Palomar CEO: E&S market seeing “reinvigoration” of hardening in Q4

There is currently a “reinvigoration” of hardening within the excess and surplus (E&S) lines market as pricing continues to rise even further quarter over quarter, according to Palomar CEO Mac Armstrong.

Referencing Palomar’s own experience, Armstrong said during an earnings call with analysts that E&S all risk pricing had increased by 20 percent in 2021’s third quarter.

“I think now you’re looking at 25 percent up, if not more,” Armstrong said.

“We believe whether it’s excess property or excess liability, there is an almost in some ways a reinvigoration of the hard market, and that gives us confidence that we’re going to maintain pretty good rate integrity through 2022,” the executive said on the call.

The excess liability sector remains “a pretty hard” market, Armstrong said, with rates “materially up”.

Palomar only entered the excess casualty space this year. In September, the company hired Ty Robben from Great American as senior vice president, casualty underwriting to spearhead its buildout in the sector, supported by Gerrit VandeKemp, who has joined from CRC as vice president, casualty underwriting.

With Palomar having made its casualty move recently, Armstrong said it is hard to make prior year pricing comparisons. However, based on market conversations, he said excess liability rates are up 40 percent year on year.

“There are certain classes you can’t get coverage for, especially in some of the professional lines, so we feel like our timing there is good but it’s also a circumstance where we want to be pretty judicious in how we go into that market,” said Armstrong.

California wildfire moratoriums “heighten dislocation”

Over 408,000 California homes are currently protected from the threat of insurance cancellations or non-renewal owing to a series of moratoriums issued by the Golden State’s insurance commissioner Ricardo Lara.

These moratoriums prevent admitted insurers from non-renewing or cancelling coverage to homeowners living within or adjacent to zip codes where there has been a declared wildfire disaster.

While designed to protect homeowners, Armstrong said the moratoriums still cause dislocation in the marketplace.

“In many ways [the moratoriums] actually heighten dislocation because it leads to a circumstance where homeowners carriers just grow further and further concerned about doing business in the state when they are precluded from non-renewing business that they deem is unprofitable,” he said.

Palomar posts Q3 adjusted net income

Armstrong’s comments came after La Jolla, California-based Palomar reported adjusted net income of $1.7mn in 2021’s third quarter, compared with an adjusted net loss of $15.2mn in the prior year period.

While being hit with losses from Hurricanes Ida and Nicholas as well as a PG&E wildfire liability claim during the three months, Palomar ended Q3 2021 with its combined ratio improving by 54.3 points year on year to 102.8 percent, of which catastrophe losses contributed 27 points.

Palomar’s gross premiums written (GPW) increased 47.9 percent year on year to $152.3mn in 2021’s third quarter, while net premiums written grew by 53.5 percent over Q3 2020 to $94.3mn. GPW growth was largely fuelled by its E&S carrier.

Palomar Excess and Surplus Insurance Company generated $41.4mn of GPW and 22 percent sequential growth during Q3 2021.