Palomar raises 2025 adjusted net income guidance to $210M-$215M as crop and surety scale, following 44% premium growth

Earnings Call Insights: Palomar Holdings, Inc. (PLMR) Q3 2025

MANAGEMENT VIEW

* CEO Mac Armstrong highlighted "record gross written premium, record adjusted net income, the 12th consecutive earnings beat and our fourth adjusted net income guidance increase in calendar 2025." Armstrong stated all product groups except fronting experienced double-digit growth, emphasizing the portfolio's balance and resilience through insurance market cycles.
* Armstrong announced the acquisition of Gray Casualty and Surety Company, describing it as a move that "meaningfully enhances Palomar's surety platform, bolstering our market position and complementing our existing operations." The deal, valued at $300 million and expected to close in Q1 2026, will be financed through a new term loan and excess cash.
* Armstrong reported, "44% gross written premium growth and 70% adjusted net income growth," with an adjusted combined ratio of 75% and adjusted return on equity of 26%. He also noted strong segment performance: Earthquake grew 11% year-over-year, Inland Marine and Other Property by 50%, and Casualty by 170%.
* Armstrong indicated crop gross written premium doubled to $120 million, leading to a revised full-year crop premium expectation of $230 million for 2025. He outlined plans to build the crop business to $500 million over the intermediate term.
* Armstrong stated, "We are raising our 2025 adjusted net income guidance to $210 million to $215 million from $198 million to $208 million, the midpoint implying an adjusted ROE of 24%."
* CFO Chris Uchida reported, "For the third quarter of 2025, our adjusted net income grew 70% to $55.2 million or $2.01 per share compared to adjusted net income of $32.4 million or $1.23 per share for the same quarter of 2024." Uchida added, "Gross written premiums for the third quarter were $597.2 million, an increase of 44% compared to the prior year's third quarter."

OUTLOOK

* Armstrong stated, "We are raising our 2025 adjusted net income guidance to $210 million to $215 million from $198 million to $208 million." Uchida reiterated, "Reflecting our strong operating results for the first 9 months of the year, we are raising our full year 2025 adjusted net income guidance range to $210 million to $215 million."
* Armstrong noted that crop premium guidance has been increased to $230 million for 2025, with a long-term goal of $500 million. He also stated, "We remain confident in building the business to $500 million over the intermediate term."
* Uchida shared expectations for the net earned premium ratio to be "in the low to mid-40s for the full year, a slight improvement from our view after the second quarter."

FINANCIAL RESULTS

* Uchida reported third quarter adjusted net income of $55.2 million, adjusted underwriting income of $56.7 million, and an adjusted combined ratio of 74.8%. Gross written premiums were $597.2 million and gross earned premiums $518.8 million. Net earned premiums were $225.1 million, with a net earned premium ratio of 43.4%.
* Losses and loss adjustment expenses for the quarter were $72.8 million, with a loss ratio of 32.3%. Uchida noted $6.1 million of favorable prior year development. Year-to-date loss ratio was 27.7%.
* Acquisition expense as a percentage of gross earned premium was 10.8%, and the ratio of other underwriting expenses was 7.9%.
* Investment income for the quarter was $14.6 million. Uchida stated, "During the quarter, we repurchased approximately 308,000 shares for $37.3 million under the $150 million share repurchase authorization."

Q&A

* Jon Paul Newsome, Piper Sandler: Asked about the surety market opportunity and competitors. Armstrong replied, "We are really excited to bring Gray Surety into the organization...The combination of the two affords us greater regional expense." Armstrong described plans to reach top 20 status in surety by expanding reach, cross-selling, and leveraging balance sheet scale.
* Newsome: Asked about the Crop business's future growth potential. Armstrong indicated plans to reach $500 million and ultimately $1 billion in premium, driven by service, technology, and talent investment.
* Andrew Andersen, Jefferies: Asked about catastrophe assumptions in guidance. Uchida responded, "We do include mini cats in our loss ratio expectations of -- now we've kind of updated to be a little more favorable around 30% for the year."
* Andersen: Inquired about commercial earthquake rate deceleration. Armstrong said, "You're going to continue to see a softening. But...the health of our residential earthquake book and the softening property cat reinsurance market is going to allow us to grow book top gross written premium in '26."
* Mark Hughes, Truist Securities: Asked about net-to-gross ratio trends. Uchida confirmed, "We think of the third quarter as our low point for the net earned premium ratio...we expect the net earned premium ratio to be at the low point in the third quarter of every year and then going up incrementally from there."
* Meyer Shields, KBW: Questioned underlying loss ratio expectations. Uchida stated, "We expect the loss ratio to continue to move up...but overall, we feel a little bit more favorable about where we did before."
* Pablo Singzon, JPMorgan: Asked if net underwriting income could grow 20%-30% annually. Armstrong agreed, "I think that is an accurate way to categorize it."

SENTIMENT ANALYSIS

* Analysts focused on growth sustainability, guidance assumptions, rate pressure in commercial earthquake, and loss ratio trends. The tone was probing but constructive, with questions targeting the durability of premium growth, catastrophe loss assumptions, and the impact of portfolio mix shifts.
* Management maintained a confident and optimistic tone in both prepared remarks and Q&A. Armstrong and Uchida reiterated guidance increases and highlighted diversification and risk management. Occasional caution appeared when discussing rate pressure, but overall, management expressed strong conviction in future growth: "We remain very confident in our ability to achieve the Palomar 2X goals."
* Compared to the previous quarter, analyst tone remained probing but less focused on competitive threats and more on execution and scalability. Management's confidence strengthened, with repeated emphasis on guidance raises and multi-year growth vectors.

QUARTER-OVER-QUARTER COMPARISON

* Guidance for 2025 adjusted net income was raised from $198 million-$208 million in Q2 to $210 million-$215 million in Q3, with the midpoint implying higher growth and ROE than previously targeted.
* Gross written premium growth accelerated from 29% in Q2 to 44% in Q3. Crop premium guidance increased from $200 million to $230 million.
* The tone from management was more assertive on the sustainability of growth and diversification, supported by the Gray Surety acquisition announcement and increased confidence in crop and casualty lines.
* Analyst focus shifted from competitive pressure and rate declines to questions about organic versus M&A-driven growth, execution in new business lines, and specifics on expense and loss ratio management.

RISKS AND CONCERNS

* Management noted persistent rate pressure in the commercial earthquake segment, with Armstrong stating, "We do not believe the rate pressure in commercial earthquake will ease over the near term."
* Uchida addressed the exposure to attritional losses in rapidly growing lines, confirming expectations for the loss ratio to trend upward but remain manageable.
* Analysts raised questions around growth sustainability, loss ratio increases, and the integration of Gray Surety, but management indicated strategies to mitigate volatility, including conservative reserving and disciplined reinsurance placements.

FINAL TAKEAWAY

Palomar Holdings delivered record top and bottom-line growth in Q3 2025, increased full-year guidance, and announced a significant acquisition to expand its surety business. Management emphasized the company's diversified product portfolio, ongoing investment in talent and technology, and commitment to the Palomar 2X growth target, highlighting the expectation of continued strong performance through the end of the year and into 2026.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/plmr/earnings/transcripts]

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