Palomar(PLMR) - 2020 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For Q1 2020, net income was $11.8 million or $0.48 per share, compared to a net loss of $14.4 million or a loss of $0.85 per share in Q1 2019 [24] - Adjusted net income for Q1 2020 was $12.3 million or $0.50 per share, up from $8.8 million or $0.52 per share in Q1 2019 [24] - Gross written premiums increased by 32.3% year-over-year to $71.5 million, with a 50.8% increase when excluding the impact of a prior year partnership [16][26] - Net earned premiums for Q1 2020 were $34.8 million, an increase of 89.7% compared to the prior year [29] Business Line Data and Key Metrics Changes - Residential Earthquake products grew by 26.7% year-over-year, while Commercial Earthquake and Commercial All Risk lines saw growth in gross written premiums of 66% and 65%, respectively [16][17] - Premium retention rates were 90% for the entire book, with retention for Residential Earthquake, Commercial Earthquake, and Hawaiian Hurricane products exceeding 94% [17] - Loss and loss adjustment expenses totaled $1.9 million, resulting in a loss ratio of 5.4% for the quarter [18][31] Market Data and Key Metrics Changes - The company experienced a 12.7% increase in commercial policy composite rates on renewals, up from 11.2% in the previous quarter [17] - The distribution footprint grew by 6% in Q1 2020, with significant increases in commercial lines, particularly a 22% increase in Commercial All Risk producers [48][57] Company Strategy and Development Direction - The company aims to build a leader in the specialty property market, focusing on expanding geographic reach and investing in new segments like Inland Marine [15] - The management emphasized the importance of maintaining a strong reinsurance program and capital position to navigate market dislocations [50][61] - The company is exploring new emerging segments and adapting to changes in remote work dynamics, which may create new insurance needs [76] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the uncertainty brought by COVID-19 but remains focused on long-term opportunities and serving stakeholders [21][38] - The company anticipates adjusted net income growth of 33% to 40% year-over-year for 2020, assuming no major losses from natural catastrophes [38] - Management expressed confidence in their underwriting approach, particularly regarding the inclusion of virus exclusions in policies [55] Other Important Information - The company raised $35.5 million in capital from a follow-on offering and remains debt-free with a strong balance sheet [19] - The effective tax rate for Q1 2020 was 22.3%, compared to a negative 1% in the prior year [36] Q&A Session Summary Question: What sort of take rate have you seen on the offer of a grace period on your policies? - Management indicated that tracking the take rate has been challenging, but retention rates appear consistent with a modest uptick [41][43] Question: Any detail on the timing of XOL purchases and their impact? - Management noted that the favorable results in Q1 were driven by growth in written premiums, with expectations for the ratio to remain around 50% annually [46][47] Question: What are the market conditions in California and opportunities in Commercial Quake? - Management highlighted ongoing dislocation in the commercial property market, which is expected to create more opportunities in the latter half of the year [49] Question: Any thoughts on the impact of the Utah earthquake on market demand? - Management observed a surge in new business following the Utah earthquake, although the overall market size remains small compared to California [52] Question: How is the company approaching risk in light of recent events? - Management reaffirmed confidence in their underwriting practices, particularly regarding virus exclusions, and plans to continue underwriting certain classes [55] Question: Can you provide details on distribution growth and its components? - Management confirmed a 6% increase in distribution footprint, with notable growth in commercial lines and a mix of wholesale and retail channels [57] Question: Are there new opportunities arising from COVID-19? - Management acknowledged potential new risks and opportunities in existing markets, particularly related to remote work dynamics [76]