Palomar Holdings ((PLMR)) has held its Q2 earnings call. Read on for the main highlights of the call.

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Palomar Holdings’ latest earnings call struck a confident tone, with management emphasizing record adjusted earnings, strong premium growth, and successful expansion across key specialty lines. Executives acknowledged rising loss and expense ratios and competitive pressure in certain markets, but stressed disciplined underwriting, conservative reserving, and proactive reinsurance and capital management as key defenses.

Record Adjusted Earnings and Guidance Raise

Palomar reported adjusted net income of $63.8 million, up 31% year over year, or $2.36 per diluted share, a 34% increase from the prior period. Management used this strong performance to justify lifting full‑year adjusted net income guidance to $270 million–$280 million and now targets an adjusted return on equity near 26%.

Strong Top-Line Growth

Gross written premiums climbed 27% year over year to $630.5 million, reflecting momentum across the specialty portfolio. Net earned premium surged 59.5% to $287 million as recent acquisitions and expanding lines flowed through the income statement.

Robust Underwriting and Profitability Metrics

Adjusted underwriting income reached $67 million, a 38% increase from a year ago, underscoring the profitability of Palomar’s niche platform. The quarter delivered an annualized adjusted ROE of 26.3% and an adjusted combined ratio of 76.7%, firmly in the mid‑70s range management views as attractive.

Crop Franchise Expansion and Technology Launch

The crop insurance franchise was a standout, with gross written premium up 96% year over year and full‑year crop premium expectations raised above $400 million. Management highlighted PLMR.Farm, an AI‑developed policy administration platform, as a key differentiator to scale underwriting, servicing, and claims in this fast‑growing segment.

Rapid Growth in Surety & Credit

Surety & Credit posted gross written premiums of roughly $39 million, a jump of 236% year over year as the Gray Surety acquisition was largely integrated. New excess‑of‑loss reinsurance arrangements support bond authority up to $70 million while limiting Palomar’s net retention to $3.5 million on individual bonds.

Diversification and Product Momentum

Casualty niche programs grew 37% year over year, while Inland Marine & Property rose 11%, helped by builder’s risk, residential property, and a 22% increase in motor truck cargo premiums. Management underscored diversification, noting no single product exceeds one‑third of gross written premiums and about half the portfolio is property, with 52% admitted.

Capital and Reinsurance Execution

Palomar completed reinsurance placements that added roughly $421 million of incremental catastrophe limit, bringing total earthquake protection to about $3.92 billion and U.S. hurricane cover to $135 million. Retentions remain conservative at $20 million for earthquake and $11 million for hurricane, supported by the firm’s seventh Torrey Pines Re catastrophe bond and a $1.7 billion investment portfolio yielding about 4.9%.

Shareholder Returns and Leadership Investments

Capital management is increasingly shareholder‑friendly, with 368,719 shares repurchased for approximately $41 million at an average price of $111 and a new quarterly dividend of $0.45 per share announced. The company is also investing in leadership, adding a Chief Actuarial Officer and a Head of AI to deepen analytics and accelerate technology initiatives.

Reserve Discipline and Favorable Development

Management emphasized conservative reserving, highlighted by $14.3 million of favorable prior‑year development in the quarter. Roughly 79% of total reserves and 84% of casualty reserves sit in IBNR, which supports Palomar’s philosophy of prudence amid growth and evolving loss trends.

Higher Losses and Increased Loss Ratio

Losses and loss adjustment expenses climbed to $99 million from $46.2 million a year earlier, pushing the total loss ratio to 34.5% from 25.7%. The company attributed this mainly to the rapid growth of higher‑loss‑ratio lines like crop and certain casualty programs, as well as crop losses that emerge earlier than the associated premium.

Rising Combined Ratio and Expense Trends

The adjusted combined ratio increased to 76.7% from 73.1%, reflecting modestly higher acquisition and underwriting expenses. Acquisition costs rose to 12.9% of gross written premiums and other underwriting expenses to 9.1%, driven by business mix shifts such as Gray Surety and ongoing investments in talent and technology.

Rate Pressure in Commercial Earthquake and Property

Management flagged significant competitive pressure in large commercial earthquake and property markets, with average rate decreases above 20% on many layered and shared accounts. Large commercial property rates were down about 16% and small commercial pricing fell in the low double digits, occasionally dropping below technical levels for new business.

Crop Mix and Short-Term Profitability Impact

The fast‑expanding crop line is reshaping Palomar’s profit profile, raising the overall loss ratio because crop inherently carries higher loss costs. Seasonality and front‑loaded loss recognition create volatility, with losses recognized earlier while most crop premiums are written and earned in the third quarter.

Selective Withdrawals Amid Market Competitiveness

Palomar has pulled back from transactional liability and cyber products where pricing no longer meets return hurdles, underscoring its discipline in unattractive markets. Management also noted ongoing competition in certain program niches and smaller bond and service segments within the surety franchise.

Dependence on Reinsurance and Quota Share Mix

The net earned premium ratio rose to 51.9% from 44%, partly reflecting quota share growth in crop and timing around excess‑of‑loss renewals. Executives cautioned that the evolving reinsurance structure and quota share mix heighten sensitivity to reinsurance economics and timing, which can influence reported margins.

Raised Guidance and Forward-Looking Outlook

For 2026, Palomar now guides to adjusted net income of $270 million–$280 million, implying about 27% year‑over‑year growth and an adjusted ROE near 26%, even after including a modest level of catastrophe losses. The company expects an adjusted combined ratio in the mid‑70s, a loss ratio in the mid‑to‑upper‑30s, a net earned premium ratio trending into the upper‑40s, and slightly lower expense ratios over time, helped by strong investment income and ongoing capital actions.

Palomar’s earnings call painted the picture of a specialty insurer leaning into growth while maintaining underwriting discipline and capital prudence. Record earnings, expanding franchises in crop and surety, and active capital returns support a positive investment narrative, though investors should watch loss and expense trends and competitive pressures in key property markets as the company executes its ambitious growth targets.