Palomar (PLMR) Q1 2026 Earnings Transcript

Image source: The Motley Fool.

DATE

Thursday, May 7, 2026 at 12 p.m. ET

CALL PARTICIPANTS

• Chairman and Chief Executive Officer — Mac Armstrong
• President — Jon Christianson
• Chief Financial Officer — Chris Uchida

Need a quote from a Motley Fool analyst? Email pr@fool.com

TAKEAWAYS

• Gross Written Premium -- Increased 42% to $629.8 million, led by broad-based growth across all five product categories.
• Adjusted Net Income -- Rose 23% to $63.1 million, or $2.31 per share, compared to $51.3 million, or $1.87 per share.
• Adjusted Combined Ratio -- Reported at 76%, up from 68.5%, primarily due to a higher loss ratio, partially offset by a lower adjusted expense ratio.
• Adjusted Return on Equity -- 26.6%, matching last year's level and remaining above the company's 20% threshold.
• Net Earned Premiums -- Grew 59% year over year to $261.4 million, with the ratio of net earned premiums to gross earned premiums rising to 51.9%.
• Catastrophe Bond -- Completed issuance of the seventh Torrey Pines Re catastrophe bond, securing $410 million of collateralized multi-year reinsurance for California earthquake and a standalone Hawaii hurricane.
• Share Repurchases -- 190,255 shares bought in the quarter for $23.1 million, plus an additional 38,875 shares repurchased for $4.2 million through May 5, 2026; Board approved a new two-year $200 million share repurchase program.
• Crop Segment -- Gross written premiums up 82% year over year, with strong production in winter wheat; company now targeting 35% growth for 2026 versus prior 30% expectation.
• Surety and Credit Segment -- Increased 131% year over year, and a de-listing authority for more than $72 million was obtained to expand bond writing on federal projects.
• Losses and Loss Adjustment Expenses -- Rose to $87.1 million from $38.7 million, with $86.8 million attributed to attritional losses, and $0.3 million from catastrophe losses.
• Casualty Reserves -- Over 85% held as Incurred But Not Reported (IBNR), reflecting a conservative reserving approach.
• Acquisition Expense Ratio -- 14% for the quarter, driven by business mix and higher retained business, compared to 12.3% last year.
• Net Investment Income -- $18 million for the quarter, up 49% year over year, with a 4.9% yield and average yields on new investments above 5%.
• Adjusted Net Income Guidance -- Increased to $262 million to $278 million, reflecting the eighth upward revision since 2024.
• Residential Earthquake Retention -- Premium retention for the flagship admitted product recorded at approximately 97%.
• Reinsurance Economics -- Six treaty placements delivered improved terms, including higher ceding commissions for casualty lines and incremental capacity for property lines.
• AI Initiatives -- Company integrated AI tools across multiple departments, reporting measurable operational gains and prioritizing further investment in AI strategies.
• Builder’s Risk and Construction Engineering -- Business outperformed plan, supported by new underwriting teams and expanded reinsurance capacity, with entry into the data center segment as a focus area.
• Market Conditions -- Double-digit residential property rate increases reported; commercial earthquake renewal rates decreased 18% and excess property lines saw declines of 12%-15%.

SUMMARY

Palomar Holdings (NASDAQ:PLMR) reported expanded product diversity, with 90% of premiums from lines not exposed to the typical property and casualty cycle. Management emphasized a disciplined underwriting approach, including selective nonrenewals in unprofitable segments and maintaining consistent reinsurance cessions. The company highlighted robust new business momentum in residential earthquake coverage and continued growth in builder’s risk, crop, and surety and credit insurance. Guidance for adjusted net income was raised, supported by higher premium retention, improved reinsurance terms, and favorable reserve development. The board enacted an enhanced share repurchase program, reflecting management’s stated conviction in share undervaluation and long-term growth prospects.

• Board authorization of a new two-year $200 million share repurchase program replaced the prior authorization.
• Gross written premium growth was pronounced across earthquake, crop, inland marine, surety, and credit product categories.
• High catastrophe bond capacity for California earthquake and Hawaii hurricane broadened reinsurance protection and distribution channels.
• Drought-related exposures in crop insurance were addressed by risk-sharing reinsurance, with core retained exposure tied to Midwest crops that had just commenced planting.
• Adjusted net income guidance now reflects the company’s expectation to double 2024 adjusted net income within two years and maintain an ROE exceeding 20%.
• Investment in AI technology has yielded measurable workflow improvements in underwriting, analytics, and claims processing.

INDUSTRY GLOSSARY

• Admitted and E&S Premium: Admitted refers to insurance regulated by the state with protection from state guaranty funds, while E&S (Excess & Surplus) denotes coverage offered outside standard regulatory frameworks for specialized or hard-to-place risks.
• IBNR (Incurred But Not Reported): Reserve for potential insurance claims that have occurred but have not yet been formally reported to the insurer.
• Quota Share Reinsurance: A form of reinsurance where the reinsurer assumes a fixed percentage of all policies written by the primary carrier, sharing premiums and losses in proportion.
• Catastrophe Bond (Cat Bond): A high-yield debt instrument intended to transfer specified catastrophe risks from a sponsor to investors.
• PRF Product: Pasture, Rangeland, and Forage insurance, providing coverage to agricultural producers for lack of rainfall or drought.
• VOBA (Value of Business Acquired): An intangible asset representing the present value of future profits from insurance contracts acquired through acquisition.

Full Conference Call Transcript

Chris Uchida: 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 Christianson, 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 05/14/2026. 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 the 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 some 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 measures can be found in our earnings release. At this point, I will turn the call over to Mac.

Mac Armstrong: Thank you, Chris, and good morning, everyone. I am very pleased with our first quarter results as they reflect a strong start to the year and are another example of our team's ability to deliver consistent, profitable growth. Our results reinforce the durability of our model and the uniqueness of our specialty product portfolio and its ability to generate compelling risk-adjusted returns. Our book consists of a broad array of specialty products and is truly diverse.

The following breakdown of Q1 in-force premium illustrates this diversity: a 57/43% split between admitted and E&S premium; a 60/40 split between property, including earthquake, and casualty premium; a 45/55 split between residential and commercial property; and 90% of Q1 premium is from lines not impacted by the traditional P&C market cycle. Our differentiated portfolio is intentionally built to perform through any market cycle. We are well positioned to deploy capital toward more desirable opportunity while reducing exposure in areas where market conditions or loss trends are less favorable. Our strong first quarter results reflect this capability. Looking closely at the quarter, gross written premium increased 42% year over year.

Importantly, growth was broad-based across all five product categories, including earthquake. Profitability and capital efficiency also remained strong, highlighted by adjusted net income growth of 23%, an adjusted combined ratio of 76%, and an adjusted return on equity of 27%. These results mark our fourteenth consecutive quarterly earnings beat, extending the track record of consistent performance in our business. In recognition of our belief in the long-term opportunities we possess, our ability to execute the Palomar 2x strategic imperative, and what we feel is a depressed value of our shares, we repurchased 190,255 shares in the quarter. Furthermore, our Board authorized a new two-year $200 million share repurchase program on 05/06/2026.

I would like to briefly talk about the current market conditions in our business. The marketplace is constantly changing and pricing varies significantly between different segments. In the property sector, competition remains strong, especially for larger commercial accounts where prices are still declining by double digits. Our residential business lines continue to offer rate stability and balance, notably with double-digit rate increases. Casualty pricing varies, with some lines like healthcare liability experiencing strong increases, with rates of 35%, while other casualty lines like cyber face intense competition from new entrants or standard carriers returning to the market. We maintain disciplined underwriting practices and are prepared to nonrenew accounts if pricing fails to align with our return requirements.

Uncorrelated growth vectors in the surety and credit and crop space fortify this conviction. Overall, we believe our portfolio of specialty products is positioned to generate attractive returns through the cycle. Turning to our earthquake franchise, which is 58% residential and 63% admitted, we delivered 3% year-over-year gross written premium growth despite continued pressure on commercial earthquake. Pricing in commercial earthquake remains competitive, with rates decreasing approximately 18% on renewals and new business coming in at a higher average annual loss than the existing portfolio. We are pursuing opportunities outside peak zones and are willing to increase line size on high-quality existing large accounts at renewal when returns are compelling.

Importantly, we remain committed to underwriting discipline and are not willing to pursue premium at the expense of profitability, especially on new business. Our residential earthquake business is performing well. As with our other admitted property products, market conditions remain favorable with steady new business production, stable rates, constructive engagement with the California Earthquake Authority and its participating insurers, and a healthy partnership pipeline. The balance of this line of business is clearly seen in our stellar premium retention, which was approximately 97% on our flagship admitted product in the first quarter. Looking ahead, we remain confident in our earthquake outlook and our ability to deliver growth as well as strong profitability for full year 2026.

Like earthquake, the balance of our specialty portfolio across inland marine and property is performing well. Gross written premiums grew 47%, up from 30% in Q4. Residential and commercial lines are at a 34/66% split, respectively, and admitted and E&S products are at a 70/30% split, respectively, fueling the success of this line. As it pertains to our commercial product suite, builder's risk remains a key contributor, with standout performance this quarter from our admitted portfolio. We are expanding our underwriting footprint, including the recent opening of an underwriting presence in the Northeast. We are also pleased with the progress of our newly launched construction engineering line.

With strong reinsurance backing, new team members, and enhanced infrastructure, our first quarter results are performing well above our initial plan. As a reminder, this business provides an entry point into the data center market, which we view as an exciting long-term growth opportunity. The excess national property and large county and E&S property lines face the most intense competitive pressure with rate decreases remaining in a range of 12% to 15%. Overall, our commercial property book is generating attractive risk-adjusted returns. Our seasoned underwriters are focused on retaining renewals and selectively writing new business. Our residential property practice was led by the Hawaii hurricane business.

Lahaina continues to perform well, benefiting from limited competition, strong rate adequacy, and embedded growth that will be maintained by a recently approved 12.5% rate increase. We are encouraged by the progress of our flood partnership with Neptune. The growth and improved spread of risk from Neptune allowed us to endure elevated flood activity in Hawaii. Fortunately, prior-period catastrophe gains offset flood losses, so our $8 million to $12 million annual catastrophe load was not subsumed by the catastrophe activity in the first quarter. Turning to casualty business, gross written premium increased approximately 55% year over year, reflecting slower sequential growth from 2025. Strong performing lines include environmental liability, primary general liability, and contractor general liability.

Overall casualty growth in the quarter was driven by geographic and distribution expansion, recently added underwriting talent getting to scale, rate increases, as well as the launch of a sports entertainment general liability program with a long-standing MGA partner. Our MGA strategy is founded on forming partnerships with a carefully selected group of established market leaders in business lines where we possess internal expertise. This approach allows our programs to be effectively managed by and seamlessly integrated with our in-house underwriting teams. As I mentioned earlier, conditions remain dynamic and increasingly nuanced in the casualty space. We continue to see rate increases in healthcare liability, primary contractors’ general liability, E&S casualty, and environmental liability.

That said, the rate increases are moderating in several lines due to increased competition from market carriers and new market entrants. Since our entry into the market, we have actively managed limits, attachment points, and exposures, with a focus on lower net line sizes and avoiding more volatile classes with elevated severity risk. We are comfortable pulling back where underwriting conditions deteriorate. In addition, we maintain conservative reserving, with more than 85% of casualty reserves held as IBNR. The increased ceding commissions earned on our casualty reinsurance renewals this year reinforce our confidence and validate the quality of underwriting in the portfolio. In an evolving market, we take confidence in the expertise of our casualty underwriting team.

We diligently manage our portfolio, maintain disciplined approaches to pricing and limit management, and rigorously apply clear walk-away criteria for each individual account. Turning to crop, we are off to a strong start for the year. Gross written premiums rose 82% year over year. Over the course of last year, we added marketing, underwriting, and claims professionals who focused on crop products and territories that are written in the first and fourth quarters of the year. The first quarter of 2026 benefited from this experienced talent who drove strong production in winter wheat and other off-cycle crop insurance products.

Lastly, we are benefiting from strong sales of our Enhanced Coverage Option products driven by higher demand resulting from increased subsidies under the farm bill. Commodity prices established in February remain generally in line with last year. We do not expect any meaningful impact from higher energy prices or tariffs. Current drought conditions put pressure on results in winter wheat in states such as Oklahoma and Kansas, and PRF products in Mountain West and Plains states. That said, these results should be partially mitigated by our risk-sharing structure. Importantly, most of our retained exposure is tied to Midwest corn and soybeans, where planting is just beginning.

Looking ahead, we now expect to deliver 35% growth versus the previously expressed level of 30% and nice profitability in 2026. Surety and credit, our newest product category, increased by 131% year over year. This segment includes our FIA and Gray Surety, along with other surety and credit insurance we write on an assumed reinsurance basis. The integration of Gray, which is now rebranded as Palomar Casualty and Surety, is going well, providing a strong foundation to build a leading franchise. The Palomar Surety leadership team has acclimated well to our organization, and they continue to bolster their already strong team of underwriters with key hires and targeted expansion.

A key milestone Palomar Surety achieved this quarter was the receipt of a de-listing authority for the group of more than $72 million. This will create an exciting long-term opportunity to write more bonds on federal projects in the years to come. That level of authority will increase our relevance to a larger distribution channel and attract new talent. We now have a surety platform with meaningful scale and geographic reach and a clear path to becoming a top-20 surety market in time. As previously mentioned, surety and credit alongside crop further diversifies our earnings base and reduces volatility caused by the traditional P&C cycle.

In reinsurance, we completed six placements—three casualty and three property treaties—all with better economics, and successfully issued our latest Torrey Pines Re catastrophe bond. On the property side, we were able to secure incremental capacity for the builder's risk, including construction engineering, and excess national property lines of business. Besides the strong economics earned through the treaty, this added capacity further expands our ability to offer larger limits and opens new admitted-market retail distribution channels in the case of builder's risk. The casualty quota shares renewed at higher ceding commissions while maintaining their expiring session percentages—again, a testament to the performance of these casualty lines.

Last week we completed our seventh Torrey Pines Re catastrophe bond issuance, securing $410 million of fully collateralized multi-year reinsurance protection for California earthquake and, for the first time, a standalone Hawaii hurricane. On a risk-adjusted basis, pricing was down 15%, which is in line with the assumption at the higher end of our adjusted net income guidance range. Before concluding, I want to touch on our organizational effort to leverage AI across Palomar. As a highly regulated and asset-intensive business, we view AI not as a source of obsolescence, but rather, to the contrary, as an important tool to enhance efficiency, strengthen decision making, and support our people.

AI-enabled processes and tools are in use across departments such as underwriting, actuary and analytics, reinsurance, customer service and operations, technology, and claims. They are enhancing operational workflows, improving risk selection, accelerating system development times, and automating more clerical and perfunctory tasks. Our approach combines the use of innovative third-party tools with internally developed solutions, and these initiatives are already generating measurable gains. Advancing AI capabilities will remain a key strategic priority as we continue to scale the business. In summary, we are confident in our strong start to 2026 and our ability to sustain profitable growth and attractive returns in this market—or any, for that matter.

As a result, we are increasing our adjusted net income guidance from $260 million to $275 million to $262 million to $278 million. As an aside, this marks our eighth adjusted net income guidance increase since 2024. With that, I will turn the call over to Chris to discuss our financial results and guidance assumptions in more detail.

Chris Uchida: Thank you, Mac. Before I begin, please note that during my portion of the call, when referring to any per-share metric, I am referring to per diluted common shares 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 first quarter of 2026, our adjusted net income was $63.1 million, or $2.31 per share, compared to adjusted net income of $51.3 million, or $1.87 per share, in the first quarter of 2025, representing adjusted net income and EPS growth of 23%.

Adjusted underwriting income for the first quarter was $62.8 million, an increase of 22% compared to $51.6 million in the prior-year quarter. Our adjusted combined ratio was 76% compared to 68.5% in the first quarter of 2025 and compared sequentially to 73.4% in the fourth quarter of 2025. The increase in the adjusted combined ratio was primarily driven by a higher loss ratio, offset by a slightly lower adjusted expense ratio associated with growth and mix. For the first quarter, our annualized adjusted return on equity was 26.6%, in line with our ROE reported last year. Our first quarter results continue to validate our ability to sustain profitable growth while maintaining returns well above our Palomar 2x threshold of 20%.

Gross written premiums for the first quarter increased 42% to $629.8 million as compared to the prior year's first quarter, further demonstrating the strong momentum that we have across our unique, diversified specialty portfolio. Looking at our key specialty insurance products, it is important to remember the seasonality of our crop segment given the majority of the premium is written and earned in the third quarter of each year, with only modest premium in the second and fourth quarters. We will provide more information during the year on the expected impact of seasonality throughout our specialty portfolio. Net earned premiums for the first quarter grew 59% year over year to $261.4 million.

As expected, our ratio of net earned premiums as a percentage of gross earned premiums increased to 51.9% in the first quarter, compared to 43.7% in the first quarter of 2025 and compared sequentially to 48.2% in the fourth quarter of 2025. The year-over-year increase in this ratio is reflective of our improved excess-of-loss reinsurance at the last renewal, growth of our lines of business that use quota share reinsurance—such as our crop business, where we retain more premium than previously as we continue to leverage our growing balance sheet—and the acquisition of Gray Surety.

With the timing of our core excess-of-loss reinsurance program renewal, and the majority of our crop premiums written and earned during the third quarter, we continue to expect the third quarter to be the low point of our net earned premium ratio, increasing throughout the remainder of the reinsurance treaty year in a similar pattern to last year. Losses and loss adjustment expenses for the first quarter increased to $87.1 million compared to $38.7 million in the first quarter of 2025. Losses for the quarter were comprised of $86.8 million of attritional losses and $0.3 million of catastrophe losses.

The total loss ratio for the quarter was 33.3%, compared to 23.6% in the first quarter of 2025 and compared sequentially to 30.4% in the fourth quarter of 2025. In line with our expectations and guidance, the increase in the loss ratio was driven primarily by higher attritional losses associated with the growth in casualty and crop. Our losses for the quarter include $3 million in catastrophe losses from the flooding event in Hawaii in March. Additionally, our first quarter results include $10.3 million of favorable prior-year development—$7.6 million of attritional and $2.7 million of catastrophe. Favorable prior-year development was primarily from our short-tail inland marine and other property lines of business.

As we have discussed previously, favorable development reflects our long-standing conservative approach to reserving. We continue to establish reserves with appropriate margin, which allows for modest releases over time as claims mature, particularly in our short-tail lines. Similar to the favorable development we saw during 2025, this quarter is another good example of the conservative approach to reserving and where we are seeing continued reserve releases. Our acquisition expense as a percentage of gross earned premiums for the first quarter was 14% compared to 12.3% in the prior-year quarter and compared sequentially to 13% in the fourth quarter of 2025.

The increase was driven primarily by business mix—notably surety, which has a higher acquisition expense and lower loss ratio—and our increasing retained business resulting in lower ceding commissions. The ratio of other underwriting expenses, including adjustments, to gross earned premiums for the first quarter was 8.5%, compared to 7.5% in the first quarter of 2025 and compared sequentially to 8.1% in the fourth quarter of 2025. These results include two months of Gray’s underwriting expenses. As we have consistently communicated, we remain committed to investing in talent, technology, and systems to support the scalable platform we are building.

While these investments create some near-term pressure, we continue to expect operating leverage over time as the organization grows within our Palomar 2x framework. Our net investment income for the first quarter was $18 million, an increase of 49% compared to $12.1 million in the prior-year quarter. The year-over-year increase was primarily due to higher yields on invested assets and a higher average balance of investments held due to cash generated from our operations, including the Gray acquisition. Our yield in the first quarter was 4.9%, compared to 4.6% in the first quarter last year. The average yield on investments made in the first quarter was over 5%.

At quarter end, cash and invested assets totaled approximately $1.6 billion, and the weighted average duration of the fixed maturity portfolio was just over four years. At the end of the quarter, our net written premiums to equity ratio was approximately 1.1 to 1. At 03/31/2026, stockholders' equity was $959 million, reflecting continued earnings generation offset by shares repurchased and transaction fees incurred during the quarter. Our balance sheet remains strong and well positioned to support continued growth across the portfolio. From a modeling perspective, we do not expect to see anything different from what we shared with you on the last call. 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 slight improvements in both ratios for 2026. Similar to last year, the acquisition expense ratio and the other underwriting expense ratio will be higher in the first half of the year and lower in the second half of the year, with the crop earned premium influence. 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, as demonstrated in the first quarter. These expectations reflect our expected growth, business mix, integration of Gray Surety, and use of capital as we build our specialty insurance platform. Turning to our 2026 adjusted net income guidance, we are increasing our full-year guidance to $262 million to $278 million. This range still includes $8 million to $12 million of catastrophe losses in addition to mini-catastrophes that we have historically included in our guidance. The midpoint of the range represents 25% year-over-year earnings growth, more than doubling 2024 adjusted net income in two years and an ROE north of 20%.

Lastly, during the quarter, we repurchased 190,255 shares at a cost of $23.1 million as our shares have continued to trade well below what we believe to be fair value. Through 05/05/2026, we have repurchased an additional 38,875 shares at a cost of $4.2 million. Additionally, our Board of Directors authorized a new two-year $200 million share repurchase program, replacing the previous plan effective 05/06/2026. At recent valuations, we are buyers of our stock, especially for a company with an earnings CAGR of over 30% since 2023 through the midpoint of our 2026 guidance, and who consistently beats the Street and raises earnings guidance. With that, I would like to ask the operator to open the line for any questions.

Operator?

Operator: Thank you. And with that, we are now entering our question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press 2 if you would like to remove yourself from the queue. For any participants using speaker equipment, it may be necessary to pick up the handset before pressing star keys. One moment while we poll for questions. We will now open the call for questions. Our first question comes from the line of Andrew Anderson with Jefferies LLC. Please proceed with your question.

Andrew Anderson: Hey, good morning. As casualty pricing maybe moderates a bit here, how are you thinking about the interplay with retention decisions? And does a moderating price environment on long tail kind of slow the pace at which you are thinking about increasing the net retentions?

Mac Armstrong: Andrew, it is Mac. It is a good question. What I would say is across the portfolio, the term we have used is it is nuanced. We are seeing rate increases hold, if not actually intensify, in healthcare liability. In certain lines—E&S casualty in the low excess layers—it is moderating some. As I mentioned in the call, we had in the quarter a few casualty quota shares renew and they renewed at favorable economics, and we held the cessions flat. So I think right now, especially as the books in many instances are still somewhat immature—one, two, three years of development experience—we are more inclined to hold the retentions flat. So I think you should expect to see that.

The other thing I would add is there are certain lines of business where rates are not moderating but rather might be soft, and that is where we are taking a more proactive stance toward triaging. An example would be a participatory front we have in cyber where we take a modest retention—call it less than 10%. In that market we have tried to push rate, we have changed eligibility requirements, as well as increased sublimit utilization. But if the market does not bear that, we are more than happy walking away from business.

So, long-winded answer, but simply put: expect cessions to remain consistent where they are right now, and also expect to see us in many instances walk away from business and, in fact, prune books too.

Andrew Anderson: Thank you. And then on commercial earthquake, I think I heard minus 18% price. That is a bit worse than where the fourth quarter was. How are you thinking about the pricing pressure on the commercial quake line throughout the rest of the year and maybe going up to total earthquake premium volume trends?

Mac Armstrong: Yes, Andrew. I would say it was maybe a bit worse, but if you really went into it, it is account specific. In the first quarter we probably had a little bit more large commercial business renewing than small commercial, percentage-wise. Also, we did not see rate pressure in 2025, so this was really the last quarter where you were renewing accounts for the first time in this soft commercial property market. On the whole, we expect rate decreases to persist for the commercial quake market through 2026, and we think that will be offset by the strong performance on the residential side that will allow us to grow earthquake for the year.

The other thing I would add is on the residential quake side, we are seeing strong new business production. Even at the start of this quarter, we had a record day over the last 365 days. It is providing a nice anchor. We will benefit from reinsurance savings across the earthquake portfolio, and with the stability of the residential quake book, we expect to see margin expansion. Residential will be a growing percentage of the quake mix.

Operator: Thank you. And our next question comes from the line of Analyst with Evercore ISI. Please proceed with your question.

Analyst: Hey, good morning. Thanks for taking my question. My first one on the casualty book: you noted having 85% of the casualty reserves in IBNR. Could you talk about how this has changed over the accident years? I know you have expanded into geographies and a new product line, so it may not be a clean compare, but has this shifted around at all? Thanks.

Mac Armstrong: I would say the IBNR has been north of 80% basically since we started our casualty practice, and I think it probably ticked up slightly this quarter. As newer lines come on—like the new sports and entertainment general liability—that is going to be close to 100% IBNR in its first year. So that might push it up some. But on the whole, IBNR is, if not the totality, the strong lion's share of the reserve base. Chris, anything to add?

Chris Uchida: No. We have talked about this a lot—that we take a very conservative approach to reserving upfront. That is shown in that metric where, as Mac mentioned, it has been improving. I think last quarter we were just above 80%; now we are above 85%. The majority of the reserve base is sitting in IBNR where we do not have claims in yet. We are taking a conservative approach where we are not reducing that reserve base; if anything, we are adding to it. We have also said we will react quickly to bad news—where we take reserves up—but we are not going to release reserves to offset that.

You can see some of that with slight unfavorable on the casualty side, but overall nothing causing any major concerns or large changes in accident year expectations. The book is performing well. We are seeing strong growth and it is still very profitable, as you can see through the overall combined ratio and the additional underwriting income that we are adding to the bottom line.

Mac Armstrong: The only other thing I would add is just a reminder: the net reserves on the casualty book are less than 19% of surplus.

Analyst: Great, thanks so much for that detail. And then as a follow-up to the earlier question on quake growth: you said you are expecting the commercial quake decreases to persist. In your outlook for quake, are you expecting them to maintain where they are or continue declining like they worsened in the first quarter relative to last quarter? And could you potentially call out the growth in the resi book?

Mac Armstrong: The assumption we are using is that the rate decreases will maintain at a similar level—think mid to high teens. We have not broken out the detailed residential quake versus commercial quake growth, but you can back into it when you know that rates are down about 15% on commercial, the overall earthquake book grew 3%, and residential quake is just under 60% of the mix. You can do the math better than I am, but it speaks to residential being close to double-digit growth.

Operator: Thank you. And our next question comes from the line of Mark Hughes with Truist Securities. Please proceed with your question.

Mark Hughes: Thank you. Chris, the amortization of the intangibles was about $6.1 million this quarter. Is that going to be an ongoing line item, and where does it show up?

Chris Uchida: Yes, the amortization of the intangibles will be ongoing based on the acquisitions that we have done over the last two years. We have three acquisitions; obviously, the largest happened in the first quarter with the Gray Surety acquisition. There are intangibles with that book that we are amortizing. As you have probably heard at other insurance companies, there is something called VOBA. We do have some of that we are amortizing. We are including what is called the profit component of that in our add-backs, and you can see that going through.

That is a large component of the differential between, let us call it, the straight GAAP combined ratio and what we are calling our adjusted combined ratio to get you level-set with a normalized year-over-year calculation. The amortization is sitting in other adjusted underwriting expenses, and that is where we would expect it to sit. Assuming no other acquisitions, the dollar amount should decrease over the next couple of years, as some pieces amortize quicker. But overall, yes, we expect that to remain for, call it, the next five to ten years as you look at those acquired books of business.

Mark Hughes: Appreciate that. And then, Mac, the inland marine—it sounds like you have good growth initiatives there. Generally speaking, how is the pricing and the competitive dynamic more broadly within inland marine? It has been a great contributor—what should we think about going forward?

Mac Armstrong: Hey, Mark. Good question. First and foremost, it has been a great contributor, and you should expect it to continue to be so. When you break down that book, around a third is residential business—flood, where we are getting rates on renewals; Hawaii, where we are getting rate on renewals; and even our Texas homeowners book, where you have seen rate increases and stable performance. That is a nice anchor to offset what is really a fraction of the book that is seeing rate pressure—layered-and-shared large excess national property accounts and E&S layered-and-shared builder's risk accounts. The balance of the book, including the admitted builder's risk, has very stable rates.

It is also reaping the benefit of geographic expansion, new capacity from third-party reinsurers, and our growing balance sheet, which means we can take more net. That is going to drive performance in addition to the residential side. So it is the breadth of the portfolio, the mix of admitted and residential business, and infrastructure growth that will more than offset pressure in a small segment of the book.

Mark Hughes: You had alluded to the potential to get involved in the data center line. Is that something you are not doing now but have visibility for, and what is the timing?

Mac Armstrong: Thanks for asking that, Mark. We have hired Matt and a team of underwriters in the construction engineering practice. Our approach right now with data centers is to write it more from a builder's risk standpoint than as a stabilized asset. We have put reinsurance in place—both the existing builder’s risk G+ backstop and auto-fac relationships—that allow us to write large limits on a gross basis that net down modestly with what we retain. So our data center focus right now is more builder's risk than on stabilized assets.

Chris Uchida: And I would add, Mark, we have a strong, experienced team of underwriters in that builder’s risk segment that are geographically spread where the markets are opportune. Similarly, Matt and the team on the engineering construction side are long-tenured underwriters with great experience in larger projects.

Mark Hughes: Very good. Thank you.

Operator: As a reminder, if you would like to ask a question, please press 1 on your telephone keypad. Our next question comes from the line of Meyer Shields with KBW. Please proceed with your question.

Meyer Shields: Great, thanks so much. Mac, just one basic question to start with. You mentioned drought as an issue for crop. Was that something that impacted first quarter results, or is that something that we should see based on what we know so far in the third quarter or the rest of the year?

Mac Armstrong: Meyer, the drought would impact our winter wheat products, but it would ultimately manifest itself over the course of the year. As I mentioned, those winter wheat products are heavily reinsured. What is really going to drive the underwriting year results will be the Midwestern soybeans and corn. On the whole, we are watching Oklahoma and Kansas and the impact on winter wheat, but the rest of the year the rainfall seems to be in line.

Meyer Shields: Okay, that is helpful. And you sort of alluded to inflationary pressures maybe stemming from the Middle East. I am hearing some concern specifically about fertilizer, and I was wondering how the farmers that you are insuring are thinking about that and how we should think about any exposure there.

Jon Christianson: Hey, Meyer, this is Jon Christianson. I can take that one. At this point, as we think about how the insurance product for crop responds, we do not see, for the 2026 growing season, any kind of impact as may be a consequence of fertilizer disruption coming out of the Middle East. While it may impact farmers across the globe on a longer-term basis, for the 2026 growing season it has not emerged as an issue for us.

Mac Armstrong: Yes, Meyer. The simplest way to put it is it may impact the cost to run the farm, but not necessarily the yields—which is what we are insuring against.

Meyer Shields: Okay. I did not know whether there was enough concern for yield to ultimately be impacted, but I think that clears it up. And for the time being, I assume that the guidance update does not contemplate any change to reinsurance attachment points at June 1?

Mac Armstrong: Yes, Meyer, that is correct. Our guidance range assumes 10% to 15% down on a risk-adjusted basis. You could say the high end of the guidance range would assume a 15% rate decrease. We have not made any changes to retentions in those assumptions.

Meyer Shields: Okay, perfect. Thanks so much.

Mac Armstrong: Thank you.

Operator: And our next question comes from the line of Mark Hughes with Truist Securities. Please proceed with your question.

Mark Hughes: This is just more for my own curiosity. If you are insuring yields and the farmers do not use as much fertilizer, does that have an impact, or is it based on broader industry aggregates when you are looking at yield performance?

Jon Christianson: Yes, Mark. A lot of the fertilizer that goes into the 2026 growing season had been secured by many of these farmers prior to a lot of the pressure we have seen come on in the last month or two.

Mark Hughes: Is that a thing, though? Is that something to consider as you are looking at underwriting—the potential for different usage of fertilizer?

Jon Christianson: On a long-term basis, that could be considered as we look year to year as we underwrite crop insurance. We do not see that emerging as an issue this year. You could have made a similar argument last year coming out of some of the tariff discussions on April 1, and ultimately it was near-record yields for the 2025 growing season.

Mac Armstrong: The market would also reflect it in commodity prices that would be reset next year. The commodity prices are set for this year based on the cost of fertilizer that Jon was referring to. The market is efficient. If there is pressure on the cost of fertilizer and that impacts the cost to produce, it will be reflected in the commodity prices that will be reset in February–March 2027.

Mark Hughes: Very good. Thank you.

Operator: Thank you. And our next question comes from Pablo Singzon with J.P. Morgan. Please proceed with your question.

Pablo Singzon: Hi. Thank you. Did you change any of your initial loss picks in casualty or crop relative to last year, or is the year-over-year change in attritional purely mix?

Chris Uchida: Sorry, Pablo. Could you repeat that question? You kind of broke up there for us.

Pablo Singzon: Yep, sorry. I was asking if you changed any of your initial loss picks in casualty or crop relative to last year, or is the year-over-year trend in attritional purely mix?

Chris Uchida: That is a good question. At this stage, we have not changed any of our initial loss picks for our business. As we said earlier, we remain very conservative on these lines of business, so we want to maintain those loss picks. We obviously evaluate how everything is performing, but at this stage there has been no reason for us to change any of our overall loss picks on our attritional lines of business.

Pablo Singzon: Okay. And then the second question is about residential earthquake. Can you talk about the broad competitive environment there? Are you seeing or hearing about new competitors, and how do you think your offering is differentiated? Thanks.

Mac Armstrong: Hey, Pablo. We remain the market leader in residential earthquake outside of the California Earthquake Authority. We remain a very collegial competitor with the California Earthquake Authority in bringing solutions to their participating insurers that need a more robust and comprehensive product offering. A traditional competitor in the market is GeoVera; they remain a good competitor. But there has been plenty of opportunity for us to continue to drive growth, and the uniqueness of our product—in terms of coverages, the flexibility in deductible options, as well as your ability to bespoke your coverage and pay a price that you want—remains distinct. As I said, in the quarter we had a record new business day, and our retention was 97%.

We think we are in a good spot there.

Operator: Thank you. And with that, there are no further questions at this time. I would like to turn the floor back to Mac Armstrong for any closing comments.

Mac Armstrong: Thank you, operator, and thank you to all the participants on the call this morning for your time. We greatly appreciate your support and interest. Thank you to the Palomar team for your continued hard work and excellent execution. Our sustained strong results are a reflection of all you do to make us a market leader in the insurance space. Lastly, I want to reiterate the conviction we have in our plan and the results we will achieve. As such, we will use the tools that we have to enhance our returns and take advantage of what we feel is an undervalued, underappreciated stock and story right now.

We look forward to sharing our success with you next quarter and those to come. Have a great day.

Operator: Thank you. And with that, ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful rest of your day.

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has positions in and recommends Palomar. The Motley Fool has a disclosure policy.