivalents exclude treasury per where diluted during loss. MIM the referring stock Please note Mac. stock outstanding that the and a common during referring share

We the have accordingly. calculations adjusted

of the of third for $XXX,XXX or $X.XX share was XXXX, net For same of $XX.X to quarter income per per net the quarter loss $X.XX compared or our XXXX. million a share

XXXX. per year's Our share were $XX.X an adjusted the Gross $X.XX $X.X net XX.X% quarter written or $X.XX increase third to to income net compared compared per third million, for quarter. of was an the same million premiums prior share of quarter or the loss million adjusted $XXX.X representing of for

XX.X% September earned XX.X% XXXX, premiums gross of earning XXXX. premiums to this million, execution to by share into of to growth lower multiple written quarter. expense of indicated, of ended year's quarter compared by the quarter was premiums. partnerships the As of for quarter were the to and year's to percentage percentage to third entering written and combination premiums a increase gross decreased third to markets of core million, growth ceded the offset third written decrease Mac the reinsurance growth extensions due written excess driven due the the related performance the $XX.X of compared the loss of increase increase due increased months reinsurance This gross due of premiums new growth premiums agreements. as a volume premiums growth in an higher by Net across The $XX.X exposure prior excess written primarily was of new to from written business. premiums higher earning XX, products, Ceded third written months Seed catastrophe quota were of strong for in XX.X% our under XX, was lines and three prior as increased for three by primarily the representing the September to subject ended an of quota for shares. expenses loss a the XX%

quarter to due net net XXXX, compared quarter For ratio as of earned quarter was one the premiums premiums point XXXX. to of earned were XX.X% gross in percentage a the for XX.X% third higher from the of approximately this third premium The earned ratio the earned gross of metric premiums premiums policy. business versus the ratio assessing a PG&E We to better is premiums our acceleration premiums. gross written of the of to earned believe written net

renewal, we participation the in attritional of our part reinsurance quota June As share arrangements. one adjusted our

annual With new changes, an with to around the placement the on these basis, growth and premium. XX% we the at expect our earned lower higher in be end a expected of at ratio reinsurance to XX% beginning

the this for this ratio launch and ROE ahead are add the we bottom expect business, the income range enhance While we with of will of quarter, line. though fronting we'll on our fee pressure that

and of during a the loss million. to million on expense the the to loss catastrophe ratio $XX.X XX% same year, adjustment losses new for quarter of continue an comprised quarter ratio or our of ratio a LAE, comprised attritional XX.X% loss loss attritional was will and of XX%, this and an ratio last We monitor XX% a of incurred were third update and to market of million of based Losses for the ratio XX.X%. $XX.X catastrophe business. and ratio loss The period compared ratio XX.X% catastrophe of loss attritional due of $XX losses loss

$XX.X of Ida we attritional business business grow losses and premium as newer such of loss favorable million growth results period prior losses attritional homeowners, the catastrophe in liability excess lines the with increased include on $X quarter in to losses base. million higher and including development PG&E marine specialty loss of activity continue favorable of Non-catastrophe estimates lines and development third The current to million. flood loss due as lines our a to conservative year the of subject Nicholas $X.X of

the XX% XX% loss have The was from ratio attritional if been Additionally, attritional losses. we ratio those would lines we loss about business are of the below of for exclude quarter exiting.

business at an of XX.X% a metrics. improvement sequentially XXXX On adjusted feel ratio an for ratio, to expense XX.X% the quarter our third was of our XX.X% gross Similar was quarter XXXX earned quarter in to representation a XX.X% the compared expense ratio as to the XXXX. second of to earned ratios XXXX, premium. is compared our compared basis, the in premium percentage net and Our quarter look better of of expense XX.X% in both third to quarter we the it our compared for of third to

gross ratio was slight the gross of the expense adjustments was the percentage for XX.X% acquisition earned earned XXXX of third from improvement the of for in XXXX. X.X%, of of other underwriting a third a as XXXX Our a XX.X%, The excluding to expenses premium compared quarter quarter in of quarter second premium improvement quarter XXXX. XX.X% sequential third to

we continue term. systems over we to scale expect While our long talent, the and invest to other infrastructure, in business

Our third third combined the XXXX. XXX.X% XXX.X% in for quarter quarter compared was ratio of to the

quarter, of adjusted quarter this our for business years, a that average year-over-year catastrophe of million, our primarily months prior X.X% in comparison both during sense higher for of third quarter the was three third XX, an was the and income due the the compared in yields compared of in ended XX.X% The investment XX.X% Excluding the given balance We results September increase the combined to XXXX Net increase to our year's invested for held third better on a steady-state ratio quarter. quarter the believe by of assets. $X.X activity on measure was investments catastrophe offset the to basis. third the offers losses lower slightly purposes is XXXX. a of a quarter third better

third to including million fixed our of $XXX of as compared cash quarter average portfolio, quarter XX, income investment million XXXX. September X.XX at quarter to XXXX. X.XX% was was totaled Cash years the Our portfolio equivalents, X.XX% maturity assets end. duration weighted and the at yield $XXX The book fixed during for third compared invested investment

of a quarter. statement of consolidated investments the losses prior income third to the For gain in compared the third $XX,XXX quarter, recognized we year's on in $XXX,XXX

evolve, a we our but invested, rest be position conservatively solidified index portfolio to gains to lines recognized capital and and of may like to into portfolio from portion the of will traditional modest quarter-to-quarter. started equity Equity continue have our move losses our dividend yielding has our of funds. funds As business continue our impact

rate XXX.X%. of third quarter quarter to We XXXX. effective for the negative Our was the compared third for XX.X% tax

the For income impact rate both to quarters, tax employee exercises. is breakeven. the statutory also pre-tax our of income to differed with stock quarter due component net the for close of The permanent tax so from skewed rate current

for rate tax was September XX.X%. months Our ended the XXXX, nine XX,

XX, XXXX million at Our September XXXX. stockholders' equity million $XXX.X was $XXX.X compared to December at XX,

was For XX% the same XXXX, of return negative annualized year. in compared the period last quarter X.X% on to third equity

Our on for the X.X% annualized adjusted compared return negative XX.X% period equity was to year. last same

annualized repurchase announced adjusted equity nine for on return authorization. $XX last compared did XX.X% first to months the not quarter any shares X.X% during previously year. the share repurchase Our to of our XXXX relating current of million the was We

For million or have authorization, approximately the repurchased $XX.X stock. XXX,XXX of current shares we common

adjusted quarter Mac As remainder providing of XX.X% equity XXXX, between $XX are to adjusted ahead indicated, fourth guidance This and million income equates an to XX%. of looking $XX.X we million. on annual the to return

September outstanding to the open increase that, shares ask for do stock had not XX,XXX,XXX a ahead. up Operator? With like XX, to line operator calculated the number material we the to anticipate XXXX, as this diluted questions. using As any treasury We method. I'd the of during year

Operator

be Please will question. proceed And Piper Sandler. [Operator Thank time, our a you. At question-and-answer question we session. with the your Instructions] Newsome line comes with Paul from of first this conducting

Paul Newsome

new and maybe that's you what to for that is sure the to what are hoping fronts thing. funding thanks fronting a want some extent bit and what was in it fronted be more about about going what's interested to business and be call, Good little the you behind of you'd make of go that kind morning, sort bit fronting of management a risk of maybe talk the could the limits I little being

Mac Armstrong

Paul, it's question. Mac. Thanks the for

excited are into about We market. entrance our the fronting

about what we want in We where it's fee going affords as them enter markets, nonrisk-bearing ultimately on specialty But a worth potentially in to participation new determine really pointing take did flood. and expertise. ultimately, markets future existing front. generate our I us have historically then in are actually it we that we we a leverage study infrastructure, think the can opportunity out if the market, to to the homeowners well as income served a develop and the learn fashion, an segments as more so

In we insurance we right that where deals we both a So Both month premiums. the or behalf have are fronting cyber unearned In stand on – an on two and with fully those of October. been earlier have instances, have we others, XXX% unrated fronting announced behalf are we we this MGA. announced. now, been of reinsured company. are or XXX% is are collateralized One in

into especially into we not But here. fronts market, the line UEP. think from more excited participation take So the on we are collateralizing collateralizing tower as great we've where we two there's willing about that's go this the underwriting to it for conservative first property-focused But a what and where of we're think majority acumen you'll risk the be do credit what want for as reinsurance an We take that and us and potentially would some these market. a deals. will as I taking where we're we promise be done our leverage are And entry occasional unearned We see pure can counterparty premium. well to analysis. may risk be appropriate basis, our the

Paul Newsome

limits kinds whatever... of Is is there on front? great. products just that you any the Or would That's

Mac Armstrong

Yes. I we want I think mean domestic be focused. to

are there front come right inclined less are said kind of on requirements, We've compensation we the something lines the that's little and because I longer of workers' collateral certain – now. that tail something business less will of in. interested that is a probably that think out

does probably that we something our collateral the is with alley the on. something get to we're – it's I market think that's the we're reinsurance, underwrite get from. up up can But going partner, that broaden comfortable think appropriate something heavy is if our it away really unless cat I business shy

Paul Newsome

you mentioned was for businesses. it sort think loss should rate runoff a my think you fair you question, from run separately excluded is base? And we if of the on ratio, that Or the some Do prospectively that's there future? attritional the adjustments what then about

Chris Uchida

Paul, this we when loss XX%. speaking about Great think you $X.X that question. ratio outlined million loss have Yes, was Chris. again. business that think is can about the for exited. about We QX, came from you it handle as well, lines I ratio attritional with we the of it

So that, we is better the of for attritional quarter think a What have losses marker of we see associated business you do this did is a that lot how have quarter lot lines do did performed. with of growth them. that in a

have taken So with positions of newer those we some conservative lines.

We continue a loss losses at lower. ratio. contribute are to reinsurance do because to are We them that clip. techniques But the and use underwriting to expect growing lines make sure healthy to those

of of but our it's what business, expect let's business. loss up lines loss do we Hawaii it of are lines to of that move to tick be in We're are we business. to nice those, on focus. to strong ratio, bottom will that wind want we continue have expecting you Right we binary. sure or we to to that are to we XX%. going in said profitable or still these earthquake invest ROE so line XX% and But so profitable to think we because with that those come make based to Over current contribute combined book probably book attritional from do to losses, and that lines completely, add expect a our would we growth have now, ratio have also up lines are overall We with in have And investing very we our time, anchor ratio between very do our the business in that never our lines loss profitability. do ratio remember that

and decision shows like So of of book Risk do attritional return requisite this All of this our does we kind get admitted or of get business out why on we to into. the lines we are it. to weren't the these Obviously, that think the kind enforce giving But

we to and without, to So we want that with sure make that speak. so showed

Paul Newsome

it. Thank insights. Appreciate you for your

Chris Uchida

Thanks, Paul.

Operator

Schmitt the Our your of proceed next with Please question. Jeff question from Blair. with line comes William

Jeff Schmitt

Hi, you of residential maybe may from may players that good of pulling has back where over sustainable much seeing? everyone. The you be or I'm California the gauge in pulling just know to sort a homeowners morning could of? And been been be The back benefit is? geographic to perspective, really just this still quake. outside you growth grow book XX% XX% discuss I how then it inside weight of nicely how or AIG in trying growth a California think large continues market.

Mac Armstrong

of nearly growing this rate time. California. for XX% Jeff, optimistic success Yes, continued and grew earthquake. are and is are We to residential the XX%, can growth pleased we're question. in indefinite period obviously with we a Mac. It obviously We nicely growth Great sustained it seeing in are closer that sustain

in and states. Northwest also growing in We are Pacific other the

And So California actually quake ones really on the distribution our of and of where to is not contributor It's us I are we California policy as outside it's the well, instance, premium the can the opportunities. it's we Missouri it's It's think dislocation has travelers, do. is a like in what predominance but the for just that major But California. and focusing not market states footprint. Washington. grow allowed to allowed like limited partnerships count, one homeowners only us that Utah, and leverage with to grow

me, – is it's plan XX% total year-over-year. think, excuse up XX% up, production I quake residential So

future that portends for So growth.

that benefited – You mentioned out AIG pulling from have we had that.

market. business high I value think and more E&S E&S it's high actually where residential tailored for we the because quake benefited more there it's value our in probably is

there's in by So the long residential story those – growth ahead short story is market factors. us think great of quake we driven

sales through to are made so to really inside an and driving production also something partnerships we're prospective well, on concerted focusing us catalysts team And we with our We do that really well that's beyond. producers associated going are XXXX potentially more as carrier or producers, partners. new a monetize that some that what could efforts on to there we wouldn't are appointing something continue as we've then regulatory new our and calling it's as until some from really basis, impact that watching of are benefit activity

Jeff Schmitt

Great. Okay. of and have could what And And I I were you more thought addressed few missed that sort transitioning I quarters? But basis. an the guess All drop over for of quarter? if next address premium then there kind the the E&S that you that. being Risk on book But commercial drop you maybe you it the to may expect

Mac Armstrong

Yes.

running admitted basically, all off there are was the in we no premium the there risk. So quarter. written that And

So of the all at of will end business admitted December. that the basically be

So business in all the all that we quarter E&S. was of the risk wrote

wrote it in So roughly tied – the all think to was E&S roughly quarter, $X million third that business. we just of was and I premium, seven

Chris Uchida

about And million you think number million, look there at of about company. admitted up for the made it of say was where we E&S a just risk. was rate almost I'd of $XX.X you last all $X.X were year, in the if all

to million, the the you of XXX% at you're looking growth a $X.X of to rate $X.X gives million that So growth. due the north

out XX% been the We affects that's take in growth bogey of obviously, the you of as the well. overall – out book range would growth equation. that there, XX% if that kind that's have So and of

Mac Armstrong

on you on rate that the losses XX% I in E&S Jeff, risk And into the from accelerate the something think new all may But fourth average. as was the we will Ida. are seeing it. heard what one increase absorbs expect quarter frankly, we thing add, it's market a I'd have

Jeff Schmitt

Got it.

helpful. very Thank Okay, you.

Operator

with Evercore comes line our with proceed your from the next of question. David ISI. And question Motemaden Please

David Motemaden

Hi, thanks.

to the of just Just impact you a out retention quarter. full And this we a discontinued loss catastrophe from would the if I lines. guess take clarify, have the wanted had on I question losses just the runoff

Mac Armstrong

Dave, is would have. this not We Mac.

As more And than I pointed annualize points losses PG&E halfway our shock been loss have not on would that the little out, annualized four does quarter, the And and our if a stand-alone Ida, recurring there. include have about about Ida. halfway the from Nicholas the would on up retained. it that And loss was have it the of cat bit would you obviously no, But retention. retention, for a so been been premium. basis loss,

David Motemaden

Okay. guess, Chris, and That's I confirm I I to And wanted good to understood just right. great. – then, this That's hear. maybe

Just on the ratio. attritional loss

to two off So XX% with attritional baseline expect as which year, to more increase should lines for of losses? this be would a point like just or a shifts mix to about thinking you the we year XX% a

Chris Uchida

the been that's I has it, ticking to it as book think I year Yes, good about up. teams let's this I be, beginning that think our of right? it our would we've expected of and to on talked changed grown the the has year. a call it has describe lower at it, have side way mix the

think lines builders and those lines, we that the the the seeing like we're pushing are Marine, all lines little from growth some bit. Flood of I Inland like up from lines, a newer

an XX% XX% of the is would what book range think the annual I based kind basis. on So on to current I expect

techniques one to basis. swing jump. is going are XX%. to go that this I reinsurance to expect point make if But it's one it points to I to described. two start to newer again, expectation point say that going especially be lower. I not would then going expect you This up, But going volatility, to doesn't growth, it that a higher, sure is we slowly let's and a could and incrementally would up that not to be will It's in to lines, potentially could ticking call XX% would quarterly be my from, see then just keep this range and we continue So continuing like the quarter. use that in it, go on one underwriting

Mac Armstrong

just point I to things. if of would couple Chris add a a the at and the reiterate I'll that call. Dave, Yes, made asset

I a right ratio think attritional has book loss and our Hurricane we prominently about earthquake. Hawaiian talked quarter, at obviously, last X% most XX% of the it now the

Secondly, I'll example. just an give

loss target Our it builders Inland group has XXs. Marine the XXX%. risk of book In was And ratio in grew XXX% XX%. and around a quarter, year-over-year the that

ratio It very a good loss and ratio. XX% So good margin a well has and return. at performed it very loss very XX% a

ROI. So to accretive to ROE. the It's to accretive Chris' it's point, the

in managing especially our that would we So add that. last into about the thing participation. are And the good we new business, I we feel we segments, then as enter conservative is risk very in how casualty are

to be line potentially the of is going line net $X million with business around $X casualty average Our max million. per

be So close to off in going closer XX% seeding to cases, we high to end, is are and the the on – in it XX%. certain

what new Eric them going the into we business is Ty especially need manage getting strategies, to tools it to use over we're their these done speak, volatility, historically execute quota us, joining to people also notably go so prevent in do like attritional major can of a of want reinsurance the they gates. disruption business, out lines and on book or as most to give share but you plans, the So to in we we've

David Motemaden

as Got more coming be it. lines. as casualty you cat of load theoretically I That's the helpful. guess And down have the would well

just in to happening you of but business, just consider. of on using PG&E of to with a reinsurance feels again excess out like liability of the business given another that wondering much the had I'm one-off, there the about quarter guys happened there or in quarter, by limit by putting So are growth. from this are was what line? line how strong that taking That the prevent lastly, gross line that's of of I actions also, I guess something definitely you're guess, very thinking when terms driven sort you the premiums break any that future? reducing more And other written. out

Mac Armstrong

question. very good a A fair question, Yes.

our business to mostly point. of is other that all in at So line casualty be going this

business is mentioned, as the casualty So on net on high I $X be going we end, to – just million. our line

shot a in impactful right, account. there be that loss own not So will PG&E loss its a the from the as

at I risk think is PG&E accounts, high type the you online. attaching the high which of also a when rate look

XX% $X.X a that. a in like think it's different the have It's we out, that's online. part somewhat online, other different high rate has really a one I that There's It's risk only I rate exposure. country. pointed a million of limit. but also It

our were yes, We down or net come to true net what was like So is the around though exposure long you'll be that, probably exposure even what will story I line would probably renew half will short, about PG&E $X.X see the – we million. if account think it was.

David Motemaden

Got it. helpful. Thank That's you.

Operator

Please And line comes Barclays. our from the question. of Benguigui question Tracy your proceed with next with

Tracy Benguigui

I you get $XX time, with when wondering And your of gap? Thank include million. out guidance. a out be wanted you be of guidance with to just And quarter million now full guess fourth that did range. the below frame think, winter year you $XX previously and storms. came reference it That should better would just the then just you. I just came And not how catastrophe the include had did to at we I original guidance would the results that imply I'm I about that losses? thinking bridging if Texas Or

Chris Uchida

Tracy, can you. try that for it's Chris. bridge gap I and

the $XX the That of we a activity the the million the second did So million what part at cat to the called look when in the quarter, kept activity we in gave year. $XX range. you include first guidance

bridge there. have it So included additional now, cat you losses did this in where of are was to million we we compared $XX.X quarter. that when

the share So $XX where that's this that lion's the of losses between that to cats contributor gets it, million say, $XX.X are effect $XX That's range. call question? top now. between and The were kind let's $XX elevated. is that million, take that to But that... that, million Or – the, $XX of added call the tax our million the quarter elevated, big it, is million, where Did million, $XX slightly we down called bridge not the you to I'd And think the year-to-date is the are that $XX.X it. when on materially down answer the $XX of I biggest number. million you if taking bridge million

Tracy Benguigui

just It about I'm should does. thinking why be load. cat wondering maybe we

Mac Armstrong

think basis. came question, to cat mean, and that's the out have to in is from factored tell or experience a would kind losses What The fair not I you of you Yes. Tracy, equated four load. I just of Ida a direct just is basis. with points I we that what would an don't Nicholas it on on steady-state a we annualized premium I

our spread that you a to at. be So look something could not to year. approach try cat losses been has the directionally might ratably But across

Tracy Benguigui

bit quarter. I home in your specialty surprised question, its next may from would But and Okay. I And how your segment this this our this at super long experience be conference risk mean, said and my commercial to your basic. admitted Mac, catastrophe think at guess take a exit little was by I reduced you've way Louisiana point make risk elevated your all saw we as at that time. least in Yes. XX% you all in I exposure

the So a I guess why feel lag still longer? you I'm why decide at just market, a exit once little bit wondering would we

Mac Armstrong

I fast you hope or to policy. every have it see off you could run was Yes. as it. wish Tracy, both as basically Unfortunately, and I

on, down exit make course you decision over pick of the the wind all let's year. of policies in those to if So force just the XX, a XX, XXXX

when in had at happened we down than storm still of came less force. to where XXX left. the book your just spoke So policies were we it so we that the conference, And XX%

simple not force So market. provide out simple we're market, saying policies the it's going they new saying for write them It out a of have not to as as do in is we're you honor business, as as coverage to we're until of lapse. and but

Tracy Benguigui

Okay.

where that – So question, of my markets exited? we you've now any just in maybe last right terms those of are where

Mac Armstrong

out be XX/XX. will by We

We're through in furthest we state. because out I the Louisiana. the of probably think are first

be will one. we Texas, last the think I

come there million state, end X, but that September total million, and off policies the I be be by all to by will the, it, So of million think in would hundred December, $XX in that should $XX couple of a insured value our they call month. the

Tracy Benguigui

helpful. Very

Operator

your Hughes line Our Please next proceed the of with with from Mark comes question. question Truist.

Mark Hughes

in more in the that are what broadly terms Yeah. for Thank the on don't But but you made the pricing you this competition call, unusual touched it risk was whether excess of you. seeing seeing I those you know in pricing Mac, excess pretty dynamic PG&E and an situation. clear you're risks? earlier

Mac Armstrong

that excess Yes. it pretty hard remains I liability I mean think, space. Mark, a in market

liability filings their – We building their rates appointing in. recently professional yesterday starting talking are the and submissions a up. are broader case and And team team in to our producers get that out actually materially they are joined first to

last there hard lines. the in it's coverage were are professional prior up last the of us, But for, to For year-over-year, not especially some were space, excess classes are is say that the year in what year. they the compared business hearing can't in certain you where to XX% get because we're we that rates

into but judicious timing we like that why where account. to gives whether also overarchingly, want good, us circumstance think $X we reinvigoration almost our there on we of we're in we're to pretty XXXX. it's that the how net go in be there is a a liability, of market, integrity million So in line market, it's some going for good property excess that's pretty confidence feel believe solving kind an a of and But is we of excess or ways and I through rate hard kind maintain that

Mark Hughes

six talking reinvigoration, you ago? last versus quarter, are months say And now when you

Mac Armstrong

now you Yes, an last I'll versus example. give quarter.

XX% think All we were up Risk, in QX. I E&S,

now think at up, not more. if you're XX% I looking

Mark Hughes

Thank Understood. very you much.

Mac Armstrong

Thanks Mark.

Operator

with line your Our question next Meyer comes question. KBW. proceed Please of from with the Shields

Meyer Shields

the the If back the defined step picture, sort of, I that I equity a at diversification cat all? of net guess, Thanks. take of business context retention, does shareholders' retention we've always big of can line in change cat

Mac Armstrong

bring I think across the of the some to operation I cat other mean, the allows the I don't in Meyer, totality the does. and drive lines of us that scale. business load diversification it hope down

well lines, like earnings. quarter X% diversifying that to feel if riskier less still of maintain that a a We I want feel and of inside we will help, provide risk-free margin PLMR-FRONT especially we but inside not of to like of retention surplus expect those

Meyer Shields

Perfect. Okay. helpful. That's

but don't On the that market? inevitable is does know like an fronting answerable question, an business, if I in soft this what look

Mac Armstrong

who market it depends a for. you're – on soft In running

now right for funding MGA. are we think I

to access I think I a insurance going unrated then still soft and in for an you're to think vehicle. market companies, need fronting we're licensed a

is get know with tail the risk of But – for margins tighter taking mean us and taking remaining it carrying don't risk. that I get for may tighter some associated that cost MGAs. licensing So margins cost there or reinsurers regulatory

hold. will our I margins So think

Meyer Shields

Okay. And just recently to update I were was that nonrenew terms for policies. I they're an homeowners the fed. hoping in get of Because restricting to ability Perfect. just basically California? the wanted know relatively I And company's basically current

Mac Armstrong

Yes.

exposure. moratorium exposure geographic think guess, homeowners not lack wildfire appetite from reduce it's are driven But while companies that third admitted doesn't me, going place, by homeowners is trying that I certain excuse that I in they're because where still other put going So higher had able probably California prohibited they're far purely of homeowners nonrenewing from the their in out there to market. are to to the renewing come areas they're companies those to or mean be not are prices – That markets. be at might of that

when homeowners are So it from circumstance is they creates businesses to and actually in I state it leads in concerned precluded taking dislocation. dislocation grow unprofitable. And heightens doing still ways, a further because the carriers nonrenewing many business where think about to further

Meyer Shields

Thank you Okay, perfect. very much.

Operator

question proceed comes next Our from Pablo Please Singzon question. of the with line with your JPMorgan.

Pablo Singzon

thanks. Hey,

what's essentially raise to or bottom to to opportunity line, with to prices ago absorb perspective, month to mitigate threat? So a the news of rates an from is having customers? And California insured Is in-house prices dynamic rising and and having earth there about happening insurance a the about to was up Palomar higher lake similar I your setting costs? authority premium exposed and raise guess be the

Mac Armstrong

I'm question. that glad asked Pablo, you Yes,

what think is CA undoubtedly is is the I for opportunity an us. happening

paying So strain capacity on sustainable on gone potentially that they record the specifying CA costs. reinsurance increasing claims has based on of because

billion. are We that in circumstance. $X about We not buy

back. that $X.X about for times earthquake, for of of loss Sorry, excess noise. background limit our billion the six CA buys was

our growth have we ample So there. to capacity support clearly

five capacity. their that have paying about I have solve may again that and importantly, the for claim think worried CA how years can limit is their has said said most they're rates next double they they the And much they over books. unless on furthermore,

been potentially talk shedding of also there's so business. And them

opportunity. So review monthly market, governing The body been lends we or an by think quarterly it to that. that's of All-in-all, to market, forth on we but the by in and capitalize not proposed specifically getting homeowners basis the it's CA. put California to only plan itself dislocation, management CA in been has the are primed earthquake basis a the together well

it closely. So we're watching

there a comes We I of inevitable to the dynamic of out position that's marketing can when us CEA, change that well hopefully think but from play. are that a is more some standpoint to doing XXXX comes what we

Pablo Singzon

of for get at state California is exposure is in exposure in then potential – and was the and wondering cut property serve October, by our I I in and your is, you models? about the that contemplate All I'm biggest private type California, second flood I flood I your right. and price leave you just type. state. question you whether floods And think trying part the maybe how to to my to get talk it of a your geography northern if just trying or private sense of to events

Mac Armstrong

place a similar very California prices of that earthquake in we fact, California. we created put is we to in state our in our grid And Yes, model largest every pricing location what flood basically in that Pablo. for in California state Sure, the and the product. do that uniquely was

to we NFIP. against are rains. competitively able therefore, And the heavy were price There so

than building out also our is million to accounts. repricing which less out but doing about going work to we're extending of and claims, reform in we we The out measure performed the of in risk losses feel have attritional basically for from very we its of us. in XX%, had the light Pennsylvania, even of be production – very And good but X.X, quarter, our The partnerships, is regulatory losses had five rating ratio some is well NFIP's the in claims prospects. We Ida for that the inception-to-date flood building instance. seen state In footprint, potential the fact, ordinary. tied nothing program third loss cat flood from at

Pablo Singzon

question last the extent could me about P&C talk you then And Yes. higher sort a for just to pricing environment? not is pricing correlated with earthquake what is

Mac Armstrong

is losses Yes, Pablo, question. pricing global good that's earthquake on a catastrophe by certainly I and very say impacted national a basis. would

reinsurance So go in earthquake will goes cost up up, third if ultimately, quarter. pricing the

up two where below us margins the increases, potentially slightly quarters. to it's improve were it rates Our But steady our was still That prior X%. and some. it allows is

think, So again, corollary a a X%. And It's it is the bit on quake XX% our a up of was third win prime quarter, correlated to cat up than losses E&S was in that example an global basis. probably is of little wind. more indirect I

Pablo Singzon

Got Blair. Our Adam of Instructions] question with it. Klauber Thank with Operator question. proceed you. from your comes next [Operator William the Please line

Adam Klauber

hiring platform, new one a guys, getting up running or sense year Hi and teams, questions. just On Thanks. sorry, underwriting you've building up been other – makes two expense, it for XX%, underwriting the expense products expenses, running. almost which because

As we compared think about the think XXXX, will down you underwriting rate growth XXXX? expenses that come do to in of

Chris Uchida

call Adam, question. outlined quarter. that Chris. and it's it, expect I'll well flatten bit a this little to as would I it address it well. try think I you Yes,

we we had hires think I talk about did some new that on.

So to, add to those are going expense. call the it,

was other to seen, we half the down. has are to premium continued gross to we year. It of quarter, talked going of started this expenses first flat. year – compared underwriting have rate XX.X%. this this That X.X% it, call bit to QX invest. be earlier the little call expect, did earned decrease to up as continue We kind a to of But it, We let's to was about. come

I do is bit of casualty make the in the the rate increase the the be be not over to the expect expect at premium. with it's never dollars little the near line It's E&S a investments earned to continuing space, maybe scale I in are QX it direction we So long just right that continue overall, flatter going the to it the growing business. QX, in are top but some because we're invest. to future in going to would or – moving and it we term. in same to always

we're at that to and rate, building you're be organization all it but lower it's in our something be and because sure going when make pieces right sure still we growth make would in to looking those business sustain continue our So the have at to a we invest to things, that want we place.

Adam Klauber

Right.

there like gross look it's if pieces, it year ratio we in So XX.X%. but some obviously, your with coming are looks this at – moving around expense

down, slowed is As we'll XXXX? it in improvement the in expenses that some that more gross possible other expense see underwriting ratio

Chris Uchida

That's Yes, I expect in. think you it. where expect to can to more most would I see the come of definitely

harder even have I actually into of fronting it. the the think expense place other expense the we is lot on acquisition acquisition the an as to maneuver is go that steadier, can side right, influence a

the would well. strong the one expect side So do it on reduction ratio that come two there I help acquisition do if from or growth for of call expense, but We have I business that still the expenses. in other is of acquisition expect it, But call underwriting that it, year fronting as grows. other do to some, the pick it, the higher lines business to next, was potential as to I more over have expense

Adam Klauber

And that question. next is my

those date, bigger XXXX, whether in they are the about – think as of brought fronting, the potentially? tens millions be to like the two On could is range more we programs of Or XXXX? you that

Mac Armstrong

income $XX $XXX think And do this those if stream account and XXXX, for targeting had good fronting to is one in billion of for want lose Adam, year. that a be think I we're by goal. become we're that like $X – say to driven premium anchors, don't two could line to income stream, if we'd next million question. Yes, we risk-free fee large we million, from it then mean I We in a what will fair see what I kind Mac. A nice of speak, is are I a nice that the that. that, to so

on I – to how into and two go So we've a partners to got initial we it, we're think good we're and going healthy deliberate be very going pipeline.

Adam Klauber

always that I more that thought but in set were if could range. a and around... front be here, I correctly, mid fees Is and I And remember single-digit off little

Mac Armstrong

of good is a Yes, I thumb. rule think,

Adam Klauber

Yes. Yes.

Okay.

one And Okay. question. last

million $XX.X the year-end? is On retention. that midyear did Is come When Is that or that up? that?

Mac Armstrong

X-X.

Adam Klauber

X-X.

Okay.

guys. Okay. Great, thank you,

Mac Armstrong

Thanks Adam.

Operator

the question-and-answer over now the I'll turn call Mr. to for closing Armstrong the we end And reached of session. have remarks.

Mac Armstrong

operator, for thanks, and thanks the morning. everyone Well, on call this

participation, we As always, and questions appreciate thoughtful importantly, your support. your most your

mentioned accomplished in quarter. a we a are look we I the in lens than we commenced. think third remarks, all that my And XXXX As position quarter pleased it and prepared better especially when when We beyond. pleased with in from at exit of the I it

XXXX the across of are again, We for continue And our business. that good rest feel year to have very a beyond. breadth positive the we and in shape we outlook of and this

the as and avail days the QX now. may then themselves forward well as So we over between sharing end our of with that results look updates you to

and So enjoy Take speak soon. the to of we'll your day, rest care. you

Operator

concludes today’s And this conference.

may line your participation. this time. your at Thank disconnect for You you

Palomar (PLMR) 6 Nov 212021 Q3 Earnings call transcript