It has been about a month since the last earnings report for Palomar (PLMR). Shares have added about 3.8% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Palomar due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Palomar's Q3 Earnings and Revenues Top Estimates

Palomar Holdings, Inc. reported third-quarter 2023 operating income of 80 cents per share, which beat the Zacks Consensus Estimate by 19.4%. The bottom line increased nearly threefold year over year. Palomar witnessed improved premiums and net investment income as well as losses and loss adjustment expenses.

Behind the Headlines

Total revenues improved 10.8% year over year to $92 million, mainly attributable to higher premiums and net investment income. The top line beat the Zacks Consensus Estimate by 1.3%.

Gross written premiums increased 24% year over year to $314 million. Our estimate was $255.8 million. Net earned premiums increased 10.1% year over year to $85.8 million. Our estimate was $84.3 million. The Zacks Consensus Estimate was pegged at $85 million.

Net investment income increased 61% year over year to $6 million, driven by higher yields on invested assets and a higher average balance of investments. The Zacks Consensus Estimate was pegged at $5.6 million. Our estimate was $5.1 million. Palomar witnessed an underwriting income of $20.7 million, up more than fivefold year over year. Adjusted underwriting income was nearly $25 million, rising more than threefold year over year.

Total expenses of $66.4 million increased 12% year over year due to loss and loss adjustment expenses. Our estimate was $70.9 million.

The loss ratio was 18.8, which improved 2080 basis points (bps) year over year. Our estimate was 18.2. The Zacks Consensus Estimate was pegged at 26.6. Adjusted combined ratio, excluding catastrophe losses, improved 1940 bps year over year to 70.9. The Zacks Consensus Estimate was pegged at 75.

Financial Update

Cash and cash equivalents declined 21.8% from 2022-end to $53.3 million at third-quarter 2023-end. Shareholder equity increased 9.5% from 2022-end to $421.3 million.

Annualized adjusted return on equity in the third quarter of 2023 was 22.3%, up 1240 bps year over year. PLMR bought back shares worth $6.6 million in the third quarter of 2023. As of Sep 30, 2023, $43.5 million remained under authorization.