Palomar GWP rises 44% in Q1 with E&S fuelled expansion

Palomar’s new E&S carrier ended 2021’s first quarter with annualized gross written premium (GWP) approaching $100mn and accounting for 23 percent of the insurer’s overall GWP, while the business also added $25mn of aggregate excess of loss protection in the period.

In only its second full quarter of operation, Palomar Excess and Surplus Insurance Company, or PESIC, generated $23.8mn of GWP in the three months to 31 March 2021, equal to 23 percent of Palomar’s entire GWP.

Palomar Specialty Insurance Company’s $79.8mn of GWP accounted for the remaining 77 percent.

Mac Armstrong, Palomar’s chairman and CEO, said PESIC grew rapidly during Q1 2021 and added that the platform “continues to provide opportunities to extend the reach of our existing products and expand our addressable market”.

Palomar’s GWP increased by 44 percent year on year to $103.6mn for 2021’s first quarter.

“Our strong top line results were led by our earthquake products, which in the case of the commercial offerings grew 96 percent year-over-year and 25 percent in the case of our residential earthquake offerings,” Armstrong said.

“Additionally, new products continued to gather momentum and grow at exceptional rates; most notably, our inland marine products grew 315 percent year-over-year,” the executive added.

Armstrong’s comments came after the business reported diluted earnings per share of $0.73, a comfortable beat on the $0.51 that was the consensus estimate as compiled by S&P Global’s Market Intelligence.

In the first quarter of 2020, Palomar’s diluted earnings per share was $0.50.

Palomar posted underwriting income of $18.6mn and a combined ratio of 60.4 percent for 2021’s first quarter. During the same three months last year, Palomar’s underwriting income was $12.7mn with a combined ratio of 63.6 percent.

As Palomar explained, the Q1 2021 results include certain expenses related to the company’s transactions and stock offerings, stock-based compensation, amortisation of intangibles, and catastrophe bond issuances.

The prior first quarter 2020 combined ratio includes certain expenses related to the company’s transactions, stock offerings and stock-based compensation.

Factoring those out, Palomar’s Q1 2021 underlying combined ratio was 53.3 percent compared with 61.6 percent in the prior year period.

Palomar took a $9.6mn hit from catastrophe losses in Q1 2021, compared with nil in the same three months in 2020.

The insurer’s exposure to winter storm Uri led to additional reinsurance charges related to the reinstatement of its reinsurance programme.

Its Uri exposure will result in a net underwriting loss of approximately $1mn, Palomar said. That sum consists of approximately $4mn of additional reinsurance expense in Q1 2021 as well as similar additional reinsurance expense in the second quarter of 2021 that will partially offset by negative net losses in the first quarter of 2021.

The La Jolla, California-based company’s net premiums written increased by 43.4 percent year on year to $60.2mn during the first three months of 2021.

Adds aggregate XoL limit

As Armstrong explained, Palomar began 2021 “acutely focused on generating consistent earnings”. This included what he said were “notable enhancements” to the company’s risk transfer strategy.

As this publication has reported, Palomar secured $25mn of aggregate excess of loss coverage in the first quarter of this year.

“The net effect of this new reinsurance facility is that it puts a floor on our operating results should we experience severe catastrophe activity levels like those in 2020,” Armstrong said.