April 26, 2016

By: Tim Zawacki
SNL

The new business plan of a private equity-backed insurer that long served as a Chubb Corp. subsidiary produced U.S. property and casualty industry-leading growth in direct premiums written during 2015 based on criteria established by SNL.

La Jolla, Calif.-based Palomar Specialty Insurance Co.‘s direct premiums written soared 370.3% year over year to $52.5 million, representing the highest growth rate among SNL P&C groups and top-tier entities that produced at least $10 million in net premiums written in 2014 and achieved growth in both direct and net premiums written of at least 33% in 2015. Its net premiums written expanded 224.3%, trailing only the NMI Holdings Inc. group among entities that met the stated criteria.


Affiliates of Genstar Capital Management LLCacquired the former Northwestern Pacific Indemnity Co. in February 2014 from Chubb, which had gained control of the insurer’s immediate parent, Pacific Indemnity Co., in 1967. Northwestern Pacific Indemnity transferred its liabilities to Pacific Indemnity prior to the completion of the sale, allowing for the new owners to gain control of the company as a clean shell.

Shaking up the earthquake market

Newly renamed Palomar Specialty, the company spent 2014 developing and introducing commercial and residential earthquake products, with a focus on earthquake-exposed states such as California, Oregon and Washington and within the New Madrid Seismic Zone. It achieved $11.2 million in direct premiums written and $12.6 million in net premiums written, with the earthquake business line accounting for all the production. In 2015, the company posted dramatic growth in earthquake business, supplemented by significant new business in the homeowners, fire and allied lines.

Earthquake direct premiums written soared 188.2% to $32.2 million, and the company posted just more than $16 million in homeowners direct premiums written, the latter of which was the product of a partnership with Wellington Risk Insurance Agency Inc. for writing wind-exposed business in catastrophe-exposed counties in Texas. Palomar Specialty also generated all of its $2.4 million in allied lines direct premiums written from the Lone Star State, along with approximately $783,000 of its $1.8 million in fire direct premiums written. Hawaii accounted for most of the fire premiums, reflecting a hurricane product that covers damage to homes caused by named perils.

“Both new products provide portfolio diversification and risk uncorrelated with [Palomar Specialty’s] core earthquake products,” the company said in the management’s discussion and analysis section of its 2015 annual statement. It noted that it “continues to identify opportunities for expansion into new lines of catastrophe insurance” in addition to the development and enhancement of its existing suite of products.

Within the earthquake line, the company said that what it defines as large commercial risks accounted for 48% of its $34.1 million in gross premiums written within the business line. Residential and small commercial risks accounted for 38.1% and 13.9% of the earthquake book, respectively.

“Palomar products offer insureds and distribution partners breadth of coverage, enhanced features such as lower deductibles, refined pricing and ease of use via system innovation,” the company said in the MD&A. “At the same time, Palomar looks to diversify its product offering and geographic footprint in order to reduce concentration of risk and generate adequate risk-adjusted returns.”

Palomar Specialty said it held seven active state licenses at the time of its sale. Since then, it obtained 14 additional licenses, with additional applications for licensure pending in Alabama and Georgia. The company generated $29.8 million of its 2015 earthquake direct premiums written from California, and the Golden State was the lone market in which its premium volume equaled or exceeded $1 million. SNL ranked Palomar Specialty No. 10 in the California earthquake market.

Palomar Specialty works with a range of distributors, including program administrators, wholesale brokers, retail agents and select carriers, depending on the specific product and geography. The company said it maintained quota-share reinsurance agreements during 2015 with three counterparties: Oregon Mutual Insurance Co., Wisconsin Reinsurance Corp. and Tokio Marine Holdings Inc. unit Houston Casualty Co. It seeks to maintain reinsurance in excess of the one-in-250-year probable maximum loss and one-in-100-year tail value at risk.

Mortgage insurance group NMI Holdings ranked second to Palomar Specialty in terms of growth in direct premiums written and led the industry in growth in net premiums written, according to the aforementioned criteria.

National Mortgage Insurance Corp. generated $114.2 million in direct premiums written in 2015, up 235.6%. The combination of the primary unit and National Mortgage Reinsurance Inc. One combined to generate the same amount of premium writings and the same growth rate on a net basis. National Mortgage Insurance Corp. reported $12.42 billion in gross primary new insurance written, up from $3.45 billion in 2014, and insurance in force as of Dec. 31, 2015, rose to $14.82 billion from $3.37 billion a year earlier.

https://www.snl.com/InteractiveX/Article.aspx?cdid=A-36162219-14377