Specialty insurance provider Palomar Holdings (NASDAQ: PLMR) beat Wall Street’s revenue expectations in Q2 CY2025, with sales up 55.1% year on year to $203.3 million. Its non-GAAP profit of $1.76 per share was 4.5% above analysts’ consensus estimates.

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StockStory’s Take

Palomar Holdings’ second quarter results surpassed Wall Street expectations for both revenue and non-GAAP earnings, yet the market responded negatively. Management pointed to robust growth in specialty insurance lines, particularly residential earthquake, inland marine, and casualty, as key contributors to the quarter’s performance. CEO Mac Armstrong emphasized that the company’s balanced portfolio and disciplined underwriting allowed it to navigate increased competition and pricing pressure in large commercial earthquake accounts, while residential segments continued to gain traction. Armstrong also noted that new product launches and the expansion of underwriting talent helped drive strong premium growth, while a conservative approach to reserving maintained stability despite shifts in loss ratios. The negative market reaction suggests investor concerns about future growth rates or margin sustainability as some commercial lines face rate declines.

Looking ahead, management’s guidance reflects optimism about sustaining high single-digit growth in key segments, especially residential earthquake and inland marine, while remaining cautious about ongoing competition and pricing in large commercial property lines. Armstrong stated that new partnerships, such as the Neptune Flood agreement, and recent talent additions in casualty and surety are expected to support continued expansion in 2026 and beyond. CFO Chris Uchida highlighted that the timing of crop premium recognition and continued investment in technology and distribution will influence near-term results, but remains confident in Palomar’s ability to achieve its net income targets. Management maintains a conservative outlook on reserving and reinsurance, expecting near-term headwinds from crop seasonality and property rate softening, but believes their diversified book and strategic initiatives will drive growth over the medium term.

Key Insights from Management’s Remarks

Management attributed the quarter’s outperformance to strong execution in emerging lines, product diversification, and discipline in risk selection, even as commercial property pricing softened.

• Residential earthquake momentum: The residential earthquake book delivered record new business premium and high policy retention, offsetting rate decreases and competition in large commercial earthquake accounts. Management credited the 10% inflation guard and expanded distribution partnerships for this stability.
• Casualty and crop growth: The casualty line more than doubled gross written premium, benefiting from disciplined risk appetite and new leadership hires. The crop segment saw significant premium growth due to both scale and earlier-than-expected reporting from favorable weather, though this also accelerated loss recognition into the quarter.
• Reinsurance strategy shift: Palomar completed its June 1 reinsurance placements from a position of strength, reducing volatility and improving risk-adjusted returns. The core excess of loss program now provides $3.5 billion of earthquake coverage and expanded hurricane protection for Hawaii, with lower retentions to align with catastrophe risk tolerance.
• Product and geographic diversification: Management highlighted the ongoing expansion of residential builders risk, partnership with Neptune Flood for nationwide flood exposure, and selective growth in Hawaii hurricane and excess property, leveraging investments in distribution and underwriting talent.
• Conservative reserving and risk management: The company maintained a cautious approach to reserving, holding nearly 80% of reserves as incurred but not reported (IBNR), well above industry standards, and only releasing redundancies in mature short-tail lines. This approach, along with a new $150 million share repurchase program, is intended to support earnings stability and capital flexibility.

Drivers of Future Performance

Palomar expects forward growth to be driven by residential segment expansion, new product launches, and disciplined risk management, while managing headwinds from commercial property competition and crop seasonality.

• Residential and specialty line growth: Management believes that continued strength in residential earthquake, inland marine, and the scaling of new specialty lines such as crop and surety will be primary revenue drivers, supported by product innovation and expanded distribution partnerships.
• Margin and reserving discipline: The company expects operating margins to remain robust, underpinned by conservative reserving practices and stable reinsurance costs, though acknowledges that crop seasonality and possible catastrophe events could add volatility to near-term earnings.
• Commercial property pricing pressure: Softening rates in commercial property—especially in large commercial earthquake and some professional liability lines—are anticipated to moderate growth, but management expects diversification across products and geographies to offset these pressures over time.

Catalysts in Upcoming Quarters

In upcoming quarters, the StockStory analyst team will be watching (1) the pace and sustainability of residential earthquake and inland marine growth, (2) evidence of margin stability as commercial property competition persists, and (3) progress in scaling new specialty lines like crop, surety, and flood. The successful integration of recent partnerships and the impact of reinsurance renewals on risk-adjusted returns will also be key signposts for tracking Palomar’s execution against its strategic plan.

Palomar Holdings currently trades at $123.05, down from $131.89 just before the earnings. Is there an opportunity in the stock?Find out in our full research report (it’s free).

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