Palomar Holdings (PLMR)

Specialty insurance provider Palomar Holdings (NASDAQ:PLMR) announced better-than-expected revenue in Q3 CY2025, with sales up 64.8% year on year to $244.7 million. Its non-GAAP profit of $2.01 per share was 24.8% 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.

Insurance companies earn revenue from three primary sources: 1) The core insurance business itself, often called underwriting and represented in the income statement as premiums 2) Income from investing the “float” (premiums collected upfront not yet paid out as claims) in assets such as fixed-income assets and equities 3) Fees from various sources such as policy administration, annuities, or other value-added services. Thankfully, Palomar Holdings’s 37.1% annualized revenue growth over the last five years was incredible. Its growth surpassed the average insurance company and shows its offerings resonate with customers, a great starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within financials, a half-decade historical view may miss recent interest rate changes, market returns, and industry trends. Palomar Holdings’s annualized revenue growth of 47.2% 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 64.8%, and its $244.7 million of revenue beat Wall Street’s estimates by 10.2%.

Net premiums earned made up 92.9% 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.

While insurers generate revenue from multiple sources, investors view net premiums earned as the cornerstone - its direct link to core operations stands in sharp contrast to the unpredictability of investment returns and fees.

When insurers sell policies, they protect themselves from extremely large losses or an outsized accumulation of losses with reinsurance (insurance for insurance companies). Net premiums earned are therefore net of what’s ceded to reinsurers as a risk mitigation and transfer strategy.

Palomar Holdings’s net premiums earned has grown at a 37.4% 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 46.1% annually. Since two-year net premiums earned grew slower than total revenue over this period, it’s implied that other line items such as investment income grew at a faster rate. While these additional streams certainly contribute to the bottom line, their impact can vary. Some firms have shown greater success and long-term consistency in investing their float compared to peers. However, sharp fluctuations in the fixed income and equity markets can significantly affect short-term performance.

Palomar Holdings produced $225.1 million of net premiums earned in Q3, up a hearty 66% year on year and topping Wall Street Consensus estimates by 5.7%.

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.

Combined ratio = (costs of underwriting + what an insurer pays out in claims) / 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.

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 Q3, Palomar Holdings’s combined ratio was 78.1%, beating analysts’ expectations by 342.5 basis points (100 basis points = 1 percentage point). This result was 2.4 percentage points better than 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 51.4% compounded annual growth rate over the last five years, higher than its 37.1% 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 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 shorter period to see if we are missing a change in the business.

For Palomar Holdings, its two-year annual EPS growth of 45.1% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.

In Q3, Palomar Holdings reported adjusted EPS of $2.01, up from $1.23 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Palomar Holdings’s full-year EPS of $7.16 to grow 14.3%.

Insurers are balance sheet businesses, collecting premiums upfront and paying out claims over time. Premiums collected but not yet paid out, often referred to as the float, are invested and create an asset base supported by a liability structure. Book value per share (BVPS) captures this dynamic by measuring these assets (investment portfolio, cash, reinsurance recoverables) less liabilities (claim reserves, debt, future policy benefits). BVPS is essentially the residual value for shareholders.

We therefore consider BVPS very important to track for insurers and a metric that sheds light on business quality because it reflects long-term capital growth and is harder to manipulate than more commonly-used metrics like EPS.

Palomar Holdings’s BVPS grew at an incredible 18.5% annual clip over the last five years. BVPS growth has also accelerated recently, growing by 39.5% annually over the last two years from $17.04 to $33.14 per share.

Over the next 12 months, Consensus estimates call for Palomar Holdings’s BVPS to grow by 24.2% to $33.49, elite growth rate.

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 (ROE) is a crucial yardstick for insurance companies, measuring their ability to generate returns on the capital provided by shareholders. Insurers that consistently deliver superior ROE tend to create more value for their investors over time through strategic capital allocation and shareholder-friendly policies.

Over the last five years, Palomar Holdings has averaged an ROE of 16.4%, impressive 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.

It was good to see Palomar Holdings beat analysts’ EPS expectations this quarter. We were also excited its net premiums earned 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 8.5% to $128 immediately after reporting.

Updated: December 4, 2025 at 11:22 PM EST

Before making an investment decision, investors should account for Palomar Holdings’s business fundamentals and valuation in addition to what happened in the latest quarter.

Palomar Holdings is a cream-of-the-crop insurance company. First of all, the company’s 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 3.4x. You get what you pay for, and in this case, the higher valuation is warranted because Palomar Holdings’s fundamentals clearly illustrate it’s a special business. We think the stock is attractive here.

Wall Street analysts have a consensus one-year price target of $160 on the company (compared to the current share price of $119.25), implying they see 34.2% upside in buying Palomar Holdings in the short term.