Palomar Holdings Q4 & FY 2025 Earnings Call - Hit Palomar 2X, delivered record growth and set aggressive 2026 guide ($260M-$275M)

Conference Operator: Good morning, and welcome to Palomar Holdings, Inc. fourth quarter and full year 2025 earnings conference call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference line will be open for questions with instructions to follow. 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. Please go ahead, sir.

Chris Uchida, Chief Financial Officer, Palomar Holdings, Inc.: Thank you, operator, and good morning, everyone. We appreciate your participation in our earnings call. With me here today is Mac Armstrong, our Chairman and Chief Executive Officer. Additionally, Jon Christensen, our President, is here to answer questions during the Q&A portion of the call. As a reminder, a telephonic replay of this call will be available on the investor relations section of our website through 11:59 P.M. Eastern Time on February 19, 2026. Before we begin, let me remind everyone that this call may contain certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include remarks about management’s future expectations, beliefs, estimates, plans, and prospects. Such statements are subject to a variety of risks, uncertainties, and other factors that could cause actual results to differ materially from those indicated or implied by such statements.

Such risks and other factors are set forth in our quarterly report on Form 10-Q, filed with the Securities and Exchange Commission. We do not undertake any duty to update such forward-looking statements. Additionally, during today’s call, we will discuss certain non-GAAP measures which we believe are useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with U.S. GAAP. A reconciliation of these non-GAAP measures to their most comparable GAAP measure can be found in our earnings release. At this point, I’ll turn the call over to Mac.

Mac Armstrong, Chairman and Chief Executive Officer, Palomar Holdings, Inc.: Thank you, Chris, and good morning, everyone. I’m excited to review our strong fourth quarter and full-year results. In 2025, we delivered record levels of gross written premium and adjusted net income, as well as strong, broad-based, profitable growth. For the full year, Palomar grew gross written premium 32%, increased adjusted net income by 62%, and achieved an adjusted return on equity of 26%. We also meaningfully exceeded our initial full-year adjusted net income guidance of $180 million-$192 million, finishing the year at $216 million. We beat earnings every quarter of the year, resulting in four upward revisions to our outlook as performance continued to strengthen and exceed expectations.

At the start of 2025, we outlined four strategic imperatives: integrate and operate, build new market leaders deliberately, remember what we like and don’t like, and generate consistent earnings. I’m proud to report that we executed across all four efforts in all four quarters. We scaled our newer verticals in casualty and crop while maintaining underwriting discipline. We purposefully built a balanced book of both admitted and E&S in residential and commercial property and casualty products to ensure consistent results in any market cycle. We added outstanding talent across all our departments, including underwriting, investment, claims, data, and actuarial, growing our team to over 500 exceptional professionals. Finally, we successfully integrated two specialty franchises, First Indemnity of America and Advanced AgProtection, and at the end of January, announced the closing of our third acquisition, Gray Casualty & Surety, now Palomar Casualty & Surety.

The myriad achievements of 2025 enabled us to reach our Palomar 2X target of doubling the adjusted net income for both the 2022 and 2023 cohorts, a significant and impressive milestone that underscores the strength of our execution. We exit 2025 with a national footprint, with offices and team members located across the country. We are attracting the best talent in the industry. Our people in 2025’s accomplishments give us strong confidence in our ability to sustain Palomar 2X. Turning to the fourth quarter specifically, our strong performance marked a fitting close to an exceptional 2025. The quarter was highlighted by record adjusted net income and a robust top and bottom line growth, with gross written premium increasing 32% and adjusted net income growing 48% across our differentiated and diversified portfolio.

As I said, our specialty product suite is designed to perform consistently through market cycles and generate attractive returns, a strength demonstrated by an adjusted combined ratio of 73% and a 27% adjusted return on equity. Collectively, these results highlight the growth, durability, balance, and quality of our franchise. Turning to our business segments, our earthquake franchise declined 2% year-over-year, a level slightly lower than our previously stated expectation for low single-digit growth in the fourth quarter. Our year-over-year results were muted by a one-time headwind from a large unearned premium transfer in the fourth quarter of 2024. Adjusting for this one-time benefit in 2024, we would have delivered growth in the quarter. As we’ve discussed, our earthquake book consists of residential commercial policies written on an admitted and E&S basis.

This balance allows us to successfully optimize our earthquake risk-adjusted returns and navigate any market condition. In the fourth quarter, the commercial earthquake book continued to face pressure, with rates off 15%. Competition remained elevated, and we believe this environment could persist through much of 2026. We remain disciplined in our underwriting, but also note that the commercial book is still generating attractive returns. Conversely, our residential earthquake book, which ended the year at 58% of the total earthquake premium, continued to perform in line with expectations. During the quarter, we saw year-over-year growth in new business written and a premium retention rate of a healthy 97% for our admitted flagship product. As we’ve said before, the 10% inflation guard on our residential earthquake policies affords our book compelling operating leverage in a softening property catastrophe reinsurance market.

In addition, we are encouraged by our pipeline of high-quality residential earthquake partnerships, which could bolster growth in 2026 and in 2027. The softening reinsurance market, combined with the growth of the residential earthquake book, should allow us to absorb the primary rate pressure in the commercial market. Overall, we expect our earthquake book to deliver modest premium growth and margin expansion in 2026, even with commercial pressure persisting. Our Inland Marine and other property group grew 30% year-over-year in the fourth quarter, driven by strong performance from our admitted and E&S Builders Risk book in Hawaiian hurricane products, as well as record production in our flood book, stemming from the early success of our Neptune Flood partnership.

Like our earthquake business, the mix of residential and admitted offerings provided balance to the group, allowing us to offset pressure in certain E&S commercial lines. For instance, we have pending rate increases of more than 10% for our Hawaii hurricane and motor truck cargo book in California, whereas our large E&S Builders Risk accounts are seeing rate decreases in the low single digits. Like commercial earthquake, the underwriting performance and profitability in commercial property was very strong in the quarter. All risk, excess national property, and E&S Builders Risk each had a loss ratio below 25%. The strong underwriting results in commercial property are driving further investment in talent and geographic expansion. During the quarter, we added professionals in Texas and the Northeast to support profitable growth of the commercial side of the group.

Additionally, we recruited Matt Deans to launch and lead our new construction engineering practice. Matt is a long-tenured expert in this dynamic space, which we believe represents a significant market opportunity. With our strong track record in Builders Risk, the growth in our balance sheet, our A rating from AM Best and expanded reinsurance capacity, we believe now is the right time to enter this market and supplement our property franchise with a book of large, complex infrastructure projects such as bridges, roads, and data centers. Consistent with our disciplined approach to new lines, we will begin with modest net line sizes supported by robust reinsurance. Our casualty business delivered 120% year-over-year gross written premium growth in the fourth quarter. Casualty book ended 2025 at 20% of the total gross written premium for the company.

Fourth quarter results were driven by strong momentum in E&S casualty, primary and excess contractors’ general liability, and environmental liability. The E&S general liability segment of the casualty book, both excess and primary, continued to see a healthy rate environment. In Q4, rates on excess policies increased on average in the low teens, while primary rates were up mid to high single digits. Our professional lines remained in a stable pricing environment, with certain areas showing selected improvement, such as miscellaneous professional liability, private company D&O, and real estate agents E&O. We are also encouraged by the early traction in healthcare liability, which is probably the most dislocated market we currently underwrite, with technical rates increasing, approaching 35%. In the fourth quarter, we added to our already strong team of casualty underwriters, which should open new geographies and distribution sources and ultimately drive growth.

We remain conservative in managing our casualty exposure and reserves. Our disciplined focus on low and short attachment points, combined with the use of both facultative and quota share reinsurance, should limit volatility in the casualty book and allow the portfolio to season in a controlled manner. Through the fourth quarter, the average net line size across casualty remained below $1 million, with E&S Casualty, our largest line of casualty business, averaging approximately $700,000. Our reserving approach in casualty remains conservative and unchanged. It is grounded in continuous evaluation of loss development, attachment structures and portfolio mix. As previously discussed, approximately 80% of our casualty reserves are held as IBNR, well above industry norms. This conservatism underpins balance sheet strength and reinforces confidence in the stability and predictability of future results.

Our crop franchise generated $248 million of gross written premium in 2025, exceeding our original $200 million expectation and our most recent revised guidance of $230 million. Our performance was driven by strong execution and the successful recruitment of top-tier talent as we expanded into attractive states and products. The broader footprint also drove higher than expected fourth quarter production, with $40 million of premium written. Importantly, this incremental business is diversifying from spring season MPCI, providing a nice complement to the portfolio. From an underwriting standpoint, 2025 was a good year for our crop book as we generated a loss ratio under 80% and still hold a conservative reserve base as we sit here today.

Given the experience of our team, the short-tailed nature of the risk and the growth of our balance sheet, effective 1/1/2026, we increased our retention to 50% net of the SRA. We will support and protect our retention with stop-loss reinsurance consistent with last year. On a prospective basis, we expect crop premium to grow more than 30% in 2026 and remain on track to achieve our intermediate-term target of $500 million in premium and our long-term target of $1 billion in premium. As previously discussed, fronting is no longer a strategic focus of the business. While we still continue to support our existing relationships, we are not devoting resources and capital towards an earnest pursuit of new fronting partnerships. We simply believe we can achieve better risk-adjusted returns in all other product groups.

As a result, we are reconstituting our product groups, and fronting will no longer be a standalone category. Our existing and any future fronting partnerships will be categorized in alignment with the underlying class of business starting in the first quarter of 2026. For instance, our cyber fronted program will be in the casualty product group, and our Texas homeowners fronted program will be in the Inland Marine of the property product group. Following the closing of the Gray Surety acquisition, Surety and Credit will become the fifth product category we report on going forward. As a frame of reference, pro forma for the acquisition of Gray, Surety and Credit would have constituted 6.5% of Palomar’s total premium base in 2025.

Gray Surety significantly strengthens our surety franchise, adding management expertise, system scale, and geographic reach, complementing our existing operations and accelerating our path toward building a market leader in an attractive sector. We believe Surety and Credit will serve as a stable, long-term growth driver for Palomar, while providing meaningful diversification to our book and earnings base. Turning to reinsurance, the fourth quarter was both eventful and productive. We renewed 4 quota share treaties on 1/1, all at approved economics, and completed 2 new placements. Key highlights of the quota share activity included a commercial earthquake quota share that renewed approximately 15% down on a risk-adjusted basis, and our primary and excess casualty quota share, that saw a nice improvement in the expiring ceding commission. As it pertains to excess of loss reinsurance, we placed a surety XOL and renewed two earthquake excess of loss treaties.

The earthquake placements renewed more than 15% lower on a risk-adjusted basis. Looking ahead to the 6/1 renewal, market conditions remain favorable for reinsurance buyers, and we are confident in further pricing improvement across our property cap program. Our diversified portfolio delivered strong top and bottom line results in the quarter and the full year. While I’m very proud of our results and the execution over the past year, I’m even more excited with the many opportunities that lie ahead. The success of 2025, the momentum in the business, and our team’s collective enthusiasm for the year ahead are reflected in our 2026 earnings guidance. Adjusted net income of $260 million-$275 million. The guidance midpoint implies approximately 24% adjusted net income growth and an adjusted return on equity greater than 20%.

The midpoint of our guidance assumes a $10 million catastrophe load and a decrease of 10% on our excess of loss property catastrophe reinsurance renewal on June first. To help us deliver on these opportunities, we are implementing four strategic imperatives for 2026. One, leverage our scale to enhance profitable growth. Two, curate a one-of-one distinct portfolio. Three, deepen our position in existing markets and unlock new opportunities. And four, integrate, optimize, and execute. To support these imperatives, we are strategically deploying AI across our organization. Current initiatives underway are focused on enhancing our underwriting workflow, portfolio optimization, process automation, and operational efficiency. These efforts involve the use of both third-party tools and internally developed agentic solutions that should allow us to increase productivity and scale our organization.

If we execute our plan and these imperatives, we will achieve our Palomar 2X objectives in 2026 and beyond. With that, I’ll turn the call over to Chris to discuss our financial results and guidance assumptions in more detail.

Chris Uchida, Chief Financial Officer, Palomar Holdings, Inc.: Thank you, Matt. Please note that during my portion, when referring to any per share figure, I’m referring to per diluted common share as calculated using the treasury stock method. This methodology requires us to include common share equivalents, such as outstanding stock options, during profitable periods and exclude them in periods when we incur a net loss. For the fourth quarter of 2025, our adjusted net income was $61.1 million, or $2.24 per share, compared to adjusted net income of $41.3 million, or $1.52 per share for the same quarter of 2024, representing adjusted net income growth of 48%. Our fourth quarter adjusted underwriting income was $62.3 million, an increase of 52% as compared to $41 million for the same quarter last year.

Our Adjusted Combined Ratio was 73.4% for the fourth quarter, compared to 71.7% last year. For the fourth quarter of 2025, our annualized adjusted return on equity was approximately 26.9%, compared to 23.1% for the same period last year. Our fourth quarter results continue to validate our ability to sustain profitable growth while maintaining returns well above our Palomar 2X target of 20%. Gross written premiums for the fourth quarter were $492.6 million, an increase of 32% compared to the prior year’s fourth quarter. Net earned premiums for the fourth quarter were $233.5 million, an increase of 61% compared to the prior year’s fourth quarter.

For the fourth quarter of 2025, as expected, our ratio of net earned premiums as a percentage of gross earned premiums increased to 48.2%, compared to 39%, 39% in the fourth quarter of 2024, and compared sequentially to 43.4% in the third quarter of 2025. Losses and loss adjustment expenses for the fourth quarter were $70.9 million, comprised of $72.9 million of attritional losses, including $0.7 million of favorable development and $2.1 million of favorable catastrophe loss development, largely from Hurricane Milton. Favorable development was primarily from our short tail property lines of business. The loss ratio for the quarter was 30.4%, compared to 25.7% in the prior year quarter.

Losses for the quarter were driven primarily by higher attritional losses associated with growth in our casualty and crop business, partially offset by favorable development. We continue to hold conservative positions on our reserves. Favorable development is a result of our conservative approach to reserving upfront, allowing us to release reserves later. This quarter is a good example of this, as we had conservatively reserved for Hurricane Milton, as well as a few other smaller events where we are seeing modest reserve releases. Our acquisition expense as a percentage of gross earned premiums for the fourth quarter was 13%, compared to 10.9% last year’s fourth quarter, and compared sequentially to 10.8% in the third quarter of 2025. A little higher than expected, driven by mix of business for the quarter, resulting in higher commission and lower ceding commission.

The ratio of other underwriting expenses, including adjustments to gross earned premiums for the fourth quarter, was 8.1%, compared to 7.2% in the fourth quarter last year, and compared sequentially to 7.9% in the third quarter of 2025. As demonstrated by our continued investment in talent, technology, and systems, we remain committed to scaling the organization profitably. We continue to expect long-term scale in this ratio, although we may see periods of sequential flatness or increases due to investments in scaling the organization within our Palomar 2X framework. Our net investment income for the fourth quarter was $16 million, an increase of 41.3% compared to the prior year’s fourth quarter.

The year-over-year increase was primarily due to higher yields on invested assets and a higher average balance of investments held during the quarter due to cash generated from operations. Our yield in the fourth quarter was 4.8%, compared to 4.5% in the fourth quarter last year. The average yield on investments made in the fourth quarter was above 5%. At the end of the quarter, our net earned premium to equity ratio was slightly above 1:1. Our stockholders’ equity has reached $942.7 million, a testament to our consistent profitable growth. Looking at our full year 2025 results, our strong top-line performance continued to translate to the bottom line.

Our gross written premium increased 32% to $2 billion, while our net earned premiums increased 57% to $802.6 million. Our adjusted combined ratio for the full year was 72.7%, compared to 73.7% in 2024, resulting in adjusted underwriting income of $218.9 million, growth of 63%, reflecting strong underwriting performance and continued operating leverage. Our net investment income for the full year was $56 million, an increase of 56% compared to 2024.

All of this coming together, where our full year 2025 adjusted net income grew 62% to $216.1 million, and our adjusted diluted earnings per share grew 54% to $7.86, resulting in an adjusted return on equity of 25.9% compared to 22.2% in 2024. It is also worth noting that our 2025 results are $30 million, or 16% ahead of the midpoint of our initial guidance provided at this time last year of $186 million, equivalent to an additional $1.10 per share for our shareholders. Our Palomar 2X philosophy continues to show in our results.

Our 2025 adjusted net income more than doubled, technically 2.3 times from 2023 in two years off of our goal of 3-5 years, with an ROE well above our target of 20%. Palomar 2X is a nice segue to our 2026 guidance. We are initiating our 2026 adjusted net income guidance with a range of $260 million-$275 million, including $8 million-$12 million of catastrophe losses and incorporating the recently closed acquisition of Gray Surety. The midpoint of the range implies 24%, 24% adjusted net income growth and doubling our 2024 adjusted net income in just two years. From a modeling perspective, we expect many of the trends we have been sharing to continue in 2026.

Our 2025 full year net earned premium ratio was 44.9%. We expect that ratio to increase into the upper 40s for 2026. On a gross earned premium basis, our full year 2025 acquisition expense ratio was 12.1%, and our adjusted other underwriting expense ratio was 8%. We expect improvements in both ratios for 2026. Our full year 2025 loss ratio was 28.5%, favorable to our original expectations. With that as a reference, we expect our loss ratio, including catastrophes, to be in the mid- to upper 30s for 2026. Our full year 2025 adjusted combined ratio was 72.7%. We expect our adjusted combined ratio for 2026 to be in the mid-70s.

These expectations reflect our expected growth, business mix, and use of capital as we build our specialty insurance platform. We continue to expect quarterly seasonality in our operating results, driven primarily by crop. We believe our 2025 results provide a strong framework to model the business seasonality going forward. I would like to spend a moment on our Gray Surety acquisition to provide some context on our Surety business for 2026. We closed the Gray Surety acquisition on January 31st, 2026, with an estimated purchase price of $311 million, financed with a $300 million term loan and cash on hand. The current interest rate on the term loan is SOFR + 1.75%, given the ability to improve the spread depending on our total debt to capitalization ratio.

Given the interest expense from the term loan and the timing of the deal, we expect the addition of Gray Surety to be modestly accretive in 2026 before scaling in 2027. Pro forma for Gray, the unaudited written premium for our Surety line would have been approximately $110 million in 2025. As Mack, as Mack mentioned, given our investment in the Surety space and the reduced emphasis on fronting, we will be changing our written premium categories in 2026.... For 2026, our written premium categories are earthquake, inland marine and other property, casualty, crop, and surety and credit. Fronting will be redistributed into these five product categories. We plan on providing a revised breakdown of our 2025 written premium in these categories in our next investor deck.

With that, I’d like to ask the operator to open the line for any questions. Operator?

Conference Operator: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment please, while we pull for questions. Our first question comes from the line of Pablo Singzon with JP Morgan. Please proceed with your question.

Pablo Singzon, Analyst, JP Morgan: Hi, good afternoon. First question, just on the higher retention on crop, will you be able to decide how much that will contribute to earnings next year versus what you earned in 2025?

Chris Uchida, Chief Financial Officer, Palomar Holdings, Inc.: Yeah, no, I think crop is a great example of the diversification of our business and, the use of the capital as we start retaining more. We’ve talked about it before, that crop is a lower margin business than some of our others, but also very stable, so very providing a very consistent earnings base. Generally speaking, it’s going to have a combined ratio in the low 90s, so say 92%. So for every, call it, $100 million and 10 points that we keep, that’s adding another $8 million, let’s say, of pre-tax income to the bottom line.

Pablo Singzon, Analyst, JP Morgan: Got it. Thanks, Chris. And then my second question, the 10% reduction in reinsurance costs you’re assuming, is that on a risk-adjusted basis, or is that absolute dollars you’re talking about?

Mac Armstrong, Chairman and Chief Executive Officer, Palomar Holdings, Inc.: That’s on a risk-adjusted basis, Pablo. Yeah, so that’s just assuming that the if you have like-for-like exposure, it’d be down 10%. So we, you know, when we think about the forecast, we are assuming growth in quake this year. We said there’s modest growth for earthquake, and there’s also would be some exposure expansion, which would lead to us buying more limit.

Pablo Singzon, Analyst, JP Morgan: Got it. Okay. Thank you.

Conference Operator: Thank you. Our next question comes from the line of David Motemedi with Evercore ISI. Please proceed with your question.

David Motemedi, Analyst, Evercore ISI: Hey, thanks. Mac, in your prepared remarks, you had talked a bit about a few new hires that you’ve made here in the fourth quarter, as well. You guys made a few more even before that. I’m specifically interested on the underwriting side and the underwriting teams that you’re adding. Is there any rule of thumb to think about how much growth you guys are expecting those teams to contribute in 2026 and 2027, if we think about just gross premiums written?

Mac Armstrong, Chairman and Chief Executive Officer, Palomar Holdings, Inc.: Yeah, Dave, thanks for the question. It’s a good one. Let me start by saying, you’re absolutely right. We’ve added some really strong talent to our organization over the course of 2025, and as we sit here in 2026, we continue to recruit and add really strong underwriters, and it’s across both the casualty and the property franchise. You know, when we gave our guidance, there’s certainly an assumption around production from those various new hires, but it really depends on the market that they’re going into.

You know, a strong addition to our Builders Risk franchise in Boston, like that opens up, you know, $several million or a few more million dollars of potential production there, versus, you know, someone like Matt Deans, who joins us on the construction engineering side, where it’s a much larger TAM, and much larger exposures. But I think overarchingly, the most important point to point to mention is for all of these new hires, we are not expecting them to, you know, burn their way into a market or overextend themselves. You know, we want to walk before we run, and that’s something that we’ve done since we started the business.

And what that means is when they go into a market, whether it’s a property, as a property underwriter or a casualty underwriter, they’re going to have a comprehensive and robust reinsurance solution supporting them. And then, they are also going to have, you know, modest gross and net line sizes that they are deploying while we build traction. The other thing is there’s a lot of infrastructure that needs to be built out, so we don’t want to, you know, open up the proverbial floodgates and not be able to service and underwrite the business effectively. So it’s also very moderate in terms of distribution. I’ll just close with, as an aside, like, for instance, you know, we did write an interesting construction engineering risk, one of Matt’s first. The gross line was $76 million.

Our net was $4 million on it, and that’s because of the strong reinsurance relationships we have. We were able to use an existing facility, and then we’re also able to buy facultative reinsurance. And I think that fact that you have that type of strong reinsurance support, both facultative and treaty, is a reflection of the quality of the underwriters, and their experience.

David Motemedi, Analyst, Evercore ISI: Got it. Great, thanks. That’s, that’s encouraging. Or, I guess just another one on the earthquake growth. Is there any way you can just help us think through? It sounds like commercial was down just in terms of gross premiums written. Residential was growing. Could you just break that out, how much the residential book grew in the fourth quarter, and how you’re thinking about that within the modest growth that you outlined in 2026?

Mac Armstrong, Chairman and Chief Executive Officer, Palomar Holdings, Inc.: Yeah, Dave. So what I would offer you is, as I mentioned, that, you know, the residential quake is approaching about 60% of the book. It’s got strong policy retention, and it’s writing good new business. So I think residential quake is, you know, you’re looking at what we hope would be, you know, high single digits to double digits growth. And then the commercial is going to be obviously continue to see some pressure, especially in more large commercial business, where, you know, rates were down 15%. And I think I would say from a rate deceleration standpoint, you know, the rate decreases we expect them to hover at this level for certainly the next several quarters.

So I think that’s what I would offer you, is residential quake is going to grow, and should offset the deceleration in the commercial. And then most of all, most importantly, is we should see margin expansion. You know, the fact is that, property cap pricing should allow us to really scale the residential quake, and then, you know, absorb the softening on the primary rates in the commercial side.

David Motemedi, Analyst, Evercore ISI: Got it. Yeah, and it sounds like the, I guess, the XOL pricing at down 10 is actually not as good as you guys were able to get on some of the stuff that you renewed here recently. But maybe just one more, if I could, for Chris. So heard you on the loss ratio being in the mid- to upper 30s. You know, I’m sort of looking at that versus the 31% accident year loss ratio, excluding cats, in 2025. So it feels like that’s getting a little bit worse than, I think, the old rule of thumb, which was 2-4 points deterioration a year. So I’m wondering if you could just unpack that a little bit. You know, what-- Is it mix? Is it higher picks?

You know, that would be helpful if you could just unpack that a little bit.

Chris Uchida, Chief Financial Officer, Palomar Holdings, Inc.: Yeah, I think the simplest answer is going to be that it’s no change in our picks. I think we’ve said this a lot of times, that we are going to continue to reserve conservatively upfront, react to bad news quickly and to good news slowly and deliberately. That has proven true throughout this year, where we’re able to have some favorable development. If you go back, you know, call it this time last year, we were expecting a low-30s loss ratio for this year. I think this year was probably a little bit better than we expected. Crop contributed to that. Crop was a little bit favorable to where we expected, so maybe our loss ratio was a little bit better.

But overall, when I think about that 2-4 points, I feel like this is right in line with that expectation. Let’s say we were call it 31, 32, we’re at 4 points, we’re at 36, right? The other thing you got to think about is that we are expecting some still really strong growth from crop. The other assumption we’re changing there is we’re going to be taking 50% of that book versus 30%, this year. So that, while adding profit to the bottom line, does move the ratios a little bit. We’ve talked about it a lot, and I just talked about it a little bit. That crop does operate at a higher combined and a higher loss ratio. Mac said it was better than 80%, but even at 80% loss ratio, that is higher than 31 or 32.

So if you’re taking, call it 20 points more of that, if you’re at 30 and taking 20% more, or you know, about 66% more of the losses, plus higher growth, it’s going to influence the loss ratio. But overall, when you think about it, and the reason we’re not saying that our combined ratio is going to jump at the same rate, is we do expect to see some scale or leverage in the operating expenses. And so when we talk about right now, our low 70s combined ratio for the year and kind of getting into the mid-70s for 2026, I think that is taking all those factors into account. Yes, the loss ratio is going to go up as expected and as we’ve talked about.

You’re going to see some savings potentially on the expense side, but overall, we’re going to be mid-70s combined ratio with a growing diverse book of business that’s delivering consistent profitability to the marketplace. That’s something we’ve talked about for the last 2 or 3 years continuing to do, and that’s what we plan on doing. So overall, we feel like we’re in a good spot. Loss ratio is doing exactly what we expected, and overall, the book is performing very well.

Mac Armstrong, Chairman and Chief Executive Officer, Palomar Holdings, Inc.: And Dave, if I could just come back to the one point you made on the reinsurance. Yeah, 10% is the assumption. It is a little bit less, a lower risk-adjusted decrease than what we saw the first quarter. You know, but that’s for the midpoint of the guidance, you know, so there’s certainly an opportunity to outperform that 10% down, but I think that’s the right level for us to assume at 6:1.

David Motemedi, Analyst, Evercore ISI: Thanks, guys.

Mac Armstrong, Chairman and Chief Executive Officer, Palomar Holdings, Inc.: Thank you.

Conference Operator: Thank you. Our next question comes from the line of Matt Carletti with Citizens. Please proceed with your questioning.

Matt Carletti, Analyst, Citizens: Hey, thanks. Good morning. Mac, I appreciate your comments on kind of the casualty book. That was really helpful. Can you maybe just kind of zoom out and as we look at the book today, maybe year-end 2025, you know, broad strokes, like how much of the book is in kind of excess and primary GL? How much is kind of, you know, professional lines exposures, whatever the big buckets are that you kind of think of, could you help us with that? And then secondarily, you know, how much of that is directly written by Palomar, and is any of it done through some sort of program or delegated authority arrangement?

Mac Armstrong, Chairman and Chief Executive Officer, Palomar Holdings, Inc.: ... Yeah, Matt, thanks for the question, and excited to talk about the casualty franchise because it really is performing well and been a nice success story. So just, the predominance of the book is going to be what we call E&S casualty, which would be GL, kind of niche segment GL. And then there is some professional lines, but again, the majority of it’s going to be excess and primary, general liability. We are not writing wheels business for the majority of cases. We do have a small amount of wheels business that’s in our contractors, primary contractors GL.

But on the whole, it’s going to be, you know, niche categories of GL and then professional liability that’s going to be more E&O or healthcare liability, which is a new example, and that’s one that we got into earlier this year. I think it’s important to just talk about overarchingly on the casualty side, you know, we remain very disciplined. And whether that’s in our reserving, you know, 80%, as I said, of the IBNR or excuse me, of the total reserve, is IBNR. We have several lines of business and excess liability, where it’s 100% of the reserve is IBNR. Casualty is only 16.4% of, excuse me, our casualty reserve is only 16.4% of our surplus. Our limits are very conservative. Our average net limit is $1 million.

Our largest net line would be $2.3 million. And our largest line of business, as I pointed out, which is our E&S casualty, is $700,000 on a net basis. I think the other fact that’s worth highlighting here is just the underwriting approach. And it’s going to be really focusing on writing. If it’s excess, it’s buffer layers, so we’re avoiding social inflation. So if we get a pop, like it’s not a circumstance where it’s a surprise, and there’s a nuclear verdict, and we were attaching, you know, 20 excess of 100, and we get hit. You know, we’re going to be attaching excess of 1, or we writing the primary one. So it confines the volatility in that book.

And then I should have started with this: the talent we have is exceptional. You know, these are professionals that have been in this business for decades, in the case of David Sapia, Frank Castro, Jason Porter, and our casualty leaders. I think it’s also important to point out that we do have program business. Right now, although it’s around close to a little more than half our programs, those leaders are involved in the underwriting of those programs, setting underwriting rules, helping with the claims administration and adjudication. So it’s really the philosophy that we had in property, where we work with the program administrator in Builders Risk or Earthquake, and we also write it internally. It just affords the sharing of ideas.

It affords the ability to access market segments that you couldn’t potentially do on a direct basis. So we think it’s a very good model. And then I think the last thing I’d say about the casualty business, like, you know, if you look at how we use reinsurance, we view that as a terrific validation of the underwriting. You know, we buy both treaty and fac, and so fac reinsurance underwriters are looking at individual risks and pricing them with us. Treaty underwriters are looking at the portfolio, and as I mentioned, you know, we had several quota shares renew at 1-1. Two of them were for programs, two of them were for internal casualty. All of them had improved economics.

So again, I think our casualty approach, the execution rather, has been exceptional, and I think our approach is well established and thoughtful.

Mark Hughes, Analyst, Truist: Thank you. That’s super helpful. I appreciate all the color.

Conference Operator: Thank you. Our next question comes from the line of Andrew Anderson with Jefferies. Please proceed with your question.

Andrew Anderson, Analyst, Jefferies: Hey, good afternoon. Just on the reinsurance update, the quake that you mentioned that was renewed, was that commercial quake, and did you purchase any incremental limit this year?

Mac Armstrong, Chairman and Chief Executive Officer, Palomar Holdings, Inc.: Hey, Andrew. Yep, good questions. So the quota share that renewed was for commercial earthquake. We did have a commercial earthquake quota share renew, and then we bought incremental limit that’s for all of the quake book. But it was a very modest amount. Most of the incremental limit will be procured at 6/1. So then, and then we had one existing layer that renewed at 1/1, and again, those were all down in the 15% range.

Andrew Anderson, Analyst, Jefferies: Gotcha. And maybe bigger picture here as the cycle and some of the lines softens and doesn’t seem like there’s any constraint on capital here, but how would you kind of rank capital deployment opportunities across organic, increased retention, share repurchases, and opportunistic tuck-in deals, which you have some history of doing?

Mac Armstrong, Chairman and Chief Executive Officer, Palomar Holdings, Inc.: Yeah, I think overarchingly, opportunistic, is the right term. You know, today, share buybacks looks pretty compelling, as we scratch our heads inside our conference room. But nonetheless, you know, we still want to grow organically, and we think we have multiple growth vectors to grow the book organically, and we also think we have the capital base to do so. You know, we certainly, as the balance sheet has grown, it does afford us the opportunity to increase our retentions like we’re doing in crop. It’s certainly something we can look at on cat retentions, probably more specifically for earthquake cat retentions as that approaches at 61. And for our property business, you know, our Inland Marine, the property business has performed really well.

So I think our desire is to potentially put out larger lines in selected classes, like both admitted and E&S Builders Risk and excess national property. So I think it’s a combination, really, ultimately, opportunistic M&A. We’re proud that we bought three great businesses over the last 15 months. But you know, that’s really will be more opportunistic. I think you should be thinking about is our organic growth, leveraging the scale of the organization, the balance sheet, to potentially take more of our own, more of our own cooking. And then also think about opportunistic capital management through selected buybacks and repurchases.

Mark Hughes, Analyst, Truist: Thank you.

Conference Operator: Thank you. Our next question comes from the line of Mark Hughes with Truist. Please proceed with your question.

Mark Hughes, Analyst, Truist: Yeah, thank you. On the commercial quake, you said you expect competitive pressure to continue through 2026. How does it look sequentially, this down 15? Is it continuing to decline sequentially, or is it stabilized at a low level and then you just got some tough comps?

Mac Armstrong, Chairman and Chief Executive Officer, Palomar Holdings, Inc.: Yeah, Mark, this is Mac. That’s a good question. I think we’re still... You know, we started to see commercial quake pricing really soften in the second quarter of 2025. So we think we’re still a couple of quarters to go there, and then hopefully the comps lead to a deceleration. I think the other thing, too, is, you know, one dynamic where you have the all-risk players potentially retaining more of the quake. They’ll start to - as they get through a 12, 15-month period of that, they’ll start to get to a point where they’ll be managing capacity and overall limits and aggregates. So I think that will help stabilize it some.

You know, our view and when we talk about this year having modest growth in earthquake is that pressure will persist in 2026, you know, and certainly the first half of 2026 in a more pronounced fashion on commercial quake.

Mark Hughes, Analyst, Truist: And then on the crop, your retention moving up to 50%. If things go as planned, does that continue to move up, or is 50 as high as it gets?

Mac Armstrong, Chairman and Chief Executive Officer, Palomar Holdings, Inc.: Well, you know, I think, it’s a good lever to have, to be able to pull. You know, if you talk to Benson Latham, who’s been in the crop business for a very long time, he would tell you the way to make money in crop is to retain more of it, and you will make more money over the long term doing that. And so that’s something that we do see as, again, a potential lever. You know, the one thing that we want to be mindful of is just capital allocation. And while crop is not a capital overly capital-intensive line, the growth we’re having is pretty strong. As I said, we’re targeting over 30% growth.

So, the combination of growth, and an increase in retention could start to put a little more pressure on how much capital we have allocated. So that’s something that we’ll watch. But, you know, that’s really once we get beyond that $500 million threshold, Mark. So I think in the interim, we can continue to increase our retention and grow the book, and then we’ll take stock at what is the right risk transfer structure from there.

Mark Hughes, Analyst, Truist: Thank you.

Conference Operator: Thank you. As a reminder, if anyone has any questions, you may press star one on your telephone keypad to join the queue. Our next question comes from the line of Paul Newsome with Piper Sandler. Please proceed with your question.

Chris Uchida, Chief Financial Officer, Palomar Holdings, Inc.0: Thank you. Thanks for the call. I was hoping you could maybe expand upon a question I’m getting from investors, which is, sort of inevitably, as the business mix moves away from earthquake, as well as takes increasing retentions, do you inevitably end up with returns on equity that are less, given that you essentially have to have less reinsurance leverage? Or is the model so such that you, you know, have sort of more balance in that regard? Just, and I’m not really even talking about 2026. I mean, just as you think out longer term, is that what we should be thinking about in terms of how the business delivers returns?

Mac Armstrong, Chairman and Chief Executive Officer, Palomar Holdings, Inc.: Yeah. Hey, Paul, this is Mac. I’ll offer my views. You know, I think I’ll start with saying we continue to believe that Palomar 2X is achievable for the intermediate future. And we will have, based on the guidance we’re giving, we will have double our adjusted net income from 2024 in 2 years while maintaining an ROE that is above 20%. And so we think that is sustainable. Maybe not doubling it every 2 years, but certainly maintaining an ROE that’s over 20%. And that is with the changing complexion of the book. You have to remember, we still have Earthquake is our largest or top two largest line. We’re now adding Surety, which has very attractive margins as well. You know, that’s a sub-80 combined ratio book.

This is not a circumstance where we’re all of a sudden going to become a 12% ROE business and a 95% combined. Until we say otherwise, we’re going to be generating an ROE that’s in excess of 20%, and we’re going to be growing our bottom line, you know, at a very attractive rate. And I think the guidance that we gave this year is illustrative of that, and I think the investments that we’re making in the business afford us the ability to sustain those parameters, sustain those parameters.

Speaker 3: ... A couple things I’d add to that just for clarification, right? Remember, as we diversify and as the portfolio grows, we are able to leverage our capital base a little more efficiently versus earthquake is very capital intensive. So as we get to diversify the base and use our capital a little more efficiently, that helps the ROE. The thing we don’t talk about a lot, but when you talk about, you know, thinking out years, is also our investment leverage. We have a very low investment leverage. As our retention increases and our portfolio diversifies, investment leverage will also come into play, and we’ll be able to use that as part of our earnings growth as well.

Mac Armstrong, Chairman and Chief Executive Officer, Palomar Holdings, Inc.: Yeah, just to echo what Chris is saying, if you just look at—I mean, I think that’s important to point out, too, is just this example of these margins. Like, our net reserves as a percentage of surplus is under 30%, and our investment leverage is 1.43%. You know, compare those to industry averages, you know, you should feel like there’s a fair bit of operating leverage in the model.

Chris Uchida, Chief Financial Officer, Palomar Holdings, Inc.0: That’s, that’s great. Second question, just on the fronting business. You know, is the thought that, you know, without an additional fronting operations, essentially, we see sort of stability out of that unit, perspectively? Because I think we’re at the point, I think, where we’ve lapped the one fronting arrangement that you know went away. Is that kind of the baseline thinking there?

Mac Armstrong, Chairman and Chief Executive Officer, Palomar Holdings, Inc.: Yeah, Paul, I think our thinking is just fronting is not a strategic focus for us, and the premium has declined, as you pointed out. And as a result, you know, it’s really just not a meaningful reflection of the operating results of the business and the organizational focus. I think the other thing that’s just worth pointing out is, you know, the fronting market has evolved to where it’s really not a risk-free, fee-generative business. Most fronting deals that we see are participatory fronts, and so, if they are going to require us to take 20% of risk, it’s not a circumstance where we’re comfortable.

So we’d rather support a handful of fronting relationships that we have and focus our capital and resources on programs, but also just most importantly, internal efforts. So yeah, I mean, I think it’s just the evolution of the fronting market combined with our strategic focus has led us to this decision to just collapse it into the appropriate product categories.

Chris Uchida, Chief Financial Officer, Palomar Holdings, Inc.0: Makes sense to me. As you know, I agree with you.

Mac Armstrong, Chairman and Chief Executive Officer, Palomar Holdings, Inc.: Yeah. Yeah. I think you told me once you’re picking up nickels in front of a steamroller, so it wasn’t a lot of fun.

Conference Operator: Thank you. Our next question comes from the line of Mayer Shields with KBW. Please proceed with your question.

Mayer Shields, Analyst, KBW: Great. Thanks so much. Mac, one quick question on the guidance, and I apologize if I missed this, but what are the cat excess of loss attachment points that are embedded in the 2026 guide?

Mac Armstrong, Chairman and Chief Executive Officer, Palomar Holdings, Inc.: Yeah, hey, Mayer, good question. We didn’t offer it, but we will. It’s assume the retentions remain at the same levels as expiring. So, a wind retention in around $12 million and, you know, earthquake just several $ million above that. Yeah.

Mayer Shields, Analyst, KBW: Okay. All right. That’s a good place to start from. With regard to the engineering, does that require new distribution relationships, both in general and with regard to data centers?

Mac Armstrong, Chairman and Chief Executive Officer, Palomar Holdings, Inc.: Well, it does both. So it can leverage existing distribution relationships, but also, it does bring new ones to bear, and that’s why we hired Matt. Matt actually was at Willis Towers Watson before he joined us, and has a long-standing history of riding with kind of the, you know, the traditional alphabet houses here. But then there will also be a lot of wholesale produced business, which is kind of our bread and butter for commercial property. So it’s a combination of the two.

Speaker 3: Hey, Mayer, this is Jon. You know, one of the things to think about with regard to distribution, with what Matt brings on in the engineered space, is up until he came on board in the fourth quarter, we were kind of in all corners of that builders risk market, you know, from small single-family homes all the way through commercial property with the exception of engineered risk. And so now this, as we think about the way that we face our distribution, we really come with a full solution across that inland marine department to be able to service all kind of major components of builders risk in the U.S. market.

Mayer Shields, Analyst, KBW: Okay, thanks, John. That’s very helpful. And then one last question. I just wanted to get a sense of current and maybe planned retentions on the casualty quota share?

Mac Armstrong, Chairman and Chief Executive Officer, Palomar Holdings, Inc.: So the casualty quota shares, we renewed that and kept our retentions flat year-over-year. And that’s a 1:1, so it’s kind of locked in for the next 12 months. And you know, we can write up to a $10 million limit within that treaty. You know, the average net, though, is going to be typically, our average gross limit is going to be 3, and the average net will be less than $1 million.

Mayer Shields, Analyst, KBW: Okay, understood. Thanks so much.

Mac Armstrong, Chairman and Chief Executive Officer, Palomar Holdings, Inc.: Thanks, Mayer.

Conference Operator: Thank you. We have reached the end of the question and answer session. I’d like to turn the floor back over to Mac Armstrong for closing remarks.

Mac Armstrong, Chairman and Chief Executive Officer, Palomar Holdings, Inc.: Thank you, operator, and thank you, everyone. I appreciate your time and support of Palomar. As I close the earnings call, I want to thank our incredible team here at Palomar. Your execution and work in 2025 was exemplary. As evidenced by the strong guidance for 2026, we feel great about our prospects, and we look forward to sharing our success with our investors in 2026 and beyond. Have a great day, and we’ll speak to you soon.

Conference Operator: Thank you, and this concludes today’s conference, and you may disconnect your line at this time. Thank you for your participation.