Palomar Holdings, Inc.

good morning and welcome to the palomar holdings inc fourth quarter and full year 2021 earnings conference call during today's presentation all parties will be in a listen only mode following the presentation the conference time will be open for questions with instructions to follow at that time as a reminder this conference is being recorded i would now like to turn the call over to mr chris ushida chief financial officer please go ahead sir you may begin thank you operator and good morning everyone

We appreciate your participation in our fourth quarter 2021 earnings call. With me here today is Mack 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 February 24, 2022. Before we begin, 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 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 related to the COVID-19 pandemic. Such risks and other factors are set forth In our quarterly report on Form 10Q filed with the Securities and 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 will speak to our fourth quarter and four-year results, our progress on strategic initiatives implemented in 2021, and our continued efforts to drive and sustain profitable growth. From there, I'll turn the call back to Chris to review our financial results in more detail. To start, I am very pleased with not only our results in the fourth quarter and 21, but also the significant steps that we took throughout the year to position Palomar for long-term growth and predictable earnings in the years ahead. Highlights for the year include strong top line growth, as Palomar's gross written premiums increased by 56% for the fourth quarter and 51% for the full year 2021. The strong growth was driven by our core products, including Earthquake and Hawaii Hurricane, combined with the successful scaling of our E&S business, Palomar Excess and Surplus Insurance Company, PESIC. PESA grew its gross written premium an impressive 158% year over year in the fourth quarter. Second, we continue to invest in our business and plant the seeds for future growth. Notable accomplishments in 2021 include the recruitment of talented underwriters to build our casualty, professional liability, and excess property franchises, as well as the launch of the fee generating PLMR front in September. Third, we took considerable underwriting actions to improve our portfolio and reduce our catastrophe exposure to perils disproportionately impacted by climate change. While we are focused on delivering sustained revenue growth, it will not come at the expense of our bottom line. To support this, over the course of the year, we completed the runoff of our admitted all-risk and Louisiana homeowners portfolios, shifted our commercial wind-exposed property focus to a layered and shared model, meaning we reduced our maximum limit in line size, and took advantage of favorable market conditions to increase rates and improve terms and conditions. These actions helped reduce our continental hurricane probable maximum loss by approximately 40% from its apex in 2020 and eliminated a primary driver of our attritional loss ratio. Fourth, minimizing volatility in our business and protecting capital has been a constant theme at Palomar going back to our founding eight years ago. During 2021, we continue to thoughtfully use risk transfer to protect our balance sheet and deliver consistent earnings. Highlights of these efforts include the placement of a multi-year catastrophe bond, Torrey Pines RE 2.0, the placement of multiple quota shares that reduce our maximum limit per risk and provide fee income, and the purchase of aggregate reinsurance. The aggregate not only protects our business from losses generated by multiple severe catastrophic events, but also puts the floor on our adjusted ROE. Fifth, our Board of Directors authorized a $100 million share repurchase program last month that affords us the ability to opportunistically deploy capital and buy back our shares at levels that we believe are meaningfully undervalued. Importantly, we continue to believe stock repurchase will not impede our ability to capitalize on the open-ended growth opportunity that we see before us. We believe the buyback notably demonstrates the conviction we have in our long-term strategic plan and the optimism in the future of Palomar. Lastly, we launched our ESG portal in 2021, and released our annual sustainability and citizenship report last month. We are very pleased with the progress that we have achieved in our ESG initiatives, as well as the associated commitment to our employees, the environment, and the communities we serve that these initiatives demonstrate. Turning to our results in more detail, we delivered strong premium growth through the fourth quarter as we experienced momentum across all lines of our business. Our earthquake franchise saw growth of 21% in the fourth quarter, 31% for the full year, with commercial earthquake growing 35% and our value-select residential earthquake product, our largest product, growing 26% in the quarter. As we have discussed on previous calls, opportunity in the earthquake market remains abundant, whether it be from dislocation in the homeowner's market or the California Earthquake Authority advocating a potential reduction in coverage, shedding of limit, or the permission of participating insurers to seek alternative earthquake insurance solutions. We have less than a 6.2% share in the California residential earthquake market, which provides considerable room for continued strong growth in this important and profitable line of business. Shifting to PESIC, we launched the business in August of 2020 and have been extremely pleased with how quickly our operations have scaled as we've delivered $152 million in premium for the full year 2021 as compared to $29 million in 2020. This growth was driven by PESIC's main products, which include commercial earthquake, national layered and shared commercial property, and builder's risk. During the year, we also launched several new E&S products, including professional liability, excess liability, and contractor's liability. These products, along with others, will be significant contributors to our success in bottom line in the years to come. Needless to say, PESIC will remain an important growth driver for Palomar, and we believe the business can become 50% of our premiums over time. Other strong Performing product lines in the fourth quarter included Inland Marine, which grew 290% year-over-year, and exited 2021 at a $72.8 million run rate. Hawaii Hurricane, with 109% year-over-year growth, and Flood, which grew 32% year-over-year. Our first casualty product, Real Estate Errors and Omissions, continues to show great promise as it grew nearly nine-fold year-over-year. While the strong top-line growth is and will continue to be a significant driver of our success as an organization, Palomar is keenly focused on profitable growth. We are pleased to report in the fourth quarter for all of 2021, frankly, we were able to marry the 50% plus top line growth with a very strong bottom line in return on equity. We generated adjusted net income of $19.2 million and $53.4 million for the fourth quarter and full year 2021, respectively, which translated to an adjusted ROE of 19.9% and 14.1% for the same period. Additionally, during the fourth quarter, we completed the aforementioned runoff of the admitted all risk in Louisiana homeowners books of business. These lines contributed 61% of our catastrophe losses in 2021. We believe exiting these businesses not only reduces our catastrophe exposure, but also improves the predictability in our results. Our strong results combined with the substantial investments in product systems and talent provide confidence in our positive outlook for growth in the years ahead. over the course of 2021 we launched several new businesses and products to further fuel our growth in the medium term plm our front is one that i'm particularly excited about introduced in september our team has quickly built a strong pipeline has already executed three programs which are all fee based and do not involve us taking underwriting risk adding a fee-based revenue stream to our business for further fortifies our earnings base and i believe we will build the fronting business to 80 to 100 million dollars of managed premiums in 2022. We also recruited talented underwriters to our team in the third and fourth quarters who were in the early stages of building their franchises in segments like general casualty, professional liability, and excess property. Palomar is an attractive company for experienced underwriters given that we have the technology, distribution relationships, reinsurance and analytics acumen, as well as back office operations to rapidly scale the business. Our expectation is that the underwriting leaders will build their businesses over the course of 2022 and meaningfully contribute to our premium growth and bottom line in 2023. Turning to the market in our 2022 outlook, we are increasing share and extending our TAM in a P&C market that remains conducive to rate increases and improved terms and conditions. During the fourth quarter, we saw rate increases in the mid single digits on our commercial earthquake book and expect that dynamic to persist in 2022. The builders risk segment of our Inland Marine franchise saw low teen rate increases in the fourth quarter, And for 2022, we expect to see sustained price increases as well as an informed sense of insurance to value and the impact of inflation on loss costs. While our casualty lines are nascent and therefore don't offer much in the way of renewal price increase commentary, we are targeting rate increases of 5% to 10% on expiring terms, with certain segments of professional lines seeing greater upward movement. Our national layered and shared property program saw rate increases in excess of 20% in the fourth quarter, with December increases over indexing the quarterly average. Pullback of capacity in the market will allow rate increases at this level to persist into 2022. As we look to manage volatility and reinsurance costs, we do not expect to increase our commercial wind exposure in 2022. All growth from that line will come from rate. On a related note, we are exiting specialty homeowners business outside of the state of Texas to further reduce our continental hurricane exposure probable maximum loss, and steady state reinsurance expense. We believe the combination of rate increases and reduction in continental hurricane exposure pretends for a successful reinsurance rule. The runoff of the admitted all risk in non-Texas homeowners' business and the capping of commercial hurricane exposure reduces our continental hurricane probable maximum loss by 60% from its high point in 2020. These efforts result in only 9% of the expected loss in our excess of loss catastrophe tower coming from continental hurricane, the segment of the property catastrophe reinsurance industry facing the most price pressure. A program dominated by earthquake and Hawaiian hurricane is truly a differentiator and a diversifier for reinsurers. The uniqueness of the reinsurance program is best exemplified by a recent renewal of the commercial earthquake quota share, where renewal pricing improved from the prior year, January 1, 2022. We are renewing our loss-free aggregate program, and we look forward to providing our shareholders with an update upon its completion. We are confident that the aggregate will provide the same utility in 2022 that it did in 2021. While there are likely to be increases in our cost of reinsurance at June 1 this year, we believe it will be manageable and our program will be in high demand. Turning to matters of capital allocation and return, we expect to see operating leverage in our business model and financial metrics. Importantly, We have excess capital put to work as our net written premium to ending equity is at 0.78x, and we feel comfortable riding business up to 1x for our cat-exposed lines and higher for others. So as we start new lines and build our front-team business, we will see our return on equity increase from already compelling levels. Additionally, when we renew our aggregate, we will continue to have a floor on our ROE that minimizes volatility, ensures predictable results, and consistently builds our surplus. As our shares have come under pressure and we believe are trading below fair value, our board of directors authorized a new two-year $100 million share buyback plan that replaces our original $40 million plan. Looking forward, we have sufficient capital resources to invest in our numerous growth initiatives as well as fully fund our buyback. We have more than enough capital to execute our strategy for the intermediate future. Turning to our guidance for the full year 2022, we expect to generate between $80 and $85 million dollars of adjusted net income representing 54% year-over-year growth and an adjusted ROE of 90% at the midpoint of the range. This range factors in the additional investments that we'll make in talent, systems infrastructure, and reinsurance as we continue to position Palomar for the future. Assuming full utilization of the current aggregate reinsurance program, our adjusted ROE has a floor of 14%. Before turning the call to Chris, I'd like to conclude with an update on the many ESG initiatives we have underway. Of note, we launched our ESG portal on our corporate website that details our efforts and acts as a central repository for all Palomar's ESG materials. We also released our annual citizenship and sustainability report this month, providing an update on our progress related specific ESG initiatives established in 21, as well as our initiatives and goals for the year ahead. One endeavor that I'm particularly excited about is Palomar Protects, which is a charitable initiative that reinvests earned premium back into communities to help them prepare and recover from natural disasters. As we move forward, our ESG program will continue to be an area of focus for us, and I look forward to updating you on future initiatives. With that, I'll turn the call over to Chris to discuss our results in more detail.