OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has upgraded the Long-Term Issuer Credit Rating (Long-Term ICR) to “bbb” (Good) from “bbb-” (Good) of Palomar Holdings, Inc. (Palomar) (Delaware) [NASDAQ: PLMR], the ultimate parent and insurance holding company of Palomar Specialty Insurance Company (PSIC) (Portland, OR), Palomar Excess and Surplus Insurance Company (PESIC) (Phoenix, AZ) and Palomar Specialty Reinsurance Company Bermuda Ltd. (Palomar Re) (Bermuda). Concurrently, AM Best upgraded the Financial Strength Rating to A (Excellent) from A- (Excellent) and the Long-Term ICRs to “a” (Excellent) from “a-” (Excellent) of PSIC, PESIC and Palomar Re. The outlook of these Credit Ratings (ratings) has been revised to stable from positive.
The ratings reflect Palomar’s balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management (ERM).
The upgrades reflect Palomar’s strong operating performance in recent periods, which compares favorably to composite averages. Palomar reported net income in each of the last five calendar years, achieving comparatively greater levels of profitability in more recent years. The combined ratio, based on GAAP reporting, was well below 90 in each of the last three years, improving the five-year average to the mid-80s, coupled with formidable return measures. Management actively evaluates and culls the portfolio to ensure adherence to strict underwriting standards, which lends itself to comparatively favorable loss experience, offset by an elevated expense ratio position. While the organization recorded material premium growth, which is led by quake coverage, management has considerable experience underwriting other areas of premium growth that include general and excess casualty, as well as professional liability. Strong performance is expected despite growth of ancillary lines of business.
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), which is expected to be maintained in prospective periods. Furthermore, equity growth in most years, solid liquidity and positive operating cash flows also support the balance sheet. While loss reserve development has been somewhat inconsistent, reported deficiencies have not had a material impact on results. The group maintains an 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 focusing on earthquake coverage in California, as well as inland marine, commercial all risk, and excess property/casualty 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 partially mitigates potential volatility.
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