Q1 2025 Palomar Holdings Inc Earnings Call
Speaker Change: Good morning and welcome to the Palomar Holdings Inc. 1st quarter 2025 earnings conference call.
Speaker Change: Following the presentation, the conference line will be open for questions with instructions to follow. As a reminder, this conference call is being recorded. I would now like to turn the call over to Mr. Chris Uchida, Chief Financial Officer. Please go ahead, sir.
Speaker Change: Thank you operator and good morning everyone we appreciate your participation in our earnings call with me here today is Mac Armstrong our chairman and chief executive officer
Speaker Change: Additionally, Jon Christianson, our president, is hearing other questions during the Q&A portion of the call.
Speaker Change: As a reminder, the Telephonic Replay of this call will be available on the Investor Relations section of our website through 11.59 p.m. Eastern Time on May 13, 2025.
Speaker Change: Before we begin, let me remind everyone that this call may contain certain statements that constitute more looking statements within the meeting of the Private Security's litigation reform act of 1995.
Speaker Change: These include remarks about management's future expectations, beliefs, estimates, plans, and prospects.
Speaker Change: Such risks in other factors are set forth and are quarterly report on form 10Q filed with the Securities and Exchange Commission.
Speaker Change: We do not undertake any duty to update such four-looking statements
Speaker Change: Additionally, during today's call, we will discuss certain non-GAAP measures which we believe are useful in evaluating our performance.
Speaker Change: The presentation of this additional information should not be considered in isolation or as a substitute for results compared in accordance with U.S. GAAP. A reconciliation of these non-GAAP measures to their most comparable GAAP measure can be found in our earnings release.
At this point, I'll turn the call over to Mark.
Thank you, Chris and good morning.
Mac: I'm very pleased with our strong start to 2025 as our first quarter saw a sustained growth of strict and premium growth and record adjusted net income.
Mac: The quarter featured 85% adjusted net income growth, a 69% adjusted combined ratio, and a 27% adjusted ROE.
Mac: Our results demonstrate the continued execution of the Palomar II Strategic Imperative, as well as concerted efforts to build a leading specialty insurance franchise with the resilient and diversified portfolio.
Mac: Our 20% growth treatment premium growth was driven by both new products like crop and casualty, as well as our balanced mix of residential and commercial property products.
Mac: importantly our same-store premium growth rate was 37% demonstrating the strong underlying momentum that exists across our portfolio specialty products
Mac: Beyond our financial performance, we remain focused on executing 2025 strategic comparatives
Mac: The first is integrated and operate. During the quarter, we further monetize the investments made in 2024 and prior. These efforts were highlighted by the successful onboarding of our new teammates at First Indenity of America.
Mac: A key component to the long-term security strategy is the receipt of a T-listing, and I'm pleased to report that FIA achieved this in the quarter
Mac: We also closed the previously announced acquisition of Advanced Ag Protection on April 1st and began integrating their operations and talent into our crop business.
The second imperative is build new market leaders deliberately.
Mac: The strong growth of the Cassidy franchise in the quarter demonstrated traction on this initiative as we continue to deliver very strong growth while maintaining modest netline sizes. Our crop franchise also showed solid growth in what is typically a lighter production quarter, supported by expanded geographic reach in new distribution channels.
Mac: The third imperative is remembering what we like, more importantly what we don't like.
Mac: Our commitment to a conservative and well-defined risk appetite in the property market not only illustrates our focus on this initiative.
Mac: Instead, we are increasing resource allocation to residential earthquake, Hawaii Heracane, and residential builders risk products as market conditions shift.
Mac: Fourth imperative is continue to generate consistent earnings in the cornerstone of Palomar 2X.
Mac: Beyond the record adjusted in that income of 51.3 million in the quarter, we beat earnings for the 10th straight time, a testament to the strength and increasing predictability of our earnings model.
Mac: As Markic, Dynamics continue to shift our diverse portfolio of residential and commercial products and discipline capital allocation strategy, enable us to maximize risk adjusted returns.
Mac: Before I offer commentary on our five product categories, I'd like to address global economic uncertainty, specifically our view of the impact of tariffs on our business.
Mac: The insurance business is a defensive sector that is less impacted by tears than most other industries, and Palomar is no different than its peers in that regard.
Mac: However, we are visually monitoring the perspective impact of terrorists across our portfolio and our exposure base We recognize that elevated terrorists and the associated cost of materials will potentially increase severity across a certain short tail property products in our book of business both residential and commercial
Mac: As it pertains to crop, we continue to closely monitor prices of soybeans and corn relative to the 2025 crop year price is set by the federal government in February . At current levels, there should be minimal disruption caused by the tariffs.
Mac: yield will and always will have a greater impact on the performance of the crop book and as such we continue to focus on yield and employing the risk transfer tools we have to color the risk associated with swings in yield and price.
Mac: As it pertains to the casualty book, our limited auto exposure, physical damage and liability alike, let me see exposure to tariffs. We believe our casualty book is insulated.
Mac: A recession in an economic slowdown would have a greater impact on our product portfolio, property casualty and crop alike in the near term than that of tariffs.
Mac: Slowdown will reduce exposures in multiple fashion such as project delays for home builders, reduce labor on construction projects and lower revenue at real estate brokerages
Mac: and thereby have a derivative effect on premium, premium attention and loss severity.
Mac: Consistent with our history, we will assess our books for performance and incorporate the revenues and changes to loss, cost and pricing for each line of business we write.
Mac: But we take considerable solace in the diversity of our portfolio and the numerous vectors that will help sustain our profitable growth trajectory.
Mac: This quarter, more than perhaps any other demonstrated the value of the diversity of our portfolio.
Mac: Beyond the five product categories in the numerous products embedded in them are portfolio consists of a broad mix of admitted and ENS risks, as well as residential small commercial and large commercial accounts. As discussed in the past, this diversification affords us a unique ability to navigate the PNC market cycle.
Mac: Turning the first quarter performance of our core earthquake franchise, we delivered strong results with growth rate and premium of 23% year over year. This growth underscores the strength of our well-diversified earthquake portfolio across residential, small commercial and large commercial product offerings.
Mac: In the first corner, we wrote record-new business in our residential segment, which comprises 57% of our in-first earthquake premium. We continue to see stable policy retention in benefit from a 10% inflation guard that is not come under pressure, despite the rising cost of homeowners insurance in California.
Mac: Additionally, new carrier partnerships remain a nice source of new business.
Mac: The Palestinian wildfires along with smaller events like the recent earthquake and remote part of San Diego, heightened awareness of natural disasters in the need for insurance, driving sustained demand for earthquake coverage.
Mac: While we are seeing pressure and rate on commercial accounts, it is worth noting that a small commercial book, which constitutes approximately 14% of the earthquake book, remains more insulated from competition than large and layered and shared accounts.
Mac: Small Commercial Accounts are rate decreases of approximately 5% in the quarter
Mac: The large commercial market has experienced more pronounced softening and increased competition, with rate decreases of 7.5% as new capacity enters a segment that has fewer barriers to entry than our residential and small commercial earth with businesses. The large commercial market has experienced more than our residential and small commercial earth with businesses.
Mac: We remain confident in achieving mid-to-high teams or a quick premium growth for the 4th year of 2025 for the 5th year of 2020.
Mac: Our Inla Marine and other property category grew 29% year-over-year. Like the earthquake portfolio, we've been in a well-diversified mix of residential commercial lines which enables us to adapt quickly to shifting market dynamics, particularly as large commercial property lines face increased competition.
Mac: Also, like our earthquake book, we saw strong contributions from our residential lines of business, notably Hawaiian Hurricane Group 82% as LaLima was able to write new business and renew policies at rates 26% higher than last year
Mac: Additionally, our high-value builders, wristbooks saw very strong growth as we expanded our geographic Greece and leverage an attractive re-insurance structure that increased our capacity.
Mac: Our small commercial focus builders risk products that ensure middle market regional home builders saw the technical rates stay flat year over year.
Mac: The excess national property and ENS builders risk product teams are facing pricing pressure from increased competition and a softening market as those two products tend to participate in large layered and shared policies where there are new entrance or existing players looking to take more risk.
Mac: Commercial all-risk is where the rate pressure is the greatest with most renewals down mid-teens. As such, we have all but exited that line and in turn meaningfully reduced our continental hurricane, PML.
Mac: Casualty Gross Written Premium drew 113% year-over-year driven by strong performance across general liability, ENS Casualty, Real Sadie, and Owen, Environmental Liability.
Mac: Recent investments in talent and systems have accelerated premium growth while enabling us to effectively scale and service the business.
Mac: Under David Sapia's leadership, the INS casualty team is capitalizing on market dislocation and rising rates on average 11 percent while maintaining discipline underwriting in low net limits, and the quarter of the average net limit was $913,000 after the utilization of quarter share, in fact, the pay to bring insurance.
Mac: The Environmental Liability Team continues to benefit from a consistent, healthy rate dynamic with increases of approximately 5% as we add talent and expand the distribution network of the product.
Mac: Our professional lines products saw rates plateau this quarter, but the growth opportunities are several, whether it is our successful expansion of real estate, ENO, beyond California or hiring seasoned underwriters to enhance our miscellaneous ENO practice.
Mac: We are hiring exceptional professionals across the casualty portfolio and are confident they will sustain our profitable growth.
Mac: We will remain disciplined on attachment points, net lines, and keep technical rate increases above loss costs.
Mac: Surety, the newest addition to our casualty portfolio is off to a promising start as we integrate FIA and establish our presence in the market, as I mentioned on April 1st, FIA Security T-listing from the U.S. Treasury.
Mac: This will catalyze geographic expansion, the attraction of top talent, and the use of our balance sheet to offer larger limits and retain more risk.
Mac: We're off to a nice start in constructing the surety franchise that will generate 100 million of written premium over time. While contributions in 2025 will be modest, we see surety is a meaningful, long-term growth opportunity.
Mac: Turning to our front team business, premiums to client 43% year over year due to the ongoing headwind from Omaha National.
Mac: This quarter represents the peak impact of the runoff of that partnership.
Mac: This premium growth had been will run its course by the end of the third quarter. Looking ahead, we will continue to add partners selectively, but Frontine is not our highest strategic priority currently. [inaudible]
Mac: On the other hand, our crop franchise generated 48 million of written premium during the first quarter, an increase of 25% year over year. Given the season on nature of our product, the first quarter premium opportunities are limited and even more so in the second quarter, when we expect to book less than 10% of our annual production.
Mac: We are pleased to generate strong production while maintaining the balance mix of business in the states we find attractive. Additionally, we make considerable investments in talent during the quarter that will lead to strong production in the third and fourth quarter of 2025.
Mac: Importantly, with the spring sale season behind us, we make on track to meet or exceed our $200 million full-year target.
Mac: Separately, the previously announced acquisition of Advanced Ag Protection closed in April . Bringing the Advanced Ag team in-house allows us to accelerate and increase the crop market opportunity, as it provides scale to our business from acclaims handling, servicing the sales and technology standpoint.
Mac: This increased scale will also enable Palomar to recruit more tops to your talent [inaudible]
Mac: Importantly, we now have a larger foundation to execute our plan of building an industry-leading crop business which I believe will surpass 500 million of premium in the intermediate future and 1 billion of premium over the long term
Mac: Turning to re-insurance, the first quarter was active across the organization with a particular focus on the core excess of loss program that inceps on June 1st of 2025.
Mac: ILS securities and cap-ons specifically are key component of the core access of loss program.
Mac: We are pleased to secure 525 million of earthquake limit through our 6th and largest Tori Pines
Mac: Seating our $425 million target and pricing up the lower end of the indicated range.
Mac: The cap on pricing was approximately 15% down on a risk-adjusted basis. Additionally, we placed a new La Lima excess of loss treaty effective June 1 for our Hawaii hurricane business. This coverage was previously part of our core June 1st program, which now is over 95% earthquake
Creating a More Attractive Structure for Reinsurers.
Mac: The Y Treaty also priced at a level favorable to our projections.
Mac: The successful placements of the Capon and the Lallima Treaty will position us to achieve, if not exceed, our original guidance level of flat to down 5% [inaudible]
Mac: Beyond the core access of loss program, we renewed our May 1st Builders Risk Quotashare Treaty with increased capacity and improved economics.
Mac: reflecting strong re-insurance support and confidence in our underwriting strategy. The out of capacity enhances our ability to expand the builder's risk portfolio, pursue larger opportunities and strengthen broker relationships in a profitable segment.
Mac: We also extended our April 1st Cassidy quota share to October 1st to better align an increased optionality with our broader casualty re-insurance program.
Mac: As we rapidly grow Palomar, we've continued investing in top town across the organization. During the quarter we made key hires in our underwriting claims, data, and technology and actuarial departments.
Mac: He will lead the management of our growing and maturing investment portfolio, elevating our strategy, sophistication, and ultimately our investment income.
Mac: Highlighted in our March Investor Day, I remain humbled by the exceptional talent we have and are attracting. They amplify my confidence at Palomar is becoming an industry leading specialty insurance.
Mac: On the heels of the strong start of the year, we are raising our full year 2020-25 Adjusted to a range of 186 to 200 million, from a previous range of 180 to 190 million.
Mac: The midpoint of our guidance implies an adjusted ROE of 23% and puts us into position to double the adjusted and then the income of the 2022 Palomar 2x cohort in three years and more over our 2023 2x cohort in an impressive two-year timeframe.
Mac: With that, I'll turn the caller over to Chris to discuss our financial results and guidance assumptions in more detail.
Chris Uchida: Thank you, Max. Please note that during my portion referring to any per share figure I'm referring to per-deleted common-chairs calculated using treasury stock methods. This methodology requires us to include common-chair equivalents such as outstanding stock options during profitable periods and exclude them in periods where we incur a net loss.
Chris Uchida: The first quarter of 2025 are adjusted in and can be 85% to $51.3 million or $1.87 per share, compared to adjusted net income of $27.8 million or $1.9 per share for the same quarter of 2024.
Chris Uchida: Our first quarter adjusted underwriting income was $51.6 million compared to $29.2 million for the same quarter last year. Our adjusted combined ratio was 68.5% for the first quarter compared to 73% in the first quarter of 2024.
Chris Uchida: For the first quarter of 2025, our annualized adjusted return on equity was 27% compared to 22.9% for the same period last year. As a reminder, we do not expect the capital raise in third quarter of 2024 to be fully deployed until the end of 2025.
Chris Uchida: The most recent premiums for the first quarter were $442.2 million, an increase of 20% compared to the prior year's first quarter, 37% growth when excluding runoff business.
Chris Uchida: As previously mentioned, this runoff business will add a 44 million dollar headwind in the second quarter. Additionally, the second quarter is only expected to have modest crop written premium.
Chris Uchida: Deaderm premiums for the first quarter were $164.1 million, an increase of 52% compared to the
Chris Uchida: Our ratio of net iron premiums as a percentage of gross iron premiums was 43.7% as compared to 35.6% in the first quarter of 2024 and compared sequentially to 39% in the fourth quarter of 2024 [inaudible]
Chris Uchida: The year-over-year increase in this ratio is reflective of improved excessive loss reinsurance and of higher growth rates of our non-fronting lines of business, including earthquake that see less premium.
Chris Uchida: For the timing of our court, access of lost reinsurance program renewal, and the majority of our crop premiums written and earned during the third quarter, we continue to expect the third quarter to be the low point of our net earned premium ratio, increasing throughout the remainder of the reinsurance treaty year in a similar pattern to last year.
Chris Uchida: While we expect quarterly seasonality in our netroom premium ratio, we continue to expect netroom premium growth over a 12 month period of time. We expect our netroom premium ratio to be around 40% for the year.
Chris Uchida: Losses and loss of just an excesses for the first quarter were $38.7 million, comprise of $39.2 million of non-catastrophe, nutritional losses offset by half a million dollars of behavioral development on prior year catastrophe events.
Chris Uchida: The loss ratio for the quarter was 23.6% made up of an nutritional loss ratio of 23.9% and a catastrophe loss ratio of negative 0.3%
Chris Uchida: Our results reinforce our approach to the use of re-insurance and our conservative approach to reserving. For the year, we expect a loss ratio being a low of 30s.
Chris Uchida: Our acquisition expense as a percentage of growth and premium for the first quarter was 12.3% compared to 10.5% in last year's first quarter and 10.9% in the fourth quarter of 2024.
Chris Uchida: This percentage increased as our Book of Business continues to diversify into lines with higher net acquisition expense.
Chris Uchida: For the year, we expect this ratio to be similar last year, around 11%.
Chris Uchida: The ratio of other underlying expenses, including adjustment, to grow certain premiums for the first quarter with 7.5% compared to 6.8% in the first quarter last year and compared to 7.2% in the fourth quarter of 2024 [inaudible]
Chris Uchida: As demonstrated by our hires over the last year, and in the first quarter, we are committed to investing across our organization as we continue to grow properly.
Chris Uchida: As announced, we continue to invest in a crop organization with the act position of advanced act protection to begin the second quarter. We expect long-term scale on this ratio, although we may see periods of sequential flatness or increases due to investments in scaling the organization within our Palomar 2x framework.
Chris Uchida: Based on the organizational investments made, I expect this ratio to increase in the second quarter and be higher for the year overall compared to last year. We expect this ratio to be around 8% for the year.
Chris Uchida: Our net investment income for the first quarter was $12.1 million, an increase of 69.1% compared to the prior years for a quarter. The year before your increase was primarily due to higher yields on invested assets, and a higher average balance of investments held due to cash generated from operations, and the August 2024 cathartis.
Chris Uchida: Our yield in the first quarter was 4.6% compared to 4.2% in the first quarter last year. The average yield in the Vestus made the first quarter continues to be above 5%.
Chris Uchida: We continue to conservatively allocate our positions due asset classes that generate attractive, risk-adjusted returns.
Chris Uchida: At the end of the court, our never in premium equity ratio was 0.91-1 [inaudible]
Chris Uchida: Our stockholders' equity has reached $790 million, a testament to consistent, profitable
Chris Uchida: I would like to make a brief comment on our business from a modeling perspective for the third quarter in addition to our expectations mentioned earlier in my remarks. The third quarter will continue to stand out based on a crop participation increasing
Chris Uchida: Crop's growth and seasonal learning pattern, and the first full quarter of our excess of loss re-insurance placed June 1st.
Chris Uchida: From the third quarter, we expect the following. We expect the highest growth earn and net earn premium dollars with the lowest net earn premium ratio. We expect the highest loss dollars and highest loss ratio.
Chris Uchida: And we expect our acquisition expense and adjusted other operating expense dollars to continue to be in line with growth expectations, but with the lowest growth or premium ratio for the year.
Chris Uchida: Overall, we expect the combined ratio to be in the mid to upper 70s, including catastrophe losses. The apex of a combined ratio will be in the third quarter, primarily due to crop.
Chris Uchida: Turning to guidance, we are raising our full year 2025 adjusted in income guidance to a range of $186 to $200 million from the previous range of $180 to $199 million.
Chris Uchida: as well as many catalogs that we have historically included in our guidance and reflects reinsurance savings realized to date but continues to assume that a core 6-1 excessive loss reinsurance treaty renews at a risk-adjusted rate of flat to down 5% from the expiring 2024 treaty.
Chris Uchida: Lastly, not only does the mid-point of our guidance imply an adjusted ROA above 20% but also puts us in position to double our 2022 Adjustment Income in three years and double our 2023 Adjustment Income in just two years.
Chris Uchida: With that, I'd like to ask the operator, open the line for any questions. Operator?
Speaker Change: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
Chris Uchida: You may pass start to if you would like to remove your questions from the queue.
Chris Uchida: For participants using spherical equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions.
Speaker Change: The first question comes to the line of David Motemaden with Evercore ISI, please go ahead.
David Mortamedan: Hey, thanks. I had a question. Mac, I heard you talk about Tory Pines. We're new down 15%
David Mortamedan: and I guess, what would push that down 15? I know that's iOS and different than the 6-1 renewal.
David Mortamedan: You know, you're absolutely right. All placements today have come in better than our forecast of flat to five. When we put the flat to five we were still trying to assess the impact of the wildfires in Los Angeles. We'll see you guys next time.
David Mortamedan: on the global re-insurance market, what we've been able to execute has been superior to that flat to down five. And so as Chris mentioned, the guidance that we offered incorporates
David Mortamedan: The cap on being down 15% Lalima being a little bit better than our projections, but then the rest of the core program being called maybe 2.5% down at the midpoint or flat to down 5.
David Mortamedan: There's conservatism there. I think we do feel very good about our ability to...
David Mortamedan: Long window way of saying decent amount of conservatism in there, we do intend to put an update out following the closing of the placement around June 1st, and we hope to outperform [inaudible]
Speaker Change: Got to think so. Maybe just a quick follow up on that. Could you talk about the thought process around splitting out LaLima separately and renewing that one separately from the core June one, June one program?
Speaker Change: from our desire for La Lima to be a true standalone entity that we are the attorney in fact manager for and where we are a true fee generator. And so, while it's consolidated in the intermediate term,
Speaker Change: Long term, it will be an independent entity that, again, we serve as the attorney in fact manager for where we do orchestrate the reinsurance and we're paid fees for the placement of the business and the administration of that [inaudible]
Speaker Change: So, it's just part of a broad long-term strategy to have LaLina Beatru independent entity.
Speaker Change: It also helps that Hawaii is an uncorrelated diversifying peril for catastrophe re-insure, so this actually gives re-insure the ability to actually deploy more limit and not feel like they have to pick one versus the other.
Speaker Change: Got it, that makes sense and maybe if I could just sneak one more in just on the 23% earthquake growth.
The Fires
Speaker Change: I guess I'm hoping maybe you could talk more about both the residential side, what sort of growth you saw there, as well as
Speaker Change: The commercial side, which sounds like that's sort of what's keeping you from, you know, expecting 20% premium growth there for the year. It sounds like that could be a drag that gets you to mid to high teams.
was pretty close between the two, between commercial and residential, it's just that
Speaker Change: Residential small commercial and large commercial will allow us to navigate market cycles and lean in to residential when it's opportune and commercial when it's opportune
Speaker Change: So this year there is more pressure in kind of larger commercial layered and shared accounts.
Speaker Change: Whether it's the awareness, whether it's the CEA continuing to pull back coverage or they're participating in insurers, non-renewing their homeowners books, or new partnerships that Jon Christianson and our team have put in place. So, um...
Speaker Change: You know, I don't want to, the commercial is a hardware market, but there's still opportunity for us to grow So
Toshio Uchida
Speaker Change: Yeah, you know, thanks David. One thing I'd add is, you know, particularly on the residential side.
Speaker Change: So, regular kind of day-to-day production was up meaningfully year-of-year, and then both on the admitted and the E&S side of the residential franchise. So, it wasn't just one pocket of growth, it was kind of across the board in all segments.
Understood. Great. Thanks for clarifying that.
Thanks, Dave.
Speaker Change: Thank you. Next question comes from the line of Mark Hughes with Truist Security's Peace
Mark Hughes: Yeah, thank you. In the past week, you had nice acceleration. When we think about the casualty book, I know you're ramping up. You've got some new hires and a new leadership. How much of that acceleration might have been or how would you? Yeah, thank you.
Mark Hughes: Describe the underlying market growth. Was it faster this quarter or was your ramp just more successful?
Mark Hughes: New underwriters that have distribution followings and have a hell of book of business that came on in the fourth quarter and in the first quarter. So they were able to catalyze growth across the casualty book whether it was
Mark Hughes: in Real State E&O, whether it was in environmental and certainly on the E&S casualty side where David Sapia is brought on a handful of talent. So because what that affords us is just breadth and coverage, the ability to service more policies, the ability to touch more distribution points, and then you have the fact that, in the case of E&S casualty, the market is a bit dislocated, right? So for us going in and providing [inaudible]
New Distribution, Broadening of Reach, and Broadening their service capabilities Police.
And that's going to continue in here.
Mark Hughes: Chris, fresh me on the spread of crop premium from 3Q to 4Q, I think you said 10% in Q2, I think you said 50 million so far in Q1, of the remainder, how did that spread between Q3 and Q4?
Mark Hughes: Yeah, I'm going to talk about it a little bit more on an earned premium basis and we did have a table in the investor day deck that kind of breaks us out in that deck we would point out that
Speaker Change: In the third quarter and fourth quarter, we expect about 65 to 75% of the urn premium in Q3. We expect about 15 to 25% of the urn premium in Q4. So that crop premium, let's call it, that 200 million that Matt talked about, is really weighted in the second half of the year, specifically, more specifically, Q3. So that is going to have a very dynamic impact on overall ratios when you look at them from a gross urn premium standpoint.
Speaker Change: The netter and premium ratio will probably be at the lowest point in the third quarter from that or in premium coming in. Similarly, our acquisition expense and other under running expense ratio will also be at their low point in that quarter.
Speaker Change: So overall, you know, crop is changing throughout the seasonality of our model, but it's not doing, or it's overall is helping our business when you look at it in a 12-month period of time. It's already happy with the way things look, but it is going to have a decent impact on how those ratios look.
Speaker Change: One other thing I'd point out about the crop business is when you look at our expenses right back talked about the fact that we did close the acquisition of advanced ag on April 1st of this year so that is going to add expenses in the second quarter without all the requisite revenue until the third quarter so the expense ratio will probably be a little bit higher in the second quarter of the talked about probably averaging out [inaudible]
Speaker Change: I put a lot of good information out there, especially an investor-dead act, but if you have any other questions, have to address them.
Speaker Change: Okay, and then one final quick one if I might, the commercial quake, the layered and shared. Are you seeing competitors take bigger layers, is taking down bigger chunks of exposure or? Yeah, yeah, yeah, yeah, yeah.
Speaker Change: You know, that large layered and shared account, it's an easy market to enter. If you have excess capital and so we've seen that in particular, not to pick on them but from London markets and what they're doing on the traditional ranchers.
Speaker Change: Who are we are great relations with entering the DNF market because it's a way for them to enter in a pretty expedient fashion. So it's it's increased competition. I think that's again why we like having the balanced book of business even with
Speaker Change: And it's not going to be bit out. And so it's a circumstance where you can control the relationship a lot more meaningfully than layered and shared where you might be 10 million part of a hundred or 15 million part of 200.
Speaker Change: So it just gets back to a theme that we are going to reiterate. We like having multi-faceted, middle-market, small commercial business in the property franchise to compliment the layered and share it and certainly compliment the residential business.
Speaker Change: and that's for builders' risk, and that's for earthquake. Yeah, it's for property generally.
Appreciate it. Thank you
Thank you.
Speaker Change: Thank you. Next question comes on the line of Meyer Shields with KBW, please go ahead.
Mayor Shields: Great, thanks so much. A couple of really small questions, I think.
first
Speaker Change: Matt, you talked about the commercial all-risk program being essentially, I don't remember the exact word, but gone now. Is that a product that you started keeping in the portfolio for if-and-when market conditions change? Or should we assume that this is like other lines of business that you're not interested in?
Indeed, go back into that market and take advantage of…
What Will Be Healthier Risk Adjustive Returns
Speaker Change: For now, though, we are better suited, focusing our property capital on our cat capital on quake or builder's rest, which I've said time and again has outperformed
Speaker Change: DeAlris Market, from a model to actual loss standpoint in multiple events, or writing excess national property in non-Catics those regions. So, we'll keep it so in the water, but it's, you know, it's definitely standing by and assessing.
Speaker Change: Okay, great, that's helpful. Chris, when you talk about the expenses for the crop that was coming in the second quarter, are those operating or acquisition expenses? I don't know how the M.D.A. Part 15.
Speaker Change: Yeah, those are going to be look more like operating expenses, right? So before when we we modeled this it was an acquisition expense that kind of lined up a little bit better with the revenue. So we would have booked the room for even the third quarter and we would have booked the acquisition expense in the third quarter as we've got out and
a governor.
Speaker Change: where we won't really see that revenue until the third quarter. So that will look like operating expenses. I expect to call it the operating expense ratio to probably be the highest in the second quarter, just with that dynamic, but really with that premium really being backended and kind of bringing that ratio back down to what's called eight percentish, you know, something similar a little higher probably than last year, but kind of eight percentish for the year.
Speaker Change: Okay, fantastic. And then finally, the in the marine reserve releases for which accident years did that show up?
Speaker Change: We haven't specified which acting years, but it kind of was spread out through, you know, the last few. It's we...
Thank you very much.
has both been performing very well.
Speaker Change: 50% than 20% rate increases and we had to touch our loss pick. So, there should have been redundancies and there still is potentially in that book. So, like Chris said, healthy amount of conservatism that was in the reserves that has come to fruition for us.
All right, perfect. Thank you
Speaker Change: Thank you. A reminder to all the participants that you may press star in one to ask a question.
Speaker Change: Next question comes from the line of Pablo Singzon, with JB Malkin, please go right now.
Pablo Simpson: Hi, thank you for taking my question. The first one I have is maybe for Chris. It seems like the higher attracial loss ratio that's mostly mixed driven, given the growth in casualty, but maybe you could talk about pockets of your book where you did better or worse from an undroying perspective or, you know, any dispute impacts this quarter, think about, and really, really just where you see the partial loss ratio trending from here.
What's called without prior period development.
Pablo Simpson: You know, I was hoping for some favorability, but we don't really plan for it, so you saw a little bit of that in this quarter, so pushing that loss ratio to 23 from probably 26 . . . . .
Pablo Simpson: Overall, when you look at the core pieces of our business, really nothing too exciting on a current year, a current accident period standpoint. We're really pretty close to our picks in the Marine Builders' Risk, All Risk, and even on the Catcher Lines, we're really booking close to our picks.
Speaker Change: Okay, thanks for that Chris. And then second question maybe for Matt. Matt, Matt, you covered the current economic uncertainty in your remarks and yet you actually erased your earnings. I'll put modesty ex-cats and purely at least by our math.
Speaker Change: So maybe if you could speak about the potential pressure points that I'll flip, it seems to me at least that premium growth could be a bigger issue than margins and I'm not sure if you agree But if it is growth, you know how much of the industry level has been to you think you can overcome by the fact that you're still in the build-out phase for most of your business and you know whether in terms of new lines, geography and so on [inaudible]
Speaker Change: Yeah, we feel very good about margin expansion and the conservatism in our model whether it be the cat load relative to our wind PML or you know some of the reinsurance assumptions on the core treaty versus what's been placed.
Speaker Change: So, we do feel comfortable, though, that we can sustain top-line growth because of the numerous growth vectors we have, whether it be the crop business, whether it be [inaudible]
Speaker Change: The Casualty Business, or even within Casualty, you know, the nace and sherdy franchise we have.
Speaker Change: the headwind on the commercial side. So, you know, seasonality aside.
Speaker Change: And the runoff of that fronting deal, we think that there is a tremendous amount of growth that you will see in 2025 and beyond because we have so many different vectors.
Speaker Change: So, we'll play through the headwinds, and from a long-term perspective, we think that there's great growth processes still in our future [inaudible]
Speaker Change: Thank you. And maybe you could squeeze in just a little one, maybe for Chris. How much of the, in the marine and property book is excess national reenice? Maybe the portion of the book we're seeing the most price and pressure. Just want to get a sense of, you know, your exposure to your relatives, the, what you're writing in the building's risk and quiet, and et cetera.
Speaker Change: Yeah, I can start in the movie, Jon, I can add some color on that, but I think...
Speaker Change: From our standpoint, the most pricing pressure in our view has probably come from a large commercial segment. I don't think there's...
Speaker Change: Seeing some of the other commentary in the market, I feel like I was seeing the same type of pressure, but Jon, anything you'd add to that? Yeah, no, I'd say on the topic of why Hurricane, we still have rate flow through that book.
Speaker Change: You know, in the first quarter and into the second quarter so I'd agree, you know, the the personal lines products that we have that are balancing out some of the pressure that we see on the commercial side are all very strong and and don't see any kind of progress there.
Speaker Change: But Pablo, what I would offer you is that the excess national property and the large account of fielders rest, they don't over index the composition.
Speaker Change: of the Inlimerated Other Property. It really is balanced when you factor in the small account builder's risk, the high value residential builder's risk, and then you add in.
Blood to a lesser degree, and certainly, Hawaiian Hurricane. So it's uh...
It's not over-indexed by the large account sector.
Speaker Change: Yeah, and the other thing I'd add, just, you know, again, more so on the personal line side is...
also helps to facilitate growth.
Thank you.
Speaker Change: Thank you. Next question comes on the line of Andrew Andersen with Jeffries T. Scowett.
Andrew Anderson: Hey, thanks. Just on fronting, I think you mentioned this quarter was the peak impact. So I guess it's 50 millionish, kind of a good way to think about the next few quarters before maybe thinking of any additional activity here.
Andrew Anderson: Yeah, I can give you the specifics, so the Q1 number was about 48 million.
Andrew Anderson: The Q2 number or headwind is about 44 million, and then Q3, they're still called another 30 million that was still written last year in Q3, so those are called the...
Andrew Anderson: Fronting headwind vectors from this deal that we have running off, right? Aside from that headwind I'd say there was still growth in those in the Fronting sector, but overall that still is a decent headwind for the next two quarters.
Andrew Anderson: Okay, and then just on the 200 million of crop premium expectation, is there any headwind or tailwind you're thinking about in terms of commodity pricing embedded within that?
Andrew Anderson: You know, much more focused on yields, and so far, it's encouraging, you know, we are...
Andrew Anderson: through the sales cycle, the spring sales cycle and so until the acreage reports we are in hand, we won't truly know the premium but as I mentioned you know we feel very good about that $200 million bogey we put out.
Andrew Anderson: I mean, I think it's going to be a blended of both in the third quarter. There's going to be an expectation plus results going through there. We will start being, we will start seeing that in the third quarter. I think we'll have a lot more clarity in the fourth quarter, but I would not say it's just going to be a pure loss, making you the actual results will inform how we look the third quarter. [inaudible]
Thank you.
Andrew Anderson: Thank you. As there are no further questions, ladies and gentlemen, we have reached the end of question and answer session. I would now like to turn the floor over to
Mack Armstrong: Great. Thanks, operator, and thank you all for joining us today. You know, the year is off to a strong start. Our core earthquake and in marine business segments.
Mack Armstrong: are performing well and they're successfully navigating the market and delivering solid growth. Our casualty and crop lines are poised to become industry leaders.
Mack Armstrong: We feel great about the 2025 guidance and we think that there's a decent level of conservatism in those when you look at the expense.
Mack Armstrong: Hello for Katz, as well as what we are assuming from a reinsurance standpoint. So ultimately, you know, we are building a portfolio of industry leading specialty businesses that are going to provide consistent strong performance in resilience through industry cycles.
Mack Armstrong: and what that will lead to is consistent earnings and returns over time. We could not be more excited with what the opportunities that we see ahead of us and I want to thank all of our team for the great efforts this quarter and thank them in advance what they're going to do for the company and our shareholders rest of this year.
Thank you again and enjoy the rest of your day.
Mack Armstrong: Thank you. This concludes our today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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