PLMR - Earnings call transcript Q2 2022

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Operator

Good morning and welcome to the Palomar Holdings, Inc.

Second Quarter 2022 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Mr. Chris Uchida, Chief Financial Officer. ahead. go Please

Chris Uchida

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

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

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

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

Mac Armstrong

good and everyone. Chris, you, Thank morning,

ROE of written growth, adjusted We our highlighted million XX.X%. XX% results. net by second gross quarter and adjusted income premium an $XX.X of strong are quarter of The proud very

Palomar broadly in Xx. our results, addition the In introduced market to quarter, during the we to investors strong financial

intermediate-term ROE a income ensure underwriting via underwriting fashion. double an maintaining and adjusted our It’s of Our that growth enough there’s also product to to objective opportunity philosophy assesses plus an in XX% business growth. of adjusted the evergreen continually doubling organic adjusted organic suite

include principles organic to, and limited key growth, build-out, by of reinsurance a anchored reminder, not continued non-binary a commitment Palomar business business, binary/non-attritional and namely Xx strategy, process a catastrophe income but conservative portfolio are technology with to As fee profitable reduction of ESG. scaling the exposure, earthquake, a loss

on and that we the firmly to have new start year. look about as are underwriting our up in investments to clear adjusted of initiatives we strategic the track results that the of lines at am I quarter do Palomar’s products four Xx pleased second made to to strong the are a outlined half we continue of demonstration the double we so year will and and everyday say growth The on of are the And the deliver beyond. how as thinking business we up executing second Palomar income. wake We ramping

we priorities, quarter. four all progress made strategic XXXX in significant second the to Turning across components

Authority. prior residential achieved in QX. strong Our XX%, residential XX% largest California is our not our at premium new grew continued for our an earthquake It gross We that and was of the strong quick line growth business million our quarter, which saw demand the organic in increased the product the changes growth offerings. to business earthquake result $XXX.X highlight record earthquake first abundantly place clear important commercial generating Earthquake those over premium equates written priority, and of our growth record in the accelerated in Notably, from is to premium year.

as the reduces the California that we in as the dislocated and will remain believe to market strong CEA the earthquake their market. Looking ultimately production continue residential exposure remains forward, homeowners

Turning to and increases. led has accelerating our capacity pullback market earthquake the rate reinsurance to hardening product, commercial

limit at book reinsurance in cover are to our also incremental we market take expense procured optimize we June well the As incremental X, to advantage reinsurance but and the the of our positioned not maintain margins. capacity constraints only

earthquake levels, strength broad-based. While in was top stellar line lines performed at the

from XX% Inland optimization growth the and all Our exposure additions. of opposed Marine year-over-year grew entirety product portfolio risk year-over-year. grew the as XX% Commercial with to nearly increases coming rate

written growing products, XXX% a commercial launched meaningful PESIC Palomar Palomar premiums and all was increased well FRONT its second on achieved our gross of premiums of second franchise amount PESIC, tracking risk. of target newly continues our growth year-over-year. professional driven million quarter million grew success E&S by of XXXX Palomar $XXX.X namely $XX.X of $XXX million. is impressive year-over-year risk still and XX% premium XXX% ahead investments Palomar earthquake, our is to casualty to FRONT our lines FRONT, best builders over build $XX commercial written premium. made million testament XXX% an course the with year-over-year. of primarily through in and have our excluding the to we Lastly, with XXXX. total the main of the generated liability PESIC’s recorded also business premiums gross monetizing sequentially a priority: PESIC, FRONT

a only our FRONT the team a quarter, to a target product Texas on was includes X. of modest from converted amount homeowners’ premium product that program in Importantly, this June

both we’ve other XXXX. reinsurers, We carriers and interest have FRONT’s with received September in launch response MGAs impressed been the and encouraged from Palomar since and

strong second we CyberInsurer with One, the further premium the beyond. the our to available of of the program. in our we and year expanded reinsurance will capacity program drive the doubling for partnership successfully had quarter, which Cowbell a remainder couple Beyond notable growth accomplishments,

to expectations. with FRONT trend Palomar a partnership the provide to a This expanded fee driver two addition, market. In program workers’ of ahead in Cowbell, of the compensation well income in initial firmly we a nice XXXX. partnership announced These with leader arrangements recently Omaha National, incremental new should positioned

in As plan to trending million premium, to premium well evaluating of $XX note that previously we remain performing homeowners to ensure inclusive managed our continue now generate million FRONT, individual managed which Texas agreements between fronting to the million next approximately $XXX to are this $XX months. over ahead we perspective. collateral can and believe an of they announced well million of underwriting the to our grow adds from we $XXX of year, generating business, that disciplined Palomar and Pleased $XXX generate premiums of fee million XX we we’re

profile this to predictable the our years In X we on consistent implemented over delivering third share reduced the transferring transitioning a by Texas the the aforementioned Palomar actions specialty we fully directive. of ensure to homeowners confident business further underwriting past the in priority, premium the reinsured earnings Moving quarter, to in quota remain foundation facility. the in-force built second a fronted strategic risk fronting and will arrangement,

to capital program. as on our support and well is Additionally, placement. critical model we approximate exposure Xx renewal, expiring program compared successfully To component June risk to a our X X% our basis completed rate our business premium are as Reinsurance a framework, X supplement XXXX our with to growth. reinsurance recap Palomar increase risk-adjusted we and the we as our June pleased our to crucial experienced an

period partners. as the while $XX.X maintained occurrence million pricing reinsurance to per in by as to for we exceeded premium its our costs hard the results our perils million driven was compared by The industry earthquake portfolio and successfully action retention, our Palomar’s $XXX efforts of While outcome was program loss inflation, by our limit securing favorable expectations, maintain profit incremental and DMAS market provides XXXX. losses to are and more order strong the of any as encountering market X even ‘XX. a associated reciprocal received and considering with impressive to well XX-T impact These industry Continental of June the accomplishments rates to challenging the reinsurance accepted reducing secondary the realign market a U.S. Despite increase hurricane margins. that headwinds hard broad accordingly cost exposure renewal cover other since

business. we price rate utilized While the on we lines historically to have increases specialty our across on filed increase rate attractive broadly, have and portfolio reinsurance renewals drive rate increase received our

our We actuarial operating our and support drive. continue to growth priority made progress in Our hires earnings and to is scaling we attract expertise as analytical, key strategic fourth call considerable our noted platform organization. our quarterly technology last the with developing

our and by offering Palomar enhance to further that updating you standpoint. adding platform services. a industry-leading point, we efficiently infrastructure benefit we are our to what a atmosphere fosters tactics underwriters from entrepreneurial At the seeing by talent our on technology and expertise, pricing products in market has I’d minutes notable further As new in to advantage and like consistently this a competitive development innovative few deliver spend our provided

a commercial In of X% with specific sequentially accounts view quarter X% for of increased to basis ‘XX. business first continue increase. rate earthquake, the levels increasing rates We accelerating compared lines composite the to all to on lines large the of average across in

We this the expect of for hardening further of remainder ‘XX. business line

As to all-risk business previously the conveyed, rate. as in exposures our are generating not E&S grow we growth we significant are from looking

we of the increase experienced than rate composite a business, quarter. this greater line in For of XX%

the broadly costs and any increases expect improved market see continued we persists loss future. combined to the continue We rate and with cover the property a increase conditions dislocation minimum, at terms a market will, in foreseeable as for reinsurance hard in

to we pertains audits risk inflation, construction on to labor. in builders data, use monthly leverage basis perspective and addition projects that cost rapidly the inform our on of third-party the it a license to As of program our materials

produce underwriting X rate factors incorporated value into our have to to insurance accommodate increases We inflation accurate these to levels. appropriate and

is X% this approved increase in covering year. now is Hawaiian inflation the insurance we Hurricane underwriting. of had addition earth, inflation our have loss focused on inflation the cost by base historical our to and an that a residential increased X% we X% quickly in product Again, the We’ve incorporating to in guard For level guard also from state department rate a X%. into remain acutely our that

getting similar development in nascent that But liability to provide the generally casualty therefore, X% of approximately commentary our remain to lines increases XX% increase. casualty average for business. we’re stage don’t property lines of highest pricing speaking, and their having excess rating with Our

million Turning confident, growth two, our generating we’re we remain funding robust liquidity our our and for to program; two-pronged multiple $XXX from premium deployment: cash our provide repurchase share the growth adequate capital strategically initiatives. one, earnings utilizing capital allocation,

To Xx. second shares conclude, During in progress year company half of the of Palomar the million. the the firmly made $X.X cost the a of to approximately path quarter positions the purchased look as XXX,XXX we quarter, in the second we total at

equity ROE We factors range million in are adjusted to and range. where on million securities guidance the investments in growth This The XX% talent excluding to and reiterating reinsurance, range cost of XXXX, systems, $XX a maintenance $XX unrealized infrastructure, loss for the $XX XX% $X.X of and full at an the year-to-date. implies projected adjusted losses level guidance on net of of generate when year additional of current year-over-year between this equity. the of we representing million of million income, importantly, at million $XX midpoint unrealized expect

reiterated With that, So the to the of results in $X million I range our to call will actually guidance QX. detail. essence, discuss over a Chris from in in the is offered more raise turn

Chris Uchida

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

calculations the adjusted We accordingly. have

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

per Our $XX.X $X.XX or million $X.XX was million compared same net per income XXXX. of share adjusted adjusted income quarter to of share net for or the $XX.X

quarters it’s remember first As had we prior the results, Winter XXXX. year the Storm important second on our compare of the impact results to for Uri to and

XX.X% premiums quarters resulted ceded in first XXXX. in first were additional losses written reinsurance prior second to XXXX, incur net compared and did expense favorable of $XXX.X the Gross million, for quarter. second of written of Uri premiums year the increase second While quarter an quarter the the or we in

were was XXXX. year of premiums increased quarter. combination representing environment June quarter a the XXX.X% growth premium additional reinsurance to written across lines gross strong XX.X% business fronting Ceded business by million, to XX.X% the in increases of the by increase ended from primarily written subject of premiums This from share driven percentage XX, and for of $XXX.X of XX, to was months Fee quota driven rate compared growth second prior increase due and for volume our June a XXXX second an our consistent products. Our X favorable X the loss. as ended months written

written We percentage of fronting better decrease primary last business business in is to versus the the included earned gross was the metric year our Europe. for offset slightly the the ratio to by catalyst to quarter. our growth was gross an to that low premiums premiums second growth the ceded anticipated, earned net premiums impact for believe earned were this increase, written ratio As compared of higher of net second gross of a assessing under higher offset written compared $XX.X premiums premiums. of written the quarter increase by agreements. premiums million, earning XX% This in increase of due of year reinsurance the to prior the Net and earning premiums

and to XXXX XX.X% net compared earned to as the a quarter quarter gross XX.X% of premiums percentage quarter the compared in were sequentially second earned of premiums the of XX.X% first in XXXX. For XXXX, second of

with expected $XX.X business bottom annual add transition and ratio could the is business. this ratio The million, $XX.X loss XX.X% below fronting XX.X%, book an loss quarter and quarter indicated, incurred made Losses ROE fee for up the loss The expectations basis, previously enhance income development of the homeowners and though consistent will catastrophe our ratio the As line $XXX,XXX. quarter million the specialty in of unfavorable attritional of for were adjustment of X.X%. and expenses Texas that comprised a loss of of model, period launch on loss to especially the book our evolution attritional overall an of our second with ratio our losses growth we of the will push and was of of fronting XX% catastrophe ratio loss the line. for and prior

We for should loss attritional continue to the year. XX% be believe around that ratio the

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

expense in of The in the our the improvement the business XXXX by percentage acquisition to of The are XX.X% Our the to second overall as expense, that netted in of quarter second earned of in of other in XXXX X.X%, additional quarter ceding to the of funding was our the gross premiums of an for XXXX. compared within the driven decrease of compared to and acquisition adjustments or and a quarter for earned XX.X% premiums compared compared business. commission XXXX of second sequentially ratio fees X% XXXX. XX.X% XXXX changes gross to quarter expenses first second and underwriting quarter was quarter mix excluding was from XX.X% funding first new

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

reverse may investments the quarters. those coming in flattening a in ratio result However, the of

quarter combined of XX% to ratio Our was the for XX.X% quarter XXXX. in second the compared second

underwriting underwriting adjusted our metric XX.X% future new most indicative operating combined Investor for calculate Xx. to underlying represents adjusted adjusted out evaluating and Our dollar a underwriting we second to We believe for are was XXXX. ratio. adjustments the That is income on the the the Day, in adjusted combined the business start for inverse ratio. quarter of Palomar similarly of of income. XX.X% second is ratio metric back our at introducing trends, Palomar adjusted the with Xx Reflecting results quarter outlook. comparable metric that shared that philosophy, that financial be we compared combined income may our underwriting not We adjusted the income We

$XX.X was million Our second quarter last year. to adjusted income $XX.X compared underwriting million

generated due the million, cash quarter Our primarily XX, underwriting Net slightly operation held million an quarter. to of year-to-date was on assets. prior the was the second to was The to income compared higher invested June and XX.X% increase average million months year. year X year-over-year income investments XXXX, ended from second adjusted due higher $XX.X compared $XX the balance to for of yields during increase last $X.X the by investment

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

million prior the of $X.X we in For gains the recognized to of investments on income second quarter, the $XXX,XXX statement compared second quarter. of consolidated losses year in

to our on conditions. investment Exclusive losses from in conservative investment portfolio continue recognized market a expect to do the yield the quarters our gains quarter-to-quarter. gains of foreseeable and impact will take we may approach, We improve which based losses, current and

yield exceeded Our the second investments quarter. on our overall made blended the yield quarter for in

the quarter to Our XXXX. rate second for quarter the effective is XX.X% compared XX.X% second of for tax

the rate rate For the exercising non-deductible options of due the second stock tax quarter the of during expense. compensation quarter, partially executive the from offset XXXX, statutory to differed by

we During X-year total under purchased million a $X.X shares announced XXX,XXX $XXX repurchase million our program. previously the for of share quarter,

million program. authorized under We the remaining approximately have $XX.X

an execute share continue at we current business supporting in growth and is framework investing discount deliver to to on lines and provide progress will a remain on Palomar repurchases to our strive focused program, to we While the we opportunistic share as price our take under trading view we Xx. of the approach and this

We our and to and sustainable long-term in strategy growth achieve are confident earnings. predictable

inclusive changes million and at XXXX. of XXXX, million portfolio compared the was XX, unrealized equity at December our investment stockholders’ $XXX.X XX, to share June to Our $XXX.X buyback

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

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

we June stock do We XX,XXX,XXX this fiscal number using of anticipate As treasury XXXX, diluted not a calculated method. XX, during as outstanding the remainder the of increase year. to the had shares material

these $XX to unrealized holdings. adjusted are net include for unrealized Consistent equivalent XXXX, $XX previously year-over-year $XX million estimates at $XX losses million reiterating guidance major year, the catastrophic do excluding security to the of to provided not million previous XX% growth our on events. range This and income is including range. equity of For range pre-tax midpoint of adjusted we the gains representing losses income net guidance, of million, million, $X.X of the any losses with

continental reminder, a to The a updated adjusted annual XX, projected were net exposure. AAL, reflect completed model. net open that, average approximately our XXXX as [indiscernible]. of income convective AAL specialty of we in expect guidance As ask to or like assess conversion our I’d our U.S. placement The recently loss to questions. win Operator? metric any needs and industry fronting the for September and the reinsurance hurricane severe operator storm homeowners net continental $X net business Texas AA; business the line to With million

Operator

question proceed Benguigui Please Tracy Instructions] of your with with [Operator Barclays. Our you. comes Thank line from the first question.

Tracy Benguigui

Thank you. Good morning.

so You of tracking net year, the XXXX achieved you $XX at but over million million, first behind. reiterated of just this half adjusted if $XX I your be income to of seems to outlook $XX it million look

So than half? half are the the of to expecting you year first be the second better

Mac Armstrong

exceeded I and we course is growth, hit place Mac. put guidance lot obviously year. the date to this the that embedded is them. is over Yes, targets in the of we’ve right, There and a Hi, of this Tracy, mean, our

locked premium losses or hitting if It’s million like our the for million out from million unrealized seasonality. $XX and So very about we $XX $XX earned just $XX and to are the the good premiums things securities. how some as ramps the you the in, back the reinsurance feel expenses to

Chris Uchida

the call The thing the and your at year. you’re losses the to of half add what tax-affected million, you XX depending Yes. right, you in, it it’s million of midpoint those on $XX point of around you on when to the only second put back $XX I’d and that the math is, that, that, either do Tracy, starting ranges, look about one in if unrealized

we So the growth about feel with seen top numbers, especially good in those the line. pretty we’ve

Tracy Benguigui

million Got to do it. million more Palomar $XXX to is capital $XX ROE $XXX million I FRONT target critical from to a in guide? XX% this be guide or Could your And need your you light million And line. your $XXX accretive more revise also scale ROE premium. recognize you to raised volume to

Mac Armstrong

of Day, XX%, think Tracy. mean that that is from that, light. when that it. XX.X%, above and at It the maintain good provided, Yes, We a to growth frontage homeowners of right very our And I not business that a portion have that to from quarter got you indeed we book on there a goal our continue as think position Investor Palomar of that coming us visibility an revised I we form good we’re factor FRONT adhere relationship to we the put build Texas is threshold. at capital we to especially outlined existing business. pass range if are is does the and we’ve in an ROE to this transitioning and trying in in to is uplift

yes, to the revised ROE, have long-winded good we provided the on visibility accretive that think is of So very you. and range way it we saying, I to

Tracy Benguigui

Thank you.

Operator

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

Pablo Singzon

Hi, thanks.

I have benign is So $X hurricane it referenced, been this SME concentrated basically of second for season, that or that assume cap million, loss this reasonable be think you year. that that you year? Would had the so be materialized so to losses should average half far the in

Mac Armstrong

the AAL that for Pablo, Yes. Continental is hurricane. is

tends So to third that to November X more quarter. during it would be it season be the runs in X.X basically wind but

out XX in comes and XX, the of peak homeowners post that’s important September that of number September from that’s that based lot give that I be point it’s we book is should season runoff. to wind the you that the specialty because think date on declining a

policy how looks state, a policy, by that that schedule comes state So down. we by have

into start year. that so down X, and number next to will obviously actually X October December tick And

Pablo Singzon

Got fronted, that fully it. year would go we dynamic, Mac. off you for to how as basically that this that And is Is follow-up meaning it business even that book it will to take just should Texas being work year, same well? the comment, attach The the entire risk on the everything June through though be there?

Mac Armstrong

no, No, that’s share. are good to you quota it’s asking question, into a for thank us Effective worth clarify. X, risks and always and transitioned June all the that,

say, provided X. we do for ostensibly So that in are by above the our off-risk we theory, reinsurance off June in quota risk share we facility, But are, have which program. effective

Pablo Singzon

Got Obviously, you’re me. I having think view XX% the last implying in I it. on this for a for your ratio good. wanted a year, loss And loss And the year. for you one see quarter ratio pretty if the comment to XX% is follow-up about the half. pickup the the of second

Thank guess, what So drive from that, you I your sequential speak I there, here? was just deterioration to expectations could wondering will you. if

Chris Uchida

I No, a view don’t Yes. it as deterioration.

numbers of that for said it’s kind hitting we’ve to kind for the beginning or the calling be always on We’ve I to XX% year. what that’s going think of XX% range. guidance the guidepost provided of

XX%. obviously with ratio quarter. We this a We’re loss lower happy hit

That book book of the written the is loss business, also about by fronting XX% overall business represents of binary still our premium. of book by Our of business. and the anchored now ratio

expect with do overall that’s we and runoff homeowners’ still of book the XX%. loss around specialty non-Texas, But So do to hover of book and that the see the years the periods. we nicely the that developing some over ratio coming

or comfort So be Yes, could range. XX%? that it would be our within XX.X%

So comfortable that out of the that pretty XX% But lot. for the gave that of we’re and think year to beginning we run from that to remainder said pick we We’ve a don’t going with it’s sticking at overall, us. away XXXX. the

Pablo Singzon

the answers. for Thanks

Mac Armstrong

Thanks, Pablo.

Operator

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

Mark Hughes

afternoon. future? your were authority, you not? I in be the by thanks. the you said Yes, earthquake impacted will you And impacted Good the think CEA. Mac, not Why about point

Mac Armstrong

ostensibly bulletins a it that it’s buying have great has They question. down it Mark, changes they and are kind into in have in the to not is, programs sum out place renew. they making. billion put XXX, X certain Yes. which out time. reductions moving X taking around in expire rates put And the in letting of from real reinsurance, as a raised That’s reduction limit of stated coverages, they’re They potentially have very certainly P&L. substance about public that $X.X is yet the and modestly. gone place less in XXX They’re CEA reinsurance

been dynamic where they And so there policies. or say but impacting for a now, changing been I it’s us, catalyst a it’s marketing are us hasn’t okay, when coverages not shedding

catalyst. probably So bigger that other we frankly, big continued market. the has that you’re is network. impact it’s the is has a market, to build it continue dynamic That What seeing think in insurance in the runway been been California today, been us, a what catalyst for has the bigger us. the dislocation And that’s distribution residual activity frankly, I and homeowners for of the state wildfire that on the our

getting X% year-over-year, and Partnerships traction residential was are distribution Our XX% or further up in California network outside. quake over in sequentially. X%

So it changes that has the don’t just been to not potential driver the from want I diminish would think CEA. yet, say a positive. I is which a material I

Mark Hughes

about Okay. Could you demand? bit what’s that, weight in going on competition, What’s that? And capacity, commercial little of business, you then saw driving the more in a talk acceleration. terms

Mac Armstrong

Yes.

capacity The from cost to of did Rates some we is large There see reinsurance limitation. in ticked X% up instance, accounts, for X%. up. some So went acceleration.

increase rate was the X%. up on Our reinsurance

recover X% is renewal. if June an emphasis, are X I for to to think And the Now, X% at doing you isolate the same. on us, but trying to quake, probably was there least up closer costs that post it internally, in others loss

especially integrity if is of X% may you’re And So were. being than rate an all-perils need the quake there’s loss-free if buying like think on it even the basis, costs. reinsurance of rate be recover we luxury have I increase tower loss your more market-wide, your majority and to the our we

or grow optimize dynamic. limitations frankly the side, capacity is created book a pull at There on time, integrity. the we unique commercial rate think is can a there back where the think circumstance we which is and I it’s and So, same

Mark Hughes

the And report that disclose you Chris, fronting you or fees the quarter? did generated in

Chris Uchida

Hey Mark. something No, we that is have disclosed. not

ceding speaking, talked that have fronting expense. We is of of fact calls we about talk to it always but commission about X% fee And risk-bearing be previously, the net all the premium. going about that similarly the as that premium. acquisition generally earned do our fee fronting We the through we to on our

see with in can quarter from up it basis acquisition expense a this continuing was in trend this the to XX% on about XX% that It up go showing gross you QX. down. So, quarter

So, and from as the the up use expense as other reducing and that heavy losses reinsurance, we attritional fee even and our showing ceding of fees where with is still income lines quotation operating everything business our expected. is we fronting expected commission, acquisition

Mark Hughes

I of look inflation how about monthly area, liked get inflation costs at When you of and the an to in liability, you basis. your a or auditing the excess keep Mac, potential business? we on try comment on keeping front line are in replacement that an do eye how eye construction values in

Mac Armstrong

Yes.

have we the Investor that Fortunately, you got Day, I with at visit leadership chance have Mark. seasoned think to

portion trying think that that frankly. of there loss what and are costs activity informs as small how we a the reopens, and that informs really management watching and what what is how pricing, It’s court I claims we do. see, to court portends

from And underwriting standpoint. approaching we it so an how that’s are

management using we, I the side a the for are risk that quota other as reinsurance. frankly, share is think tool

around program. we if writing for line, average, XX% we are excess a depending $X are, the So, liability, on million on

So, or risk. of XX% XX% we are the either

manage trying that it tools there are eye also need income as way the we on just It’s underwriting and tools certainly claims an isolation, get we as is fee book in to individually, we and keep well then referred that So, something management grows. to. to as that that

Mark Hughes

you. Thank

Operator

of your Our Evercore. David from next question Motemaden the with Please comes question. proceed with line

David Motemaden

that the favorability roughly there attritional any the XX.X% I the quarter. or loss the for during you Texas versus guess pieces to moving fronting I benefit have afternoon. Good arrangement? – Texas was month Thanks. any moved specifically am of drove the And level there, had year? the guided a a there had you Hi. wondering tangible one in if you that ratio follow-up about to quarter benefit from the Can full the in removed I talk XX% that on

Chris Uchida

Yes, year that’s will development a ratio of great development. components the it, $X.X The key - question. was call prior loss that Dave, current year are, of about favorable was million I about

period. generally talked we loss we into when are we the up the conservative we So, past have on in that a set always about how ratios go

a amount, have back there. favorability of it did but we a $XXX,XXX. bit come wouldn’t material I call it it little into about So, was

development let’s XX.X%, with was bit call favorable that ratio loss the current call So, XX.X%-ish loss little let’s ratio current it, higher than it back year was out. the a the year

say So, in that’s I would expectations. line our with

to in fee got season still again, then business. the As quarter, of quota is of storm that months see operating homeowners as you But over next shares some convective still Texas we expected the did And as going into homeowners and that something the other is then business. earnings first that’s two XX that’s book and the deliver there which future consistent there, to that kind profitable from a most line. it’s for turned for a front heavier period for of months book the our run do be off. specialty little all able being fully the book benefit indicate, in into But is moving a Texas part and into front severe of bit

Mac Armstrong

an more is for book ‘XX, the of it, was $XX that specialty around astute think, XX% line of end prospectively, the at really David, you is that of call million I of, that make homeowners business observation it book. the But

so over loss and And And little it’s cap that’s a obviously that bit a the the it’s front. either a winding down year ratio to converted has course of exposure. the higher or was

we can think year think on more positivity of based gives hopefully, upside some And estimates. we maintain XX%. us prior that conservatism the adds So, I in to more on just why turn and is there stability confidence which

David Motemaden

helpful. Got That’s it. Thanks.

to And feels is from a loss arrangement. attritional way interpret ratio to it like the of fair the question somewhat that so But might moving fronting an yes, the and Texas assume? follow-up I I obviously well. is volatility a from Is book as benefit guess there guess I be removed that that

Mac Armstrong

is. It Yes.

David Motemaden

it. Got

sorry, at that And, favorable losses. that where the specifically, development that you Okay. Could was you was attritional had, the elaborate $XXX,XXX just on what line?

Chris Uchida

Yes. No, on it attritional I the was think losses.

So, the we call XXX it, had unfavorable caps. XXX favorable on let’s attritional on and

whether would quarter. It’s well I on the across the components stood really And From table. flood, out the sticks being of quarter, number so really the inland So, be the there capability. board very also marine, attritional developed theme upfront. for really on all was our lines it homeowners, the two that standpoint, with this are with we it nothing well this it was a business, the of specialty think we happy almost those quarter It all it. at lines breakeven conservative or in performed are look

this did we development. So, the right, out have cap that Nothing kind or would saw there. systemic that bit on issues on unfavorable little the nothing call And surprising development that are a side, arising quarter of in we or play I there. of then digging

reinsurance you our because as for to standpoint, our cap, they that be into from results a go or recall, results. not are larger caps financial move move has they really to and the events impact smaller the the impactful If up tower so it guys our down,

not not getting it’s closed that handful it, out. that of poorly, a claims claims move. events developed on smaller these call closed a it’s giant small getting is but So, This just are, just large are out the and

Mac Armstrong

the mistaking, of that from admitted the runoff. is not am if of XXX, that not RS I it the majority totality if book Chris, And was

Chris Uchida

Yes. correct. is That

David Motemaden

Cowbell maybe that that. I decided great retain two have to it. so? arrangements, you standpoint, on management guys Thanks And of from about California the those upsizing how can just if risk Got of and a then comp, And two relationships? That’s thinking any color. if fronting for I the are workers’ ask then guess, the you

Mac Armstrong

Yes.

going are we So, it’s to take And a X% amount. on program. the modest Cowbell

diligence, well, able have have basically a since said, right. we do along, have we all this due use We – to of I been it, form as as like

ability as a or chance is if to then have elect take a learn segment to We a will there and partner to the not. risk, fronting we

X% around there. And So, a we the on comp, did take then as workers’ it’s X% elect participation well. to

David Motemaden

you. Got it. Thank

Mac Armstrong

David. Appreciate it. Thanks

Operator

Our your question with comes next Please with proceed from the line question. Han of Derek KBW.

Derek Han

Hi. Thanks.

had just your can by because carrier the the on side on results and of partners are they growth Insurtech pulling comment profitability? you So, quarter, also impacted you in really but just being rates growth back poor personal curious strong as focus increasingly if

Mac Armstrong

the customer broader product with Insurtech their What been to some at So, about, they them a talked would quarter the think part question. earthquake think and rate certainly back, it’s last market side, we in businesses ability Derek, more acquisition, on it the that has I than around is have a in than personal I and California homeowners’ contributor. say dislocation historically of well. X.X and the complementary so thanks homeowners the seeing are that’s been nice say of provide our pulling theme fortunate. I for us giving then more that’s good out or at over option of are a lines suite. very a and the it’s Insurtechs, partner we carriers residential have this market, E&S really are And going the would we we write as years. the higher we E&S pronounced more we We

seen them anything can’t been speak yet channel to how from standpoint. I of us. a they We are terms good production a for not underwriting, but retrenching in have it’s

the we certain like as to want I now to initial and are say into to partnerships the to the to example beyond either with trying the we carriers as trying cohort. their we to that enter around thing rider are where in the one other manage continue state. an And an execute states continuing with in market the dialogue E&S broaden So, relationship California is, states who have will are partnerships Travelers have performed move or exposure

a partnerships channel pretty remains active for So, us.

Derek Han

quarter. question That’s it. are on you that you inflation. your then largely looks raised my second maintaining It last Got And is helpful. loss trend assumptions like

that a lot how do about the So, assumptions? of you holding comfortable raised half carriers of feel trend loss second this their year in kind as have of

Mac Armstrong

Yes.

It have third-party we audit we have ITV with which we risk So, where, starts of of and I tools comfortable where of cost. get the inflation predominance that the I the especially the making think square we the we policies sure cost a it’s large on three-pronged replacement that And approach the we feel property get think value a builders’ do book what somewhat And book. of foot. our and and host real-time inflation. it, is with to taken we reiterating the side, of worth again, the leveraging assessment appropriate plus luxury per have replacement a that’s in to

Two rate be one. is would and that’s inflation change. So, a then three the guard

Hawaii use of example. the State So, I as an will

now an X% up X.XX%, the We will X% obviously through furthermore, we And to a that have and increase. ITV I we are exercise round renewal rate And getting have then secondly, inflation then right. going guard policies. on

we program. cost and multipronged to loss approach increase that of. rate Listen, think to off I X% that on our take need it, We our good have of margins. top ball. a So, stay can’t but it’s some had doing are maintain cover to job on reinsurance then a eye we the we And our a we

Derek Han

Thank Okay. detail. the you for

Operator

queue. questions further hand no I the Mac are There in over back for would to closing call to like Armstrong the remarks.

Mac Armstrong

proud quarter second would conclude, support. am – the work as your they questions and thank continue to this I employees their really for all progress want this you, appreciate operator. quarter. to and thank To results a us our join of of Well, everyone, initiatives. We hard strategic on did all job XXXX appreciate are morning. able dedication participation, of achieving all Great. I and the execution thank rather, in of superb who like most and to I We you, our your our that

have We strong delivered consistent growth.

and combination Xx. of we The the really We execute the ultimately that’s new see. Palomar continue confident very ability better-than-industry shareholders. investments the to to you what our it made our adjusted deliver that predictability position have underwriting strides what do to in average the well ROE. organic I made considerable our to double And translates enhance Furthermore, value and growth will earnings organization. our on of for investments, think we and monetize remain income And business is us the scaling

the thank all, rest So, to enjoy will and day, you of quarter. you speak the next and we

Operator

this teleconference. and Ladies you your participation. for conclude does gentlemen, today’s Thank

and time this at lines wonderful your have disconnect day. may a You

Palomar (PLMR) 8 Aug 222022 Q2 Earnings call transcript