Q1 2020 Earnings Call
Hello, and welcome to the Pope Palomar Holdings Inc. first quarter 2020 earnings conference call. During today's presentation, all parties will be able to sit on remote.
Presentations the conference will be open for questions with instructions to follow at that time.
As a reminder.
Corporate goal is being recorded.
All the Clover Mr., Chris you Cheetos.
Financial Officer. Please go ahead Sir.
[music].
Thank you operator, and good morning, everyone. We appreciate your participation in our first quarter 2020 earnings call.
Me here today is backlogs, our chief Executive Officer and founder.
As a reminder, telephonic replay of this call will be available on the Investor Relations section of our website through 11 PM Eastern time on May 13, 2020.
The forward again, let me remind everyone that this call may contain certain statements that constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
These include remarks about the managements 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 could differ materially from those indicated or implied by such statements, including but not limited to risk of uncertainties related to the Cobrand Nike pandemic.
Such risks and other factors are set forth in our quarterly report on form 10-Q, Yeah, we'll be part of the Securities Exchange Commission today May six 2020.
We do not undertake any duty to update such forward looking statements I.
Additionally, during today's call will discuss certain non-GAAP measures, which we believe are useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with U.S. GAAP.
A reconciliation of these non-GAAP measures to the most comparable GAAP measures can be found in our earnings release at this point I'll turn call over to back.
Thank you Chris good morning, everyone.
Before I discuss our strong first quarter results I want to take a moment to address the global Kobin 19 pandemic.
And our team at Palomar has responded.
First off.
I thought continue to be with all those impacted by the disease.
Also thank those type working tirelessly to stem the impact of the pandemic.
We hope that all participants with us today are safe and most importantly healthy.
Our number one priority is and remains the health and safety of our employees. It all constituents within the Palomar network.
It's important to point out the power was founded in Architected, the managed catastrophe risk as such maintaining and executing a comprehensive business continuity plan has always been acai competence of our organization.
As cobot 19 began to spread throughout the U.S. in early March we quickly mobilize our employee base remote work leveraging existing business continuity plant in practice is developed previously for natural catastrophes.
Since that time, nearly all of our employees have been working from home.
Safer small group the former tasks that are essential in an office environment.
Our remote workforce is operating seamlessly and productivity has not been compromised due to not only our cloud based technology infrastructure, but also the professionalism of the Palomar team.
For our customers and partners, it's business as usual when it comes to our surface standards and transact ability I.
I'd like to thank our employees, who smoothly adapted this environment to needs during these extraordinary circumstances.
But in reality it has not been as is usual par insured in society in general.
As we address the challenges posed by the evolving Kobin 90 pandemic. Our company is focused on assisting policyholders what their individual needs.
We have implemented an insurance premium grace period to accommodate late payments across all lines of business and all states, where we operate.
While the rest in our portfolio specialty property insurance products have not seen a reduction in exposure or hazard. We continue to assess additional methods to help our policyholders and the communities in which they live.
[noise] before detail, our first quarter results I want to take a moment to briefly touch on the business interruption exposure of our commercial lines book and the coverage offered in these policies.
Our all risk and commercial earthquake.
Difference it conditions policies offer business interruption coverage for insured for loss in business income caused by physical damage to the structure from a covered peril.
All these policies are written on in the admitted basis and all of our oldest policy of that have an ISO virus exclusion in addition to requiring physical damage to the property.
Our DRC policies require physical damage to the structure caused by the covered parallels whether it be an earthquake fourth what.
We believe our policy language and coverages are expressly clear enough they exclude damage from a virus it required physical damage to the property.
That said, we are acknowledging investigating assessing adjudicating each and every one of our B. I claims and providing the policyholder requisite consideration.
We recognize the public policymaking process is an extremely fluid one and we continue to monitor developments at all levels of government on a matter of business interruption insurance.
Regardless, we have reinsurance coverage for these policies through our excess of loss and purpose programs.
We currently do not see any other areas a potential loss from coven 19 in our portfolio as we do not right lines of business like if I cancellation workers compensation surety trade credit or casualty lines, where the exposure as materially changing.
Separately I want to spend a moment highlighting the specific event the March 18th earthquake in Utah.
First and foremost the earthquake just outside of Salt Lake City was another example, palomar swiftly assessing their responding to natural disaster.
It also substantiates hobby exposure, the specialty property insurance market and the needs of our policyholders are no way diminished during the pandemic.
The earthquake kinda magnitude of 5.7 in was the largest let's take this 1992.
Immediately following the event our TV claims partner work quickly diligently to contact policy holders in the area to ensure their safety offer support and review our exposure, which included 586 total earthly policies within 10 mile radius of the epicenter.
Fortunately losses from the event.
Well the minimal impact on our earnings in the first quarter and beyond.
Turning to our results.
First quarter provided another successful demonstration of Palomar executing on its just do you plan to go to leader in the specialty property market.
Our existing products continue to grow taking share and driving adoption.
We continue to invest in new segments like in the Marine our geographic reach is expanding and we accomplished all this while generating strong returns.
We believe these efforts are best reflected by our growth and profitability during the quarter.
Overall gross written premiums grew 32.3% compared to the prior year period.
It is worth noting that the results from the first quarter of 2019 included the onetime assumption of 6.6 million at unearned premium in conjunction with the residential earthquake carrier partnership that commenced during that quarter.
Excluding the impact of that new partnership last year gross written premiums increased by 50.8% year over year and our residential earthquake products grew 26.7%.
Major growth drivers in the first quarter, where our commercial earthquake and commercial Altrus lines, which grew gross written premiums by 66, and 65% respectively compared to the prior year period.
Commercial lines growth was a function of new distribution sources and geography further product traction and most importantly sustained pricing increases.
Our first quarter commercial policy composite rate increase I'm renewals was 12.7% versus 11.2% in the fourth quarter.
During the quarter, our entire book experience premium retention rates of 90 per cent compared to 89% in the fourth quarter.
Remember catch up our residential earthquake, our largest line of business commercial earthquake and Hawaiian hurricane products were in excess of 94%.
We believe these results are a testament to the unique value we offer across the Palomar network.
Loss and loss adjustment expense, which Chris will detail shortly totaled 1.9 billion during the quarter generating 5.4% loss ratio.
As a result.
We achieved an adjusted combined ratio of 61.6% and an adjusted our we have 20.6% during the quarter.
I do it is worth highlighting that we achieved that are are we in spite of a conservative net written premium to any stockholders' equity ratio 0.64 times.
Our balance sheet remains very strong bolstered by the $35.5 million capital infusion from our January following offering.
We are debt free.
We do not old exposure to the equity markets.
Our investment portfolio consists mainly of highly.
Liquid and high quality fixed income securities.
We continue to invest in our team as we seek to scale our capabilities and footprint into market. During the quarter, we made strategic hires in underwriting technology and operations and we are still hiring via.
A virtual recruiting process rather than in person.
We also built out our senior leadership group with the hiring a bill bold as our Chief strategy Officer, and the promotion of John Christiansen, Chief Underwriting Officer, and Chief operating Officer effective August 1st.
I'd be remiss, if I didn't take a moment to take our current chief underwriting officer, any Robinson, who will be leaving the company in August.
And he has been instrumental to our success that the help wants Palomar 2014.
We're gonna missing any dearly and wish him well as he transitions to spend more time with family and pursue other personal endeavors.
We are fortunate that our products are an important enduring need to consumers and businesses in a way that has generally independent of economic conditions.
That said, we're by no means impervious to the impact of covert 19, and our business in the insurance industry in particular tumbled matters regarding business interruption insurance.
Well be I had the very modest contribute to our overall our insurance love. It we're very focused on this evolving dynamic and they enter a we will appropriately responded the needs of our policyholders.
During these extraordinary times, our team remains committed long term opportunity in front of us.
And to serving all our stakeholders with that I'll turn the call over to Chris to discuss our results in more detail.
Thank you ma'am please.
Please note during my portion I know when referring to any pershare figure I'm, referring to per diluted common share as calculated using the treasury stock method.
For the first quarter for each way our net income was $11.8 million were 48 cents per share compared to a net loss a $14.4 billion or a loss of 85 cents per share from the same quarter in 29 team.
The first quarter 20 twice, our adjusted net income was $12.3 million or 50 cents per share compared to adjusted net income of $8.8 billion were 52 cents per share for the same quarter 2019.
First quarter 2020, and 2019 adjusted net income excludes expenses related to our stock offerings and stock based compensation, including the tax impact those expenses. These stock offerings have increased our share shares outstanding by approximately 7.2 million shares were 43% during the past year.
Gross written premiums for the first quarter were $71.5 million, representing an increase of 32.3% compared to the prior to his first quarter as Matt indicated last year's results included the inception of a residential real quick partnership in which we assumed $6.6 million enforce premium excluding.
And impact of that 2019 premium assumption the period over period increase was 50.8%.
We saw robust new business really increases and star strong premium retention with contributions across our product portfolio.
Ceded written premiums for the first quarter were $29.5 million, representing an increase of 13% to bring to the prior years first quarter, our risk transfer strategy remains a critical component to our business, especially as we demonstrated sustained top line growth.
The increase was primarily due to the increase in the reinsurance expense commensurate with our group.
As we grow our business, we expect to incur additional excessive loss reinsurance expense as we maintain a conservative level overall coverage due to the timing of our reinsurance placements in terms of the underlying contracts there maybe a lag between earned premium and the reinsurance <unk> reinsurance placement or expense, but overtime. We expect these impacts just.
Moved out and their trends look the same.
As of January 1st of this year, we retained $5 million per earthquake or wind event, and we purchased 1.2 billion total reinsurance coverage for California, Florida, California earthquake event.
Net earned premiums for the first quarter were $34.8 million, an increase of 89.7% compared to the prior years first quarter. Our results improved primarily due to the earning of increased gross written premiums offset by the earning of ceded written premiums under reinsurance agreements for the first quarter 2020 net or pre.
<unk> percentage of gross written premiums were 53.6% compared to 44.9% and the first quarter of 29 team.
As previously discussed we believe the ratio of net earned premiums to gross written premiums is a better metric for assessing our business versus net written premiums to gross written premiums.
With our current mix of business, we expect that ratio to be around 50% on an annual basis.
Commission in other income was approximately 738000 for the three months ended March 31st 2020, and 586000 for the same period in 2019, due primarily to increase in policy related fees associated with it increased volume of premiums written.
Losses and loss adjustment expenses were really incurred in the first quarter $1.9 million compared to your $316000 and the for prior years first quarter.
Our losses during the quarter were primarily made up of Attritional losses, as well as modest losses incurred including I mean are of approximately $192000 from the March 18th in Salt Lake City earthquake.
In addition, we booked approximately $316000 a favorable prior year development.
Loss ratio for the quarter was approximately 5.4% compared to 1.7% for the prior years first quarter.
Our loss ratio increased in the first quarter of 2020, primarily due to increased attritional losses, or commercial all risk, especially homeowners line.
During the first quarter of 29 team, we ceded all losses losses related to our especially homeowners line in the state of Texas.
Our expense ratio for the first quarter of 2020 was 58.2% compared to 192.1% and the same quarter 2090.
Brian ratio for the first quarter was 63.6% can better compared to a combined ratio of 193.8% for the prior years first quarter. During the first quarter 2019, the IPO related expenses and the $23 million stock compensation charge incurred as a result of our IPO significantly impacted.
Men's and combined ratios, our adjusted combined ratio, which we believe is a better assessment of our efforts was 61.6% during the first quarter compared to 66.7% in prior years first quarter.
We believe our business will continue to scale over the long term.
Net investment income for the first quarter was $2 million, an increase of 112% compared to the prior years first quarter.
The increase was largely due to interest income generated by the $122.9 million of net proceeds received from the company's stock offerings and positive cash flows from operations.
Funds are generally invested conservatively in high quality securities, including Government Agency agency acid and mortgage backed securities municipal and corporate bonds with an average credit quality, Hey, one a plus.
Our fixed income investment portfolio yield during the first quarter was 2.85% compared to 3.1% for the first quarter of 2019, the weighted average duration of our fixed maturity investment portfolio, including cash equivalents was 3.81 years at the end of the core.
Cash invested assets totaled $320.4 million at quarter end as compared to $259.6 million at March 31st 2019 for the first quarter recognize real was realized and unrealized gains on investments in the consolidated statement of income of zero point $4 million compared to two point.
$4 million in the prior years first quarter.
Our effective tax rate during the first quarter was 22.3% compared to a negative 1% for the prior years first quarter.
Our prior your tax rate was significantly impacted by the reversal of the valuation allowance on the company's federal deferred tax assets and add back really to the stock compensation charges recognized during the quarter, excluding any unforeseen events, we anticipate that our tax rate will settle in around the 21% Mark for 2020.
Our stockholders equity was $260.8 billion at March 31st 2020, compared to $101.9 million that Marshall their first 2019.
The first quarter 2020 annualized return on equity was 19.7% compared to a negative 58.2% during the first quarter of 29 team.
Similarly, our annualized adjusted return on equity during the first quarter was 20.6% compared with 35.7% during the first quarter for 90 days.
The year over year changes in our annualized return on equity and our annualized adjusted return on equity include the impact from a sizable increase in the company's stockholders' equity as a result of $122.9 billion of capital raise from multiple stock offerings.
Well cobot 19, as a high degree of uncertainty to society at large remain steadfast in our ability to execute achieved adjusted net income between $50.5 million and $53 million for 2020.
Which equates to a growth rate of 33% to 40% year over year.
It is worth emphasizing the abuse results assumed there are no major losses from a natural catastrophe and or those caused by business interruption legislation.
As of March 31st 2020, we had 24.770 million and 608 diluted shares outstanding as calculated using the treasury stock method.
We do not anticipate immaterial increase in this number during the year and Uh huh.
That I'd like the I'd like to ask the operator open up the line for any questions operator.
Thank you will not be conducting a question and answer session. If you like placing the question Q. Please press star one under telephone keypad, a confirmation Todd I'm, sorry, excuse me a confirmation tone would indicate your line is in the question Q.
One moment, please what we pull for questions.
Well first question today swing from Mark Hughes from Suntrust. Your line is not a lot.
Oh, Thank you very much.
What I was sort of take rate have you seen on the offer bode Grace period on your policy.
Hey markets Mac you know it.
What I would say, we haven't really been able to track it what I would tell you is retention in March and what we're kind of seeing as we sit here in April if it's consistent with maybe a modestly tick up most of our interaction is anecdotal and speaking to ensures that want to understand.
Their payment plans wonder I understand what the grace period and tails, but.
It's too early really to.
Besides what what it entails the only thing that would add is you know most of our products have some flexible payment options, but they're not fall pay they tend to be three or four pay period. So in many instances like people prepaid.
So my they might understand that the information you have gotten back any specifics at this point, it's fairly limited at that.
Yeah, you seem to.
Yeah, I mean, it's really you know the first full month of it being in the market would be April. So it's it's early to tell I think it's gonna be better told the sort of even better told in second quarter.
Oh, okay.
We have Oh go ahead I was good I was gonna have one thing that you know if somebody were watching closely and you know we look at our cash collection to think of that nature on a daily basis, and we haven't seen a real significant change since a lot of those grace period that been able to yeah, I'd say no change.
Very helpful. Thank you and then the.
Chris the extra well purchase I mean, youre earned premium pretty healthy this quarter.
And begin will be above the longer term norm that 50%.
Oh, the written premium.
Any detail you can provide about that what the what would be a benefit this quarter and in that when would you anticipate that.
Actually well purchases my had kind of they step.
Impact.
Yeah, No I think those wells that Mark you know when I look at it for Q1, you know there was obviously the January one places placement that you mentioned the key driver for the favorable results on the ratio was really the growth and written premium that growth was.
I would say throughout the quarter, but it did start in early January so we did receive a significant benefit in the earning of all our a significant portion of that growth during the quarter. So that definitely helped Q1 results.
We haven't announced any of our reinsurance placements for the remainder of the year I can't say that we did not have any new excess of loss in the first quarter or else. We would have disclosed that but I think if you look at some of the information that we provided in prior years. Then you can give you a good sense of what our reinsurance cycles usually are.
But with that like you said.
Over the long term I would still expected that ratio to be around 50% for an annual basis for 2020.
And then back if you wouldn't mind, just a little more on market conditions, both in California. It became the turnover dislocation in the residential market that maybe giving you opportunity. So your policies and then also commercial line.
More broadly you know, what you're seeing and the application commercial Kuwait.
Sure Mark and the residential quake, what I would say is.
You know there Oh, yeah. We grew on a same store basis for lack of better term you know 25, or some 26.7% and we continued to have strong new business I'm in the first quarter, there remains the dislocation and the homeowners market.
And so I think that's creating partnerships as well as new distribution arrangement opportunities I think our distribution footprint across all of Palomar grew 6% a in the first quarter. So we feel pretty good about momentum that we continue to see there.
I think candidly with the shelter in place mandate people are reminded of the importance of the structure and protecting the structure that is there hall, so new business volumes on our sustained or even at the <unk> as we speak today on the commercial side.
You know the dislocation in the commercial property market is a well continue to be pronounced in the first quarter.
I mentioned to 12.7% a rate increase that we saw and how that picked up from 11.2 in the fourth quarter.
Candidly I think it's going to be more pronounced. The later half of this year I think it's a function of Copel 19, and losses are being taken it other lines of business enforcing people that are writing commercial property to retrench or cut back their limits that they are allocating I think also the reinsurance.
The market is hardening.
Which will impact others, a in what they can right and that's probably.
Relevant for commercial real quick so already scanner in marine So we actually believed that the dislocation.
Is going to be more pronounced or in the second quarter and the second half of this year, which I think creates opportunities for US you know we have strong reinsurance program in place we have ample capital.
That was bolstered in the first quarter. So you know I think the prospects for commercial business at least on the underlying cost of a unit of exposure of insurance.
It's strong.
Super Thank you.
Take your next question today is coming from Paul Newsome from Piper Sandler Your line is not alive.
Oh good morning.
Any possibility or early read on market demand impact because of the.
Utah.
A quick.
Obviously, you changed quite a bit after the California.
Sure.
The thoughts there.
Yeah, Paul it's Matt good to hear from you.
You know what I would say is it has followed the traditional oh.
Unfortunately, rather its fathers, how we've seen in other states, where there is a big surge in demand following an earthquake and Utah, our new business picked up considerably now I need to temper that with the fact that the average premium and the overall size of that market is very small in comparison to.
California, So if the catalyst and it certainly helps from a spread of risk in a diversification standpoint is we're writing a lot more Utah earthquake business than we ever have integrate some awareness in California. So we think that will help with new business you know when it happened March and will help a in the second quarter some.
But it will not be.
Certainly isn't materials. It was in the case July when the earthquake was in southern California.
Is there anything.
That's happened in the last month or so here with a pandemic and other effects.
That would change how you think about risk and particularly with the oldest got policies I guess.
It's about changes in terms and conditions lots about limits.
Anything that that you would think about.
Adjusting overtime based upon what we've experienced late.
You know Paul what I would say, it's a great. It's a very good question, what I would say as we feel.
Very very confident in our approach and how weve underwritten are always business by having the ISO virus exclusion in every single one of our policies.
And that the form that's been in the market since I believe 2007, so I would say that we are not going.
Deviate from the inclusion of that exclusion and all of our policies I think.
We are going to continue to underwrite certain classes that maybe some people pulled out from if we know that they have a clear operating plan for when they are.
Open and fully functional I'm you know a lot of like you know given example of hotels and motels their operational and they are open but they're not really fully functional so we as we underwrite those we want to understand what is their true return to work in for returned to full capacity function.
But I think we're going to continue to be you know adamant in the inclusion of virus exclusions and not putting ourselves in a position where there is a shadow of doubt and coverage or lack thereof.
Hi, congratulations on the quarter guys.
Thanks, Paul.
Your next question is coming from Jeff Schmidt from William Blair. Your line is not alive.
Hi, good morning.
I think you said that growth from distribution was 6%. It does that basically the distribution partners and I just wonder if you can maybe provide some detail on the components retailing GE carrier.
And is that changing at all here with I guess, the pandemic does that affect came that.
Yeah, Jeff So city, our total distribution footprint increased by 6% in the first quarter, that's across all lines of business.
It was more pronounced residential earthquake was about 7%.
Our commercial already so it's probably more pronounced in commercial lines commercial always the total producers increased by 22% and then in the inland Marine, which obviously is coming from and much lower base anecdotally increased 91%.
The mix of that it's going to be more residential and wholesale commercial production is predominantly wholesale driven.
Although the in the Marine does have a combination of wholesale and retail so what I would tell you is.
They fly specific it's growing across the board its more pronounced commercial business and it's going to be more wholesale and retail we have some terrific program administrator partners.
For residential earthquake in specialty homeowners line, and we're not really broadening that arrangement right now.
Okay.
And then I mean, you may you touched on this but I guess given that jump and unemployment here and I guess, just given that a number these products products are kind of add ons I mean, there they're kind of optional are you seeing a big pull back in demand for some of those products.
No Jeff what I would say is we are not as of this point you know we affirmed our guidance.
In May right with April in our rear view and the trends in that what we've seen there we had strong retention and may actually mean in March forgive me you know for the quarter is 90% I think it comes back to you know wrote why you're correct is our largest.
On the residential earthquake is a voluntary product you have to go back and look at the buyer the buyer tends to be.
A mass affluent buyer and the average G.I.V. across the board is close to a million dollars. That's the total insured values close $2 million, they're probably a middle aged a buyer so there and they're shelter in a place right now so they're seeing a consistent reminder of their asset and protecting that asset.
And then when you feather in some pretty material events in the form of earthquakes and not just in Utah, but also even in Idaho.
And small in California, I think awareness sustains retention too so the long winded way of saying so far we have not now I'd be.
Foolish to think that may that that that couldn't change it could change, but from what we're seeing right now retention.
It's holding a strong.
Okay. That's helpful. Thank you [laughter].
[noise]. Thank you next question is coming from David Martin from Evercore. Your line is not a lot.
Thanks, Good morning.
A question for Mac and maybe he just on the reinsurance renewals.
For six wind in sort of wondering what your preliminary views are on on pricing.
For odd, but part of your program that's renewing.
And then I think you also have the Torrey Pines Cat bond. That's also going to win new or is renewing pretty soon here in sort of what your outlook is on the pricing given all the noise that span not that's been thrust into the marketplace frame Blanco bid.
Hey, Dave It's Mac, what it's good to great question and you know I'm first of all I'm pleased to report that we have placed all of our reinsurance program as we sit here today.
We will have a press release that in the next couple of weeks that goes into more detail. We are finalizing contract terms and conditions in signing a finalized but all the limit has been placed so we were we're thrilled to report that what I would say is the reinsurance market is high.
Pardon me as it relates to Palomar its hardening in a digestible fashion and it's one that frankly, while we'll see a risk adjusted or increasing the costa reinsurance.
It's somewhat kind of in many ways, it's catching up with what we've seen a primary market and I also believe that what it will lead to as further dislocation in the primary market what that will allow us to recoup or.
Or sustain our margins generally speaking so.
The market is changing and I think one of the drivers of it was the second question that you asked was around at the I'll ask Mark and for US we were anticipating going out in the island's market, we pivoted pretty quickly when we saw illustrative pricing and some of the terms and conditions that were being put into market in March.
So we decided.
I do not go down that path and again this will be describe in more detail in a press release, but.
We've we've gone back in the traditional market and we've got a great reinsurance panel that supported us and where again we're pleased that.
It's wrapped up and once the bow is on the program. So to speak I will have a press release out a in the next week or do you.
And just give me here.
Jeff just for a little clarity around that also I I would like to add that when we looked at the guidance that we did but we were able to contemplate a lot of that reinsurance plays there and some of our projection. So we have did that entity.
I guess the affirmation of those numbers that we provided yep Yep, that's a good point Chris Thanks.
Got it thanks, Thanks, Bakken, Chris for that and and then I guess just any thoughts around.
Yeah, you obviously are now at your under $60 million of equity any thought around increasing the retention from 5 million.
Due to maybe something higher and sort of just your thought process around that.
Yeah, Dave Yeah, if the that's a good question and I think we've talked in the prior earnings calls and and kind of outline what our guide posts are in that we will keep our retention inside of 5% of surplus.
And no more than occur quarter of.
Pre tax earnings and I think that's what you'll see when we announce it the cost of those lower layers get pretty extensive and frankly the payback. It's very quickly so that will be flushed out but you I.
I would say the retention is going to be ticking up, but it's going to be inside of those parameters that we've had a theme somewhat sacrosanct.
Great. Thank you.
That go next question is coming from Meyer Shields from KBW. Your line is now live.
Great. Thanks, and good morning, I was hoping you could talk a little bit about the.
Commercial customers.
Exposure sort of analogous to your comments earlier about your residential or <unk>.
Yes, there just with respect to our commercial business and I think its overarching it's worth pointing out you know, obviously, we write specialty home or specialty business specialty property business.
Overarching we are book is very habitational in nature and so.
If you look at the totality of our book you know, 82% of the gross written premium and about 89% of the locations that we write our habitational in nature. So they can be h. away single family homes institutional housing things a vast network. So generally.
Speaking you know our book tends to be.
You know a pretty big homogenous book of Habitational exposure I'm the commercial lines.
Right a lot about habitation once they also write a fair bit of hotels, and motels and builders are well builders rents or less wars risks don't think think strip malls not a lot of heavy manufacturing not a lot of contingent business interruption.
For lack of better term somewhat plain vanilla if you look at what we're seeing kind of in the commercial market right now I think I've a trend that fairly consistent is.
We're not seeing people looking to use switched to often and they are going to stay with their existing incumbent carrier even with a you know 12, 13, 14 15 plus percent a rate increase because they just don't want to you caught and create a circumstance.
Uncertainty or and then Furthermore, when there is a I shift from one care to the next it's gonna be driven by the Safra mentioned dislocation in the market that we feel is going to become more pronounced later half of this year and so you're able to bring that on a pretty.
Attractive terms and conditions, whether it's the underlying.
Hey out a premium metrics are the unit cost of insurance or with terms and conditions. So.
The commercial market you know for what we right it's fairly predictable its fairly consistent in their returns and the underlying metrics that were cheating and in the rate that we're able to glean. So hopefully that answers your question.
It does.
Helpful.
If you could contextualize, the 6% distribution footprint growth.
Maybe where it was 2019.
Yeah over the course of 2019 mayor. It grew you know probably around 10% to 12% you know from that or the third quarter. The fourth quarter. It was pretty consistent it was around 8%, 9% growth I think.
150, 450, 800 agents are actively producing with us and I think it probably accelerated more in the first half of the year.
Okay 29 cents.
Understood. Thank you so much.
Thank you. My next question today is coming from macro getting from JMP Securities. Your line is not life.
Hey, Thanks, good morning, Mac and Chris.
Most my questions have been answer I just had one four yeah. You know just think about the landscape ahead I wanted to ask you what new opportunities do you see our there do you see opportunities coming out of whether it's cold bidder everything related to it where there's either new risk exposures that that clients are looking to ensure.
Or areas of the market, where maybe competitors are impaired or their spot you have your eye on where we could see new opportunities for for Palomar.
Hey, Matt.
Thanks for the question what I would say is the answer is yes to all of what you just touched upon I think first and foremost I want to kind of reiterate that we think there's considerable greenfield in our existing sweetener existing markets.
And candidly Ur Cobot 19 is probably going to foster dislocate further dislocation in opportunities within those segments. So we don't want to get too far afield. When there is ample opportunity in where we are in traffic in areas, where we are to traffic.
But you know we are indeed looking at new emerging segments and I think we just look at our own experience with Palomar. Our team has done an exceptional job of transitioning to.
A remote working environment and.
You know we've done a very we tried to make maintain coffee communication with them all in one of the things we've done it to try to take their temperature on whether or not they wouldn't want to return to work. When you know the California is indeed fully open.
And several have thought they'd really enjoyed the dynamic of working from home and we'd like to continue to do so indefinitely and so I think there's going to be a paradigm shift and remote work and therefore, the coverage that that necessitates a in a force. So that's an area that we're going to do.
Do considerable work on especially when you think about as I said earlier you know.
82% of our premium is habitational in nature, so that or something for us to get our hands around there I can't tell you what that is right now, but I do think that as an emerging line of business that is.
Tangential at a minimum to what we do.
Okay very helpful. Thanks to the color and congrats when I start to there.
Thanks, Matt.
Thank you. My next question today is coming from Adam Klauber from William Blair. Your line is now wise.
Hi, Thanks.
And the residential earthquake client I think you mentioned you are seeing some different channels.
In particular, how however, I got new someone new competitors they tend to be more judge at all are you, saying Oh are you seeing more volume from them in March and April.
Hey, Adam.
You know I would say, it's those channels continue to perform well for us.
The one.
The thing that I would hesitate in.
Saying that it did or they're driving disproportionate growth is there probably driving disproportionate growth from a perspective, but they're not from a premium perspective, you know they tend to be you know more focused on a renter or a first home buyer, which is gonna be a lower premium point, then as I mentioned in our average.
Paul fueled our residential earthquake I think is 45 kind of mass affluent I'll who've been in their home for a longer time built up considerable equity in that home that their protecting so the premiums a bit higher there. So they're very good channel and they're very good channel immediately following events.
Because they do have that direct to consumer touch points, but I would say you know, it's more Pip count policy count than it is premium volume that they drive growth.
Right that makes sense.
And then builders' risk obviously that businesses is jumping out that's what's the newer business could you talk about the build out of the footprint, which states are you running more business today and as we think about roll out of that business and that team.
What sort of what point do you expect that by the end of the year.
I don't have to add to another good question. We're very excited about the traction we're getting in that segment right. Now we what we tried to do is you know leverage existing distribution relationships leverage existing reinsurance program. So kind of follow the track are all.
Chris program and wherever you are right. So it's it's been more in Texas and the Carolinas overtime, we expect to see the geographic footprint broaden in particular into non coal solar wind exposed or a state because builders' risk is not geographically.
So I would expect us to you know we've got the filings approved in all 27 states, where we are committed but I would expect used to see that start to deviate from the footprint of all risk or commercial earthquake overtime, but right now it's mirroring that they're fairly closely.
Okay. Thanks.
And you use probably guess, but how does the slow the business in the commercial all risk from the wholesale channel.
We're in March and April as it have you seen it slows it around the same or just even even just from a color standpoint, you know has there been changes in that the nature of the flow from the wholesale channel.
Well you know what Adam I'd say, we increase in you know <unk> commercial all risk for instance, our distribution touch points increased by 22% and in the first quarter. So submission activity has increased considerably the metrics were getting are trending.
Up they're they're continuing to improve from A.A.O. at a premium perspective from a premium renewal perspective, and submission county is increasing I do think I'm not I've used the term several times on the call any of the dislocation.
And the commercial property in hours market has helped us.
You know tremendously in that line.
And it's going to continue to do so.
Okay great.
And then switching other underwriting expenses.
You know moved up a little year over year, obviously, you know your bigger company. Today, then a year ago. When we think about this level things a little over 7 million.
Well, we see continued sequential jumps or do you think that the rate of growth and then other expenses will spoke so little compared to what we saw in the last couple of quarters.
Yeah, obviously, we haven't provided specific guidance around it into that but I would say when you look at the sequential growth all of it was planned and.
Recall, when we thought about the guides due at the beginning of year than affirmed today. So I think it's all really are most of a lot of it is related to the IPO and becoming a public company, especially when you look at Q1 of last year, we were not a public company in Q1 of last year. So there is.
Some sequential growth there I think this isn't a pretty call healthy level I think we will continue to add as we need to grow and sustain that growth, but it should be at a cold scalable level, where the top line.
Revenue does exceeded the growth over the long term period of time.
Okay.
And then finally, Chris and I think you made this point earlier, obviously, you're paying a you're paying <unk> sets excess loss reinsurance approaching your into premium throughout the year. So that suggest throughout the year the acquisition cost because if I understand correctly, probably does moderate similar to what we saw last years that.
Correct.
Yeah, I think if not completely sure following the question but.
The placement of the excess of loss as of January one of the not cost little bit on the upcoming placement that we will announce later on it.
Probably this month.
At those periods of times those earn out or are those are expensed over the term are those contracts. So the next placement lets call June one that new reinsurers level that will be the level of expense over whatever the term of those contracts are yeah. I think the acquisition expense will then dovetail off of one.
The blended net earned premium conversion rates up we just used 50% you know the acquisition expense will be paid off of the net earned premium converting a at 50% of the gross earned so I think it should be fairly steady Adam I'm, the only thing out as commercial business grows.
Matt in the mix changes that should help tick down.
The cost of acquisition.
Roughly.
So we think it's gonna be fairly predictable.
Oh, great. Thanks, guys.
Thank you as a reminder, that star one p., placing the question Q1 moment. Please what we pull for further questions.
We appreciate about question answer session, let's turn the floor back over to management for any further closing comments.
Well. Thank you operator, and thank you all for the time. This morning. This concludes Palomar as first quarter earnings call. We appreciate the time the questions and always your support we do believe that Palomar has the foundation in place to execute on or near and long term strategic initiatives.
We think this quarter exemplifies how our company can and will persevere through a these certainly challenging and on a familiar times, we can't predict with almost certainly what will transpire over the course of 2020.
We can and will remain focused on providing strong results for all our stakeholders well equally prioritizing the safety of our employees and our trading partners. We look forward to speaking with you. After the second quarter you I hope that you and your family's remain healthy. So thank you very much have a great day. Thank you for time. Thank you.
It does conclude todays teleconference. You may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.