Riverwater Partners, an investment management company, released its “Small Cap Strategy” Q3 2025 investor letter. A copy of the letter can be downloaded here. The Small Cap Core Strategy reported solid results for the quarter but did not keep pace with the sharp rally, thus lagging the benchmark. The market’s preference for lower-quality companies persisted in the quarter and contributed significantly to the benchmark’s outperformance. On the other hand, the strategy remains focused on higher-quality compa ...

Core Viewpoint - Palomar (PLMR) has reached a significant support level and shows potential for investors from a technical perspective, particularly after breaking through the 20-day moving average, indicating a short-term bullish trend [1]. Technical Analysis - The 20-day simple moving average (SMA) is a widely used trading tool that smooths out price fluctuations over a 20-day period, providing more trend reversal signals than longer-term moving averages [1][2]. - A stock price above the 20-day SMA indicates a positive trend, while a price below suggests a downward trend [2]. Earnings Estimates - PLMR has experienced positive earnings estimate revisions, with no estimates decreasing in the past two months and five estimates increasing, leading to a rise in the consensus estimate [3]. - The combination of positive technical factors and favorable earnings estimate revisions suggests that investors may want to monitor PLMR for potential gains in the near future [3]. Performance Metrics - Over the past four weeks, PLMR has gained 8.4%, and the company holds a Zacks Rank 2 (Buy), indicating strong potential for further upward movement [4].

Core Viewpoint - Palomar (PLMR) has shown a 7% increase in stock price over the past four weeks, with a mean price target of $155.67 indicating a potential upside of 28% from the current price of $121.66 [1] Price Targets and Analyst Estimates - The mean estimate consists of six short-term price targets with a standard deviation of $14.62, where the lowest estimate is $134.00 (10.1% increase) and the highest is $170.00 (39.7% increase) [2] - A low standard deviation among price targets suggests a high degree of agreement among analysts regarding the stock's price movement [9] Earnings Estimates and Market Sentiment - Analysts have shown increasing optimism about PLMR's earnings prospects, with five estimates moving higher in the last 30 days and no negative revisions, leading to a 6% increase in the Zacks Consensus Estimate [12][11] - PLMR holds a Zacks Rank 2 (Buy), placing it in the top 20% of over 4,000 ranked stocks based on earnings estimates [13] Caution on Price Targets - Solely relying on consensus price targets for investment decisions may not be wise, as empirical research indicates that such targets often mislead investors [3][7] - Analysts may set overly optimistic price targets due to business incentives, which can inflate expectations [8]

Core Insights - Palomar Holdings, Inc. (PLMR) has seen a 15.8% increase in share price over the past year, outperforming its industry and the broader market indices [1] - The company has a market capitalization of $3.36 billion and has consistently beaten earnings estimates over the past four quarters with an average surprise of 17.65% [2] Financial Performance - The Zacks Consensus Estimate for Palomar Holdings' 2025 earnings per share indicates a year-over-year increase of 51.2%, with revenues projected to reach $835.13 million, reflecting a 52% improvement [3] - Analysts have raised earnings estimates for 2025 and 2026 by 5.6% and 1.9%, respectively, over the past 30 days [4] Growth Drivers - The company expects stronger earnings from its fee-based platform and rising policy volumes, with growth driven by geographic expansion, new partnerships, and increased distribution [6][11] - Palomar identifies Surety as a long-term growth opportunity, which is not correlated with traditional insurance cycles, providing diversification [12] Investment Metrics - The average target price for PLMR is $155.67 per share, suggesting a potential upside of 20.1% from the last closing price [7] - Return on equity stands at 24.2%, significantly higher than the industry average of 8%, while return on invested capital is 21%, compared to the industry average of 6.1% [10] Strategic Positioning - The company maintains a strong capital position with a debt-free balance sheet and continues to execute share buybacks as part of its shareholder return initiatives [13] - Palomar's risk transfer strategy helps stabilize earnings and improve its combined ratio, contributing to a resilient business model [15] Conclusion - Palomar Holdings is well-positioned in the crop insurance sector, with a diverse product suite and ongoing geographic growth, indicating strong prospects for future expansion [14]

Core Insights - Palomar Holdings reported Q3 CY2025 revenue of $244.7 million, exceeding analyst expectations by 10.2% and reflecting a year-on-year growth of 64.8% [1][6] - The company's non-GAAP profit was $2.01 per share, which was 24.8% above consensus estimates [1][6] Financial Performance - Adjusted operating income reached $67.14 million, representing a 27.4% margin and a year-on-year growth of 74.4% [6] - Operating margin improved to 27.4%, up from 25.9% in the same quarter last year [6] - Market capitalization stands at $3.39 billion [6] Business Strategy and Growth - Management attributed strong performance to product diversification, disciplined underwriting, and robust premium growth across various product lines [3][5] - The company plans to integrate the Gray Casualty and Surety Company acquisition and expand specialty lines, with a focus on strategic partnerships and technology investments [4] - The goal is to double adjusted net income every 3 to 5 years, maintaining a strong return on equity [4] Product Diversification - All major product groups, except for fronting, experienced double-digit premium growth, with new lines like crop and surety contributing significantly [7] - The residential earthquake franchise grew by 11% year-on-year, supported by new business production and high policy retention [7] - Crop insurance premiums doubled year-on-year due to favorable market conditions and new talent, while builders risk products also saw strong expansion [7] Risk Management - The company maintains a conservative reserving approach, particularly in its casualty business, with over 80% of reserves held as incurred but not reported (IBNR) [8]

Financial Performance - Gross written premiums increased from $16.6 million in 2014 to $1.5 billion for the year ended December 31, 2024, reflecting a compound annual growth rate of approximately 57%[104] - The company has been profitable since 2016, with net income growth reflecting a compound annual growth rate of 43% since that year[104] - Net income for the three months ended September 30, 2025, was $51.5 million, an increase of $20.9 million or 68.7% from $30.5 million in 2024[145] - The company reported net income of $140.9 million for the nine months ended September 30, 2025, an increase of $58.3 million, or 70.6%, compared to $82.6 million for the same period in 2024[154] - Total revenue for the nine months ended September 30, 2025, was $622.6 million, up from $398.1 million in 2024[174] Premiums and Underwriting - Gross written premiums increased by $182.2 million, or 43.9%, to $597.2 million for the three months ended September 30, 2025, compared to $414.9 million for the same period in 2024[138] - Net written premiums rose by $115.5 million, or 72.3%, to $275.2 million for the three months ended September 30, 2025, from $159.7 million in the prior year[142] - Net earned premiums increased by $89.5 million, or 66.0%, to $225.1 million for the three months ended September 30, 2025, compared to $135.6 million for the same period in 2024[143] - Gross written premiums increased by $367.4 million, or 31.4%, to $1.5 billion for the nine months ended September 30, 2025, compared to $1.2 billion for the same period in 2024[155] - Net written premiums rose by $240.8 million, or 50.6%, to $716.5 million for the nine months ended September 30, 2025, driven primarily by increased gross written premiums in the Casualty and Crop lines[160] Expenses and Losses - Losses and loss adjustment expenses surged by $32.5 million, or 80.6%, to $72.8 million for the three months ended September 30, 2025, from $40.3 million in 2024[145] - Acquisition expenses increased by $14.8 million, or 35.7%, to $56.3 million for the three months ended September 30, 2025, compared to $41.5 million for the same period in 2024[147] - Other underwriting expenses rose by $20.2 million, or 71.7%, to $48.3 million for the three months ended September 30, 2025, from $28.1 million in 2024[148] - Losses and loss adjustment expenses increased by $60.2 million, or 61.6%, to $157.7 million for the nine months ended September 30, 2025, compared to $97.6 million in 2024[164] - Non-catastrophe losses surged by $78.5 million, or 100.9%, to $156.4 million for the nine months ended September 30, 2025, from $77.9 million in 2024[164] Investment Income - Net investment income increased by $5.2 million, or 54.9%, to $14.6 million for the three months ended September 30, 2025, compared to $9.4 million in 2024[145] - Net investment income rose by $15.5 million, or 63.3%, to $40.0 million for the nine months ended September 30, 2025, compared to $24.5 million for the same period in 2024[154] Ratios and Returns - The combined ratio is defined as the sum of the loss ratio and the expense ratio, with a ratio under 100% indicating an underwriting profit[129] - The combined ratio decreased to 78.1% for the three months ended September 30, 2025, from 80.5% in 2024, indicating improved underwriting performance[145] - The annualized return on equity improved to 23.9% for the three months ended September 30, 2025, compared to 19.7% in the prior year[145] - The annualized return on equity improved to 23.4% for the nine months ended September 30, 2025, up from 18.8% in the prior year[154] - Annualized adjusted return on equity for Q3 2025 is 25.6%, up from 21.0% in Q3 2024[181] Equity and Dividends - Tangible stockholders' equity is defined as stockholders' equity less intangible assets, providing a clearer view of the company's financial health[135] - Total stockholders' equity increased to $878.1 million as of September 30, 2025, up from $729.0 million at the end of 2024, driven by net income and unrealized gains on fixed maturity securities[217] - The maximum dividend PSIC can pay in 2025 without regulatory approval is $99.6 million[195] - The maximum dividend PESIC can pay in 2025 without regulatory approval is $4.2 million[196] - FIA has the capacity to pay a dividend of $2.3 million in 2025, subject to regulatory approval[197] Reinsurance and Risk Management - The company utilizes a comprehensive risk transfer program with reinsurance coverage to reduce earnings volatility[103] - The company has $1.2 billion of multi-year indemnity-based reinsurance coverage for earthquake events, issued through Torrey Pines Re Ltd[224] - Catastrophe event retention is $20 million for earthquake events and $11 million for hurricane events, with reinsurance coverage exhausting at $3.53 billion for earthquake events and $100 million for continental U.S. hurricane events[225] - The company utilizes a mix of traditional reinsurers and insurance linked securities, purchasing reinsurance from over 100 reinsurers with a minimum rating of "A−" (Excellent) or better[223] - The company employs treaty reinsurance primarily consisting of catastrophe excess of loss (XOL) coverage, which assumes losses relating to specified events[224] Cash Flow and Liquidity - Cash provided by operating activities for the nine months ended September 30, 2025, was $291.7 million, compared to $188.5 million for the same period in 2024, reflecting a significant increase[206] - As of September 30, 2025, the company had $1.3 billion in cash and investment securities available, ensuring sufficient liquidity for future operating cash flows[210] - The company had no borrowings outstanding through the Credit Agreement as of September 30, 2025, indicating strong liquidity management[214] - The company’s cash and cash equivalents totaled $111.7 million as of September 30, 2025, contributing to overall liquidity[219] Investment Portfolio - The investment portfolio as of September 30, 2025, included $1.1 billion in fixed maturity securities, with a book yield of 4.84%, compared to 4.59% at the end of 2024[220] - The fixed maturity portfolio has an average rating of "AA−," with approximately 68.8% rated "A−" or better, and 4.9% unrated or rated below investment grade as of September 30, 2025[231] - The majority of the investment portfolio is in high credit quality, investment grade fixed maturity securities, managing credit risk through diversification[230]

Financial Data and Key Metrics Changes - The company reported a 44% increase in gross written premiums, reaching $597.2 million for the third quarter of 2025 compared to the same period in 2024 [19] - Adjusted net income grew 70% to $55.2 million or $2.01 per share, up from $32.4 million or $1.23 per share year-over-year [18] - The adjusted combined ratio improved to 74.8% from 77.1% in the previous year, indicating better underwriting performance [18] - Annualized adjusted return on equity was 25.6%, compared to 21% for the same period last year [18] Business Line Data and Key Metrics Changes - The earthquake franchise grew 11% year-over-year, driven by strong performance in the residential earthquake market with an 88% policy retention rate [7] - Inland marine and other property categories saw a 50% year-over-year growth, significantly up from 28% in the second quarter [10] - The casualty business experienced a remarkable 170% year-over-year growth in gross written premiums [12] - The Crop franchise doubled its gross written premium to $120 million, exceeding the previous year's $60 million [14] Market Data and Key Metrics Changes - The commercial earthquake business faced rate pressure, with average risk prices decreasing approximately 18% on a risk-adjusted basis [8] - The company expects single-digit growth in the earthquake book for the fourth quarter, influenced by a one-time under premium transfer from the previous year [9] - The partnership with Neptune Flood is anticipated to accelerate growth in the residential flood product over the next three years [10] Company Strategy and Development Direction - The company is focused on profitable growth and has entered select specialty markets that offer compelling, risk-adjusted returns [5] - The acquisition of Gray Casualty and Surety Company is expected to enhance the company's surety platform and market position [5] - The company aims to double adjusted net income over a three to five-year timeframe as part of its Palomar 2X initiative [17] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term ability to profitably grow the earthquake business despite market challenges [9] - The company anticipates favorable conditions in the Crop market, with expectations to exceed the 15-year average industry loss ratio [15] - Management remains optimistic about achieving the revised full-year adjusted net income guidance of $210 million to $215 million [27] Other Important Information - The company placed seven reinsurance treaties during the third quarter, all renewing on favorable terms [15] - Investment income for the third quarter increased by 55% year-over-year, driven by higher yields on invested assets [25] - The acquisition of Gray Surety is expected to close in the first quarter of 2026 and should be accretive to earnings in its first year [16] Q&A Session Summary Question: Market opportunity in surety and competition - Management highlighted the complementary nature of Gray Surety to existing operations and the potential to become a top 20 surety carrier [29][30] Question: Future of the Crop business - Management expressed confidence in growing the Crop business to $500 million in the near term, emphasizing service and technology investments [33] Question: Net income guidance and catastrophe losses - Management confirmed that the updated guidance includes expectations for catastrophe losses, with a favorable outlook for the loss ratio [34] Question: Rate pressure in commercial earthquake - Management acknowledged ongoing rate pressure but indicated that the residential earthquake book's strength would support growth [36] Question: Net earned premium ratio expectations - Management expects the net earned premium ratio to increase in the fourth quarter and into the first half of the following year [37] Question: Healthcare liability book specifics - Management provided details on the healthcare liability book, including targeted segments and the current market conditions [45] Question: Stickiness of flood policies - Management noted strong policy renewal rates and increased interest in new business due to the federal program's shutdown [46] Question: Growth trajectory and future hiring - Management indicated plans for continued organic growth and potential opportunistic hiring to sustain growth momentum [51]

Core Insights - Palomar Holdings, Inc. (PLMR) reported a third-quarter 2025 operating income of $2.01 per share, exceeding the Zacks Consensus Estimate by 25.6% and reflecting a year-over-year increase of 63.4% [1][9] - Total revenues rose 65% year over year to $241 million, driven by higher premiums and investment income, surpassing the Zacks Consensus Estimate by 6.6% [2][9] - The company raised its 2025 adjusted net income forecast to a range of $210 million to $215 million, up from the previous estimate of $198 million to $208 million [7][9] Revenue and Premiums - Gross written premiums increased by 43.9% year over year to $597.2 million, although this was below the estimate of $676.8 million [2] - Net earned premiums saw a significant rise of 66% year over year, reaching $225.1 million, exceeding the estimate of $194.2 million [2] Investment Income - Net investment income grew by 54.9% year over year to $14.6 million, driven by higher yields and a larger average balance of investments [3] Underwriting Performance - Adjusted underwriting income was reported at $56.6 million, an increase of 82.5% from the previous year, while total underwriting income rose 86% year over year to $49.2 million [4] - The loss ratio was recorded at 32.3, deteriorating by 260 basis points year over year, while the adjusted combined ratio improved by 230 basis points to 74.8 [5] Financial Position - Cash and cash equivalents increased by 38.9% from the end of 2024 to $111.7 million at the end of Q3 2025 [6] - Shareholder equity rose by 20.4% from the end of 2024 to $878.1 million [6] - The annualized adjusted return on equity for Q3 2025 was 25.6%, expanding by 460 basis points year over year [6]

Core Insights - Palomar (PLMR) reported a revenue of $241.17 million for the quarter ended September 2025, reflecting a year-over-year increase of 65.4% [1] - The earnings per share (EPS) for the quarter was $2.01, up from $1.23 in the same quarter last year, indicating a significant growth [1] - The reported revenue exceeded the Zacks Consensus Estimate by 6.66%, while the EPS surpassed the consensus estimate by 25.63% [1] Financial Metrics - Loss Ratio was reported at 32.3%, significantly better than the five-analyst average estimate of 37.9% [4] - Combined Ratio stood at 78.1%, outperforming the four-analyst average estimate of 83.3% [4] - Expense Ratio was recorded at 45.8%, slightly above the average estimate of 44.1% based on four analysts [4] - Adjusted combined ratio was 74.8%, better than the two-analyst average estimate of 79.8% [4] - Net investment income was $14.57 million, exceeding the average estimate of $13.59 million by analysts, representing a year-over-year increase of 54.9% [4] - Net earned premiums reached $225.15 million, surpassing the five-analyst average estimate of $211.64 million, with a year-over-year growth of 66% [4] - Commission and other income amounted to $1.45 million, exceeding the average estimate of $1.08 million, reflecting a year-over-year increase of 102.5% [4] - Net realized and unrealized gains (losses) on investments were reported at $3.49 million, below the two-analyst average estimate of $5.88 million [4] Stock Performance - Over the past month, Palomar's shares have returned -1.9%, contrasting with the Zacks S&P 500 composite's +1.3% change [3] - The stock currently holds a Zacks Rank 3 (Hold), suggesting it may perform in line with the broader market in the near term [3]

Financial Performance - Net income for Q3 2025 was $51.5 million, or $1.87 per diluted share, compared to $30.5 million, or $1.15 per diluted share, in Q3 2024[2] - Adjusted net income increased 70% to $55.2 million, or $2.01 per diluted share, from $32.4 million, or $1.23 per diluted share, in Q3 2024[4] - Net income for Q3 2025 was $51,455, up 68.7% from $30,497 in Q3 2024[36] - Total underwriting revenue for Q3 2025 increased to $226,595, a 66.2% rise from $136,361 in Q3 2024[36] - The company’s net comprehensive income for the nine months ended September 30, 2025, was $163.658 million, compared to $96.460 million in the same period of 2024, reflecting a 69.7% increase[42] - Adjusted net income for the nine months ended September 30, 2025, was $155,003, representing a 68.1% increase from $92,219 in 2024[37] Premiums and Revenue - Gross written premiums rose 43.9% to $597.2 million compared to $415.0 million in Q3 2024[5] - Gross written premiums for Q3 2025 reached $597,171, a 43.9% increase from $414,977 in Q3 2024[36] - Net written premiums for Q3 2025 were $275,244, reflecting a 72.3% growth compared to $159,710 in Q3 2024[36] - For the nine months ended September 30, 2025, gross written premiums totaled $1,535,623, a 31.4% increase from $1,168,239 in the same period of 2024[37] - The company reported total revenues of $244.660 million for Q3 2025, a 64.6% increase from $148.503 million in Q3 2024[42] Ratios and Returns - The total loss ratio for Q3 2025 was 32.3%, up from 29.7% in Q3 2024, with a catastrophe loss ratio of 0.8% compared to 9.5% in the prior year[9] - The combined ratio improved to 78.1% from 80.5% in Q3 2024, while the adjusted combined ratio was 74.8% compared to 77.1% in the same period last year[7] - Annualized return on equity was 23.9%, up from 19.7% in Q3 2024, with an annualized adjusted return on equity of 25.6% compared to 21.0% in the prior year[12] - Annualized adjusted return on equity for Q3 2025 was 25.6%, compared to 21.0% in Q3 2024[48] - Adjusted combined ratio for the nine months ended September 30, 2025, is 78.1%, compared to 80.5% for the same period in 2024[49] Investments and Assets - Net investment income increased by 54.9% to $14.6 million from $9.4 million in Q3 2024, driven by higher yields on invested assets[8] - Total assets as of September 30, 2025, were $2,943,546, an increase from $2,262,220 as of December 31, 2024[39] - Stockholders' equity increased to $878.1 million at September 30, 2025, from $703.3 million at the same date in 2024[12] - Tangible stockholders' equity as of September 30, 2025, is $815,572,000, an increase from $715,788,000 as of December 31, 2024[50] Expenses and Losses - The company’s total expenses for Q3 2025 were $177.521 million, compared to $110.000 million in Q3 2024, an increase of 61.0%[42] - Total losses and loss adjustment expenses for Q3 2025 were $72,812,000, an increase of 80.6% from $40,315,000 in Q3 2024[45] - Catastrophe losses decreased significantly by 85.3% to $1,900,000 in Q3 2025 from $12,924,000 in Q3 2024[45] - The company incurred catastrophe losses of $1,900,000 for the three months ended September 30, 2025, down from $12,924,000 in 2024[50] Acquisitions - The company announced the acquisition of The Gray Casualty and Surety Company during the quarter, aiming to drive long-term profitable growth[4]