Palomar Holdings (PLMR)

Specialty insurance provider Palomar Holdings (NASDAQ:PLMR) reported Q4 CY2025 results beating Wall Street’s revenue expectations, with sales up 62.7% year on year to $253.4 million. Its non-GAAP profit of $2.24 per share was 7.1% above analysts’ consensus estimates.

Company Overview

Founded in 2013 to fill gaps in catastrophe insurance markets, Palomar Holdings (NASDAQ:PLMR) is a specialty insurance provider that offers property and casualty insurance products in underserved markets, with a focus on earthquake coverage.

Property & Casualty (P&C) insurers protect individuals and businesses against financial loss from damage to property or from legal liability. This is a cyclical industry, and the sector benefits when there is 'hard market', characterized by strong premium rate increases that outpace loss and cost inflation, resulting in robust underwriting margins. The opposite is true in a 'soft market'. Interest rates also matter, as they determine the yields earned on fixed-income portfolios. On the other hand, P&C insurers face a major secular headwind from the increasing frequency and severity of catastrophe losses due to climate change. Furthermore, the liability side of the business is pressured by 'social inflation'—the trend of rising litigation costs and larger jury awards.

Palomar's competitors include large national insurers such as American International Group (NYSE:AIG), Chubb Limited (NYSE:CB), and Zurich Insurance Group, as well as state-managed enterprises like the California Earthquake Authority. In certain specialty lines, Palomar also competes with Lloyd's of London syndicates and other excess and surplus carriers.

In general, insurance companies earn revenue from three primary sources. The first is the core insurance business itself, often called underwriting and represented in the income statement as premiums earned. The second source is investment income from investing the “float” (premiums collected upfront not yet paid out as claims) in assets such as fixed-income assets and equities. The third is fees from various sources such as policy administration, annuities, or other value-added services. Luckily, Palomar Holdings’s revenue grew at an incredible 39.1% compounded annual growth rate over the last five years. Its growth surpassed the average insurance company and shows its offerings resonate with customers, a great starting point for our analysis.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and market returns. Palomar Holdings’s annualized revenue growth of 52.6% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, Palomar Holdings reported magnificent year-on-year revenue growth of 62.7%, and its $253.4 million of revenue beat Wall Street’s estimates by 13.2%.

Net premiums earned made up 92.8% of the company’s total revenue during the last five years, meaning Palomar Holdings lives and dies by its underwriting activities because non-insurance operations barely move the needle.

Net premiums earned commands greater market attention due to its reliability and consistency, whereas investment and fee income are often seen as more volatile revenue streams that fluctuate with market conditions.

Insurers sell policies then use reinsurance (insurance for insurance companies) to protect themselves from large losses. Net premiums earned are therefore what's collected from selling policies less what’s paid to reinsurers as a risk mitigation tool.

Palomar Holdings’s net premiums earned has grown at a 38.9% annualized rate over the last five years, much better than the broader insurance industry and in line with its total revenue.

When analyzing Palomar Holdings’s net premiums earned over the last two years, we can see that growth accelerated to 52.3% annually. This performance was similar to its total revenue.

This quarter, Palomar Holdings’s net premiums earned was $233.5 million, up a hearty 61.1% year on year and topping Wall Street Consensus estimates by 13.2%.

Revenue growth is one major determinant of business quality, and the efficiency of operations is another. For insurance companies, we look at the combined ratio rather than the operating expenses and margins that define sectors such as consumer, tech, and industrials.

The combined ratio is:

• The costs of underwriting (salaries, commissions, overhead) + what an insurer pays out in claims, all divided by net premiums earned

If a company boasts a combined ratio under 100%, it is underwriting profitably. If above 100%, it is losing money on its core operations of selling insurance policies.

Given the calculation, a lower expense ratio is better. Over the last five years, Palomar Holdings’s combined ratio has swelled by 19.7 percentage points, going from 79.7% to 76.7%. However, fixed cost leverage was muted more recently as the company’s combined ratio was flat on a two-year basis.

In Q4, Palomar Holdings’s combined ratio was 76.8%, falling short of analysts’ expectations by 206 basis points (100 basis points = 1 percentage point). This result was in line with the same quarter last year.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Palomar Holdings’s EPS grew at an astounding 84.4% compounded annual growth rate over the last five years, higher than its 39.1% annualized revenue growth. However, we take this with a grain of salt because its combined ratio didn’t improve and it didn’t repurchase its shares, meaning the delta came from factors we consider non-core or less sustainable over the long term.

We can take a deeper look into Palomar Holdings’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, Palomar Holdings’s combined ratio was flat this quarter but improved by 19.7 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Palomar Holdings, its two-year annual EPS growth of 46.1% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.

In Q4, Palomar Holdings reported adjusted EPS of $2.24, up from $1.52 in the same quarter last year. This print beat analysts’ estimates by 7.1%. Over the next 12 months, Wall Street expects Palomar Holdings’s full-year EPS of $7.88 to grow 9.9%.

The debt-to-equity ratio is a widely used measure to assess a company's balance sheet health. A higher ratio means that a business aggressively financed its growth with debt. This can result in higher earnings (if the borrowed funds are invested profitably) but also increases risk.

If debt levels are too high, there could be difficulties in meeting obligations, especially during economic downturns or periods of rising interest rates if the debt has variable-rate payments.

Palomar Holdings has no debt, so leverage is not an issue here.

Return on Equity, or ROE, ties everything together and is a vital metric. It tells us how much profit the insurer generates for each dollar of shareholder equity entrusted to management. Over a long period, insurers with higher ROEs tend to compound shareholder wealth faster through retained earnings, buybacks, and dividends.

Over the last five years, Palomar Holdings has averaged an ROE of 17.8%, excellent for a company operating in a sector where the average shakes out around 12.5% and those putting up 20%+ are greatly admired. This shows Palomar Holdings has a strong competitive moat.

We were impressed by how significantly Palomar Holdings blew past analysts’ net premiums earned expectations this quarter. We were also excited its revenue outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this was a good print with some key areas of upside. The stock traded up 2.1% to $134.56 immediately following the results.

Updated: February 11, 2026 at 4:38 PM EST

Before deciding whether to buy Palomar Holdings or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

Palomar Holdings is one of the best insurance companies out there. For starters, its revenue growth was exceptional over the last five years. On top of that, its net premiums earned growth was exceptional over the last five years, and its improving combined ratio shows the business has become more productive.

Palomar Holdings’s P/B ratio based on the next 12 months is 3.1x. A lot of good news is certainly baked in given its premium multiple, but we’ll happily own what we believe is one of the best businesses in our coverage. It’s often wise to hold investments like this for at least three to five years, as the power of long-term compounding negates short-term price swings that can accompany high valuations.

Wall Street analysts have a consensus one-year price target of $160.67 on the company (compared to the current share price of $134.56).