Palomar Holdings, Inc.’s third-quarter 2019 results announcement shows a significant jump in net income and underwriting income for the period, while the Ridgecrest earthquake in July contributed to a surge in demand for residential earthquake coverage.
Palomar’s net income increased by 376% from the prior year quarter to $7.5 million, while adjusted net income rose from $2.7 million in Q3 2018 to $9.6 million this year.
At $7.4 million, the company’s underwriting result improved dramatically when compared to a $27,000 underwriting loss in Q3 2018. The combined ratio strengthened from 100.2% to 73.4% in Q3 2019, and includes expenses related to its IPO, a secondary offering in September, tax restructuring, one-time incentive cash bonuses, and stock-based compensation.
Losses and loss adjustment expenses for the third-quarter of 2019 totalled $2.4 million and includes $0.2 million of favourable prior year development.
Year-over-year, Palomar’s gross written premiums jumped by almost 66% to $66.2 million, while net earned premiums increased by 72.5%. The firm’s Founder and Chief Executive Officer (CEO), Mac Armstrong, attributes this to heightened demand for earthquake coverage following the Ridgecrest quake.
“Our third quarter results demonstrate the continued successful execution of Palomar’s strategy as we delivered gross written premium growth of 65.6% year-over-year. Our results were driven by broad based strength across our portfolio, highlighted by an increase of 67.5% in our earthquake products over the prior year period, 62.1% growth in our non-earthquake products over the prior year period and accelerating rate increases in our commercial lines.”
“Growth in our earthquake lines of business was driven in part by a surge in demand for our residential earthquake products following the Ridgecrest earthquake in July, new distribution sources as well as a stronger rate environment in the commercial earthquake market. Our non-earthquake products and notably our newer lines of business continue to see solid market adoption. Compared to the prior year period, our commercial all risk business grew 108.6% and our flood business grew 172.0%.
“Our inland marine and assumed reinsurance divisions, both launched this year, are already contributing to the overall growth of Palomar. While we are pleased with our third quarter results, we see significant runway for continued growth across all of our product lines,” said Armstrong.
The company’s net investment income jumped by almost 100% to $1.7 million, compared with $0.9 million in the third-quarter of 2018.
California experienced its strongest earthquake in two decades on July 4th after a magnitude 6.4 quake struck near the town of Ridgecrest in Kern County, followed by a larger magnitude 7.1 quake on Friday, July 5th.
At the time, Palomar revealed that it faced some exposure to the quakes in California, but advised that losses would be well below the threshold needed to trigger its reinsurance program.
In August, the California Earthquake Authority (CEA) said that it witnessed a surge in the number of earthquake insurance policies bought in July following the quakes, and it appears that this demand surge has had a positive impact on Palomar’s premium income in the third-quarter.
Despite being highly vulnerable to earthquakes, protection against the peril is very low in California. While a rise in demand is positive and often occurs following an event, once time has passed and people forget about the dangers, earthquake insurance penetration in the region often declines again leaving individuals and communities susceptible to financial shock post-event.
