Palomar Holdings’ PLMR shares have gained 30.9% year to date (YTD), outperforming the industry’s increase of 12.7%, the Finance sector’s increase of 7.7% and the Zacks S&P 500 Composite’s gain of 19.4%. With a market capitalization of $1.5 billion, the average volume of shares traded in the last three months was 0.1. million.

Strong premium retention rates, new partnerships, rate increases and effective capital deployment continue to drive this Zacks Rank #3 (Hold) insurer. This specialty insurer has a decent history of delivering earnings surprises in the last four reported quarters.

Palomar’s trailing 12-month return on equity was 19.7%, which came ahead of the industry average of 7.2%. Return on equity, a profitability measure, reflects how effectively a company is utilizing its shareholders.

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Can PLMR Retain the Momentum?

The Zacks Consensus Estimate for 2023 and 2024 earnings has moved 5.3% and 2.5% north, respectively, in the past 30 days, reflecting analyst optimism.

New business generated, strong retention rates, strategic expansion of products’ geographic and distribution footprint, and new partnerships should continue to drive premium improvement.

Investment income, an important component of the top line, witnessed a five-year CAGR (2017-2022) of 36.7%.  High-quality fixed-income securities, a higher average balance of investments and an increase in fixed-income yields should help it retain the momentum.

Palomar’s fee-generating PLMR-FRONT is expected to drive growth in the medium term. The managed premium from Palomar FRONT is expected to offer a growing fee income stream in 2023. The addition of the fee-based revenue stream to the business is expected to strengthen its earnings base.

PLMR’s risk transfer strategy lowers exposure to major events, thus lowering earnings volatility. Since 2017, Palomar has been able to maintain a combined ratio below 95%, except for 2020. The combined ratio reflects its underwriting profitability.

PLMR boasts a debt-free balance sheet with no exposure to the equity markets. Sustained operational excellence helps it maintain a strong capital position. In its efforts to pay back its shareholders, the insurer engages in share buyback and has $43.5 million remaining available for future repurchases.

All these positives together drive optimistic growth projections. The Zacks Consensus Estimate for Palomar’s 2023 earnings is pegged at $3.55 per share, indicating an increase of 28.2% on 7.6% higher revenues of $360 million. The Zacks Consensus Estimate for 2024 earnings is pegged at $4.05 per share, indicating an increase of 14.1% on 21.3% higher revenues of $436.6 million.