Palomar Holdings, Inc.

Good morning, and welcome to the Palomar Holdings, Inc. Second Quarter 2021 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference line will be open for questions with instructions to follow at that time. As a reminder, this conference call is being recorded. I would now like to turn the call over to Mr. Chris Uchida, Chief Financial Officer. Please go ahead, sir.

Thank you, operator, and good morning, everyone. We appreciate your participation in our second quarter 2021 earnings call. With me here today is Mac Armstrong, our chairman, chief executive officer, and founder. As a reminder, a telephonic replay of this call will be available on the investor relations section of our website through 1159 p.m. Eastern Time on August 12, 2021. Before we begin... Let me remind everyone that this call may contain certain statements that constitute forward-looking statements within the meetings of the Private Securities Litigation Reform Act of 1995. These include remarks about management's future expectations, beliefs, estimates, plans, and prospects. Such statements are subject to a variety of risks, uncertainties, and other factors that could cause actual results to differ materially from those indicated or implied by such statements, including but not limited to risks and uncertainties relating to COVID-19 pandemic. Such risks and other factors are set forth in our quarterly report on Form 10-Q filed with the Securities Exchange Commission. We do not undertake any duty to update such forward-looking statements. Additionally, during today's call, we will discuss certain non-GAAP measures which we believe are useful in evaluating our 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 their most comparable GAAP measure can be found in our earnings release. At this point, I'll turn the call over to Mac.

Thank you, Chris, and good morning, everyone. Today, I'll speak to our second quarter results at a high level and then discuss our strategic initiatives and efforts to drive profitable growth. From there, I'll turn the call back to Chris to review our financial results in more detail. The second quarter was a very good one, and one in which we generated record-driven premium, solid profitability, and positioned Palomar for further execution on key strategic initiatives underway or identified. As such, I'm eager to speak to several of Q2's highlights. First, our premium growth not only maintained the first quarter in 2020's levels, but actually strengthened this quarter as we grew broadly across our product portfolio suite. We grew gross rate and premiums by 54% compared to the first quarter growth rate of 45. Premium growth was driven by a combination of new product launches, sustained performance in existing products, rate increases, new and existing partnerships, and the extension of our distribution network. Strong premium growth products included but were not limited to residential and commercial earthquake, specialty homeowners, Hawaii hurricane, and Inland Marine. We saw very strong traction in Palomar Excess and Surplus Insurance Company, PESIC, our newly launched ENS carrier, which grew 43% sequentially from the first quarter of 2021. Second, we looked to build on our success as we continued to broaden our product suite and partnerships late. During the quarter, we launched several new products and partnerships via PESIC and continued to harvest existing products and partnerships, most notably those in the residential earthquake sector. These efforts allow us to grow new, and existing lines of business, capitalize on conducive market conditions and dislocations, and diversify our overall portfolio. New products in the quarter included casualty offerings like layered and shared excess liability and small contractors general liability. Our newest partnership with Pure Programs, announced in June, is another prime example as it allowed us to enter into the high-value residential builder's risk segment and complements our commercial builder's risk product offering. Third, our successful June 1 reinsurance renewal further demonstrated our commitment to profitable and predictable growth. We secured incremental earthquake and hurricane limit to support our growth trajectory, enhanced our already robust panel of reinsurers, and kept our retention at a level below that of 2020 when factoring in the elimination of co-participations. We believe the incremental limit, manageable retention, and the aggregate limit procured in the first quarter ensures earnings stability It puts a floor in our results of approximately 11% for adjusted return on equity and $41 million for adjusted net income for the year. Fourth, we remain focused on continuous improvement as we constantly assess our products and markets to ensure we are earning adequate risk-adjusted returns. We are optimizing every aspect of our business and developing tools that provide insights into the complex markets we serve as we strive to deliver predictable returns and steady growth. For instance, we continue to take rate on our commercial business, run off unprofitable segments like admitted all-risk or Louisiana homeowners, utilize quota share reinsurance for attritional loss-exposed casualty products, and drive terms, conditions, or risk attachment points. Market conditions have been favorable on a portfolio basis, and we remain optimistic on the outlook through the balance of the year. Lastly, we opportunistically bought back 239,000 shares for 1518. $15.8 million during the second quarter. Importantly, we know that we have the capital to execute our strategy for the foreseeable future and believe this action underscores our confidence in the business, our results to date, our strategy, and our ability to create value. Turning to our results in more detail, we delivered strong premium growth of 54% during the second quarter. Overall earthquake premium grew 29%, while non-earthquake premium increased 85%. Our commercial earthquake products were up 47% driven primarily by rate and new business from distribution partners accessing PESIC. Other primary contributors were Inland Marine and Hawaii Hurricane with 239% and 140% year-over-year growth, respectively. Specialty homeowners showed a healthy increase of 65% year-over-year. Our commercial lines premium grew 70% during the quarter, and it is worth highlighting we are delivering this growth despite the continued runoff of our admitted all-risk policies, which impacted our second quarter premium growth by nearly 14 percentage points. As we speak here today, our admitted all-risk business, which contributed 64% of the hurricane loss in 2020, has been 68% runoff. As I previously mentioned, PESA continued to experience strong growth as we expanded our product offerings and distribution relationships. We believe that our ENS business, which delivered $34.1 million in gross written premium, grew 43% sequentially from the first quarter of the year, is in the very early innings of its development and can approach the size of our admitted carrier over time. The second quarter's considerable growth was due to strength in existing property lines of business, such as commercial earthquake and layered and shared national property, and further footing within our new lines like excess liability and Inland Marine. We are excited by PESIC's long-term prospects, and I look forward to updating you on our continued progress in future quarters. Our focus on existing and new partner relationships continue to provide increased distribution, geographic expansion, and product diversification. This concentration helped expand our distribution footprint 5.4% sequentially and 21% year-over-year. Our aforementioned new partnership with Pure Programs enables PESIC to enter another focused market, that of high-value residential builders' risk insurance. We will continue to develop and seek new partnerships like Pure that enable Palomar to aggressively grow our market share within profitable market segments. In addition to our overall top-line momentum, we delivered strong earnings and grew adjusted net income to $13.2 million in spite of $3.9 million of previously disclosed non-recurring reinsurance charges incurred as a result of Winter Storm URIE. Our adherence to conservative levels of reinsurance coverage is exemplified by the successful completion of our reinsurance placement at June 1st, where we procured approximately $180 million of incremental limit for earthquakes and $100 million of incremental limit for windstorms. Our reinsurance coverage now exhausts at $1.65 billion for earthquake events and $700 million for hurricane events, providing ample capacity for our sustained growth. We also increased our event retention from 10 million to 12.5 million for all perils, but actually reduced our true retention when factoring in co-participations. Successful 6-1 placement is emblematic of the strength and collaborative nature of our reinsurance relationships, and moreover, positions us to take advantage of compelling market conditions. The underlying cost of reinsurance continues to be subsidized by the favorable pricing and overall dislocation in the specialty insurance marketplace. The average rate increase of renewals during the second quarter for commercial earthquake policies was 14% versus 18% in the first quarter of 2021. Our builders risk products saw new business come on at a blended rate increase of approximately 21% with large accounts increasing as much as 25%. As it pertains to all risk, our new business policies are being written at an average risk adjusted rate 25% higher than our expiring all risk business with rates increasing between 12% and 25%, depending on the geography and size of the account. It is worth highlighting that it's not just in our commercial business where we are increasing rates. In coastal North Carolina, the state's Department of Insurance improved a 14.3% rate increase on our specialty homeowners book. We remain confident that we will be able to sustain material rate increases throughout the remainder of the year. Separately, our premium retention in the second quarter was 86% for the total portfolio, excluding the runoff of our admitted all-risk business. Turning to corporate sustainability and responsibility, I'm happy to report that we are continuing to make progress on the development and execution of Palomar's ESG initiatives. We recognize that strong ESG management better serves our employees, our business partners, our environment, our communities, and all our stakeholders. We are building our ESG team and are continuing to strategize and formalize our policies. I look forward to updating you on the progress of our ESG initiatives going forward. Additionally, we announced last week the addition of Dana Middleton to our board. Dana's nearly 30 years of experience in operational leadership, customer relationship development, branding, marketing, and the use of technology and analytics to grow businesses will add significant value to Palomar as we continue on our strategic mission. Overall, I'm delighted with our results, the execution of our growth strategy, and the opportunity that I see ahead. It is important to emphasize that we have the capital to fully execute our growth strategy and repurchase shares in an opportunistic fashion. As a result, we bought back approximately 239,000 shares, or $15.8 million of our $40 million share repurchase authorization in the second quarter. We will be inventive as we capitalize on opportunities that maximize our growth and drive long-term value creation for our shareholders. For the full year 2021, we continue to believe that our adjusted net income will be between 64 and 69 million. This range considers additional investments in talent, systems, infrastructure, and reinsurance, both excess of loss and quota share we have made or expect to make in the second half of 21 that we ultimately feel will generate strong returns over the next several years. Additionally, the aggregate cover put into place establishes a full of approximately 11% for adjusted return on equity and $41 million for adjusted net income for the year. With that, I'll turn the call over to Chris to discuss our results in more detail.