Palomar at 45th William Blair Conference: Strategic Growth Insights

On Wednesday, 04 June 2025, Palomar Holdings Inc (NASDAQ:PLMR) presented at the 45th Annual William Blair Growth Stock Conference. CEO Mac Armstrong and CFO Chris Uchida highlighted the company’s strategic evolution into a diversified specialty insurer, while also addressing challenges in the competitive landscape. The conference underscored Palomar’s commitment to profitable growth and consistent earnings.

Key Takeaways

• Palomar has expanded from a single-market focus to a diversified specialty insurer.
• The company aims to double adjusted net income in three to five years with its Palomar 2x strategy.
• Adjusted net income guidance for the year was raised to $195 million - $205 million.
• Integration of recent acquisitions is a key focus for 2024.
• The company has consistently beaten earnings estimates for 10 consecutive quarters.

Financial Results

• Adjusted net income guidance for 2025 increased to between $195 million and $205 million, reflecting a 50% year-over-year growth.
• Palomar’s surplus grew by 55% over the past year.
• The company has raised its earnings guidance nine times since 2022.
• The Palomar 2x strategy aims to double adjusted net income while maintaining an ROE above 20%.
• The crop business is projected to generate $200 million in premiums this year.

Operational Updates

• Palomar has integrated two recent acquisitions: First Indemnity of America and Advanced Ag Protection.
• The crop business has expanded, adding 60 employees over the past year.
• Palomar is one of 12 approved insurance providers with access to the federal crop insurance company.
• The earthquake line remains the largest at 30% of the business.

Future Outlook

• The Palomar 2x strategy focuses on doubling adjusted net income in three to five years.
• 2022 objectives were achieved within three years, and 2023 goals are expected to be met within two years.
• The focus for 2025 includes integrating acquisitions, building new markets, and strategic growth.
• The intermediate goal for the crop business is $500 million in premiums, with a long-term target of a billion-dollar franchise.
• Earthquake insurance is expected to see mid to high teens growth in 2025.

Q&A Highlights

• Palomar leverages a system built on the Pega platform for business scalability.
• New business lines are initiated using a Minimum Viable Product suite.
• The reinsurance program is supported by 100 panelists, totaling about $3.53 billion.
• A standalone cover was acquired for the Hawaiian hurricane book.

Readers are encouraged to refer to the full transcript for more detailed insights.

Full transcript - 45th Annual William Blair Growth Stock Conference:

Adam Klauber, Insurance Team Lead, William Blair: Palomar, which should be a great, great session. Adam Klauber, I run an insurance team here. For the you can see the disclosures. I think they’re on our website. Check those out.

More important, we’ve got, you know, great company, Palmar, Mac Armstrong, founder and CEO, and Chris Uchida, CFO, who’s probably been with Mac forever also. I’ll just say two, you know, two seconds about the company and then turn it over to Mac. You know, as we search out in the last ten, fifteen years, not just good insurance companies, but insurance companies that, one, are using technology and analytics to really form a different business model. Alimar is one of the one of the few that’s actually been able to do it and be very successful. But I think the second part of it, it’s not just the technology.

It’s the, you know, unique strategy and unique business model wrapped around the technology combined with a very good management team. So really, really good story. And with that, Mac, if you wanna take over.

Mac Armstrong, Chairman and CEO, Palomar: Terrific. Excuse me. Thanks, Adam. Greatly appreciate, and thank you to the team at William Blair for allowing us the chance to participate in this exceptional conference. We look forward to it every year.

So as Adam said, I’m Mac Armstrong, Chairman and CEO. I founded the business in 2014. And I’m joined by Christy Chead, our CFO. So it’s a nice occasion to tell the Palomar story and detail how the business really has emerged as a market leader in the specialty insurance space and moreover what we’re doing to elevate the franchise over the next several years. So I’ll go forward.

I won’t read that. Just turning to Page three, if I had to succinctly characterize our journey this last decade, it would really be about profitable growth and evolution. We’ve evolved from a single market focus when we initially launched in 2014 with Earthquake to a specialty property focus to now really a distinct specialty market with a unique portfolio. And importantly, we maintained our margins along the way. We’ve learned a lot.

There have been some body blows and some missteps that have formed our greatest lessons. But I really think that as we sit here today the business is in excellent stead and is well positioned as it’s ever been. Simply we’re putting together a specialty market leader. So just to give a quick kind of level set of where Palomar currently sits, as Adam said, we are a data driven specialty insurer that’s trying to marry data analytics and technology with the traditional underwriting acumen and a sophisticated reinsurance strategy to access markets that we think can generate compelling risk adjusted returns, whether they’re dislocated or in need of innovation. We are an A rated company by A.

M. Best. We are now financial size category 11, following the 55% growth of our surplus over the last twelve months. We have five a portfolio, and we’ll spend more time on this, of five distinct product categories. Earthquake, where we are now the third largest rider of earthquake in The US, in the marine, and other property, which consists of seven product categories such as builder’s risk and flood.

Fronting, our niche oriented casualty business, and lastly, our high potential and high growth crop franchise. We have built a portfolio of both commercial and residential business, which allows us to navigate market cycles effectively and avoid wide swings driven by pricing changes or market capacity. And additionally, you’re right on both an admitted and an E and S basis, again, offering us, I think, more stability or insularity from market driven cycles. We have an open architecture distribution model. It’s differentiated in the fact that we developed, a, an appetite, and we are someone agnostic in how we aggregate risk.

So we work with retail producers. We work with wholesale brokers. We work with, on a selective basis, program managers, and then also partner with 25 different insurance companies who view us as a product specialist to complement their product offering. I think more than anything, we’re dogmatic on consistent earnings, and we are focused acutely on that. And what’s enabling that, in addition to the underwriting, is really a sophisticated and innovative and robust reinsurance risk transfer strategy.

And then, you know, clearly, we’ll give the commercial. We do have a strong management team, but importantly, it’s a management team that’s really been bolstered over the last twenty four months as we’ve, ascended into new categories and really grown the business meaningfully. So just quickly on, the financial profile of the business. As I mentioned, we are focused on consistent earnings, and managing the volatility in the portfolio and ultimately the earnings base. We’ve made considerable efforts to reduce the volatility in our business, most notably reducing continental hurricane exposure that can provide disproportionate risk adjusted loss and return.

And I think what’s happened is over the really since the last four or five years, we’ve been able to more than treble our our income. But I think it’s been doing so in a consistent fashion as we have been able to beat our earnings 10 quarters in a row, and we’ve beaten and raised guidance nine times since 2022. And that included a generationally hard property cat reinsurance market. So when you can see the net income growth, I think it’s also important to point out just what most recently transpired on the heels of our June 1 reinsurance renewal, we raised guidance for the third time this year, taking adjusted net income targets to $195,000,000 to $2.00 $5,000,000 from the year from the previously announced range of 186,000,000 to $200,000,000 So we’re pleased that the stock has responded to the performance, but more than anything, we’re just pleased with the consistency in the results. The next slide, just outlines our strategy.

In 2022, we introduced our Palomar 2x strategic framework. And what that really does is sets a goal of doubling our adjusted net income in an intermediate time frame while maintaining an ROE over 20%. When we say intermediate time frame, we think about it in three to five years. Chris calls Palomar QX more of a philosophy because it doesn’t have a finite objective. It’s a goal that resets every year.

Core tenets of the philosophy include a focus on organic growth, anchoring the business with Earthquake. It may be our, you know, largest line for as long as possible, and then building around that bit the earthquake business with lower volatility lines, both earnings and cyclicality alike. We’ve been able to enter into adjacent markets via a replicable process where we can leverage some combination of technology, people, infrastructure, relationships, whether they be reinsurance or distribution, and in doing so, allow us to kind of buttress these products with a comprehensive reinsurance strategy, again, that is designed to minimize earnings volatility. We introduced this on the heels of our 2021 full year results, and I’m pleased to report that, you know, that first cohort, we’re able to achieve the goal of doubling the underwriting income or the adjusted net income, excuse me, within a three year time frame. So on the heels of 2024, we had indeed double d adjusted net income.

But, you know, we can’t rest on our laurels. This is a philosophy. It’s a it the goalposts are constantly moving. So we are thinking about how we achieve the 2022 and 2023 objectives. And our focus on those cohorts has really allowed us to invest considerably in the organization and look long term at avenues for profitable growth.

As we sit here today, we should be able to achieve the 2022 objective within three years and actually the twenty three twenty twenty three objectives within two years. So doubling the net income from twenty twenty three in two years’ time. So what does all these directives mean, or what does these objectives mean for 2025? I think the answer in some ways is simple. It’s just keep doing what we’re doing, but recognize that we are a fast growing dynamic organization.

So we must continue to evolve. So the charge in the near term for ’25 is simple. It starts with integrate and operate. We must monetize the investment that we made throughout 2024 and the first part of this year. Most notably, we’ve acquired two small businesses, First Indemnity of America and Advanced Ag Protection.

We’ve gotta integrate them into Palomar. They will make us a better organization if they are brought into the fabric of our company. And we must also let our new leaders, whether it’s our new COO or our head of crop or head of E and S casualty, you know, and our head of claims, build the organization, but also allow this business to scale long term. To that effect, you know, we we we wanna continue to build new markets, what we say, deliberately. Our crop and casualty lines have exceptional leadership, and they also have the capital support necessary to become market leading franchises.

But we’re not gonna overextend our appetite. We’re not burning our way into the market. We’re gonna take a deliberate approach. You know, I I sleep well, and I think Chris does this too, knowing that we have experts like Benson Latham, a guy who’s twice over, built a market leading crop franchise, and David Sapia, who’s built an E and S casualty franchise at firms like Access and HDI. And I like the fact that we seed 70% of our crop business to best in class reinsurers.

They validate what we’re our approach to risk management, and they also insulate us from volatile swings. And then I like the fact that our average net limit from a casualty standpoint is less than a million dollars. And furthermore, you know, our surplus excuse me, our reserves is about point two x our surplus. So, again, we’re gonna walk before we walk, run, and build new market leaders deliberately. Thirdly, we wanna remember what we like and, more importantly, what we don’t like.

Last year, we had a mantra of grow where we want, and we’re gonna continue to adhere to that. And we’re gonna maintain a well defined appetite and not chase premium, but rather chase profitable growth. So we wanna continue to avoid surprises and volatility from wind and SCS, severe conductive storm that is, and so call back exposure where we need to. Furthermore, you know, we’re not gonna chase what might be opportunity if it disrupts the existing franchise. Most notably, California homeowners, there’s been dislocation.

We’re not gonna go into that market because we have an existing franchise in earthquake where we partner with 25 different insurance companies in that marketplace that affords us the ability to be a great partner, but also stay away of channel conflict. So not going to California homeowners. And then, fourthly, we wanna continue to generate the consistent earnings. We’re gonna beat that drum or beat the dead horse. With the addition of new talent, in particular, on the investment side and the claims side and actuarial, you know, we can find new sources of earnings growth and preserve a healthy reserve place.

You know, our surplus allows us the ability, especially as the book starts to evolve, to get further investment leverage and, in turn, bolster our results. So page six just kinda gives you a little bit detail of how the business has evolved since we went public in 2019. As I mentioned, we started off as really more of a specialty property franchise, and now we are really a specialty insurer that has a portfolio that’s unique, if not one of one. Getting to critical mass in earthquake has allowed us many economic advantages. It’s a highly profitable line when you achieve critical mass even after you spend the copious amounts of money that we do on reinsurance.

So it it it really does create an exceptional anchor to our earnings base, and it doesn’t weigh down or inflate reserves. It it it grows our surplus rapidly. And what that really means is it allows us to enter new markets conservatively with a comprehensive reinsurance strategy and a very, very modest appetite from a gross and net line size. The combination of this conservatism from a gross and net line standpoint, a strong reinsurance standpoint, and then this earthquake ballast, if you would, has led to strong returns on a relative basis. And you can see the five product categories, earthquake, in the marine, and other, fronting, casualty, and crop.

Within that, there’s over 35 specialty products embedded. And the combination of residential and commercial business coupled with E and S and admitted business really helps us navigate the P and C market cycles. Additionally, the nascency of some of these product categories provides exceptional growth levers, whether it be broadening of your distribution or your geographic footprint, increased risk participation or adjacent market entry. The good thing is our TAM is growing and our market share outside of earthquake is modest. So just a little more color on the product suite.

This slide gives you detail on the mix of the business at the end of the first quarter. You know, earthquake remains our largest line at 30%, and we expect to see continued mid to high teens growth in 2025. The casualty book consists of niche categories like real estate E and O, environmental liability, contractors liability on miscellaneous professional lines. The average net limit at the end of the first quarter was $1,000,000 It is our fastest growing category currently. The inland marine and other property is the third largest, and it kind of again, it best categorizes or captures the sentiment of remember what we like, as we continue to reduce our North American hurricane exposure and the volatility in the earnings base associated with that.

And then also allows us the ability to lean into certain segments in the residential market like flood and like Hawaiian hurricane. Crop is another strong growth driver for us. We’ve made considerable investments in this market. They’re in this product category, adding talent throughout the country and particularly in the Midwest. We brought on 60 people on the crop side in the last twelve months, and we are one of 12 approved insurance providers.

This means that you have the ability to access you’ve been received approval from the US Department of Agriculture to axle access the federal crop insurance company. So we are one of 12 participants in a $20,000,000,000 market, and our expectation is that we will write $200,000,000 of premium in that line of business this year. And then fronting, that is the last category. It has one partnership. It was a it was a AM Best rated insurance company that didn’t have the requisite licensing in the state of California that we were fronting for.

That part they did receive the licensing, so that partnership isn’t runoff. That’s created a bit of a drag on the fronting income. But fronting is also it’s probably the category that we are investing the least in as we like it as a nice leg of the stool, but we think there’s more opportunity in those other four product categories ahead of us. Just quickly, Palomar is an organic growth story, but we have made two strategic acquisitions. And we want to spend a moment just offering a little context on them to help frame the investment thesis and the opportunity that those two provide.

In the case of the surety company, FIA, it really opens up a new specialty market, and it gives us the opportunity to build a national presence in the in the economically attractive surety segment. We had been assessing the surety market for the better part of three or four years before we entered into an agreement with FIA. And, ultimately, we made the choice it was better to buy versus build because of the underwriting acumen possessed by that team as well as the claims handling and the licensing that they possessed. It’s not only allowed us to enter a very profitable segment. Last year, the company had a 22% ROE, but we’re partnering with a really experienced team.

On the heels of us buying this, we did receive a T listing, which will open up the market and let us write bonds on federal contract surety opportunities. And our objective is to build a not just a regional rider, but a nationwide rider and hopefully generate over a hundred million of premium in the surety space and time. Advanced ag was a distribution partner of ours, and that we had made a strategic investment in. We, bought a small stake in it. And when we lot it got into the crop space, they opened up distribution for us and had, longstanding relationships in a solid technology platform that allowed us enter that market in a more expedient fashion.

So acquiring advanced ag really gives us more scale and enhances the crop franchise by bringing certainly talent from a servicing, marketing, and claims handling standpoint, and then also a technology platform that complements the system that we’re building internally. So we’ve said that our intermediate goal on the crop side is to get to about $05,000,000,000 of premium, call it 2.5% market share. Bringing AAAP into the fold quicker gives us more conviction around that intermediate goal, but also think that we can build a billion dollar crop franchise in due time. Central to what we’re doing on the crop and really all of our lines of business is risk transfer. And it is a fulcrum component to our overall business model and certainly to what we’re doing with respect to Palomar two x, you know, it it it delivers on the same key drivers that I’ve tried to touch upon of consistent earnings, profitable growth, and minimal volatility.

What we’ve done is we’ve really have established a conservative risk tolerance that protects our capital, and consistent underwriting income, and really tries to take out the impact of a shock loss or a major event such as an earthquake or hurricane. And, we’ll talk about our six one renewal on a slide, but it’s in terms of giving us, comfort, you know, we like the fact that our, retention is less than 2% of our surplus. And from an earthquake standpoint, it’s less than a month of earnings. One of the key components to the risk transfer strategy and our overall underwriting philosophy is prudently managing our gross and net lines. Our maximum gross line on a property business is $3,500,000 and our maximum is on a casualty business is $3,000,000 After netting down for excess of loss or per risk coverage or certainly quota share, it’s meaningfully below that.

So again, when we think about shock losses, we’re relatively insulated. So what we are doing is we’re really trying to build risk transfer programs that allow us to scale. And we use a range of tools to do so, both facultative and treaty reinsurance, and then, of course, both treaty, and individual risk protection through the form of quota share reinsurance, excess of loss, and per risk coverage. And so all of our products touch them in some way. And as the programs mature and evolve, what you’ll more often than not see is the incorporation of excess of loss, quota share, and some type of stop loss or per risk coverage that bolsters the conservatism, really bolsters the ultimate return of our products.

So the chart there shows all of our product categories and how they’re using reinsurance. This just gives a quick snapshot on two things. One, how for our most mature lines we use reinsurance to support the earnings base and generate hopefully consistent returns, but then also gives us an update on what we just placed at sixone. You know, with Earthquake, which is our largest line of business, we have been able to use reinsurance to not only buttress the balance sheet and the capital base, but also, respond to market conditions effectively. And so when you look at the program that just renewed, the strategy really incorporates quota share reinsurance.

It incorporates catastrophe bonds and excess of loss into a comprehensive reinsurance program that’s allowed us to build market leading share in a pretty dynamic market. We leaned in when market pricing was up on the property cat side was up thirty percent three years ago. And now as the market softening, we’re well positioned to get scale on our residential book as pricing comes down. So our reinsurance program in this circumstance is a hundred people strong is supported by a hundred panels panelists, and, no one constitutes more than 3% of the overall limit, which totals about $3,530,000,000 At 6.1 this year, we were able to procure another $455,000,000 of limit to support our growth, and we were able to buy down our retentions. So our wind retention last year was 15,500,000.0.

We bought that down to 11,000,000, which is basically the equivalent of what our cat load is, in our guidance that we provided this year. And then furthermore, we’ve maintained the quake retention despite it growing 20 plus percent last year at 20,000,000. So, again, well within these guideposts of less than 5% of surplus on an after tax basis and a quarter of earnings. Additionally, we also bought a standalone cover for our Hawaiian hurricane book, which will allow us to really be more attractive to the market as earthquake provides a great source of diversification and correlation to reinsurers. This next slide just quickly just highlights the team.

A few additions that we’ve made. We brought on a new COO, Rudy Hervey. He joined us from SCOR. Althea Garvey is our new chief claims officer. She cut her teeth at Lexington and AIG.

James Long is our CTO. He joined us from RenRe. And Tim Carter is our chief people officer. We’ve also brought on Benson Latham and David Sapia to lead our crop and casualty efforts. These are folks that are terrific leaders with longstanding history and reputations in the market, and they’re helping us build a market leader with a distinct portfolio.

So just quickly, full year guidance. We now stand at 195,000,000 to $2.00 $5,000,000 of adjusted net income. It’s up from the previous range of 186,000,000 to 200,000,000 and what we initially went out with for the full year of 180,000,000 to $192,000,000 And that guidance reflects the impact of the 6.1 placement, but also the full $8 to $10,000,000 or excuse me, 12,000,000 of cat load. So this will generate, call it, 50% year over year growth from a bottom line perspective and will allow us to achieve that Palomar 2x goal in three years for 2022 and actually two years for 2023. So, with that, we’re happy to provide some color on modeling or, open the floor to q and a.

Adam Klauber, Insurance Team Lead, William Blair: Chris, anything you wanna add on on the model?

Chris Uchida, CFO, Palomar: Well, I’d say just from a time standpoint, I would say from the modeling, these slides are all available on the website, so you can look at those. But I will say the crop business and the growth that we’re expecting there will provide some seasonality to our model. So when you think about the third quarter, take a look at these slides, take a look at some of the bullets on the next few slides, and go through those. But for anyone that’s modeling this, the third quarter will have a little bit of a different skew to it than it has in the past, which is kind of slow and steady earnings growth from a a written premium or earned premium standpoint. There’s gonna be a little bit of noise in differential that we wanna point out in q three and make sure people are aware of.

So if there’s any questions on that, happy to address those. But, overall, we’ve put a lot of good notes on these next few slides, all of this is available on our website if you guys wanna look at it in little more detail.

Adam Klauber, Insurance Team Lead, William Blair: Great. Stuart, go ahead. Keep wrapping.

Mac Armstrong, Chairman and CEO, Palomar: California is the largest state, followed by, Washington and Oregon, but we ride it in around 17 states. The the it’s nationwide, yeah, but really where the exposure is. So, like, the New Madrid Fault provides us a good source of premium too. So you take Southern Illinois and Missouri.

Adam Klauber, Insurance Team Lead, William Blair: I I I’ll jump in for a second. When you started the company, had the foresight of building a new core system, which is policy admin and then related systems. Can you talk about, you know, some you know, years later now, some of the advantages. Number one, rolling out new products and going to new niches. How does that help you?

And two, as a lot of your your business is really centered around analytics, how does that marry or help having your own system versus using an a vendor system or whatever?

Mac Armstrong, Chairman and CEO, Palomar: Yeah. No. So yeah. So we we built a system on top of, like, the Pega platform. So it’s really allowed us to scale the business effectively and particularly on our more mature property lines.

So in some cases, you can pre underwrite. Like, in residential earthquake, you pre underwrite everything into a system. So you’re getting a uniform return, whether that’s a policy that’s in Washington or Missouri or Southern California. I think the other thing that’s allowed us to do is for new lines is there’s a very good, what we call an MVP that we can get a MVP product suite that, once a product we go to green light it, we can get it so it’s minimally viable. What’s the m and the v stand for?

And then you can enhance it over time, with getting more customized development. So I think having a system that’s scalable and rep replicable, and particularly what we call our quick quick capture framework, allows us to get in the lines of business, more effectively than maybe others.

Adam Klauber, Insurance Team Lead, William Blair: And what about on the data side? How does that allow you to integrate and

Mac Armstrong, Chairman and CEO, Palomar: use the more robust? It’s twofold. One, it’s, you know, that’s the data side that we can use for portfolio management, so it’s easy to extract the data to help us transfer risk and buy reinsurance. And then it’s also incorporated at the desk level, so for underwriters. And we’ll continue to add tools, some that are, you know, AI enabled.

Like, we just put partnership in place or, excuse me, incorporated a new tool that allows our underwriters to scrape more property information than had previously been available to you, particularly on current building quality, in our earthquake, platform. So, I think the the platform we have is is API driven, which is allowing us to probably get be a little more effective in incorporation of, you know, certain ANI enabled tools.

Adam Klauber, Insurance Team Lead, William Blair: Right. One question I get a lot is, yeah, you make a lot of money in Earthquake. It’s a great line of business, moved into some other lines of business that are really good niches. In insurance, which has got, you know, very, very low barriers to entry, why why aren’t a lot of other competitors jumping into earthquake or some of these other small lines?

Mac Armstrong, Chairman and CEO, Palomar: Yeah. So I I mean, I think earthquake, I would bifurcate between the residential and the commercial. And I would also say, like, large commercial and small commercial. You know, we’ll see new entrants in large commercial earthquake because it’s it’s really there there are fewer barriers to entry. You can basically work with an MGA and give them capacity and limit.

And that’s why there’s probably a little bit of not probably. That’s why they’re seeing some rate pressure in large commercial, earthquake. In midsize accounts, you need to have a system. You need to have distribution expertise. And then furthermore, you need to have, the reinsurance strategy.

And this applies to all of the book, but you need to have comprehensive reinsurance. Small commercial and residential business are very similar in that, you know, they’re they’re low average premium average premiums. You need to have scale to optimize your reinsurance. You need to have a system that’s easily, well, easily easy to transact with. And then I think last of all, like, it’s capital intensive.

So if you were gonna go into the earthquake market, you had to put big capital up. You have to aggregate the business. And then furthermore, you have to make sure you’re not stacking limits. So someone that wants to go into, California earthquake can’t be riding homeowners business because it’s gonna stack their limit and lead to disproportionately or less attractive returns than you do see from us on the you know, writing this pure play.

Adam Klauber, Insurance Team Lead, William Blair: Right. Well, that that that answer. Thanks, Matt. Thanks,

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