帕洛马尔控股 (PLMR) 2026年第三季度财报电话会议：利润增长47%，上调业绩指引

Palomar Holdings, Inc.（NASDAQ: PLMR）公布2026年第三季度保费和收益实现增长，主要得益于农作物险、保证与信用险以及住宅财产险产品的推动。该公司还上调了全年调整后净利润指引。

核心要点

• 第三季度总签单保费同比增长28.4%至7.67亿美元，净已赚保费增长62.3%至3.654亿美元。
• 调整后净利润增长47%至8130万美元，调整后每股收益（EPS）增长50%至3.01美元。年化调整后净资产收益率（ROE）达33.1%。
• 调整后综合成本率为76.3%，上年同期为74.8%。业务多元化导致的赔付率上升，被经营杠杆和更低的费用率部分抵消。
• 农作物险总签单保费增长89%，促使管理层将2026日历年农作物险保费预期从最初的3.20亿美元上调至约4.25亿美元。
• 保证与信用险保费增长228%，反映出收购Gray Surety、扩大再保险合同承保能力以及业务整合的进展。
• 管理层将全年调整后净利润指引从2.70亿至2.80亿美元上调至2.80亿至2.85亿美元，其中包括维持不变的800万至1200万美元巨灾损失假设。

关键财务数据

Palomar在该季度以每股约127美元的均价回购了890万美元的普通股。年初至今的回购总额达7300万美元，均价约为每股116美元。该公司还派发了每股0.45美元（共计1220万美元）的首期股息，并批准于12月2日派发另一笔每股0.45美元的季度股息。

业务与经营表现

地震险

地震险总签单保费增长3%。住宅地震险约占该业务板块的66%，高于上一季度的64%。

管理层将住宅业务的增长归因于全球地震活动发生后消费者意识的提高，以及竞争对手承保能力的受限。新保单销售额创2022年以来新高，整个季度每月新增业务均超过400万美元，保单续保率维持在88%。

商业地震险仍面临定价压力。续保费率下降约20%，特别是在大型客户中。由于该业务组合大部分采用持牌、自底层起赔的承保结构，小型商业保单续保率保持在80%以上。

内陆水运险及财产险

总签单保费增长13%，主要受住宅在建工程险、建筑工程险、夏威夷飓风险和洪水险的拉动。

夏威夷飓风险保费增长23%。产生损失的三场风暴共带来约300万美元的净损失，其中仅有一场事件给再保险公司造成了损失。洪水险保费增长25%，但夏威夷灾害和印第安纳州的严重洪水加剧了巨灾损失。

管理层表示，大型分层及共保商业财产客户的竞争压力依然处于高位。Palomar正聚焦于高价值住宅在建工程险、持牌单项商业客户以及专业工程在建工程险。住宅建筑商产品计划于下个季度推出。

责任险

责任险总签单保费增长3%。退出主承交易责任险、转保网络险计划的调整以及部分项目管理人物业业务转保的完成，对增长形成了制约。

E&S责任险费率涨幅放缓至约6%，上年同期为10%出头。持牌承包商责任险费率上涨4%，而2025年第三季度为7%。医疗保健责任险涨幅最大，根据免赔起赔点和承保范围的不同，涨幅在10%至35%之间。

管理层表示，责任险准备金中有82%为已发生未报告准备金（IBNR）。该公司未释放IBNR准备金以抵消少量的不利变动。

农作物险

农作物险总签单保费增长89%。管理层目前预计2026日历年农作物险保费约为4.25亿美元，大幅高于最初3.20亿美元的预期。

该公司的保单管理平台PLMR.Farm已正式上线2027再保险年度产品，包括牲畜和冬小麦。管理层表示，该平台提高了代理人可见度、运营效率以及向风险管理局（Risk Management Agency）的报告效率。

农作物险占第三季度总损失的38%，而上年同期为24%。管理层将相对有利的净赔付率部分归因于通过指定风险池、成数分保和止损再保险实施的风险转移。

保证与信用险

保证与信用险总签单保费增长约228%。在同店口径下，投保申请量增长5%，签发保函增长15%。

7月1日的再保险安排提高了合同限额，使Palomar能够在不按比例增加资产负债表风险敞口的情况下开立更大金额的保函。管理层的长期目标是打造排名前20的保证险业务，年保费规模达到数亿美元，并称这一目标在几年内即可实现。

管理层指引

管理层表示，按中值计算，调整后净利润指引意味着较2025年增长约31%。该展望计入了对人员、技术和新业务的持续投资，以及与Palomar业务结构演变相关的较高赔付率。

管理层预计，在经历第三季度的季节性低点后，净已赚保费率将在再保险合同年度的剩余时间内回升。受季节性影响，预计第四季度农作物险保费将环比下降，但同比仍可能录得温和增长。

风险与关注事项

• 商业地震险续保定价下降约20%，大型分层及共保财产客户的竞争依然激烈。
• 责任险费率涨幅正在放缓，而持牌保险公司对此前投放于E&S市场的业务竞争愈发激烈。Palomar表示，若定价不充分，公司将放弃续保。
• 农作物险理赔将在2026年第四季度及2027年初持续发生并结算。由于收割仍在进行中，管理层尚未计入所有与再保险相关的潜在利好。
• 全年展望维持800万至1200万美元的巨灾损失假设，电话会议召开时2026年仅剩约两个月。
• 业务结构的变化（尤其是农作物险的快速增长）正在推高报告赔付率，不过管理层预计调整后综合成本率仍将维持在70%中段区间。
• 随着风险敞口扩大，可能需要追加地震险再保险限额，即便商业保费增长受到定价下行的制约。

分析师问答精选

• 住宅地震险的持续性：管理层表示，新业务的高位增长贯穿整个第三季度，并在进入第四季度后依然强劲。持牌保单约10%的通胀防护条款以及80%高段的续保率对续保基本盘形成了支撑。
• 常态化责任险增长：管理层估计，若剔除业务退出、网络险重新核保和已完成的业务转保，同店责任险增长率本应在15%至18%左右，而非报告的3%。
• 再保险自留额：Palomar目前倾向于在基础险种中保持成数分保比例基本稳定，同时寻求提高分保佣金。在技术定价具有吸引力的情况下，公司可能会承担更多巨灾或农作物险风险。
• 农作物险再保险：管理层指出，指定风险池分配、成数分保和止损保障是推动净业绩表现的关键因素。农作物险再保险合同将于2027年1月1日续转。
• 保证险扩张：提高的合同承保能力和区域人员招聘预计将支持更大金额的保函业务，并在中期内推动保费规模向数亿美元扩展。
• 地震险保障：管理层预计，随着住宅和商业风险敞口的增加，将购买额外的再保险限额，不过最终金额将取决于下次续保前的风险敞口增长情况及定价。

业绩电话会议完整实录

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完整财报电话会议逐字稿

管理层陈述

Operator

Good morning, and welcome to Palomar Holdings, Inc. Third Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to turn the call over to your host, Mr. Chris Uchida, Chief Financial Officer. Please go ahead, sir.

T. Uchida

Thank you, operator, and good morning, everyone. We appreciate your participation in our earnings call. With me here today is Mac Armstrong, our Chairman and Chief Executive Officer. Additionally, Jon Christianson, our President, is here to answer questions during the Q&A portion of the call. As a reminder, a telephonic replay of this call will be available on our Investor Relations section of our website through 11:59 p.m. Eastern Time on November 19, 2026.

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. Such risks and other factors are set forth in the quarterly report on Form 10-Q 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.

D. Armstrong

Thank you, Chris, and good morning, everyone. Palomar delivered an excellent third quarter, highlighted by record gross written premium and record adjusted net income of $81.3 million. We also posted our 16th consecutive earnings beat and our fourth increase to full year adjusted net income guidance.

Gross written premium increased 28% year-over-year. Adjusted net income grew 47% and adjusted earnings per share increased 50%. Our adjusted combined ratio was 76% and the annualized adjusted return on equity reached 33%, comfortably exceeding our Palomar 2X target of 20%.

Our profitable growth and the associated strong earnings and capital position provide Palomar the flexibility to sustain Palomar 2X and return capital to shareholders. During the quarter, we repurchased approximately $8.9 million of common stock and paid the inaugural dividend of $0.45 per share in September. These results underscore the strong execution of our team and our ability to generate attractive returns across market cycles.

During the quarter, all 5 product categories grew year-over-year even in the teeth of broad market headwinds and the deliberate portfolio optimization efforts and selectively reduced exposure. Earthquake premium increased 3%, reflecting the strength of our diverse franchise and the stability of our admitted Residential Earthquake business.

Inland Marine and Property grew 13%, an acceleration from 10% growth last quarter as new lines and residential products show strong performance.

The Casualty book grew 3%, a deceleration from prior quarters, but in line with expectations as previously exited lines and completed program rollovers influenced the results.

Crop growth of 89% exceeded the lofty target set at the beginning of the year and reset after the second quarter.

Surety & Credit growth of 228% reflects the acquisition and successful integration of the Gray Surety team into Palomar.

Our diversified and balanced one-of-one portfolio remains the key driver of our strong performance. No single product group represented more than 1/3 of gross written premium in the quarter. Property business, which consists of Earthquake and Inland Marine and Property accounted for approximately 41% of our portfolio with a split of 48% Residential business and 52% Commercial business.

Approximately 64% of our total portfolio is written on an admitted basis, providing greater pricing stability and insulation from the competitive pressures currently impacting the E&S market.

Crop and Surety, which are less correlated with traditional P&C market cycles, collectively totaled over 36% of the third quarter's gross written premium.

We have deliberately built a diversified portfolio spanning admitted and E&S risk residential and commercial exposures and lines unaffected by traditional P&C market cycles. This mix gives Palomar a unique ability to deploy capacity where risk-adjusted returns remain attractive across market conditions, including today's softening P&C market. Ultimately enables Palomar to create long-term value for shareholders in a consistent and differentiated fashion.

Moving on to results by product category. I'll begin with Earthquake, our bellwether franchise. Earthquake gross written premium returned to growth in the quarter, increasing 3% year-over-year. Growth was driven by our Residential Earthquake business, which now represents approximately 66% of total earthquake premium, up from 64% last quarter.

Our Residential Earthquake franchise benefited from 2 compelling market dynamics this quarter: one, heightened consumer awareness and demand for our products following recent global earthquake activity; and two, capacity constraints at a competitor, which resulted in limited availability of their products. Our well-established distribution network and market leadership enabled us to capitalize on these 2 factors, meet increased demand and generate strong new business production.

Third quarter new policy sales were at the highest level since 2022 and total new business sales exceeded $4 million every month in the quarter, the highest level since 2021. Additionally, policy retention remains exceptionally strong at 88%. Looking ahead, we believe the momentum in new business, combined with our strong retention and distribution positions our Residential Earthquake franchise for continued growth in 2027 and the foreseeable future.

Commercial Earthquake, which now represents approximately 1/3 of our Earthquake premium, continues to experience competitive market conditions, particularly in the large account segment. Commercial Earthquake rates on renewals in the quarter were down approximately 20%.

Our small commercial portfolio, while facing rate pressure felt in large commercial business is not under quite the same pressure from a policy retention standpoint. Because the small commercial business is predominantly admitted and written on a ground-up basis, we have greater control over renewals compared to the more competitive layered and shared market. In the quarter, policy retention for our small commercial business was above 80%.

Importantly, the balance of our Earthquake franchise allows us to perform well in the challenging commercial market as the Residential Earthquake book growth and margin expansion continue to more than offset the pricing pressure in Commercial Earthquake. We continue to forecast growth for the Earthquake book in 2026.

Inland Marine and Property business grew 13% during the quarter, driven primarily by the Residential Builders Risk, Construction Engineering, Hawaiian Hurricane and Flood products. The strength of our diversified property product suite, particularly within admitted and residential property segments allowed us to offset the persistent competitive pressure in commercial lines like all risk property and large account Builders Risk.

Our Hawaii Hurricane business delivered strong growth of 23% year-over-year. El Nino conditions of the 2026 hurricane season resulted in 3 different loss-generating storms in Hawaii. Despite the active hurricane season, losses across 3 storms were $3 million on a net basis and only one of them will generate losses to reinsurers. Hawaii Hurricane activity has reinforced the need for hurricane coverage in the marketplace while providing opportunities to implement targeted underwriting and rate adjustments to further strengthen the portfolio.

Flood written premium grew 25% in the quarter. The Flood program was the other source of catastrophe losses during the quarter as there was heightened activity from the Hawaii events and a severe flood event in Indiana. The spread of risk in the Flood book continues to improve as we pass the 1-year anniversary of our Neptune partnership.

Our commercial property products, consistent with prior quarters and our experience in the Earthquake market, see persistent competitive pressure, particularly in large layered and shared commercial accounts. But the expertise resident in our commercial property team allows us to identify and focus on segments with more attractive underwriting economics such as high-value Residential Builders Risk, admitted single-shot commercial accounts or our fast-growing engineered Builders Risk practice. New property products in the pipeline, including a homebuilders product launching in the next quarter, will expand our reach across the property market and offer additional opportunities for profitable growth.

Turning to Casualty. Gross written premium growth slowed to 3% during the quarter. This growth rate reflects the previously discussed exit from primary transactional liability business. The targeted rate increases in selected class eligibility elimination in our fronted cyber program and the completion of certain program administrator brook rolls that amplified growth recognized in prior quarters.

The Casualty market is in transition, and our portfolio of 7-ish products has unique pricing and competitive dynamics impacting both positively and negatively. We are seeing rate increases, but they are moderating. For instance, our E&S Casualty business is currently seen approximately 6% increases, down from levels in the low teens a year earlier. Additionally, we see larger accounts come under more rate pressure and as such, are selectively walking away from renewals where pricing no longer adequately reflects the underlying risk. For admitted contractors liability, our rate increases in the quarter were 4% versus 7% for the same period in 2025.

Our real estate E&O business saw rate increases of approximately 10% in California and 3% nationwide. Healthcare liability rate increases were the most pronounced with ranges of 10% to 35%, depending on the attachment and coverage provided.

We are still able to maintain terms and conditions in the Casualty business. This is best exemplified by our continued avoidance of auto liability. For both the contractors and environmental general liability programs, we are typically excluding auto coverage. And when it was provided, we increased expiring rates approximately 20% during the quarter.

Our underwriting appetite remains intact and our philosophy is unchanged. Disciplined underwriting, fulsome reinsurance support, modest growth in net lines with conservative reserving. Our commitment to conservative reserves is reflected in the fact that 82% of Casualty reserves are IBNR. And during the quarter, we did not use any IBNR releases to offset an immaterial level of unfavorable development.

Additionally, we are investing in specialized underwriting talent across the Casualty franchise. This quarter, we added experienced professionals in the miscellaneous E&O and architects and engineers professional liability lines. The breadth of our portfolio and the talent leading the practice position us well in this evolving Casualty market.

With respect to Crop, gross written premium increased 89% year-over-year, reflecting continued strong momentum across the franchise. PLMR.Farm, our innovative policy administration system went live this quarter, supporting our 2027 reinsurance year products, including livestock and winter wheat. Initial feedback from all constituents is encouraging. The platform simplifies facing business with Palomar, improves operational efficiency and provides agents real-time visibility across the full policy life cycle from quotes to claims. It has also streamlined our reporting process with the RMA.

Beyond the technology investments made to support our Crop franchise, we continue to add talent in key geographies like Indiana, North Dakota and Minnesota. While claims continue to develop and settle throughout the fourth quarter and into early 2027, overall Crop year performance is tracking in line with expectations, and we anticipate underwriting gains across our MPCI and private product offerings.

Given our strong year-to-date performance, we now expect approximately $425 million in Crop premium for calendar year 2026, a meaningful increase from our initial outlook of $320 million. We remain highly confident in our ability to build a market-leading Crop franchise.

Surety & Credit gross written premiums grew approximately 228% year-over-year, reflecting continued momentum across the franchise. The integration efforts completed over the first half of 2026 bore fruit in the third quarter as submissions were up 5% on a same-store basis and final bonds were up 15%. Additionally, our July 1 reinsurance placement further enhanced our competitive position, providing additional capacity via increased treaty limits that enable us to write larger bonds and utilize the combined delisting authority of our group of companies.

We see encouraging early contributions from new hires in the Northeast, Northern California and on the commercial surety team. We remain focused on strengthening our geographic presence, expanding our distribution reach and enhancing our commercial surety practice. We are confident these investments support our ambition to become a top performing Surety franchise.

Our reinsurance team was active during the third quarter, renewing 5 treaties and completing new placement. All renewals achieved improved economics from the expiring treaty except for cyber, where we reduced our risk participation amidst the re-underwriting of the book. These results reflect the strong underwriting performance and continued reinsurance support and demand for our programs, as well as a more favorable reinsurance market. Our new surety treaty also received strong market support, allowing us to meaningfully increase the size of bonds we can issue without incrementally stressing our balance sheet.

In this soft reinsurance market, we assess our risk participation session percentages on a line-by-line basis to measure risk-adjusted returns and the associated volatility in our earnings base. For instance, on July 1, we held our session percentages flat for Casualty quota share business, whereas for Surety, we increased our per risk retention but reduced it as a percentage of the total limit procured.

We do not expect recent Hawaii hurricane losses to negatively impact the pricing of our Laulima XOL facility as only one storm triggered treaty coverage with limited losses going into the tower. As we sit here today, we expect favorable property catastrophe reinsurance market conditions to persist through January 1 renewal and into 2027. Our reinsurance strategy remains a key source of earnings stability and a competitive advantage, and we will evaluate both our quota share participation and catastrophe event retention levels as our earnings and capital base grow. At each renewal, we will weigh the earnings benefit of higher retention levels against technical pricing and earnings volatility in the value of our current structure.

During the quarter, we invested in talent across the organization. As previously mentioned, we brought on several new professionals to our Crop team and made key underwriting hires in Casualty & Surety and Property. As investment income becomes a meaningful contributor to earnings, we built out the asset side of our business with hires on the Investment team in the quarter.

Technology and AI are high-end areas of investment for Palomar. With the successful launch of PLMR.Farm, we are exporting the AI-enabled software development life cycle used in Crop to other lines of business such as Surety. AI agents now handle some of our most routine policyholder requests, providing service instantly with no wait. When a hurricane hit Hawaii on a weekend, an agentic solution allowed us to handle the customer service search without staffing up a call center.

Additionally, we are implementing a new AI-enabled underwriting workbench for our property team in hopes of driving greater efficiency, expanded distribution and ultimately, premium growth in 2027. We hope that it drives a similar return to PLMR.Farm and an already implemented AI-driven data enrichment solution that has cut hundreds of hours a month of manual data entry associated with building detailed verification for earthquake underwriters. Across these initiatives, we remain focused on measurable returns on investment and ensuring our technology investments deliver tangible operational and financial benefits.

Finally, reflecting our strong third quarter performance and outlook for the remainder of the year, we are raising our full year adjusted net income guidance to $280 million to $285 million, which includes $8 million to $12 million in catastrophe losses for the full year. At the midpoint of the range, this represents adjusted net income growth of approximately 31% from 2025.

The increased guidance factors in not only our strong execution, but also the evolution of our business, namely the increasing loss ratio, but a stable and best-in-class adjusted combined ratio. The book is performing in line with our expectations as are the loss ratio and combined ratio. Our focus remains on profitable growth, disciplined capital allocation and maximizing risk-adjusted returns, basically keep doing what we did this quarter.

With that, I'll turn the call over to Chris to review our financial results, the complexion of our losses, the stability of the portfolio and the overall consistency in our returns in greater detail.

T. Uchida

Thank you, Mac. Before I begin, please note that during my portion of the call when referring to any per share figure, I'm referring to per diluted common share as calculated using the treasury stock method. This methodology requires us to include common share equivalents such as outstanding stock options during profitable periods and exclude them in periods when we incur a net loss.

For the third quarter of 2026, our adjusted net income grew 47% to $81.3 million, reflecting the continued strength of our diversified specialty portfolio. Higher net earned premiums, coupled with disciplined underwriting and strong investment income. Our adjusted earnings per share grew at a greater rate of 50% to $3.01 per share, reflecting the positive impact of opportunistic share repurchases over the last 12 months.

Adjusted underwriting income for the third quarter was $86.5 million, an increase of 53% compared to the prior year quarter. Our adjusted combined ratio was 76.3% compared to 74.8% in the third quarter of 2025 and 76.7% in the second quarter of 2026. As expected, our growth and diversification resulted in higher underwriting -- underlying loss ratio, offset by a lower adjusted expense ratio. We expect this dynamic of loss ratio and adjusted expense ratio to continue as we grow the business, resulting in ongoing attractive adjusted combined ratios.

For the third quarter, our annualized adjusted return on equity was 33.1% compared to 25.6% in the prior year period. While continuing to invest in personnel, technology and recently launched businesses, we generated returns well above our Palomar 2X threshold of 20%, demonstrating the earnings power and capital efficiency of our one-of-one platform.

Gross written premiums for the third quarter increased 28.4% to $767 million as compared to the prior year's third quarter, reflecting the consistent momentum across our unique diversified specialty portfolio. Looking at our key specialty insurance products, it's important to remember the seasonality of our Crop business. The third quarter is our largest quarter for Crop with the majority of the annual premium written and earned during the period. As we move into the fourth quarter, Crop premium will decrease sequentially, though we still expect year-over-year growth. We have outlined the seasonality of our specialty portfolio in our investor presentation, which remains a useful guide as you model our business.

Net earned premiums for the third quarter increased 62.3% year-over-year to $365.4 million. Our net earned premium ratio, the ratio of our net earned premiums as a percentage of gross earned premiums was 49.6% compared to 43.4% in the third quarter of 2025 and 51.9% in the second quarter of 2026. The year-over-year increase in this ratio reflects our improved excess of loss reinsurance at the last 2 renewals and growth in lines of business that use quota share reinsurance, including our Crop business, where we are retaining more premium as we continue to leverage our growing balance sheet.

The third quarter represents the seasonal low point of our net earned premium ratio, and we expect the ratio to increase through the remainder of the reinsurance treaty year in a similar pattern to last year.

Losses and loss adjustment expenses for the third quarter were $151.6 million compared to $72.8 million in the third quarter of 2025. Attritional losses for the quarter were $147.2 million and catastrophe losses were $4.5 million. The total loss ratio for the quarter was 41.5%, made up of an attritional loss ratio of 40.3%, including 1.1% of unfavorable development and a 1.2% catastrophe loss ratio. Unfavorable development was primarily related to a reallocation of short-tail livestock losses between 2026 and 2025. While there was no material change in the underlying ultimate, the move between years does show up as unfavorable prior year development and is favorable in the current year results.

Catastrophe losses for the quarter are related to hurricane and flooding in Hawaii and flooding in the Midwest. It's important to remember the nuance of our Hawaii Hurricane product, where coverage is only available when a hurricane watch or warning is issued for a particular county. Coverage was available for 3 events impacting Hawaii, while the overall net catastrophe losses for the quarter are well within the catastrophe loss guide for the year of $8 million to $12 million.

Our specialty products are performing in line with expectations and target return levels. Strong growth and diversification of our specialty portfolio of insurance products has naturally resulted in an increase in our loss ratio and added stability and consistency to our earnings base.

Crop's strong top line growth has been a great contributor to our consistent earnings base while also contributing to the expected natural increase in our loss ratio. For the third quarter of 2026, Crop represented 38% of our overall losses and loss ratio compared to 24% last year, a 58% increased contribution to our losses and loss ratio. Said differently, our total loss ratio for the third quarter of 2026 was 41.5%, 15.9 points of Crop and 25.6 points of non-Crop. Crop share of losses is 58% higher than Q3 2025 when our total loss ratio was 32.3%, 7.8 points of Crop and 24.5 points of non-Crop.

Year-to-date through the third quarter of 2026, Crop represented 33% of our overall losses and loss ratio compared to 16% last year, more than doubling its contribution to losses and loss ratio. While Crop is not the only contributor to our increasing loss ratio, it is important to see its relative contribution to our overall losses and loss ratio as the book has continued to grow and our specialty portfolio evolves. To reiterate, the combined ratio has remained very stable through this time.

Our acquisition expense as a percentage of gross earned premiums was 9.8% for the third quarter compared to 10.8% in the prior year period and 12.9% in the second quarter of 2026. The year-over-year decrease primarily reflected changes in the composition of our business. As previously discussed, our acquisition expense ratio also experiences seasonality associated with our Crop business, including a decline during the third quarter.

The ratio of other underwriting expenses, including adjustments to gross earned premiums for the third quarter was 7.7% compared to 7.9% in the prior year quarter and 9.1% in the second quarter of 2026. As we have communicated, we remain committed to investing in talent, technology and systems to support the scalable platform we are building. While these investments can create some near-term pressure, we continue to expect operating leverage over time as the organization grows within the Palomar 2X framework.

Our net investment income increased 54% for the third quarter, growing to $22.4 million from $14.6 million in the prior year quarter. The increase was primarily due to higher yields on invested assets and a higher average balance of investments held due to cash generated from our operations and assets from the Gray acquisition.

Our yield in the third quarter was 5.1% compared to 4.7% in the third quarter last year. The average yield on investments made in the third quarter remains over 5%. At quarter end, cash and invested assets totaled approximately $1.8 billion, and the weighted average duration of our fixed maturity portfolio was 4.6 years. Stockholders' equity was $985 million at quarter end. We repurchased $8.9 million of common stock during the third quarter at an average price of approximately $127 per share, bringing total repurchases through the first 9 months of the year to $73 million at an average price of approximately $116 per share.

Additionally, during the quarter, we paid our first dividend of $12.2 million. Repurchases and dividends represent an attractive use of capital given the strength of our operating performance, earnings outlook and long-term growth opportunities. Our growing balance sheet remains well capitalized with ample flexibility to support organic growth opportunities, execute our capital management strategy and maintain a prudent risk profile.

Our Board has approved a second quarterly cash dividend of $0.45 per share, which will be paid on December 2. We continue investing in our business within the framework of our Palomar 2X philosophy. While our consistent and growing earnings support a healthy capital position and provide flexibility for both regular and opportunistic capital returns. We remain committed to maintaining a disciplined and flexible capital allocation strategy.

Year-to-date, we have returned $85 million to our shareholders and with the declared dividend nearly $100 million for 2026. Our diversified specialty portfolio remains a key driver of our consistent earnings growth and our third quarter results reflect the seasonality we have discussed throughout the year, primarily related to our Crop business. Seasonality of our Crop business results in the third quarter representing our highest gross earned premium for the year. With the higher gross earned premium, we expect the lowest net earned premium ratio, acquisition expense ratio and adjusted other underwriting expense ratio in the third quarter.

For the full year, we expect our net earned premium ratio to be around 50%, our acquisition expense ratio to be around 12.1% and our adjusted other underwriting expense ratio to be around 8%, both in line with our 2025 results. We continue to expect our loss ratio, including catastrophes to be in the mid to upper 30s for 2026 and our adjusted combined ratio to be in the mid-70s. These expectations reflect our anticipated growth, business mix and use of capital as we continue to build our specialty insurance platform.

Lastly, given the strong momentum across our portfolio of specialty businesses, we are increasing our full year adjusted net income guidance to a range of $280 million to $285 million from a prior guidance range of $270 million to $280 million. The guidance continues to contemplate our capital return strategy and includes our expectation for $8 million to $12 million of catastrophe losses for the full year, including events during the first 9 months of the year.

At the midpoint, our guidance implies over 30% year-over-year adjusted net income growth, even stronger EPS growth and more than doubling 2024 adjusted net income in just 2 years, while continuing to generate an adjusted return on equity above 20%.

With that, I'd like to ask the operator to open the line for any questions. Operator?

Operator

[Operator Instructions] Our first question comes from David Motemaden with Evercore.

分析师问答

David Motemaden

Mac, it was good to see the Earthquake growth back up again this quarter. Could you just describe maybe a little bit some of the moving pieces between the growth in the residential book and what happened in the commercial book? And maybe just you had called out a few things on the residential book that helped this quarter. Wondering your view on the durability of those drivers as we think about next quarter, but also next year.

D. Armstrong

Yes, Dave, great question, and I appreciate it. I think overarchingly, we were very pleased to see the Earthquake growth in the quarter. And it really is being anchored by the Residential side of the franchise, which, as I pointed out, is 2/3s and growing faster than the Commercial side. So that's going to percentage that will continue to tick up, which I think portends well for sustained growth.

Growth this quarter was, I think it is modestly amplified by heightened awareness from events globally, but in particular, in South America and Central America. But then furthermore, there was one competitor that reached reinsurance limitations and therefore, was capacity limited. But on the whole, we wrote new business that was at a level similar to we saw some 4 years ago. As we sit here today in the fourth quarter, we're still writing at a very strong pace. So it gives us conviction on the ability to maintain good growth in Residential Earthquake.

I think the thing I just would point out and remind you all when we talked about it before, is just there is an automatic inflation guard for all of our admitted policies that's in and around 10%. And there's policy retention that's in the high 80s. So there is a nice stable base of renewal premium that rolls over every month. And so if we continue to execute like we are on new business sales, there should be good growth in Residential Earthquake, which again, should offset what we're seeing in commercial.

And I think just with commercial, when we talk about growing for 2026, we are not making an assumption on a reversal in the rate environment as of yet. We think it will persist and remain competitive. But I also think it's worth pointing out that of our commercial book, about 1/3 of that, maybe it's closer to 1/4 of it, maybe somewhere in between those 2 is single shot admitted in that we're writing it from the ground up. And therefore, we have very strong policy retention if it is still at attractive pricing levels.

And then the last thing I'd add to that point, if you look at our commercial book, the underlying profitability and the underlying metrics, it's basically back to where it was in the third quarter of 2023. So we've kind of been a round trip from the hard market that commenced in that time frame.

David Motemaden

Got it. Okay. That's helpful. Was the competitor that pulled back on the resi side, was that -- your sense, is that the bigger driver that's going to fade? Because I would think that the -- or potentially fade because I would think that the increased awareness, that's like kind of a slower bleed as that wears off?

D. Armstrong

Yes. I mean I think when a competitor is hamstrung, we took advantage of that. The only thing I would say is there is some potential reputational harm that's done there with agents when you're turning off ZIP codes of business and making certain terms and conditions unavailable. So we feel good about our ability again to sustain the growth in Residential Earthquake.

Jon Christianson

Yes. And Dave, this is Jon Christianson. One thing I'd add and just to underscore what Mac mentioned in his prepared comments, and we've talked about this in past quarters, but Residential Earthquake, particularly on the admitted side, it is a very consistent product. So we have that inflation guard. But over the course of the quarter, it was very consistent new business -- elevated new business. It wasn't like it all came in 1 month or the other. So in addition to consistent policy retention levels, we saw consistent levels of elevated new business in the quarter.

David Motemaden

Okay. Great. And then maybe just on the Casualty side. If we sort of look at the growth in the quarter and adjust out transactional liability, cyber and that the book roll, how is growth sort of excluding those things if you guys look at it that way? And you had mentioned a little bit of unfavorable development there. Has that -- maybe just elaborate on that as well.

D. Armstrong

Yes. So on the unfavorable development, I think I referred to as immaterial, it was that. It was less than a couple of million dollars. So it's -- and we certainly could have made the justification to release reserves to offset that, but it just -- it was a non-factor.

To your question on kind of normalizing the growth rate, yes, I mean, the pullback that we've done in transaction liability, the re-underwriting of the cyber fronted program and then overall, just some re-underwriting of our growth broadly in other classes have probably made the difference between 3% growth and 15% to 18% growth on a kind of if you want to call it like a same-store basis. So I think going forward, you should think about Casualty just kind of indexing the growth rate of the rest of the business ex Crop, right? So take out Crop from the calculus.

Operator

Our next question comes from Paul Newsome with Piper Sandler.

Jon Paul Newsome

I want to think maybe as we think out maybe in '27 and beyond, maybe you could just kind of review with us where are the pieces that are still -- businesses that are still pretty young and may show some more expansion as we look forward? And then I guess relatedly, any thoughts about, as we look forward, changing some of the quota share retentions as we get into next year as well?

D. Armstrong

Yes, Paul, thanks for the question. I would say we think there are -- candidly, we think there are growth vectors across all 5 of the product categories. Obviously, our commercial property franchise is where growth is the most challenged and it's not growing. But I would certainly highlight Crop as an area of sustained growth. I would highlight our residential property products as areas of sustained growth. And then Casualty, as we just discussed, we'll still see some growth, but it's not what it was in 2025 and the first half of 2026.

So again, across the board, we feel that there is ample opportunity for organic growth within the portfolio. And I should have mentioned Surety as well. We just now have a reinsurance structure in place to write larger T-listed bonds. And we'll do that in a deliberate fashion. We're not going to overextend ourselves. But we do think there's ample room for growth, and our ambition is to be a top 20 surety writer and have a book of business that's a couple of hundred million dollars, not $100 million on the Surety side.

To your question on reinsurance sessions and participations, as I said in my remarks, we do look at those on an individual basis. I think right now, when you are in a soft market, we are of the mind with a lot of our attritional loss businesses to kind of hold our sessions flat and take advantage of potentially improved overrides and ceding commissions that we receive from our strong and diverse panel of reinsurers.

And then I think separately, when you look at the catastrophe retentions and the event retentions on the property side of the book, I think we certainly have the balance sheet to increase those as appropriate, and we will look at that. But I think as I pointed out last quarter, it really does come down to what the technical pricing is. And if we are trading dollars at a theoretical loss. And we have seen the lower layers of our program priced pretty close to burn. And so it made sense to hold them flat at 6/1/26. But that optionality will persist. And clearly, with a $20 million event retention on the quick side, we have the latitude to take on more if it's priced attractively to us -- for us.

And actually, you know, what Paul, one other thing that I would say is the other line of business that we will continue to look at our overall reinsurance structure and our risk retention percentage will be Crop. That renews at that 1/1 -- that treaty renews at 1/1/27, and we certainly will look at how we continue to use the standard reinsurance agreement and then also our quota share and stop-loss structures. And certainly, there's appetite for us to potentially take more there.

Operator

Our next question comes from Andrew Andersen with Jefferies.

Andrew Andersen

Just curious with market conditions and some pricing moderation, are you seeing any business flow between E&S and admitted markets? And just given your presence in both, how effectively can you follow that business if it does go back to admitted while still maintaining just pricing and overall discipline?

D. Armstrong

Andrew, yes, it varies line by line. I would say on the property side, we can leverage the admitted and the E&S side of our books pretty effectively in an area like Residential Earthquake and definitely in Builders Risk. And that's really how we have -- and Commercial Earthquake as well, and that's really how we've architected the business since we launched the company some 12.5 years ago.

We are seeing the admitted market coming in more frequently on the Casualty side, and that's in a circumstance -- in those circumstances rather, that's when we'll walk away because the rates inevitably will be cheaper than what we have on expiry. And I think we saw that in a higher degree of frequency in our E&S Casualty book, both construction liability and contractors liability and where we write kind of buffer layer, short limits, call it, 3 excess of 1, 2 excess of 2. And so that's where the admitted market was probably most pronounced coming in, and that's where we walked away from a decent amount of business.

Andrew Andersen

And you mentioned an ambition to grow Surety into, I think, a couple of hundred million dollar premium business. And with the increased treaty capacity in place, what is kind of the time line to reach that scale?

D. Armstrong

That's a good question. I think certainly having that treaty support and most importantly, an exceptional leadership team in -- Cullen and Mike Pitre in Louisiana for us. We think it is attainable in, I'd say, an intermediate time frame. We don't want to overextend ourselves and start writing $30 million bonds left and right when our average bond has been a few million dollars. But I think the combination of having Palomar's balance sheet, this new reinsurance treaty as well as our increasing geographic scale that the team is building out will afford us the ability to get to a couple of hundred million in, I'd say, a few years.

Operator

[Operator Instructions] Our next question comes from Mark Hughes with Truist Securities.

Mark Hughes

On Crop, the outlook for $425 million this year, does that imply 4Q is down a little bit?

T. Uchida

Yes. I think the straight math would probably show it being down a little bit. I think our overall expectation is it's probably going to grow a little bit. I think we feel the $425 million is call it the benchmark of the starting spot. We should hopefully over-index that a little bit and kind of get to where there's a small or a little bit of growth in the fourth quarter, which I believe was around $40 million to $41 million last year.

D. Armstrong

I think the only thing that I would add, Mark, is when we've done these forecasts, we've been pretty conservative in our estimation of the underlying commodity price for winter wheat and things of that sort. So that could provide a bit of an uplift too. So we did not make any assumption on the underlying discovery price.

Mark Hughes

Yes. And you talked about a $500 million target for next year in light of this outperformance. Is that something you're looking to update?

D. Armstrong

With respect to Crop, $500 million had been an intermediate goal. And yes, I mean, I think we feel very good about attaining that. And we will -- like we've done in years past, when we provide '27 guidance, we'll give a little more prescriptive detail on Crop premium estimates. So we are reserving our right to share that number at a later date.

Mark Hughes

Very good. How much did weather restrain crop profitability? It seems like it was pretty warm in Q3. I'm not sure how much that impacted your business, but I'm sort of curious if weather was a good guy or a bad guy?

Jon Christianson

Weather -- this is Jon Christianson, Mark. Weather in the quarter really allowed for -- it varied by region a bit as we think about kind of our footprint across the -- predominantly across the Midwest and the upper Midwest. But based on kind of that complexion of weather outcomes, we really believe it will be in line relative to kind of historical averages. I will say in the last month or so, we've seen a fair amount of moisture come through those states that were winter we just planted. So some of the comments that Mac was making about kind of the prices being favorable for some of the fall crops, we also expect that planting season is going off to a good start.

D. Armstrong

I would add -- Mark, just one thing I would add is the -- we did effectively use the SRA in a few regions that had material weather impact in the first part of the year, but not in the third quarter.

Mark Hughes

Okay. And then, Chris, the cat losses, I think you shared some numbers on expected cat losses. But what was that total for the fourth quarter that you have already identified?

T. Uchida

I don't think we've identified anything necessarily for the fourth quarter. We were impacted by ECAS, but it was, call it a nominal event for us. I was just saying that we expect $8 million to $12 million for the full year, reserving the right for more catastrophes. Obviously, it's early November. There's, let's call it, 2 full months left in the year. We just don't know what's going to impact our book.

Technically, hurricane season isn't over, but knock on what it has been like. So we're just kind of making sure when we give guidance to try and make it as steady as possible and not move cat losses around and try to, let's call it, move the target. We're trying to hold that as steady as possible for the year to kind of give a very baseline guidance update for, let's call it, the full year as we get into the fourth quarter.

Operator

Our next question comes from Meyer Shields with KBW.

Meyer Shields

So I want to start on the reserve side because I think, Mac, you mentioned a couple of million dollars of adverse development and then there's a $4 million of livestock reallocation. But the press release just said $4 million as total reported as adverse. Am I missing a piece?

T. Uchida

Yes. So overall, let's take Crop out of it because Crop is really a reallocation of an ultimate without changing the total. So it's really just a move between 2025 and 2026. If that did not happen for the year, we would have probably been favorable around $4 million. That, call it, other favorability, Mac talked about the Casualty a little bit being unfavorable. The favorability would have been on the property side, so Inland Marine and Property and then also the Surety side. So that to where we would be $4 million favorable without Crop, but with the Crop, call it, being around $8 million, we would have been $4 million unfavorable, which is kind of what we showed.

Meyer Shields

Okay. Perfect. That helps. And I guess the second -- well maybe this goes to that also, we have $8 million in Crop and that takes the attritional. I guess, really, I'm surprised that the attritional loss ratio was as low as it was just given the vast amount of Crop premiums. And even if we add that back to it, I think we get something like 41% versus 39.6% in the second quarter. And it's a good problem to have. I guess I'm just -- here too, I'm wondering why the sequential jump wasn't as high given the preponderance of Crop premiums. Does that make sense?

T. Uchida

Yes. It's a fair question. I think when we went into the quarter or went into the year, we would expect it to be higher. I think the way I would describe it, especially around Crop is that the underlying loss ratio is kind of performing -- let's call it the underlying gross loss ratio is performing in accordance with the rest of the industry. We're not, call it, outdoing or out underwriting that business. As you know, we did not underwrite it's price the same for everyone. We have to take all comers. But where I would say we are seeing a little bit of outperformance on our side would be on the reinsurance side, where we are able to -- or we have done -- we feel a better job right now of transferring that risk into the reinsurance market. So we're performing a little bit better on the net basis is what you see in that 41% than what we would expect at the beginning of the year where we kind of projected out average.

Right now, we are seeing a little bit better performance on the reinsurance side, and that obviously goes to the strong team of underwriters and claims representatives and the reinsurance team that is looking at ceding those losses off into the marketplace. So I'd say that's where we feel that we are right now outperforming versus on the gross side. So that's probably why we are seeing a slightly lower loss ratio than we would have expected. I would agree with you, it probably would have been 42%, 43% if it wasn't for that outperformance on the reinsurance side.

D. Armstrong

Meyer, I'd be remiss if I just didn't say the overall the boat ex Crop is performing very well and in line with expectations. We are steadfast in how we manage and transfer the risk for all of our lines of business. And it's resulting in the fact that while the loss ratio year-over-year ticked up 8 points, the combined ratio only moved up 1.5, and it's well in line with what we've said all along. Mid-70s combined is what we're going to get. And it's our ability to manage the portfolio and add accretive lines of business to the mix that are driving these returns.

Meyer Shields

Okay. Perfect. And then really quickly, I was hoping to get the new money yield of investments made in the third quarter?

T. Uchida

Yes. We haven't given the specific, but we said it's still well above that 5% mark that we've been putting out there, and it's nice to see the overall yield so far for the year being at 5.1%. But it's still performing strong, and I don't think that's any different than other people that you're seeing in the marketplace.

Operator

Our next question comes from Pablo Singzon with JPMorgan.

Pablo Singzon

So I just wanted to follow up on that last point on reinsurance helping Crop performance. Recognizing 3Q is the heaviest quarter for Crop, but do you think some of that trickles into 4Q? And then that -- I guess I'm not sure if a specific contract, right, but the reinsurance benefit that you're getting now, when does that reset, right, if you think about Crop years and when you renew the reinsurance program there?

T. Uchida

Yes. So the basics of it is that it would renew at January 1, but how we use it will really, call it, reset throughout the year as we look at what we write and then look at what we see, you don't actually have to pick all of that until later on in the year. And so overall, we feel like it's performing well.

Could that trend continue what we saw in the third quarter and the fourth quarter? Obviously, if we do our jobs right, I would hope that it was. We're not necessarily booking all of that favorability, but we kind of look at the trend and how it's performing and kind of see how it will go. I would say that similar to others, we haven't, let's call it, booked our full expectation for Crop yet. Let's say we're probably running closer to that 100 type combined ratio that other people talk about through the third quarter for the full year. We try and follow a similar playbook, but we do right now see a little bit of favorability coming, but we wouldn't want to book that expectation until we see how all the crops are harvested through October and November.

D. Armstrong

Yes. And Pablo, if I may, just to expand upon Chris' point, you have to recall there's 2 facets to risk transfer in Crop. First off is what we put into the assigned risk pools. And that is where we really think that we are differentiated and have the expertise. This is how we optimize the portfolio and ultimately optimize the returns. And I think like Jon touched upon and what Chris was alluding to, we've done a very good job of that this year, and we expect to do a very good job of that next year, especially as we can leverage PLMR.Farm and our best-in-class reinsurance team.

And then from there, you have the traditional quota share and stop-loss that the rest of the market would have. So I think it's the multifaceted use of reinsurance that's driving these returns and also the inherent expertise that we have in the assigned risk side of the business that's allowing us to excel.

Pablo Singzon

And then for my second question, when purchasing your XOL tower for Earthquake, you've historically bought more limit to match growth in your book, right? So as you think about '27, do you think the incremental limit purchase will be the same as in past years? And I suppose the underlying question is that more or less how do you think about the growth next year versus like previous years, right? If you think about exposure and how you have to match it against reinsurance? And also recognize that I'm thinking about like earnings leverage, you probably don't get as much leverage at the high end of the tower, right, retention you want to move? But on the margin, how are you thinking about limits just given what's happening with growth in the primary Earthquake market?

D. Armstrong

Yes. Pablo, that's a good question. And I think the operative term was you used it, it's exposure. So unfortunately, commercial pricing is down 20%. We -- the exposure is not. And so as we prognosticate out to June of next year, we'll make assumptions on exposure growth. And obviously, the Residential Quake side, which is a very steady grower right now, high single digits, that is commensurate with the exposure. So we would be adding limit dollar for dollar, if you would, on the residential side.

It's the commercial, that's a little more variable because you do have the pricing pressure, and we still are retaining 80% of those policies, so as I gave an example in small commercial. But the -- so our exposure is dollar for dollar with those policies, but the rate has come down. So it's too early to call. I think we'll still be buying more limit because the exposures will be growing.

Operator

We have reached the end of the question-and-answer session. I'd now like to turn the call back over to Mac Armstrong for closing comments.

D. Armstrong

Thanks, operator, and thanks to all on the call. Our third quarter results reflect the strength of what really is a one-of-one portfolio and our steadfast commitment to profitable growth. As you can tell, we remain focused on delivering consistent earnings and capitalizing on opportunities across the board, and we think that we can sustain Palomar 2X.

I want to thank the entire Palomar team for their hard work and stellar execution this quarter. We look forward to updating our investors and analysts on our progress during the fourth quarter earnings call in February and also providing a deeper look into our business and long-term strategy at our third Investor Day in March of '27. Thank you very much.

Operator

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.