Palomar (PLMR) Banks on Solid Underwriting Amid Rising Costs
Palomar Holdings, Inc. PLMR has been gaining momentum due tostrong premium growth, improving investment income as a result of a higher average balance of investments and a solid balance sheet position.
The property and casualty insurer remains well-poised for growth on the back of increased volume of policies written across the lines of business, new business generation and strong premium retention rates.
Although the main focus of PLMR is to grow its core business, earthquake insurance, it also keeps an eye on diversifying into uncorrelated products, like Casualty and Fronting, thereby reducing total risk.
PLMR’s revenues have been rising over the last several years due to higher premiums, net investment income, commission and other income. This momentum should continue going forward, given continuous efforts to diversify and generate other sources of income, like fee income, which will strengthen its earnings base.
PLMR has been witnessing a good track record of premium growth for the past few years. Such a remarkable feat was achieved through business expansion, strong retention and new partnerships. The expansion of business also aligns with PLMR’s focus on capturing market share and expanding underserved markets.
PLMR’s improving combined ratio and a better-than-industry average return on equity measure also highlights its improving operating performance, thereby adding to the positives.
A solid liquidity position enables PLMR to enhance shareholder value via share buybacks. The company’s cash and cash equivalents improved 35.4% at 2022-end. With respect to share buybacks, the company has a share repurchase plan of $100 million through Mar 31, 2024.
However, PLMR has been experiencing an increase in operating expenses due to higher incurred losses and loss adjustment expenses, interest and acquisition expenses and other underwriting expenses. Such expenses continue to weigh on margin expansion and the only way to diminish their impact is by focusing on improving revenue growth.
Exposure to catastrophic losses, being a property and casualty insurer, is significant. The losses stemming from earthquakes, hurricanes and other events could affect the financial condition of the company. Catastrophic losses increased three-fold due to the above-mentioned reasons in 2022.
Nonetheless, Palomar follows a sophisticated and conservative risk transfer program, which manages exposure to catastrophe events by purchasing reinsurance and risk mitigation strategies. This shows PLMR’s commitment toward protecting its earnings through its current reinsurance program. Moreover, its net loss from a single event is limited to $12.5 million.
Other Industry Players
Other players in the same space include Axis Capital Holdings AXS, Everest Re Group RE and Kinsale Capital Group KNSL.
The bottom line of Axis Capital surpassed earnings estimates in three of the last four quarters, while it missed in one, the average being 5.7%.
AXS benefits from higher net premiums earned and strong performance in the insurance segment, leading to improved underwriting income and a combined ratio.
The bottom line of Everest Re Group surpassed earnings estimates in the last four quarters, the average being 18.4%.
Everest Re is well-poised for growth owing to higher premiums across its reinsurance and insurance businesses. RE experienced improved pricing, terms and conditions and deepening relationships with new and existing core clients.
The bottom line of Kinsale Capital Group surpassed earnings estimates in each of the last four quarters, the average being 13.8%.
Kinsale Capital is poised to gain from higher gross written premiums driven by strong submission flow from brokers, a favorable pricing environment and higher net investment income on the back of growth in the investment portfolio and higher interest rates.
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Axis Capital Holdings Limited (AXS) : Free Stock Analysis Report
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Palomar Holdings, Inc. (PLMR) : Free Stock Analysis Report
