Q3 2019 Earnings Call
Good morning, and welcome to the Palomar Holdings Inc. third quarter 2019 earnings conference call. During today's presentation, all parties will be in listen only mode. Following the presentation. The conference line will be open for questions with instructions to follow at that time.
As a reminder, this conference call is being recorded.
I would now like to turn the call over to Mr. Christian Cheetah Chief Financial Officer. Please go ahead Sir.
Thank you operator, good morning, everyone. We appreciate your participation our fourth quarter 2019 earnings call.
With me here today as Mac loved her chief Executive officer and balance.
As a reminder, telephonic replay of this call will be available on the Investor Relations section of the website.
Yeah, the eastern time on November 12, 2019.
The board again, let me remind everyone that this call may contain certain statements that constitute forward looking statements, but then the meeting of the private Securities Litigation Reform Act 1990, Bob Musically remarks about management's future expectations beliefs estimates plans and prospects.
Such statements are subject to a variety of risks uncertainties and other factors that could cause actual results to differ materially from those indicated or implied by such state.
Such risks and other factors are set forth in our quarterly report on Form 10-Q .
We filed with the Securities Exchange Commission today November 2019.
You did not undertake any duty to update such forward looking statements.
Additionally, during today's call, we will discuss certain non-GAAP measures, which we believe are useful in evaluating our border.
The presentation of this additional information should not be considered isolation or the substitute for results prepared in accordance with you have got.
A reconciliation of these non-GAAP measures to the most comparable GAAP measures can be found in our earnings.
At this point I'll turn the call over to Matt.
Thanks, Chris and good morning, everyone.
Our third quarter results demonstrate the successful execution Palomar strategy and focus on profitable growth.
We continue to enhance our product portfolio and expand our geographic footprint into markets, where we can deliver differentiated products that serve the needs of our customers and generate attractive underwriting income.
This is best evidenced in the third quarter by our year over year gross written premium growth of 65.6%.
In our adjusted net income of 9.6 million and net income of 7.5 million.
Our residential earthquake products, which comprised 53.9% of our gross written premium generated 66.2% growth compared to the third quarter of last year.
As discussed on our second quarter call the Ridgecrest earthquake in Southern California July .
Third quarter event caused a surge in demand for our residential earthquake products a phenomenon that is common after earthquake events.
In the third quarter, California residential earthquake, new business policy count was 62.5% higher than the second quarter of 2019.
And overall third quarter, new residential earthquake policies increased 50.4% sequentially.
Third quarter residential earthquake, new business policies increased 87.6% over the prior year.
The increase in demand is typically most pronounced the first few months after that but also historically established a higher near normal level production as we appoint additional agents.
During the quarter, our commercial earthquake business grew 73% year over year, our sustained growth in this business is due to a combination of a stronger rate environment with an average rate increase of 9.2% during the quarter as well as expanded distribution on the heels of our achievement of an A.M. best financial size category eight.
Our wind exposed business also demonstrated continued strong growth during the quarter led by our commercial Altrus Division.
The oldest division grew its gross written premium 108.6% year over year. It also saw existing policies renew with an average rate increase of 8.8%.
The composite rate increase on all commercial policies wind and earthquake alike was 9% during the quarter.
Growth in our when products was also driven by the continued expansion of our distribution network across our wholesale retail partner <unk> carrier channels and expansion into new States like North Carolina, where we recently introduced our specialty homeowners product.
As a company we remain focused on developing differentiated products to serve acute market needs.
And I'm pleased to report that the contribution from our newest product lines continues to grow.
Our flood business grew 172% year over year, and our recently introduced inland Marine and assumed reinsurance products also grew rapidly during the quarter, albeit from a smaller base.
Overall non earthquake products represented 33.4% of our gross written premium during the quarter and grew 62.1% year over year.
These products are markets that we believe our multiple times larger than the earthquake market and thus we expect them to represent an increasing percentage of our overall business mix over time.
Overall, we believe the unique value that we offer to insurance and producers is best demonstrated by our strong premium retention rates.
Average monthly premium across all lines of business was 87% during the quarter compared to 83% during the third quarter of 2018.
And with headlined by a commercial earthquake and all risk products, which combined for premium retention of 91% in a quarter compared to 75% during the same prior year period.
Generally speaking the third quarter historically involves the highest frequency of weather events that potentially impact our portfolio due to seasonal hurricane activity in both the Atlantic and Pacific Ocean.
This quarter the Atlantic was impacted by among other events Hurricanes buried Doreen as well as tropical storm Imelda, while the specific was impacted by among other events tropical storm Foxy.
So why we will incur losses is important to point out that we focused on short tail specialty property lines of business that we believe our insulated from unpredictable escalation of loss due to factors such as assignment of benefits and social inflation.
In spite of the bottom seasonal losses from our wind portfolio and the Ridgecrest earthquake, we generated strong returns and increasing operating leverage during the quarter.
Third quarter, we delivered an adjusted combined ratio of 63.6% and adjusted or are we have 18.8%.
The 18.8% adjusted our we is particularly noteworthy when factoring in our conservative net earned premium to surplus ratio a 0.53 times.
We believe these results reflect the platform, we have built and will enhance overtime.
Additionally, we continue to invest in technology and carrier partner integration, most notably in application programming interfaces Apia eyes that our partner carriers can use to directly access to our system.
This past quarter, we launched <unk> Liberty mutual who can now seamlessly offer Palomar earthquake flood and why when products do its own point of sale system alongside its auto homeowners and personal lines policies.
We believe examples such as this our emblematic of our focus on utilizing technology to efficiently distribute our products and improve our operations.
As we look ahead, we will maintain our focus on technology and product innovation to address dislocation points in the market and create offerings to capitalize on them.
With that I'd like to now turn the call over to Chris for more detailed review of our financial results.
Thank you Matt.
During my portion, we're referring to any per share figure I'm, referring to the per fully diluted common share unless otherwise specifically noted.
For the third quarter 2019, our net income was $7.5 million or 31 cents per share compared to net income of $1.6 million or nine cents per share the same quarter in 2018.
Well the burn third quarter of 2019, or adjusted income was $9.6 million or 40 cents per share compared to net income of $2.7 million or 16 cents per share for the same quarter to delta repeat.
Third quarter 2018, adjusted net income excludes expenses related to our company's IPO. The September secondary offering onetime instead of cash bonuses tax restructuring stock based compensation.
Tax impact of those expenses.
The third quarter 2018 adjustments exclude the expenses associated with the company's IPO dr. restructuring and retirement of debt.
Gross written premiums for the third quarter were $66.2 million, representing an increase of 65.6% compared to the prior third quarter as Matt indicated this growth was driven by strong premium retention and new business across our product portfolio as well as evident by improving price environment specifically at work.
Commercial lines.
Which saw an average rate increased 9% during the quarter.
Ceded written premiums for the third quarter were $28.1 million, representing an increase of 35.1% compared to the prior year third quarter, our risk transfer strategy remains a critical component to our business, especially as we demonstrated sustained top line growth.
The increase was primarily driven by an increase in excess of loss or xol reinsurance expense commensurate with our growth and our quota share reinsurance.
We utilize quota share reinsurance to minimize the impact of attritional losses on our portfolio and to generate valuable fee income from seeding attractive risks to the reinsurance partners.
This past quarter, we renewed our commercial risk quota share agreements and completed the first full quarter under our specialty Homeworks was so.
Both of which took it by the successful application of our strategy.
The increase in ceded written premiums was in part due to increased ceding Tvs quota share reinsurance partners. That's it although total dollar amount of ceded premiums increased ceded written premiums as a percentage of gross written premiums decreased 42.4% agreement during September two.
2019 from 51.9% from three months ended September Thirtyth 2018, due primarily to the increase in gross written premiums in our Roses earthquake and commercial break line, which are not subject to quota share reinsurance agreements.
As it grow our business, we expect to incur additional excessive loss reinsurance expense as we maintain a conservative low of overall coverage.
Due to timing of a reinsurance placement in terms of underlying contracts or maybe a lag.
On premium and reinsurance placements or expense.
Over time executive in the impact of these are smoothed out handler trend and look the same [noise].
Our retention remains by moving to offer a quick our wind of it and repurchase over $1 billion total reinsurance coverage for real quick events.
Net earned premiums for the third quarter were $27.7 million, an increase of 72.5 per cent compared to the prior year CIRCOR due to the growth and earning of higher gross written premium to offset by the growth in earnings of higher ceded written [noise].
Commission and other income of approximately $7 million for both agreement that is September Thirtyth 2019, Andrew dominate.
Losses, and loss adjustment expenses, Ellie incurred in the third quarter over $2.4 million.
Increase of 54.6% you're going to the prior years or.
During both periods losses were primarily attributable attributable to our commercial already especially homeowners lines of business, which both experienced seasonally high exposure to weather related losses during the third quarter.
While we did experience losses during the third quarter growth. We're overall earned premium in the reduction in severity or a weather related losses and loss event year over year translate into improvement in our loss ratio to 8.8%.
Third quarter compared to 33.5% prior third quarter.
Third quarter results include $1.8 million.
Losses, Anneli, including encouragement I reported or I viewed our from the Ruth's Chris equate in name storms, Barry Dorian actually no.
Our expense ratio for the fourth quarter of 2019, 64.6% compared to 66.7% heavy into the third quarter 2008.
We believe our business will continue to scale over the long term.
Our combined ratio for the third quarter was 73.4% and compares to a combined ratio of 142% well prior circuit.
Adjusted combined ratio, which we believe that better assessment of our efforts during third quarter was 63.6% decrease compared to 94% in prior years good quarter.
Net investment income for the third quarter $1.7 million, an increase of 99.9%.
Yeah.
The increase was largely due to increased interest income generated by the proceeds from our IPO in April .
We maintain a concerted investment strategy as our phones are generally invested at high quality securities, including government insecurity asset mortgage backed security and municipal and corporate bonds with an average credit quality of double it.
Right weighted average duration of our fixed maturity investments portfolio, including cash.
Was 3.72 years at quarter end.
Cash and invested assets totaled $263.2 million at quarter end as compared to 157.3 billing.
At December 31, 2018.
For the third quarter recognize realized and unrealized gains on investments in the consolidated statement of income of $361000 compared to $1.3 billion in the prior third quarter.
Our effective tax rate for three months ended September Thirtyth, 2019 was 21.1% compared to zero point you present for the 2018 comparable for.
The increase in our effective tax rate is due to our restructuring and the early part of this year.
All of our operations are now taxable in the U.S., whereas in prior periods, our Bermuda operations were not subject to us.
Excluding any unforeseen events, we anticipate that our tax rate will centering around 21% Mark for the remainder of the 2019 year.
Our stockholders equity was $208.5 million at September 32019, compared to $96.3 million December 31st 2000.
This increase was primarily due to the addition of IPO net proceeds which will put downward pressure on our return on equity in the short term, while providing capacity for continued growth over the longer.
Third quarter of 2018 annualized return on equity was 14.6% compared to 6.9% during the third quarter 2018.
Similarly, our annualized adjusted return on equity during the third quarter were 18.8% fair to 12%.
Third quarter 2008.
I'd now like to turn the call back to back for concluding comments.
Thank you Chris to conclude we're pleased with the results the third quarter.
Especially the strong topline performance of all of our products and sustained increasing price environment for commercial specialty property lines.
Fight the losses associated with the heightened weather activity of the third quarter, we're able to still generate a compelling adjusted our we have 18.8%.
Lastly, we'd like to thank all the investors new and existing that participated in our successful secondary offering in September .
We appreciate your support an endorsement and we will continue to execute our strategic plan on your behalf.
That I'd like to ask the operator to open up the line for any questions. Thank you.
Operator.
Thank you we will now be conducting a question and answer session. If you'd like to ask a question you May press star one on your telephone keypad a confirmation Tom indicate your line is any question Q.
You May press Star too if you would like to remove your question from the Q.
For participants using speaker equipment, it maybe necessary to pick up your handset before pressing the star key.
Our first question comes from the line of Mark Hughes Suntrust. Please proceed with your question.
Yes. Thank you.
Did I hear you properly the.
Losses from the Ridgecrest and named storms was 1.8 million.
That's correct Mark you did hear us, that's 1.8 million, including I mean, our from those events.
For the quarter.
And then the you talked about the commercial retention being 91% this quarter versus 75% a year ago.
I hear that properly and that's a pretty meaningful change any detail you can give on a.
Sure Mark This is Matt you did hear correctly, it's 91%.
And again that is a premium retention so that reflects the improving rate environment that we're in right now as I said on the call you know the composite rate increase across all commercial lines was 9%. So the combination of better policy retention.
Which is driven by the overall competitive environment in the market in combination with.
The ink proving rate environment has allowed us to materially increase our retention.
The.
Oh underwriting and other expenses were a very good definitely a quarter, where there any one timers, helping out there.
Well, one time like I guess, you're talking benefits in the quarter that drove that down no. There was no onetime benefits obviously any adjustments we have listed the items that when you take out of that kind of get a more oh a baseline.
Quarterly expense ratio, our quarterly expense dollar amount. So I think as long as you remove those all one time expenses should be removed and thats a good baseline for the quarter and I'd say, probably a better Q3 in Q4 of this you're going to be a better reflection of our current run rate based on the size and operations that we have right now.
Just to Echo what Chris is saying I think we've tried to say that by the time, we got to the third and certainly ended the fourth quarter, we should be a pretty decent steady state barring any major investments in new lines of business and things of that sort. So we're hoping to really start to generate decent operating leverage.
And then the ceded written premium.
Relative to growth written was 42%. The last couple of quarters is that a reasonable way to look out of that that that ratio hold steady or how much of that influenced by.
Seasonality, perhaps on a written premium.
Yes, so I would definitely say the there is a little bit of seasonality and the written premium.
Not necessarily I'll call it by season, but definitely by events that have been impacting our book this quarter and historically so if you look at Q3. The ridgecrest event, obviously have an early in the quarter that helps with the overall growth for the quarter. So when you think about you know the gross to net premium ratio.
There is a little bit of seasonality and I'll call. It noise in that ratio and that can be from two things that can be from.
A significant portion of growth in a quarter or it could also be from assumed deals you think back to the first quarter of this year, where we had an assumed deal come on the books with about $6 million of additional written premium at that point in time that can make the written premium look a little bit lumpier compared to the seating out on the excess of loss.
So on the quota share side. So a couple of things that we like to note and make sure that we are you guys are aware of when we think about it we think that the net to gross earned ceded premium and earn premium is a better way to look at our business because that has been smoothed out for any lumpiness for seasonality or for assumed deals that.
It may come into our portfolio and that number right now you will see it into Q is hovering just below 50% and we think that is probably a better indication of what the long term run rate will be but at least current run rate based on our mix of business, but I do think just to echo what Christy, saying I do think what looking what's done.
Having it in the third quarter on a more pronounced fashion is just the composition of the mix of business.
Earthquake actually over index the growth rate for the quarter and earthquake does not have quota share component to it it's all excess of loss and so therefore that lower ceded premium amount. So as earthquake continues or earthquake continues to grow at this rate.
Good.
Reduce lower that ceded premium.
Conversion if you work. So it's really it is a function of mix and in this quarter, we benefited from a very strong growth in the earthquake business.
Thank you.
Our next question comes from the line of David Mcmahon with Evercore. Please proceed with your question.
Hi, Thanks, good morning.
Just have a question just wanted to talk a bit about the.
Continued penetration and some of the new distribution channels in the commercial business.
I was wondering if you could just break down maybe how much of the growth that we saw within commercial quake and commercial risk is being driven by some of these new relationships versus existing relationships and how you expect that to proceed as we head into 2020.
Hey, David Smack I don't think we can we can break down how much was from existing distribution partners. How much was from a exists or new distribution partners because a lot of times, our commercial business, we generate through wholesale distribution.
And so we would need to understand who the underlying potential retail originator is.
But what I was so we can't tell you if something came from for instance am wins. If it came from a retailer that we were not cleared by the security Committee versus one that we previously where but what I can say as it grew 73% in the quarter. It was a combination of us writing new distribution sources.
Through.
All different channels, whether it is retail or other carrier partners. So the commercial earthquake and commercial all risk. It's just growing through a combination of broadening distribution opening up new distribution sources I'm, having a bigger appetite on the heels of a larger balance sheet and being not having access to.
News channels that we previously couldn't access because of our financial size category.
Got it thanks and would you just a follow up on that would you say, we're still pretty early days in terms of in terms of those access to those new channels like do we have any more additional ones that could be brought online or within the next few quarters.
Yeah, I would say that we are still very very focused on broadening our distribution for all of our commercial products, but commercial earthquake enormous specifically theres a lot of runway for growth there.
So I think it's it's early stages, yes.
Okay, Great and then I'm just a question on on the reinsurance.
Purchasing and sort of buying additional limit for earthquake just given the.
The the growth that we've seen just wanted to get a sense for where are we and just how you're thinking about pricing for Ah for reinsurance at the at one one renewals.
Getting good question, so what I would say as we say it every quarter.
One of our guiding principles is staying keeping our reinsurance limit well above that 250 year, PML and make and maintaining adequate cushion above that.
Because of the growth that we saw in the third quarter in particular in residential earthquake, we well be buying more limit.
In short order to again maintain that buffer.
Our expectation is that you know we will be in the market in the fourth quarter and then at one one we have $305 million of limit thats up for renewal that at all lost three business. Our expectation is the market is going to look pretty similar to six one we think lost free business.
We will be flat to maybe modestly up like it was it six one.
And we think our portfolio remains very distinct and the sense that we are a great. Diversifier. We are April I excess of loss program that is dominated by earthquake in the secondary apparel is wine hurricane so we.
You know are very appealing not only to the primary insurance, but even those in the retro market that are potentially pulling back their capacity. They like the fact that they we are way for them to access earthquake.
Great. Thanks for the answers.
Our next question comes from the line of.
Builds with KBW. Please proceed with your question.
Great. Thanks, so much to really quick modeling questions first with any prior period reserve developments in the quarter.
Yes, so we had a favorable development in the quarter of about 200000 from the prior year.
Okay, that's half day.
Going forward should we be modeling noncash compensation at around the levels seen in the segment third quarter is that a recurring.
<unk> expense that will then be adjusted out.
Hey, you're talking about the stock up about 400000 per quarter, Yeah, No I think that as the that's the right current level I think it you know overtime, obviously as we.
Add resources to support the technology and the growth of the company, we will probably have additional options granted to those folks are the comp will probably tick up in relationship to the overall addition to those folks, but I wouldn't expect a material movement overtime I think thats a good yes. This is the first full quarter for the stock compensation. So I think that as a good marker.
For the near term.
Okay, Yes, I just want to make sure that that should be included.
One final question, we look at other underwriting expenses I. Appreciate your comments on on the run rate going forward do you have any.
Expectations or estimate about what the annual.
Inflation is associated with that component the inflation rate associated with that group of expenses.
Yes, we don't haven't provided any type of guidance on what we expect from that I will say that you know.
As we look at the business, we do think that there is going to be additional scale that.
Occurs over time, no with that we are still going to continue into important parts of our business to make sure that the growth and the efficiency of the business continues and so thats going to you know technology, it's going be some opera underwriting in relationship to the commercial lines and then also just some public company expenses that are required.
But as we continue to grow but I wouldn't expect that why did you grow at a rate similar to the top line growth. So I do expect the margin and the scale to continue over the long term, but we haven't provided any specific guidance on going to go up five or 10% in the next quarter or a year, but it merits as Mac and.
Might be a bit of overkill, but I think it's worth reiterating just that the composition of the book of business and the fact that it's roughly.
65% to 7% residential and personal lines business really does allow us to scale and so if you think about it just in on the heels of the third quarter with what we saw in residential earthquake.
We not only saw the growth and 65%.
In that line of business. We also saw the number of agents that we have appointed increased by 12% and for us to do that we don't need to add bodies, we can to point them in a onetime basis and then they are transacting within the system. So we can scale very nicely. So I do think it's worth pointing that out that Chris it's Chris as we will invest but it's going to be.
Selective and it's certainly not anywhere near a circumstance, where you have an investment that's a step function to keep up with the growth on the topline.
Yep completely understood. Thank you so much is very helpful.
Our next question comes from the line of Paul Newsome with Sandler O'neil. Please proceed with your question.
Good morning, Thanks for the call.
Any update on product roll up and how that May change the mix perspective.
Oh, Yeah, what I would say, it's we're continuing to introduce new lines of business. We were pleased and third quarter with the traction that we gotten our recently launched in the Marine Division as well as our assumed reinsurance divisions.
The inland Marine is right now, it's really focusing on builders RASK and we'll start to move into other lines like contractors equipment installations, but it's still early stages in the sense that what we're trying to get is.
Get our rates approved get approved producers appointed across you know a basically a national geographical footprint right now we're writing business in five states out of a target of 26, So long way to go I think what you will see though as you know while the third quarter. We've said that we want to get to a 50 50 mix between other perils.
An earthquake the third quarter ultimately that Didnt, we didnt reduce earthquake as a percentage of the overall book that's actually a good thing because of the growth, but we are trying to continue to build around the earthquake in with the particular emphasis on these commercial lines. So I think you'll see commercial business.
Increased as a percentage and I think you'll see commercial products outside of earthquake increased as a percentage as well.
And.
How should we think about the moves to the loss ratio the expense ratio with that mix change.
Yeah.
Well, it's a good question in Chris has talked about is in the past that you would likely see the loss ratio to pick up some.
But you know at the end of the day right now 72% of our business is having zero if things go as we hope and we expect it had zero percent loss ratio at the ended the quarter and that's earthquake, both commercial and residential in wine hurricane So.
As we grow even if it grows.
At 100% year over year like in the circumstance of builders' risk or flutter.
Even already it's not going to move it to materially it's going to be pretty subtle and how it goes up.
And I'd, just add to that a little more I guess context around the loss ratio and the acquisition expense.
Those lines that were expanding into I was I do have an attritional loss component to it. So thats usually the lines that were going to look at using some sort of quota share do help minimize the volatility those losses will have on the book. So that's going to help keep the loss ratio lower we do expect obviously that will tick up just naturally as it becomes a larger component of the book.
The nice thing about the quota shares though is it also helps with the acquisition expense. Those lines are naturally have a lower acquisition expenses or other lines of business, but Additionally, the acquisition expense will be offset by ceding Commission anytime we have a quota share in place. So that will also help to minimize or lower the acquisition expense as those lines of business.
Expand.
Thank you very much.
Thanks, Paul.
As a reminder, it is star one to ask a question. Our next question comes from line of Adam Klauber with William Blair. Please proceed with your question.
Hi, Thanks, Good morning, guys.
Are you still seem that demand surge caring to this quarter and California earthquake that you saw last quarter.
Adam.
I would say, it's what we've been looking at is the demand is persisting.
It does dissipate as we talked about it does come down immediately following the event, but in the metrics that we try to track that we think gives us an indication of this new normal of new business is the number of agents that we appoint not just the number of policies that we have that we right in a quarter. So as I just said we did increase.
Our agent footprint by 12% on a sequential basis from Q to Q3 on the heels of the Ridgecrest earthquake and we think that's a great indicator because what that means as those agents can now offer earthquake alongside all of their homeowners renewals.
When they come up so it broke it opens up the market it kind of hopefully level set the new business production for a period of time and then when you combine that with you know a product it's got north of 90% premium retention. It offers a nice bit of visibility. So we're optimistic that we can see this persist.
For.
The immediate future.
Right and just following up on that I'm not sure. If you can answer this but the one thing that you sort of have three different types of distribution you get retail agents, you've got AMG wholesalers and then you've got.
Partnerships with insurance companies can you rank them, even if even it's just a rough basis, which ones actually are producing the fastest level of growth.
[noise] right now it's it I would say the fastest level of growth right now is probably going to be the EMS Yan wholesale because if you look at just what.
How is certainly an aggregate because if you look at.
The third quarter specifically.
There was very strong growth in commercial all risk and commercial earthquake, thats wholesale and or MJ, driven residential quake, it's kind of a combination of all the above so I would say LNG and wholesale is probably the fastest grower.
But in terms of you know.
Potential.
Going to be a combination probably wholesale to retail that drives the future growth.
Okay, Thats, probably carrier partners are harder there, they're a great channel for US there just harder to predict lumpier.
You know we saw good traction from Liberty mutual and all state, but they are still early in the third quarter. Those were both newly launched initiatives great promise, but.
It's from a you know a sitting start great great and then as we look at the commercial risk in probably the commercial earthquake are you benefiting and then maybe early but are you benefiting to some extent from unbundling of the major carriers in other words.
In the past, maybe and maybe an energy or is there a quick throwing a fly door thrown the earthquake along with their property coverage, but today versus a year ago. There probably are less likely to just give away. Those coverages are you seeing an impact from that.
Yeah, that's a great observation, we are but I would say, we're probably not seen in as pronounced fashion is others Yadgaran right, where an a minus eight company those circumstances that you just outlined where large national carrier was bundling in the flatter throwing in the quake with an all reschedule, that's probably a national schedule.
That's a $500 million of T. Ivy or a couple of hundred million dollars on T.I.V., we traffic more in the sub $50 million now we have a smattering of risk, where we're going to be a 10 million part of 100 or 10 million part of 200, but more often than not we're going to be kind of a mid market accounts, but that is a dynamic.
That is persisting into marketing, that's allowing us to see our rates go up by 9% in the quarter and see them accelerate from up 5% in the second quarter, two up 9% in the third and frankly something that a dynamic if we don't see it's going to change in the immediate future.
Okay. Okay. Thank you that that's very helpful.
Our next question as a follow up question from the line of Mark Hughes with Suntrust. Please proceed with your question.
Thanks, Ted you mentioned the average pricing on the residential.
[noise] quake.
[noise] feed a intra hey, Mark Smack is there you are you referring to what's the average premium point.
Average premium for an account or what the average rate increases or what the yes, you got it I'm sorry, the averaged a rate increase that's my question.
So we have this inflation guard, which basically locks and an increase of approximately 5% on an annual basis.
Okay. That's good rule of thumb, that's going to renew up 5% year over year.
Now it's it doesn't mean, so but that's also tied to the exposure increasing somewhat as well, but it's an annual 5% premium renewal increase.
Thank you.
There are no further questions in the queue I'd like to end the call back to Mac Armstrong for closing remarks.
Thank you very much operator, so that does conclude Palomar third quarter earnings call Oh, we thank you for your time your questions and Moreover, your support.
We remain focused on the execution of our strategic plan and if we look forward to speaking with you after the fourth quarter.
All the best Thanks very much.
Ladies and gentlemen, this does conclude todays teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.