“The first quarter was a demonstration of the quality of our book of business and our ability to navigate the choppy waters of this hard reinsurance market,” says Palomar Holdings CEO Mac Armstrong.
Armstrong states that Palomar successfully placed $188 million of incremental excess of loss reinsurance limit during Q1 to support the growth of the firm’s residential and commercial earthquake business.
“We are encouraged by the pricing, approximately 27% up on a risk-adjusted basis and the terms that we secured, as they are in line with the assumptions used to formulate our adjusted net income guidance,” he said.
Armstrong continued, “Additionally, as previously mentioned, we renewed our main casualty quota share at improved economics from the expiring treaty terms.
“On April 1st, we elected not to renew our aggregate cover, after determining that its utility and protection was materially diminished by the considerable reduction in our continental hurricane exposure and probable maximum loss (PML).
“To provide more context on the impact of our material PML reduction and the underwriting changes made over the last several years, if 2020’s wind season were to transpire in 2023, the $64 million of net losses incurred from the numerous storms of the 2020 vintage will be less than $10 million in aggregate today and only one of the storms would qualify for recovery under the expired aggregate.
Armstrong explains that while there was reinsurance capacity available to support the aggregate cover, “it did not make economic sense to renew.”
He added that Palomar will explore alternative coverages to provide protection from higher frequency severe events.
Armstrong went on, “We are currently in the midst of our 6/1 reinsurance placement with firm order terms out in the market this week. As always, we intend to share comprehensive details once complete.
“Additionally, we are marketing a multiyear, earthquake-only catastrophe bond, the fourth such issuance from Torrey Pines Re, that will provide incremental limit to support our growth in our bellwether line of earthquake.
“We continue to see value in the incorporation of multiyear ILS solutions into our comprehensive reinsurance program.
“We are encouraged with the progress to date on the core program and are confident that we can secure the capacity to achieve our strategic objectives in 2023 and beyond.
“We are optimistic that we will exit our 6/1 reinsurance placement with risk transfer programs similar to that of years past, and that the cost of reinsurance will be in-line with the assumptions used to provide our full-year 2023 guidance.”
Armstrong’s comments stem from Palomar’s recently held Q1 earnings call. In its results for the quarter, the firm reported a net income of $17.3 million, a 46.3% increase in gross written premiums and a combined ratio of 77.9%.
