Palomar has said that it is aiming to maintain its three-pronged reinsurance strategy that aims to protect its balance sheet, reduce earnings volatility, and provide lucrative fee income.
This was set out at the firm Investor Day, when it called its strategy key to ‘highly thoughtful and multi-faceted’.
According to the firm, the three main pieces of its strategy are:
- Catastrophe per occurrence XOL protection that holds any single catastrophe event to less than one quarter of earnings or 5% of equity (current retention is $12.5m or 3% of equity).
- Aggregate catastrophe XOL that protects against the accumulation of multiple loss events.
- Quota share reinsurance further mitigates volatility and promotes responsible launch and growth of new lines of business.
JMP Securities were one of the observers on Palomar’s Investor Day. One of its analysts wrote: “Encompassing all these items, Palomar should be able to produce peer group leading ROEs with limited volatility. In cat free years, ROEs could be in excess of 20%, while in heavily cat-impacted years, ROEs should trough in the 14% range, thanks to the multi- faceted reinsurance program.”
Palomar said that it foresaw strong growth and sustainable returns soon. It also said it was ‘highly confident in its ability to execute its strategic plan.
The JPW analyst added: “With continued hard market conditions across its book, a number of event- driven opportunities in specific lines of business (earthquake, flood, etc.), as well as new lines of business headed by industry veterans, we have confidence in Palomar’s ability to continue to drive strong top-line growth for the foreseeable future.”
