Best’s News & Research Service - July 14, 2023 09:10 AM (EDT)
AM Best Revises Outlooks to Positive for Palomar Holdings, Inc. and Its Member Companies
- July 14, 2023 09:10 AM (EDT)
Oldwick //BestWire// - AM Best has revised the outlook to positive from stable and affirmed the Long-Term Issuer Credit Rating (Long-Term ICR) of “bbb-” (Good) of Palomar Holdings, Inc. (Palomar) (Delaware) [NASDAQ: PLMR], the ultimate parent and insurance holding company of Palomar Specialty Insurance Company (PSIC) (headquartered in La Jolla, CA), Palomar Excess and Surplus Insurance Company (PESIC) (Phoenix, AZ) and Palomar Specialty Reinsurance Company Bermuda Ltd. (Palomar Re) (Bermuda). Concurrently, AM Best revised the outlooks to positive from stable and affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term ICRs of “a-” (Excellent) of PSIC, PESIC and Palomar Re all members of Palomar.
The Credit Ratings (ratings) reflect Palomar’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).
These positive outlooks reflect Palomar’s profitable operating performance in recent periods, which compares favorably to composite averages. Palomar reported an increase in net income in each of the last five calendar years, achieving even greater levels of profitability in 2021 and 2022. Results have been influenced by favorable underwriting performance as reflected in a five-year combined ratio average below 90. Management strategically targets segments that have low attritional loss activity, which lends itself to comparatively favorable loss experience, offset by an elevated expense ratio position. Management has been able to effectively manage its expense position and generate consistent returns. To support continued profitability, Palomar regularly reviews its portfolio and has pivoted away from markets that have either been unprofitable or do not align with its strategic plans.
Palomar’s overall balance sheet strength is supported by the strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), equity growth in most years, solid liquidity and positive operating cash flows. While loss reserve development has been somewhat inconsistent, reported deficiencies have not had a material impact on results, and in part relate to lines of business that have been discontinued. The group has elevated reinsurance dependency, reflective of its catastrophe exposed risk profile with the strategic use of excess of loss and quota share arrangements to mitigate potential volatility. Palomar writes a variety of risks through its admitted and non-admitted entities, primarily focused on earthquake coverage in California, as well as hurricane, inland marine, and commercial excess and surplus all-risk products. Distribution strategies leverage several channels including retail agents, wholesale brokers, program administrators and carrier partnerships. While growth has been significant, an appropriate ERM program has been implemented to partially mitigate volatility.
This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.