Palomar Holdings, Inc. (PLMR) Earnings Call Transcript & Summary

Good morning. How are you guys doing? Thanks for joining us. We're going to go ahead and get started. And I'd just like to welcome everyone to Palomar's 2025 Investor Day. We're thrilled to have this opportunity to share our vision and progress with you. I'd like to extend a warm welcome to our shareholders and analysts. Your continued support and engagement are invaluable to us, and we're excited to have you here today. I'm Angela Grant, Palomar's Chief Legal Officer and Corporate Secretary, and I joined the company in November of 2020, right in the middle of COVID, including relocation. This is my commitment to Palomar. I provide strategic advice and counsel of Palomar's executive officers and directors while also working to minimize the company's legal risk and exposures in a forward-thinking proactive manner. I've worked for both large and small insurance companies, including GEICO when it was still government employees insurance company. Kemper, Esurance is part of the Allstate brand as well as Hippo. And I have to say, by far, Palomar has been the best decision of my career. I've been in the insurance industry for 35 years. I know it's surprising isn't it. Palomar is a best-in-class company because we exhibited a true spirit of collaboration, precision and execution in every aspect of our business and throughout all levels of our organization. I didn't say I was an attorney. So we're going to go to this slide. Just take a moment if you don't mind to review our disclaimer, which confirms this presentation contains forward-looking statements about Palomar as well as financial measures, which are not prepared in accordance with generally accepted accounting principles or GAAP. A description of these non-GAAP financial measures and reconciliations can be found in the presentation appendix in the back. Now to the good stuff. Our leadership team. Today, you will meet our amazing team. We have lots of new faces since our last Investor Day in 2022 and you will learn more about our business. Over the next few hours, we'll take you through the key milestones we've achieved, the strategic priorities driving our business and how we're positioning Palomar for continued long-term profitable growth. We've made significant strides in delivering on our promises and creating value for our shareholders. Our agenda is packed with meaningful information from our executive leadership team. We will have dedicated time for Q&A as well as time to connect with you over lunch. So please don't hesitate to ask questions and share your insights. Thank you again for being here. We're excited to share a story with you and demonstrate why we are confident in the future of Palomar. Now I'll turn it over to Mac Armstrong, our CEO, to get us started. Thank you.

All right. Good morning, everyone. Thank you, Angela, and thank you to all for attending our second Investor Day. I'm Mac Armstrong, Chairman and CEO. I founded the business in 2013, which we officially launched in 2014 with Jon Christianson and several others that are in attendance today. It's terrific to have so many members of our original team part of the organization still as we are now an 11-year-old company. As Angela said, today, it's a wonderful occasion to share the Palomar story and detail how the business has evolved and how we have emerged as a market leader in the specialty insurance sector. And moreover, I want to spend some time with you telling you how we're going to continue to elevate our strong franchise over these next several years. So turning to Page 6. It's been an amazing 11 years over with half of which has actually been as a public company. If I had to succinctly characterize the Palomar journey over this last decade plus, it would see -- it will be characterized by profitable growth and evolution. Evolving from a single market focus when we launched an earthquake insurer to a specialty property insurer, now to a distinct specialty portfolio of products that, frankly, is one of one. We are assembling an excellent book of business with strong margins contributing to our profitable growth and our consistent earnings. We've learned a lot over this last decade plus. We've absorbed some body blows and those missteps have provided our greatest lessons, but I am really proud to say the business is in excellent stead today. Simply put, we're building a market leader in the specialty insurance segment. And our focus today is to show you how we're going to do that, how we're going to continue to build and profitably grow and execute. And I'm pretty confident at the close of the session today, you'll walk away with the strong confidence as well in what we're doing in our overall strategic direction. So before we go into the gory details, I think it makes sense to just provide a quick level set of where we are and where we currently sit. As you know, Palomar is a data-driven specialty insurer that's marrying data analytics with traditional underwriting acumen and then buttressing our products with a sophisticated reinsurance solution to access markets that we think are in need of innovation or dislocated and certainly generate compelling risk-adjusted returns. On the heels of our upgrade in July, we are an A-rated AM Best company with financial size category 10 status, having grown our surplus 55% over the course of 2024 and with size 11 well within our sites. We have a portfolio 5 specialty product categories. Earthquake, which we are now the third largest rider of in the business. If you ask Jon Christianson, he may say second because he doesn't believe low hazard earthquake counts. But any way you slice it, we are a market leader in the earthquake space and certainly the second largest in California. We write Inland Marine and other property, that's our second largest category. That consists of 7 distinct specialty property products such as Builder's Risk and Flood and Hawaiian Hurricane. We have a fronting category, which provides us an ability to generate fee income as well as do R&D on potential new markets of opportunity for us. We have a niche-oriented casualty franchise that we're excited to talk to you about today and a high potential and high-growth crop business. Our portfolio consists of both commercial and residential risk as well as both an E&S and admitted franchise. What we like to have is balance in our book. And when you look across, whether it's the Inland Marine and other property lines or an earthquake, we like having a combination of residential and commercial business to allow us to play through market cycles. Similarly, we like having certain segments of our business with the emergence of our new surety franchise as well as crop that can play through the P&C market broadly or be uncorrelated to the P&C market broadly. We have an open architecture distribution model. So what that really means is it's product specific. We've talked about that since we've gone public. If we develop an underwriting appetite, we're somewhat agnostic in terms of how we accumulate the risk within the portfolio. Our commercial business is going to skew more towards wholesale. Our residential business is going to be retail driven. We also have unique distribution partnerships, whether they be with other insurance companies or specialty MGAs that can allow us to access market segments that might be harder for us to do on a direct basis. Again, we are agnostic on how the business comes to us as long as it fits our underwriting parameters, and we can optimize the risk transfer within the reinsurance mechanism that we have in place. That reinsurance mechanism really allows us to be dogmatic in our focus on consistent earnings. We are sophisticated, we're innovative, and we are robust in how we put together risk transfer strategies, and I'm excited for you to hear more about that from Jon Knutzen later this morning. And then lastly, we, and you'll see more of it today have an exceptional and experienced management team. We continue to add terrific talent to the organization, and you will hear from several of them. But what you're going to find is all of our people have a combination of experience, expertise and an entrepreneurial gene that's going to allow us to execute our long-term strategy over the next several years. So turning to the next slide. As I said earlier, we are acutely focused on consistent results in managing the volatility in both our portfolio and our earnings base. We've made considerable efforts to reduce the volatility in our business, most notably learning from our experience in 2020 and 2021 hurricane seasons to generate not just profitable growth but consistent profitable growth. Consistency is a word you're going to hear a lot today, and we're going to beat that dead horse. But you can see since 2021, both the top and the bottom line have grown over 2.5x. And I think the greatest testament to this execution has been that we beat our earnings 9 quarters in a row, and we beat and raised guidance 7x since our last investment day. That's a time frame that included a generationally hard property cat reinsurance market. But I think you should look no further than 2024 as a testament to our results. It was a year in which we beat all 4 quarters, we raised guidance 3x and finished the year at $134 million of adjusted net after initially guiding the Street to $110 million to $115 million. We're pleased that the stock responded to the performance, but we think it's well justified based on the consistency of our results. Palomar's portfolio has allowed us to really generate and demonstrate that we have a strong business model, a business model that's capable of generating industry-leading margins. Getting the critical mass and earthquake has allowed us many economic advantages. It's a highly profitable line once you do get to scale, and that's even after spending copious amounts on reinsurance. It provides a terrific anchor to our earnings base. It doesn't weigh down or inflate our reserves, but rather it grows our surplus rapidly. And furthermore, it allows us to conservatively enter new markets with comprehensive reinsurance and modest and gross net line sizes. You're going to hear a lot about that today. It's a combination of conservatism and earthquake growth and overall portfolio growth, has led to strong returns on a relative basis. You can see that our combined ratios beat the industry on average of 26 points over the last 4 or 5 years, 4.5 years. And ROE is north of our Palomar 2X 20% target and also meaningfully above the industry average. I think it's also important to point out, Chris and I like to make this point regularly. The '22s results with the 22-plus percent ROE were weighed down by our August '24 equity issuance of approximately $115 million, which we don't expect to be fully deployed until the end of 2025. But the stat that I'm most proud of far and away is our employee productivity. At year-end, our 252 employees generated about $527,000 of net income per head. That's nearly 5x what our proxy peer group generates. So I don't know what can give you a greater testament to our model. But I think one thing I can say is it certainly reflects that we have a terrific and exceptional team. So turning to Slide 9. I want to spend a moment on Palomar 2X, our strategic framework. We introduced this at our Investor Day of 2021 -- or excuse me, June of 2022, and it's set the goal of doubling our adjusted underwriting income in an intermediate time frame while maintaining an ROE over 20%. Chris Uchida likes to call Palomar 2X, and I think he aptly does a philosophy as it doesn't have a finite objective. It's an ongoing goal that resets its target every year. Core tenets of this philosophy include organic growth, anchoring the business with earthquake. We would like earthquake to be our largest line for as long as possible. Building the rest of the portfolio with lower volatility lines from both an earnings and a cyclicality standpoint. Entering into adjacent markets via a replicable process where we can leverage some combination of people, process, technology and infrastructure as well as relationships, whether that be distribution or reinsurance. And then buttressing those lines with a comprehensive and sophisticated reinsurance strategy. And then supporting all of these lines of business with organizational investments that will drive long-term operating leverage and scale. I'm pleased to report that our inaugural benchmark, which was set for 2021's calendar year adjusted net underwriting income achieved its Palomar 2X goal at the end of 2024. So that intermediate time frame in this instance was 3 years. But importantly, Palomar 2X doesn't allow us to rest on our laurels. We're now looking at how and when we will achieve the objective for 2022 and 2023. Our focus on those cohorts and, frankly, 2024 has resulted in considerable investments in the organization that will create long-term recurring avenues for profitable growth. And Chris will provide more color on the financial elements of Palomar 2X in his section. As I mentioned, Palomar 2X was a central component at our last Investor Day, and it's set a true north for us creating a corporate mantra and mindset. Beyond Palomar 2X, though, a lot has happened since our last Investor Day, and I'm excited to offer a quick snapshot of the accomplishment since June of '22. From a financial standpoint, the execution has been solid, and forgive the term consistent. Our adjusted net income grew at a compounded annual growth rate of 37%. Our book value grew from just under $400 million at the end of 2021 to approximately $730 million at the end of '24 and that's exclusive of $56 million of stock buybacks. And importantly, we've achieved our 20% adjusted ROE targets. Ultimately, we have achieved the first crack at Palomar 2X and demonstrated that we can do so with consistent earnings, something that we stridently seek. But beyond the stellar financial results since the last Investor Day, there have been a myriad of achievements and investments across the organization that we're extremely proud of and hopefully, will provide a source of excitement and encouragement about what we can do long term for our Investor and Analyst base. I've already mentioned our AM Best upgrade and that we've achieved a market-leading position in earthquake with room to grow, might I add. Those are 2 terrific feathers in the proverbial cap, and we're very proud of those. But again, I'm most excited about all the investments we've made, in particular, in talent and leadership. These investments are long term in their nature and their long-term commitments to profitable growth and consistent earnings and ultimately, the sustained achievability of Palomar 2X. In the case of our FIA acquisition, First Indemnity of America, it opens up a new specialty market and an opportunity to build a national presence in the economically attractive surety market. And we're also pleased to announce that today, we are acquiring our strategic partner, Crop MGA Advanced AgProtection. This will only enhance our burgeoning but thriving crop franchise as we incorporate AAP's talent, technology and service organization in the Palomar. Kyle Morgan, Benson Latham and Jon Christianson will discuss the acquisition, which we expect to close on April 1 in more detail, but we are thrilled to welcome the AAP team into the Palomar family. We've made great progress in building a well-defined entry in the casualty market. We've done so with the conservative risk appetite. We've done so by identifying pockets of the casualty market that are dislocated and niche-oriented, and we've done so with exceptional talent leading us. As I said earlier, one other big factor that's contributed to our success has just been our continued and steadfast focus on reducing the volatility in the earnings base, most notably our exposure to major losses from North American hurricanes. We've reduced our 250-year wind PML, probable maximum loss, from $650 million at its apex to approximately $80 million, with the majority of that written by Robert Beyerle's builders' risk team which, as an aside, has considerably under-indexed model losses from actual events over a 5-year period. So just for instance, Hurricane Ida, which was the first storm that we had to builders' risk franchise of scale was expected to generate a model loss of close to $3 million. It came in less than $1 million. And that's played itself out with Ian, with Milton, with Ida, name your storm. So the complexion of the Continental hurricane broke is decidedly different than what it was 4 or 5 years ago. Furthermore, we've transformed our Hawaiian hurricane business model into one that is a fee generator with the creation of the Laulima Exchange. All of the business that we wrote on our Palomar specialty insurance company paper in Hawaii for residential hurricane has moved over to the reciprocal. And in doing so, we have taken the tail risk out of the balance sheet of the group and limited our exposure from the balance sheet standpoint to the surplus note that we used to capitalize the vehicle. But our greatest investment since June of '22 have been our people. You can see the names of the photos and the pedigrees that they possess, but these are best-in-class professionals that have joined us over the last 3 years, and you'll hear from many of them today. All of them are experts in their fields with outstanding reputations and all of them are enriching our culture. So I'm really excited for you to meet him. Grill them, ask questions. I think you'll be impressed. So what does all the investments made really translate into for Palmar 2X in 2025? I think the answer as simple as we're going to keep doing what we have been doing, but we also are going to continue to be a fast-growing dynamic business and evolve. And so as such, so much the organization, so much our strategy. So our charge for 2025 is simple. First, we're going to integrate and operate. We must monetize the investments made throughout '23 and 2024. We need to incorporate FIA and now AAP into Palomar. They will help make us better if we truly integrate them into the fabric of our company. We must also let our routers -- leaders -- excuse me, like Rudy Hervé, James Long and Althea Garvey, build their organizations whether it's technology, operations or claims to help us scale long term. Secondly, we will build new market leaders deliberately. Our crop and casualty lines, as you'll see today, have strong leadership, and they have the capital support necessary to become market-leading franchises. But we're not going to overextend our appetite and risk management approach in the short term. We're going to execute deliberately in 2025 to have an insurance franchise in 2029. I sleep well at night knowing that we have experts like Benson and David building these businesses. I also like the fact that we're seeding 70% of our crop book to best-in-class reinsurers to help manage the volatility. I also like the fact that our average casualty net line is less than $1.5 million. I like the fact that our net reserves are approximately 0.2x our surplus, not 2x our surplus, 0.2x our surplus. So we'll grow these lines, but we won't overextend ourselves. And in doing so, we'll avoid negative surprises. Third, and somewhat of an extension of the strategy is, remember what we like, and more importantly, what we don't like. This is a natural migration of last year's mantra of grow where we want. So we will continue to maintain our conservative and well-defined appetite in the market, most notably in the property market and focus on the profitable growth that, that product portfolio affords us. So we will avoid surprises and volatility from wind and SCS as we further pull back our exposure there. We will focus on core property earthquake markets, like earthquake, that provide consistent results and not feel the need to chase premium growth in areas like California homeowners as dislocated and disrupted as that market may be. We are better suited to be a partner to homeowners companies in California and the earthquake side or even the flood side than we are to be a competitor to the 25 partners we have in the state. And then fourthly, we're going to continue, you guessed it to generate consistent earnings. With the addition of new talent, we can find new sources of earnings growth while preserving a very healthy reserve base. Our surplus and reserves will grow our investment leverage to allow us to increase the investment returns organically and in turn, bolster our results. We are an underwriting company, but we can continue to see from the investment portfolio. Additionally, we can recognize that further investments in claims as well as actuarial departments will drive consistency in the results and afford us the ability -- the better ability to increase our risk participation over time in a deliberate fashion. So before I hand it over to the rest of the team, I want to lead the witness a bit and offer a few key themes that I think you should listen for and hopefully here over the course of the day. One, first and foremost, we are building a specialty market leader in the insurance business with a truly distinct product portfolio. I said it earlier, I'll say again, our portfolio now is becoming one of one. You'll hear today that Palomar X, and you'll see is now a proven strategy that is embedded throughout the organization. You'll see multiple competitive advantages coming to the forefront over the course of the day from our risk transfer to our underwriting, to talent at all levels of the company. And there is conservatism in all facets of the portfolio because of our underwriting and risk management. We have an exceptional team that knows how to identify new markets and how to execute in those new markets and they've proven their ability to build market leaders in our core markets. And lastly, you guessed it, you're going to hear a lot about our commitment to consistent earnings. So with that, I'm pleased to hand it over to our President and a fellow member of the founding leadership team, Mr. Jon Christianson. JC the floor is yours.

All right. Thanks, Mac. As introduced, I'm Jon Christianson, I'm the President here at Palomar. I joined Mac during the second half of 2013 and was a member of the original team when we launched the company in February of 2014. I have held various leadership roles at Palomar over the years, starting out as the original Chief Operating Officer, served some time as the Chief Underwriting Officer. And during that time, I've been intimately involved with the development of Palomar's analytics, technology, reinsurance strategy, regulatory and rating agency efforts, underwriting and product development. And we've been fortunate to recruit great talent over the years, as Mac mentioned. And so many of them are here with us today, and we've gained tremendous depth and expertise in many of the areas that I've been associated with during my time since Palomar's inception. Prior to Palomar, I worked in the reinsurance industry, where I focused on restructuring and placing of reinsurance treaties. In addition to that broking, I focused on catastrophe modeling for natural perils such as earthquake, hurricane, severe convective storm among others, and provided various technical solutions to our crop insurance clients. In 2018, Palomar's last full year as a private company, we recorded $155 million in annual premium, 2/3 of which came from earthquake insurance. Today, our top line has grown nearly tenfold. We have solidified our position as the largest earthquake rider in the United States outside of the state government run California Earthquake Authority and the commercial engineering specialist FM Global, when Mac referred to the low-hazard earthquake, that was who he was referring to. Impressively, even though we're a top earthquake rider today, our business is scaled and evolved through prescriptive diversification. Now 2/3 of our portfolio consists of lines beyond earthquake insurance. This transformation didn't happen by chance. It was a result of disciplined execution, strategic vision and a commitment to building a uniquely diverse specialty platform. As we move forward, we will continue to expand and refine our diversified portfolio, optimizing both our capital and our ability to drive profitable growth. As our originally specialty line, it is only appropriate that as we go through our portfolio of specialty products that we start with earthquake as we want to talk about that in greater detail. At Palomar, we talk a lot about earthquakes. It's our foundation, our expertise and our identity. In California, the biggest domestic earthquake market Palomar is the largest nongovernmental rider of earthquake insurance. And our reach stretches throughout the United States, wherever there is meaningful demand. We are one of a few pure-play earthquake providers that serve both the residential and commercial markets, offering solutions tailored to homeowners and businesses. Earthquake insurance is predominantly a named peril policy, meaning that it covers property damage caused specifically by seismic shaking. For example, if an earthquake leads to a gas leak -- to a gas line break that causes a fire at a residential property, the resulting damage would fall under the fire insurance policy, not the earthquake insurance policy. And unlike fire or wind insurance, earthquake insurance is rarely required by residential lenders and almost never mandated by commercial lenders. That means for most of our customers, this is a voluntary purchase. Despite this, Palomar has solidified its position as the undeniable leader in the U.S. earthquake insurance market, and we continue to grow our franchise at a meaningful clip. We provide earthquake products on both an admitted and a nonadmitted or E&S basis, ensuring flexibility in how we meet our customers' needs. Within our residential product suite, most of the policies are written on an admitted basis, which is conforming with the traditional market. Palomar's admitted earthquake residential filings in the states in which we are licensed are differentiated from traditional filings, however. We've developed innovative filings, both on the rate and form side to incentivize new buyers to enter this historically low take-up market while creating durability in our filed pricing model to sustain through market cycles. The take-up rate for earthquake insurance in California is only 10% to 15%. And each additional point of consumer take-up represents approximately $125 million of new potential premium. While residential earthquake remains a predominantly admitted market, over 30% of Palomar's organic new business premium in California has been written on an E&S basis over the past 12 months, offering even greater flexibility in pinpoint pricing, utilizing the latest catastrophe modeling and risk transfer analytics. On the commercial side of the house, the strong majority of the business is written through our E&S company, where pricing, terms and conditions better serve the complexities of the large commercial earthquake customers. We do serve small commercial earthquake customers, and that would be HOAs and strip malls and things of small office buildings. And we can use our admitted paper with rate filings that have broad ranges to serve that customer set, allowing us to offer admitted paper to customers who will assign a higher value to an admitted product over nonadmitted. Our distribution channels are equally diverse. We work with agents, wholesale brokers, MGAs and strategic partners, including other insurance companies. Within the strategic partner channel of our distribution model, we have partnered with over 40 companies, including we have formal relationships with 4 of the top 5 national homeowners riders. Some of these relationships stay back to the first years -- first year of Palomar's existence, but many are still in the early innings of development with the opportunity to continue digging deeper roots and growing together. These partnerships can be deployed as integrated APIs into the partner company system, mandatory offers to satisfy the statutory obligation in California or white label solutions, leveraging infrastructure already built by our partners. Regardless of how we partner, this channel is a highlight of how Palomar is uniquely differentiated within the market. And we don't just develop novel products. We provide reliable capacity and stability to our partners through every market cycle, whether that's hard, soft or destabilized Our expertise goes beyond product design. We are the most sophisticated purchaser of earthquake reinsurance in the world. The global reinsurance market and investors in insurance-linked securities recognize the value of our carefully curated earthquake portfolio. This was made evident at the peak of the hard market when we successfully expanded our reinsurance tower by over $0.5 billion, ensuring our ability to support the continued profitable growth throughout 2023, throughout 2024 and into 2025. At Palomar, we are committed to innovation, resilience and leadership in earthquake insurance. We don't just talk about earthquakes. We deliver solutions that provide real value, real protection and real peace of mind. Since our IPO, total reported market premiums for earthquake insurance have doubled. That's a remarkable shift in demand, reflecting both the growing awareness of earthquake risk and the need for reducing the insurance gap in the U.S. economy. But even more impressive, in that same period, Palomar's market share has quadrupled. This isn't just a story about industry growth. It's a story about Palomar's leadership and market influence. While other carriers may offer earthquake insurance is a small part of their business, we have built our company around it. And that difference shows up in the way that we serve the market. To understand our position, let's consider the competition. Among the top 10 earthquake insurance riders in the United States, you'll find major names, FM Global, Berkshire Hathaway, State Farm, Chubb, SOMPO, among others. These are large entrenched companies, each with broad portfolios that span many geographies and lines of business. But here's the key difference for these carriers. Earthquake insurance is an afterthought. It's a product that they may offer, but it is far from a strategic focus. For Palomar, earthquake insurance is our focus. Our specialization gives us a distinct advantage. We are constantly refining our products, pricing models and distribution strategies to serve this market more effectively than any of our competitors. While they treat earthquake insurance as a secondary business, we are innovating, adapting and leading. Of course, in any discussion about earthquake insurance, we must acknowledge the role of California Earthquake Authority or the CEA. The CEA plays an important role in the California insurance market but it is crucial to recognize a fundamental distinction. The CEA is a gatherer of risk, not an underwriter of the business. What does this mean? Unlike private insurers, the CEA does not operate with the same risk selection, pricing or underwriting expertise. Instead, it pools risk together on a broad scale, operating within a structure that does not prioritize efficiency or flexibility. And recently, we've seen the CEA pull back its offerings, a shift driven by the challenge of balancing political motivations with an expense structure that works against scale. As a result, Palomar has stepped in to fill certain desirable gaps left by the CEA's retrenchment, offering solutions that meet the needs of homeowners at a Palomar defined price. But our growth isn't just about gaining market share. It's about bringing new buyers into the historically underserved market. The reality is that earthquake insurance has long been viewed as an optional, complex and often misunderstood product. Palomar has changed that equation. We have designed attractive residential products with granular pricing and flexible coverage options, making earthquake insurance more accessible than ever before rather than forcing customers into a rigid one-size-fits-all product. We have created solutions that empower them to tailor their coverage to their specific needs. And that approach has made a real impact. By offering products that align with the customer needs and budgets, we have expanded the market, not just by taking share but by attracting new policyholders that might not have otherwise considered earthquake insurance in the past. That is how we drive long-term sustainable growth. As we move forward, our mission remains clear to deliver innovative, data-driven solutions that expand access to this critical coverage, strengthen our market leadership and ensure that more homeowners and businesses are protected for the peril of earthquake. When we talk about earthquake insurance at Palomar, we're not just discussing a single product. We're talking about a well-balanced, strategically structured portfolio that has proven its resilience across market cycles. It's a product suite that we expect will deliver mid-teens growth in 2025. Our ability to navigate both soft and hard markets is a testament to our diversified approach across residential and commercial, admitted and E&S inside and outside of California. One of the biggest challenges in the insurance industry is dealing with the natural fluctuations of market cycles. But at Palomar, our balance is the strength. A few years ago, when the property reinsurance market hardened, many insurers faced significant challenges due to rising risk transfer costs, but Palomar took a different approach. We strategically leaned into our commercial E&S segment, which allowed us to defray the increased cost of risk transfer and grow our strong position. Now as market pricing begins to normalize from historic highs, our residential earthquake franchise provides a natural counterbalance. With its strong inflation guards, well above current inflation, we are able to bolster our earthquake premiums while maintaining pricing discipline in the commercial E&S segment. This flexibility is what keeps us ahead. We are adjusting to market dynamics while sustaining profitability. Through Palomar's tenure in the earthquake insurance market, we've seen soft markets and we've seen hard markets. And today, we set a top of a book that is exhibiting gross and net profitability metrics near all-time highs. That's not by chance. It's a result of strategic decision-making, deep market expertise and disciplined execution. In the residential market, consistency is key. We continue to strengthen distribution and carrier relationships, achieving premium retention ratios in the low 90s, while maintaining a strong flow of new business across both our admitted and E&S products. This segment remains a critical driver of long term and we are well positioned to capture additional opportunities. The market has faced some headwinds from a high interest rate environment, inflation, slow real estate transaction market and a lack of price shopping in California's homeowners sector. But for Palomar larger tailwinds for profitable growth are numerous. We see tailwinds for the residential earthquake segment and the CEA's retrenchment, which has created opportunities for us to expand market share to customers who have a history and familiarity with buying earthquake insurance, recent natural catastrophes, which have underscored the importance of closing coverage gaps, severe dislocation in the California homeowners market pushing more consumers away from CEA participating insurers and increased consumer acceptance of price flexible E&S policies further opening the door to innovative offerings from Palomar. These dynamics reinforce our confidence in the residential earthquake market. We are not just withstanding market changes, we are capitalizing on them. While the residential and small commercial earthquake markets remain very stable. The large commercial earthquake segment, particularly the large layered and shared market is more sensitive to market cycles. Global carriers that dabble in E&S, can enter and exit at will and deploy their capacity. While the commercial layered and shared rates are starting to retreat from their peaks, our balanced portfolio of products insulate our strong profitability metrics. More importantly, Palomar's brand is fundamentally different than opportunistic capacity that enters the market. Our expertise, reputation and underwriting discipline set us apart. At Palomar, we've built a resilient forward-looking earthquake insurance business that is designed to adapt, thrive and lead regardless of market conditions, whether in residential or commercial, admitted or E&S, inside or outside of California, our approach has been deliberate, disciplined and dynamic. And with that, I'm going to turn it over to our Chief Underwriting Officer, Robert Beyerle.

Good morning, everyone. I thought about making a joke about the NCAA tournament. So I'm going to go ahead and do it. My team isn't in a tournament, so I'm not in a great hurry unlike maybe some of you here, but I'll try to keep my points brief. My name is Robert Beyerle, and I serve as the Chief Underwriting Officer here at Palomar. I joined the company in January 2019, after spending 16 years at Great American Insurance Company. Upon joining Palomar, I led the company's expansion into the Inland Marine vertical which has played a key role in the role -- the key role in the Palomar 2X growth story. In the spring of 2022, shortly before our last Investor Day, I stepped into my current role as Chief Underwriting Officer. Before we begin, I want to take a moment to thank you guys for being here today. We're all excited about seeing you and engaging in really healthy Q&A. So we look forward to that part of the message. Our Inland Marine and other property pillar plays a critical role in our long-term profitable growth strategy. In 2024, this segment contributed $334 million in gross written premium driven by 7 lines of business that have grown at an impressive and profitable 20% annual rate since 2021. This sustained momentum is a testament to the strength of our strategy, the depth of our underwriting talent, and the strong partnerships we've built with our distribution network. Our Inland Marine business consists of 3 products, all of which serve the broader construction and transportation industries, sectors that are fundamental to U.S. economic growth, builders risk, providing coverage for construction projects in the build phase, motor truck cargo protecting goods in transit, a vital offering in the transportation industry, contractors equipment covering the machinery and tools essential to the construction industry. On the property side, our portfolio includes a non-catastrophic focused commercial excess property book designed to provide stable and predictable returns, and residential flood coverage, offering critical protection in the ever-evolving flood insurance market, Hawaii hurricane coverage meeting a specialized need in the historically underserved region and commercial all-risk policies providing protection on a syndicated basis for property exposures that are considered low risk for attritional losses. Beyond product diversity, our approach to risk management ensures long-term stability. We contain a controlled net line size, allowing us to carefully manage our exposures and maximizing profitability. Our programs are supported by a long list of highly stable world-class reinsurers. Additionally, we've developed strategies, like Mac mentioned earlier, to reduce our U.S. continental wind exposure, helping us navigate market volatility and deliver consistent earnings year after year. Another key advantage is our ability to write both admitted and nonadmitted business. This flexibility allows us to compete in a broader market, serve a more diverse customer needs and a large sustainable -- and strengthen our relationships with our distribution partners. Our presence across both the commercial and the residential spaces, further expands our reach, creating a large sustainable pool of insureds. At the core of our strategy is the ability to deliver targeted risk-adjusted returns that align with Palomar's long-term vision. By carefully selecting and pricing risks, we ensure that each product in our portfolio contributes to profitable sustainable growth. This approach benefits not only our businesses, our partners, our investors and our policyholders. Palomar's Inland Marine and other property pillar operates in a market rich with opportunity. While these lines of business are well established, they remain in the early stages of their life cycle, offering significant room for expansion. Top and bottom line growth will come from multiple areas of focus. Additionally, the industries we serve, construction, transportation, commercial real estate are among the largest contributors to economic activity, ensuring sustained demand for our products. These sectors are constantly evolving, reinforcing the need for specialized risk solutions that we are uniquely positioned to provide. From a broader market perspective, the property sector, though always evolving, has reached a point of stabilization in both rates and capacity. After an extended period of market hardening, carriers are now more willing to deploy capital, fostering a more competitive environment. We believe in this landscape, Palomar's strong brand reputation, deep underwriting relationships serve as a powerful advantage, allowing us to manage market cycles and effectively maintain a disciplined approach to growth. The reinsurance marketplace is also experiencing favorable conditions with improved terms and capacity. These improvements combined with our long, deep standing relationships with treaty partners, many of whom support lines of business across all of our 5 pillars will provide Palomar with the flexibility to structure programs that create value for all stakeholders. A group of us just recently returned from meetings in London and Zurich with our treaty partners ahead of our 5/1 Inland Marine reinsurance renewal. During these discussions, we provided a market overview. We shared the results of our success, outlined our key areas of focus for this year and beyond. Across the board, we received continued support from our reinsurers. Their commitment to Palomar is steadfast, and it will continue to be. We have a shared enthusiasm for profitable growth and strengthening our relationships moving forward. Given the diversity of our business, our portfolio composition varies across risk profiles, rate change and geography, we remain disciplined in our approach, ensuring that we will price risk appropriately while taking advantage of opportunities when market conditions are most favorable. As we navigate the market, staying true to our underwriting strategy is critical, knowing what we like and what we don't is a strategic imperative. This disciplined approach to risk selection will help us drive profitable growth and maintain a stable portfolio. While we already maintain nationwide exposure, they remain underserved regions where we see meaningful growth potential. Expanding into these areas will diversify our portfolio and strengthen our competitive position. The flexibility of operating in both an admitted and nonadmitted company further enhances our ability to scale efficiently across multiple markets. One of our strengths, like Mac mentioned earlier, is our people. It's our deep underwriting expertise. Within this particular pillar, our veteran underwriters average over 20 years of industry experience. We believe this provides Palomar with a critical advantage in risk assessment, pricing discipline and market insight. Our key distribution relationships are just as strong as our underwriting expertise. We believe this creates a powerful advantage for our company to drive sustainable growth and market success. Beyond our team, we're actively investing in top talent across the country to further enhance our capabilities, recognize the importance of developing the next generation of underwriters. We've also embedded early career talent within our operations to ensure they gain valuable exposure from our veteran leadership. As prudently -- as Mac mentioned earlier, we've made great -- the slide from the last Investor Day of 2022, all the talent we brought into the organization is just truly exciting. You'll meet a lot today. But it's important for us on the underwriting side to partner with these leaders in operations and tech to help build the infrastructure necessary to support our continued expansion. It's an exciting time to be at Palomar. And additionally, as our portfolio matures, we'll continue to increase our net retention. For instance, since 2019, we've consistently increased our net retention on our builders' risk line year after year, a strategy that has increased our net income and enhances long-term value creation. At Palomar, we're always evaluating where we can keep more net in our business. Now I'd like to highlight 3 lines of business within our Inland Marine and other property pillar, builder's risk, excess property and Hawaii hurricane. While these lines of business are well established, each presents a strong growth opportunity that aligns with our profitable growth and disciplined expansion. Builders' risk has been a core strength for Palomar, continuing to perform at a high level, we believe with scalability. It's a proven business supported by top-tier underwriting expertise and long-standing industry relationships. The opportunity for Palomar remains significant as the construction industry represents a substantial market with a strong and ongoing need for insurance coverage. A large segment of our writings is in the single-family and multifamily U.S. residential construction market. This past January, residential spending exceeded $930 billion on a seasonally adjusted annual rate. The overall annual U.S. construction spend is over $2.1 trillion as our capacity and our surplus increase, we can expand beyond primarily residential risks and participate in more commercial and light infrastructure type projects. Geographic expansion is another key growth lever allowing us to diversify risk and to access new distribution channels, ultimately, which will strengthen our portfolio. We already have -- we have builders' risk exposure nationwide. We see significant growth opportunities in the Midwest, in the South Central, the Northeast and the Pacific Northwest. This line also benefits from both admitted and nonadmitted offerings, again, which provides access to a much broader market opportunities. Our flexibility and approach to underwriting enables us to ensure, for example, a single-family home in Austin, Texas, to a distribution warehouse in Southern California or participate on a panel for a large high-rise office building here in Midtown Manhattan. Excess property, excess national property is another area we have strategically developed a well-structured portfolio, guided by disciplined risk selection and a strong attachment point strategy. Our approach leverages comprehensive facultative reinsurance to mitigate volatility while ensuring sustainable portfolio performance. A prime example of our conservative underwriting approach is a recent insurer that owns multiple shopping centers, all built with concrete and noncombustible construction materials, the total insured value across all locations is $50 million geographically spread to reduce concentration risk with this largest single location at $20 million. Based on reasonable risk assumptions, the largest probable maximum loss or PML is estimated at $6 million. Our attachment point is $10 million, nearly double that PML. A core principle of our strategy is maintaining minimal catastrophic exposure, ensuring portfolio stability and consistent performance. When we do consider wind-prone catastrophic areas, we focus on new construction that adheres to modern building codes and attachment points that exceed the 100-year modeled wind event. This disciplined approach allows us to capture targeted growth opportunities while maintaining a resilient and well-balanced portfolio. As this portfolio matures, we'll continue to increase our net retention, capturing more profitable business and driving long-term growth and net income growth. Lastly, Hawaii hurricane has been a standout success for Palomar. We're now recognized as the second largest stand-alone residential hurricane provider in the market. A key differentiator is our fee-based model through the Laulima Exchange, which is designed to limit earnings volatility and create a more stable revenue stream. With Laulima, like Mac mentioned earlier, our net exposure is limited to the surplus note. Importantly, our growth in this space has been driven by double-digit rate increases rather than aggressive exposure expansion. This enables will maintain a balanced and sustainable portfolio. Each of these lines of business plays a critical role in our broader strategy. We leverage market expertise, we manage controlled exposure and pursue growth where conditions are most favorable. As we continue to scale, our focus remains on delivering profitable, sustainable results that support both underwriting excellence and long-term financial performance. And with that, I'll invite Jon back up to the podium to provide an update on our fronting business.

All right. Thanks, Robert. All right. And then I want to wrap up with fronting and I'll turn it back to Robert, and we'll get into the Specialty Casualty segment. In the insurance industry, the term fronting is well understood. It is a defined cohort of companies that specialize in the practice. But while Palomar does engage in fronting relationships, I think it is worth pointing out that while we can act as a front, we are not a front company in the conventional sense. Unlike traditional fronting companies that build their business models around the practice, fronting is a strategic complement to our broader specialty platform and not central to our business model. We maintain fewer than 10 fronting relationships, a much more selective approach than those whose businesses revolve around the practice of fronting. All but one of those partnerships that we have involve a single carrier or balance sheet counterparty, meaning our relationships are direct and focused rather than fragmented across multiple parties. The one exception, a syndicated reinsurance arrangement with a specialist MGA is a long-standing relationship that we have successfully supported for several years. For most of our fronting partnerships, the driving factor is simple. Carriers or balance sheet counterparties seek licensed and/or rated paper to enhance their existing operational strategies. Palomar provides that capacity and that capability in a way that aligns with our disciplined approach to risk. One of the hallmarks of our fronting strategy is our conservative approach to risk retention. Currently in every fronting relationship, Palomar retains less than 10% of risk. And in most cases, we fully see the risk, a true 100% fronting structure. But while risk is minimal, we build value through the generation of fee income providing a steady revenue stream that contributes to our consistent earnings. Further, our fronting franchise offers insights into potential new lines of business for us, allowing us to explore areas that may be outside of our current infrastructure or expertise akin to research and development. This means that fronting is not just a transactional activity for Palomar. It is a calculated strategic component of our broader growth and learning framework. Because of our narrow scope and rigorous counterparty credit requirements, this segment of our business has experienced and will continue to experience both growth and contraction over the years. A recent example of contraction occurred in the third quarter of 2024 when Omaha National, a workers' compensation insurance company, received regulatory approval to write on its own paper in the state of California. This was a natural transition. And as a result, Palomar no longer provides fronting services to that insurance carrier. However, this fluidity is expected. We enter fronting relationships where they make sense and allow them to evolve and, in some cases, expire over time. Our selective disciplined approach ensures that fronting remains a strategic asset rather than a dependency. Our fronting relationships are deliberate, carefully managed and designed to complement our long-term strategy. Our thoughtful approach demonstrates the value that we assign to our risk-adjusted returns for our shareholders. As we continue to navigate this evolving landscape, our focus remains on maintaining high-quality partnerships, generating value through fee income and leveraging our fronting experience to explore future opportunities for Palomar. Over the past several years, we've witnessed a significant influx of new players into the fronting market. With more fronting companies available, MGAs and reinsurers now have more options than ever before, creating an increasingly competitive environment. As a result, the market has begun to experience some softening with pricing pressure and shifting dynamics. One of the key developments in the evolving landscape is the growing trend of fronting companies retaining risk in order to secure the necessary reinsurance support. This shift has entered a new phase or a new phrase into the insurance industry in Lexicon, participatory fronts. Traditionally, fronting companies operated with a full risk transfer model, seeding 100% of their exposure to the reinsurance partners. But in today's market, we are seeing more fronting carriers take on a share of the risk themselves to remain competitive and attract reinsurance capacity. And that risk that they take on is located not just in the tail, but also in retention. This represents a fundamental shift in how fronting is structured and approached. In light of these changing market conditions, Palomar will remain focused on carefully selecting partnerships that align with our disciplined strategy. Rather than chasing premium volume, we will remain focused on fronting relationships that offer an opportunity for R&D or are solving for a specific licensing or rating challenge where our expertise and structure provide true value. This selective approach ensures that fronting remains a complementary, well-managed part of our business rather than a reactive pursuit of market trends. As the fronting landscape continues to evolve, Palomar will remain adaptable, strategic and intentional in how we approach these opportunities. And with that, on the fronting, I'll pass it back to Robert and David for a discussion on casualty.

We're really excited about our casualty business. Hopefully, a lot of questions come from the group today on that. It's a key driver of our growth and our diversification. But before we talk about its highlights and direction, we have to talk about our folks. Our casualty leadership and team and underwriting talent are among the best in the industry with an average over 24 years in experience, having built and successfully led casualty operations. They're focused on establishing long-term sustainable growth and long-term sustainable businesses within Palomar. Their deep expertise and understanding of market cycles allows us to stay disciplined, strategic and strategic, ensuring profitable control growth even as conditions shift. Palomar launched its first casualty product in 2020, residential real estate errors and omissions. Since then, we've onboarded industry-leading program partnerships and developed internally underwritten specialty products aligned with our stable earnings goals and risk-adjusted return targets. Palomar's casualty franchise has grown at a 72% annual rate since 2021, reflecting strong market opportunity for our products. From the beginning, our strategy has been built on niche markets where we can leverage deep underwriting expertise through a profitable, scalable, sustainable business. A prime example is residential real estate errors and omissions, which we initially launched as a California-only footprint. Since then, we've expanded to 41 states with our eyes set on 45 by the end of 2025. This line of business along with our professional liability offerings, our claims made exposure, which reduced the reporting lag risk to our reserves. Another key niche within our portfolio is primary casualty. Here, our focus is on small limit, low frequency and low severity trade contractor. This line is an example of targeting sectors that do not require a large limit outlay. They exhibit low severity exposure and limited frequency. Many of our casualty products complement our Inland Marine and other property lines, allowing us to offer broader solutions to insureds while strengthening relationships with our key distribution partners. Our primary casualty, our E&S casualty and our environmental products all serve the U.S. construction market, where distribution partners work across multiple lines. This creates cross-selling opportunities for our underwriters and overall deeper market engagement. Unlike broader casualty books that face ongoing legacy issues, our portfolio is insulated from pre-2020 accident year adverse market development, allowing us to grow from a clean slate with a modern and disciplined approach. A significant advantage of our casualty strategy is our ability to operate in both the admitted and the nonadmitted marketplace. The admitted offering is in very specific markets where it's needed to compete. Our E&S offering gives us significant flexibility to adapt to changing market conditions. The majority of Palomar Casualty's franchise is in our nonadmitted company. We're committed to disciplined growth, maintaining modest growth and net lines to ensure portfolio stability and manage volatility. Our risk selection strategy prioritizes prudent underwriting standards to mitigate exposure to social inflation, which is a key challenge in today's casualty market. Additionally, we have implemented conservative reserving practices across our entire portfolio, ensuring long-term profitability and financial stability. This approach allows us to scale responsibly, maintaining a strong balance sheet while continuing to grow a footprint in the casualty space. Palomar's Specialty Casualty business has a strong foundation with top-tier talent, disciplined risk selection and a focused market strategy as we continue to expand, our approach remains the same: profitable controlled growth that enhances our overall portfolio while protecting our long-term earnings stability. U.S. casualty market continues to evolve. It presents challenges and opportunities. We see significant potential within our defined risk appetite which offers attractive pricing and strong prospects for profitable growth. Social inflation remains a key concern, driving adverse development and longer tail exposures across the industry. Outsized large loss activity has further pressured the market, reinforcing the importance of sound underwriting discipline and careful risk selection. Reinsurance capacity is available for well-structured and well-priced portfolios. Achieving support requires expertise and deep market relationships, areas where our team excels. A prime example of this was the successful placement of our quota share reinsurance treaty for our new E&S Casualty division at 1/1. This placement led by David Sapia, our Head of E&S Casualty alongside the very strong casualty expertise within our ceded re team and Palomar's reputation of introducing new and profitable products to the market, all played a pivotal role in securing this placement. It was a great success for our team. Although we are still in the early stages of our casualty build, our strategic imperative remains the same. Remember what we like and what we don't. It still applies here. Our experienced leadership knows what works and what doesn't. We will stay true to our risk appetite with disciplined underwriting. We're committed to sustainable well-priced growth. We're actively monetizing our casualty lines of business and exploring adjacent markets that fit our risk tolerance and our expertise. Our ability to identify and capitalize on the right opportunities has always been a key driver of Palomar's success, a core principle of our long-term profitability like Mac said, we're going to say it over and over, conservative reserving philosophy. You'll hear from Ethan here shortly. We remain committed to upholding that. As our casualty business expands, we're also focused on achieving operational scale by leveraging technology, optimizing claims management, we aim to improve efficiency and overall performance. You'll hear from [ Rudy ] today. You'll hear from Althea today. We're excited about their story and joining Palomar to help us scale in the right way. Another cornerstone of our strategy is enforcing firm terms and conditions in today's market, ensuring rate adequacy, appropriate attachment points and a well-structured policies is crucial for managing risk and driving sustained profitability. Additionally, we'll continue to selectively increase net retentions where it makes sense, allowing us to capture more profitable business. Lastly, we are integrating FIA, Palomar's recent surety acquisition to expand our footprint and strengthen our market position, all while maintaining our commitment to underwriting integrity. Kyle will speak about that later in our strategy around surety. We're excited about the opportunities ahead and remain confident in our strategy and our team to execute. With that, I'm excited to bring David Sapia to the podium to talk about his E&S casualty plan.

Good morning. My name is David Sapia, and I am pleased to be the new E&S Casualty Lead for Palomar Insurance. I started with Palomar in September 2024 and have been charged with the responsibility over the E&S primary and excess, admitted primary and excess professional liability and environmental verticals. I bring to Palomar 34 years of line and management experience and the admitted, nonadmitted and reinsurance spaces, with an emphasis on E&S, nonadmitted casualty. Prior to Palomar, I had a similar position at casually leaded HDI insurance for 3 years where I opened up E&S primary casualty, cyber, life sciences, primary auto liability, workers' compensation and environmental. Prior to HDI, I was an excess underwriter casualty, division at Axis Insurance for 10 years. Guy Carpenter as a management -- excuse me, managing director level facultative reinsurance broker for general casualty, professional liability for 10 years. Going back even further 10 years [indiscernible] carriers like the Hartford, Royal Sun Alliance, and Reliance National. With this diverse background, I've seen all sides of the casualty practice. I watched and observed as everyone from senior executives to field underwriters make decisions on how to best deploy capacity in challenging and constantly changing market conditions. Some of these decisions were brilliant in terms of their strategy, while other the decisions, not so much. But I've ascertained from these observations over the years that the market is fluid as it is challenging and hard decisions regarding all aspects of our portfolio can and must be made a real-time situation to positively influence the result. Having just launched in 2020, I got lucky and inherited a casualty platform at Palomar with limited to no legacy issues. Not having to clean up a predecessors mistakes, let me tell you it's exhilarating. I've been down that road before, it's not much fun. Timing is everything, and Palomar is optimally positioned to enter the E&S casualty market, while the legacy carriers continue to deal with the soft market mistakes made during the post 2007 financial crisis, through the 2020 to 2023 COVID pandemic. The current casualty state with a post-COVID era has presented Palomar with the opportunity to benefit from sustained rate hardening while focusing on lower attaching excess where competition is scarce, capacity is constricted, rates more adequate, if not outright redundant and more robust reinsurance support is available. To back up this market hardening statement, I will offer 2 recent new business wins for Palomar's E&S unit. First one, this is the account I wrote many years ago at a previous carrier. It's a recreational resort located in Juno, Alaska. The expiring $5 million premium with a large global admitted carrier, was $42,755. Palomar bound the renewal at $191,500 or an exposure adjusted rate change of 448%, not a typo. Between treaty and FAC, the Palomar net is $1.2 million or 24%. This is an interesting case. We're seeing more and more of this in the casualty space, where back in the 2018s to the early 2020s, a lot of standard carriers stepped in and started taking business such as this into the standard market out of the E&S market. What's happening now is the result of reflecting that their decisions to buy this business with very cheap premiums is coming back to haunt them. This business is now coming back in E&S sector, thus the massive rate increase we got in this account. It came back to me after 10 years of having it in a previous company, it's glad to see it come back. Second case is a grocery food distributor. A lead $3 million expiring with the large global admitted and nonadmitted carrier at $427,500. Palomar bounded at $570,000 for an exposure adjusted rate change of 28%. With FAC and treaty capacity considered, the Palomar net is $600,000 or 20%. These low net positions are by design and they will serve Palomar well in the current market, more on that shortly. As I follow through to Rob's earlier comments regarding the E&S treaty, Palomar is able to secure broad and scope quota share treaty, the E&S unit, which incepted on January 1, 2025. This highly successful placement clearly validates the Palomar approach, the nonadmitted casualty market as we ended up well oversubscribed as compared to our initial capacity request. What Palomar accomplished with this first year of treaty was truly impressive, given the panelists general pullback from new capacity outlay that started to emerge in 2021 and beyond. Of note, being oversubscribed on a first year casualty treaty is highly unusual. That never happens, not in today's market. Kudos to the Palomar team, both ceded re, actuary and underwriting for making this happen. Despite this initial oversubscription, Palomar decided to scale the proposed capacity back to 60% to leave room for supplemental facultative capacity on certain accounts while keeping the Palomar aggregate net line to a level acceptable to the Palomar senior management into the reinsurer partners. In addition to the treaty, Palomar uses supplemental facultative in support of our treaty, and we do this for 2 reasons. FAC offers multiple sets of eyes on the individual risk to ensure the Palomar underwriters' approach is in line with the market, as respects terms, conditions, attachment limit and rate. It's a validating exercise. We do not use the reinsurers to price our business, we price our business, they validate what we're doing. And we're -- nearly every single account we've got to date has facultative support on it. The use of FAC in conjunction with the treaty has significantly reduced the Palomar net position in a portfolio aggregate, thus protecting Palomar and that of our treaty reinsurers from any outsized loss potential. Keeping that debt low and keeping our rates adequate, if not redundant, is a cornerstone of what we're doing in casualty in Palomar these days. Of note in this regard, underwriting is not rocket science. Let me rephrase that. It is not rocket science. It's much harder. Where math leaves off, common sense, intuitiveness, curiosity, most importantly, experience takes over. In short, it is the underwriters job to know what they don't know. That's why we hire experience E&S operators. They know where to find that information. They reach out and get it whatever it takes. Concurrent with that, we have a program or a compulsory program, Palomar that requires what's called a 2-heading process. No underwriter has allowed to send a quote out before they run that account via another underwriter for their consultation and approval. This keeps at level. It keeps it real. It keeps stakes from being done. You put that 2-headed process in addition to the facultative process. We have multiple sets of redundancy, almost like a failsafe. It works very well. It's worked for me very well in previous companies. It's going to work here, I guarantee. I take that to the bank. In my world, there's no downside to that much redundancy in the underwriting process. The 3 initial market offerings for the nonadmitted casualty will be construction primary, construction excess and nonconstruction excess. Palomar's intro into casualty marketplace will be framed as that of a generalist whose appetite is opportunistic in terms of rate, compressed limits and low attachment programs. Our optics will be one of being one of the few go-to markets for the wholesale distribution plant, while the competition pulls back in favor of higher attaching capacity where many carriers mistakenly believe they are safe from the effects of social inflation. They're not. In the construction space, we will target only commercial grade, mid-market contractors with no wood frame residential exposure, contractors with industry-leading risk transfer and risk management protocols and a stable, highly trained and extensively experienced workforce. We will avoid known problems such as stand-alone excess automobile liability and construction defect latent classes. Moreover, products with latent injury potential or insureds that represent reputational risk to Palomar will not be entertained. The rise of social inflation followed by nuclear, thermal nuclear verdicts, we have all heard the phrases and the introduction of third-party litigation funding have given rise to what is known as judicial hell holes throughout the country. Although we cannot avoid these judicial hell holes in their entirety, we will underwrite and charge for these venues as appropriate. We know where they are, and we know what they're capable of doing to a carrier's bottom line. There could be no long-term viable casualty program at Palomar without the addition of experienced and responsible E&S underwriters who understand the value of disciplined underwriting, collaborative and transparent relationships, both internally and externally. We call these E&S operators in the casualty market. We've already been successful in bringing this talent to Palomar in the recruiting whether it is likely to go on. Last night, I was preparing to go to bed, I got a text from an underwriter I worked with years ago at AXIS, reached out, what are you doing? How are you doing? And how can I help? The buzz on Palomar is out there, and we're getting some very interesting people checking in to see what potential role they could have with this organization. That means the world to me because recruiting in this market is very difficult. It's a very thin workforce. Carriers are out there buying talent and just because someone costs a lot of money doesn't make them the right person for the job. And so the people who are reaching out or the operators, we'd love to see come to Palomar. And that again will go on. Along with the right team, it is essential that Palomar stick to the principles of portfolio steering. There is a little disagreement amongst industry experts that the current E&S space for all casualty verticals is evolving very quickly. To be successful, we need to pivot quickly to change direction and address trends as they come, both good and bad and as they emerge. Waiting until the end of the calendar year to retrospectively view portfolio mix is a great mistake. We do not intend to make this mistake. We have the platform, the personnel and the expertise to manage this process in real time. For my poor staff who have to endure me on a daily basis in my oversight, I like to use analogies to make salient points stick with them. Therefore, I feel it appropriate to close with one for you today. As a licensed pilot with decades of flight experience, I view my role at Palomar as similar to as flying my aircraft. If I ever find myself behind the yoke, flying at 250 miles an hour at night and bad weather and being bored, I'm doing something dreadfully wrong. I'm missing something. Same with underwriting. It's all about the details. Pay attention to the details and disaster will be averted. With that, I turn it over to Benson. Thank you.

Thank you, David. Thank all of you for being here. My name is Benson Latham. I came to Palomar in October with a little more than 30 years' experience in the crop insurance industry. I started in the mid-90s at a family crop operation that became ProAg. It's currently one of the 12 approved MPCI riders. That business was riding about $20 million of premium when I got there in the mid-90s. 17 years later, we sold that book to [indiscernible] Mutual at a premium level of about $500 million. After that, I went to work at Validus in 2012 as a founder of their agriculture practice. We built a reinsurance business there of about $300 million, and we're amongst the top 3 or 4 crop reinsurance riders at that time. In 2017, at Validus, we purchased Crop Risk Services from Arthur Daniels Midland, ADM, and that business at the time was about $475 million. We grew that to over $1 billion in the middle there, AIG purchased Validus. And then AIG sold the Crop Risk Services business at a premium level, over $1 billion to Great American in 2023, and I stayed there for about a year, while we combined that to about a $2.5 billion company. So I've seen kind of the Alpha and the Omega of the crop insurance business. Having grown one from scratch earlier in my career and then working for multiple public owners in recent years, I feel like I've got a good handle on the dos and don'ts of the crop insurance industry. I'm looking forward to leading the creation of a stable and profitable book of crop and livestock business here at Palomar. One of the attractions for Palomar in this space is that it complements our overall book and other lines that you've heard about here today by adding widely spread and lightly concentrated risk, uncorrelated to earthquakes, wind storms, terrorism, et cetera. Additionally, the reinsurance agreement with the federal government limits downside quite a bit and provides for an efficient use of capital. We think the market is primed for a successful new entrants for a few reasons. There is a lack of differentiation amongst the top riders that agents in crop insurance are increasingly vocal about. We've managed to hire some of the highest quality professionals in the business to lead our operations and sales teams. Those people are attracted to Palomar for the same reasons that I am. It's a committed and stable owner with a desire to build a crop insurer that is built on personal service to our agents and farmer customers. We're confident that a meaningful subset of the market will respond to that more personalized approach that puts farmers first. Additionally, Palomar, like in their other lines is committed to being a technology leader in crop and we will flex that muscle here in the near future. As the market becomes more familiar with the depth of our team that we have hired on the IT side, we will get lift amongst the agency force from an understanding that in the very near future, we will be a tech leader in this industry, meaning that the ease of doing business with Palomar will be industry-leading. We'll also be nimble in our response to an ever-changing business landscape driven by our federal regulators as well as a fast-moving production agriculture space. Agents will be able to process more business through Palmar technology than our competitors, allowing us to grow alongside them as partners. Private product discipline will be a key to Palomar's strategy on profitable growth. The bottom of the private product business in crop insurance was about 5 or 6 years ago. There are fewer instances of crop companies burning their way into the market than there used to be on the back of cheap private products. And we do not intend to build our company on private products, but on the aforementioned technology and farmer-centric operation. And then lastly, as a new entrant, it's a big advantage for us to have almost no row crop premium in a couple of really problematic states for the industry. We have close to 0 business in Nebraska, which has been the main driver of private product losses for a decade, and we don't have any significant row crop business in Texas, where a multiyear drought has hurt results to the point that the rest of the market is either exiting or drastically lowering commissions, neither of which creates anything but bad feelings in the market. We do write some premium in Texas through a product called PRF, which is an indexed rainfall product, requiring no loss adjustment and is primarily sold to ranchers. We've successfully managed the risk of that product through the fund selection process available to us through our reinsurance agreement with the federal government. This new entrant advantage translates to us being able to focus on known books of business that are familiar to the professionals we brought on board. We can strategically write profitable business in areas and wait for loss prone areas to course correct and enter those geographies at the appropriate time. This strategy will allow us to maximize underwriting gain and obtain best-in-class private reinsurance economics. Using this mixture of the federal government backstop and private reinsurance allows us to manage the risk very effectively, limit shock losses in bad years as we increase and expand both the book and our risk participation in the years to come. I think I missed the slide there. Sorry about that. The map on the left shows group 1 states in the blue and the rest of the states in the green. As many of you know, the group 1 states have historically produced the largest underwriting gains and then the last negotiated standard reinsurance agreement in 2011, the loss of gain sharing for the states in group 1 was changed, slightly reducing the amount that a company can earn in the group 1 states. Additionally, the XOL portion of the SRA offers a little less production in the group 1s. That said, we are varying degrees of bullish on all of those states, including Nebraska, where we would write MPCI business that doesn't come with an overabundance of poorly rated private products. Setting aside the differences in the group 1 and 2 states, the green group 2 states, especially the ones the board or the group wants are areas of focus, and we will actively market in them for 2025 and beyond. Our thesis will be to focus on Illinois, the states that touch Illinois and the states that touch those states. The chart on the right will give you some guidance around some of the unique premium writing and earning cadences in crop insurance. Our CEO, Chris Uchida, will speak more about those later in the presentation. But as we sit here today, just ended Q1, I know there are some issues that are top of mind amongst those of us that follow agriculture. Tariffs are something that we've heard lots about, tariffs will have a negligible effect on the 2025 planting season as inputs for most producers were purchased months ago. Should this issue drag into the fall, we could be looking at increased 2026 input costs at that point, but those would likely be reflected in the prices calculated next February. We're also going to plant lots of corn here in the U.S. in 2025. Soybean planting at current prices is difficult to pencil. So we anticipate about 95 million acres of corn to be planted this spring up from 91 million last year. Those $4 million -- those 4 million acres will come at the expense of soybeans, which were at about 86 million acres last year and should fall to around 82 million. Of the soybeans we do plant, we anticipate about 57% will be crushed onshore here in the U.S., which should blunt the effect of tariffs. And with that, I will push this to Kyle Morgan.

Good morning. My name is Kyle Morgan. I serve as the Chief Strategy Officer of Palomar. I joined the team a little over 7 years ago after a career as a private equity investor. During my time at Palomar, I have been involved in the research, development and capitalization of many of the businesses that we're involved in today. As the previous speakers have demonstrated, we have thoughtfully built a portfolio of products that complement each other and each contributes to the growth and profitability of Palomar. We have a thorough repeatable process for identifying, evaluating and entering new markets. We look to the presence of a few key criteria when identifying where to participate. Foremost, we look for markets that demonstrate attractive through-the-cycle profitability, earthquake, inland marine and crop are perfect examples. These attractive economics are typically the byproduct of barriers to entry and the requirement for specialized underwriting skill and distribution relationships. Sometimes experts in these areas can be recruited to join the Palomar team. And at other times, obtaining this know-how requires the acquisition of an existing business. We are comfortable pursuing either path in order to achieve our objectives. Talent is the key ingredient. We want to find and recruit the specialized talent needed to succeed in a specific market segment. We also bring to bear our own talented existing team members and their expertise in risk transfer, technology and other functional areas. Each market segment and product line has its own nuances, and we digest all of that information in a way that enables us to monitor the risk, assess unit economics and allocate our own capital and resources to their highest and best use. We're careful stewards of our capital and enter every new market with a conservative bespoke reinsurance strategy. In fact, as others have mentioned earlier, the support of our reinsurance partners validates and reinforces the conviction that we have already built for each offering. Finally, and most importantly, in spite of the significant work and effort that we undertake to get to this point, we view the launch of new products, not as the finish line, but rather just as the start. We're committed to continuous learning, adaptation and ensuring that every incremental dollar of our capital has always invested wisely. As Benson articulated in his previous slides, the crop market is an area that we're very enthusiastic about and have built a meaningful presence in over a short period of time. The crop market is large, growing and consistently profitable. A couple of years ago, we successfully obtained status as one of only a dozen Approved Insurance Providers or AIPs, a necessary designation to participate in this market. A key ingredient for our early success has been our partnership with Advanced AgProtection, an MGA comprised of long-standing crop industry veterans. We were an early investor in AAP, and we're excited to announce that we are acquiring the business in order to seamlessly integrate our crop operation and accelerate our expansion in this area. We expect this acquisition to close in the next couple of weeks. Another example is our entry into the surety market. This is an area we have admired and have been actively seeking to enter for some time. As the left-hand chart indicates, the margin profile for surety is significantly better than for the P&C industry overall. Margins in this segment are very similar to Palomar's margin profile, a key reason we are attracted to surety. Underwriting, claims and distribution expertise within surety are highly specialized and difficult to replicate. We are fortunate that we met and got to know the FIA team over the past couple of years. Pat Lynch has spent decades building a great business and a respected reputation in the contract and subdivision surety market in the Northeast. We closed the acquisition of FIA this past January, and we're excited to build a national surety footprint with the help of Pat and his team. As you can see from the results on this page, FIA already has the growth and profitability profile that fit well within Palomar. And we believe there are initiatives that we can undertake to grow the business even further. These include geographic expansion, utilizing our balance sheet to offer larger limits and retain more risk and working to obtain a T-listing from the U.S. Treasury, a milestone that will enable the company to more directly address a significant portion of the surety market. In line with our strategic imperative Mac articulated earlier today of deliberately building market leaders. Our intention is to build a leadership position in surety on the order of $100 million in annual premium over time. We are focused on profitable, sustainable growth, consistent with the formula we have successfully employed in these and other lines over the past decade. Now I'd like to invite Mac back up to the stage as we shift to Q&A.

Thanks, Kyle. Before we open up to Q&A, David, if there's more business that it's a 450% rate increase in June, I'm happy to open an office up there.

I agree.

No, but please, hopefully, you've got a keen sense of the experts that we have on the team leading our products. So now is your chance to grill them because they can certainly go on to a level of depth that Chris and I can't on these calls. So please don't be shy.

Meyer?

Okay. I think I've gotten over my shyness. There's a couple of random questions all over the place. First, you mentioned avoiding some of the worst traditional hell holes. My understanding is that there's been some evolution where formerly good jurisdictions are going bad. I was hoping you could talk about how you avoid that deterioration when experience can point in the wrong direction.

It's a very good question. The -- and you are correct, some venues that were normally in the past considered favorable, have gone the way of the Dodo bird, unfortunately. Third-party litigation funding has a lot to do with that. A lot of the venues that are going south, unfortunately, also have to be some of the largest states where E&S premium is available, which is why I said earlier that we can't avoid them. We had to charge for them and keep -- pay attention to our rates, pay attention to our limits deployed and the limits in the aggregate. So you can't entirely avoid them. If the deal that comes across our desk in our opinion once it's run through the radar, and we have reinsurance support on it, if the rate is robust, and we feel the class of business is somewhat protected from thermonuclear or nuclear verdict we'll jump on it. You won't see us putting up lead 5s in these states. You'll see buffer layers, usually a $1 million or $2 million buffer or 3x or 2x. On average, across the U.S. -- on average, our average limit deployed is $3.6 million. In the large states where judicial hell holes are an issue. That drops to about $2.1 million. So we're watching our limits there.

And that's on a gross basis.

That's correct. Yes.

Completely unrelated question but for Jon. I would think that low hazard earthquake could be a great risk to target. It sounds like you're not interested in it, if I inferred your...

I guess what Mac is referring to and what I kind of joked about was, so FM Global which is you know if you look at SNL kind of statutory filings with their line of earthquake is the second largest earthquake writer in the United States based on the year end of 2023. A lot of the premium today associated today with the earthquake line is written across here. They write large industrial facilities and then they categorize that certain amount of that premium as earthquake. So they may be writing all over the United States really not for the purposes of writing earthquake but it just has some ancillary earthquake premium but the sizes of accounts that are written in places like New York State, the Northeast, the Southeast of United States that has virtually no earthquakes risk get categorizes as earthquakes. So that was kind of the point.

Meyer, the punchline is Jon wants us to be #2. And if you take out CEA, #1, that's really where he's trying.

yes, exactly.

We will be there.

But we do write a lot of lower risk earthquake in the Midwest and throughout kind of any state that has earthquake demand, and we welcome that. Paul?

A couple of crop insurance questions. I still think I'm the only sell-side analysts that's ever bought a crop insurance policy. The first one, I didn't hear any financial announcements with the crop acquisition? Does this affect any of the financial stuff that we should be thinking about guidance or...

Yes. I'll address that one. No, it's immaterial from a financial impact and guidance won't be changed to reflect it. We think it will allow us to really execute the plan that we have in place for '25, but more really for '26 and '27. So no changes to the model.

So looking at the slide that shows the states as it rolls out, is it fair to say, as we look at this business that we should be sort of thinking this on an annual basis, given that you'll have essentially what 5 states this year, and then you'll have x-states the next? And should we also think of that in terms of how the production will sort of be created over time?

Well, I'll let Benson and Jon chime in. What I would say is we're going to be focused on adding talent in those geographies. Illinois, the states of the border, Illinois, and the states, the border, those states. And so there's -- it's multipronged. We're not going to turn away business, but we're going to have investments in local market presence there. We've made a big push and Benson brought on an excellent team in Illinois as well as in the Dakotas. So it will be a little bit of a logical progression of how we can service it and then how we have talent. But anything you would add, Benson, there?

Yes. No. I think Illinois, in my experience in the business is kind of the most consistent state. It's where we've got contacts and experience for people that I think we can have a base of growth and then out from there is -- has been my experience as far as where we can do well. So I've not put any kind of any fences around anything. The business kind of exists in the middle of the country, and we'll opportunistically pursue whatever we can.

And just as one point of clarification. So when we talk about kind of that area that we put up on the screen, that was circled in red, that's really for row crops. So there are other products like PRF and others that are on a more broad geographic basis, but for MPCI that you think of, it's exactly what Benson outline. Pablo?

First question, can you talk about the economic sensitivity of your major end markets, whether it's construction contractors or maybe even the consumers who buy residential earthquake in California, I just want to get a sense of what could potentially happen if we do encounter an economic soft patch?

Yes. So I'll speak to residential earthquake. And I think, Robert, you can speak to the construction exposed segments because you're seeing it in real time. So residential earthquake, as Jon mentioned, it's a voluntary purchase and it's 10% to 15% adoption. And we've always talked about it with you, Pablo. It's a mass affluent buyer. The total limit on average is going to be close to $1.5 million and the average premium is going to be a couple of thousand dollars, $2,400 or so. They are very mindful of protecting the equity of their home. And what we've seen at the beginning of this year, whether it's rising cost of homeowners insurance, we -- or dislocation caused by nonrenewals in the homeowners market. We have not seen any disruption in our policy retention. And that's with a 10% inflation guard. And then furthermore, I think what I would say is the disruption in the homeowners market, whether it be rising costs or carriers pulling back, that's an opportunity for us. Whether that's because they are CEA member companies that are reducing their exposure and therefore, reducing the number of policies that are within the CEA or attached to a CEA homeowners policy, a member policy or it's a new entrant that needs a partner. So with residential earthquake, changes in the construction market, the rising cost to carry a home, we have not seen any impact there. And the only other thing that I would add is, if there are rate decreases, rate cuts and the cost of a mortgage comes down, I think that will be beneficial for us because candidly, I think Jon and I would both say that's been a bit of a headwind for us. Slower transaction activities, whether it's first-time buyers or someone that is looking to sell or find a new home. But I think on the commercial side, maybe Jon or Robert chime in.

Well, and really you're just talking about kind of the market conditions. And with regard to -- just to clarify the question, like future building opportunities and expansion...

Yes, I think it's really around commercial construction, cost of construction slowdown in activity or whatever.

Yes, I'll just add a couple of points, the permits are from a single-family and multifamily down compared to 2022, but you're still significantly higher than you were at all-time highs when it was 2019, 2018, 2017. So there's still significant demand, a lot of construction activity. From our perspective at Palomar, we have a -- we still have a greenfield of opportunity. Our admitted book is 50 states, we're across half of them on a non-admitted basis where we have exposure across the United States in every state, except for maybe Alaska. So we should probably pair up with David. So there's still a greenfield of growth opportunity for us. So demand is still strong.

And maybe talk a little bit about kind of the impact of rising costs of construction materials and how that plays into a builder risk policy.

Yes. So the -- from an increase in value, tariffs come through and lumber prices go up considerably. One thought the builders are buying in more -- a lot of times in real time, right? If they're going to build a home in January, they're accessing that lumber not too far before that moment. If the values do go up, the contractor absorbs that. They'll pass it on to who the ultimate owner is. We capture rate against construction value. So if that value goes up 10%, 20%, 25% because of the tariff on that segment of the build, we're capturing premium for that exposure.

Yes. So Yes, exactly. So the kind of the point is that there's not -- with a fixed property policy, you could have a misalignment of the value charge of the policy's inception versus the value that you're on risk for during the policy period. With builders' risk, you're capturing that full value upfront just given the nature of the policy.

And a good portion of those policies are auditable as well, right? So you capture the value then, too.

I would say, diversify -- our business is quite diversified. Going back to the example of a single-family house and then a large participation on something in Midtown Manhattan. Folks that are building high-end custom homes, they're not as concerned if the lumber price goes up slightly. They still want to buy that custom -- build that custom home. There's -- and one of our larger segments of our book is in that space.

And I think that's an overarching theme that we'd want to leave with you today is it's the balance in the book. There's the residential component, which funny enough, is where we're seeing very strong rate increases, whether it's flood where we actually got a 14% rate increase improved in California, whether it's Hawaiian hurricane, where our new money is going in over 25% or residential earthquake, where you're seeing a 10% inflation guard against 2.5% to 3% inflation. And then we have small commercial risk, whether it's the emitted builders risk or small commercial earthquake, where you're not seeing the rate pressure that you are in large layered and shared E&S accounts. So the balance in the book has been something that Jon said earlier appropriately, has been curated since we formed the company. And I think that's going to help us play through market cycle on the property side.

And If I may sneak in just a second one. I'd be curious to hear if you could give a sense of the breakdown of the underwriting income by line of business, right? So Earthquake is about 1/3 of the book by gross premium, right? I suspect its contribution to underwriting income is higher than that because it's the most mature line. The others where you're retaining less, I suspect the contribution is lower than what the premiums would imply. And I suppose what I'm getting at is -- I just want -- I was hoping to get a sense of how much uplift you could potentially get as you start retaining more risk, right, which I think is ultimately where you want to be. So any way you can sort of frame that dynamic?

You're stealing Chris's thunder a little bit. He's got a slide on that later. Is that okay if he addresses that and then we talk about it later on because you're absolutely right. There is -- there are levers, but Chris would be mad if I say anything more. Any other questions on the product side? Well, terrific. Well, hope you got a sense that we have added some tremendous expertise in bolstering what was already a very strong underwriting and product team. And feel free to ask more questions over the course of the day or at lunch. But thanks to the 5 of you. And so now I'll hand it over. I believe we will go and do operations -- actually, excuse me, we're now a quick 15-minute break, I believe. So it is 10:20 will come back -- I mean it's 10:35 East Coast time. Thanks. [Break]

Okay. Well, now we're going to move into the operations section of the presentation. And like the product side, I am certain you'll be impressed and with the leadership that we have presenting now. So up on the stage, we have Jon Knutzen, our Chief Risk Officer; Ethan Genteman, our Chief Actuarial Officer; Rudy Hervé, our new COO; Althea Garvey, our new Chief Claims Officer; and Tim Carter, who's leading people in talent for us as Chief People Officer. Similar format, we're going to walk through some slides, starting with Jon Knutzen, and then we'll reengage for Q&A following Chris' presentation. So with that, I'll hand it over to Jon.

Thanks, Mac. Good morning. It's a pleasure to be here with you today. My name is Jon Knutzen, and I'm Palomar's Chief Risk Officer. I joined the company in this role back in April of 2019. Prior to that, I spent over 20 years working in various senior leadership roles encompassing both analytics and reinsurance broking, working for a few different reinsurance intermediaries, including Guy Carpenter and TigerRisk, now Howden Re. One of my responsibilities is managing the team that oversees the execution of Palomar's risk transfer strategy and over the next 10 minutes or so, I'll provide you with an overview of one Palomar's approach to risk transfer, some of the risk transfer tools we use. And lastly, by using our property catastrophe excess of loss program, as a case study, how we employ some of these tools in a coordinated fashion. Risk transfer is a central component to Palomar's overall business model and its 2x philosophy. Our risk transfer strategy delivers on the same key drivers highlighted by others throughout this presentation, produce consistent earnings with minimal volatility and deliver profitable growth. This strategy is executed by a team of subject matter experts in risk transfer structuring and design. This team works hand-in-hand with executive leadership, underwriting programs, actuarial and analytics along with our reinsurance broker partners to ensure that the company's risk transfer outcomes align with its goals and objectives. The risk transfer team is further supported by the teams and processes that will be covered throughout this operations review today. In managing volatility, we've established conservative risk tolerances that protect our capital and underwriting income from shock losses, whether from a large individual risk loss, or from the severity of a single event such as an earthquake or a hurricane. As an example, while our stated risk tolerance is to contain the impact of a single event loss to less than 1 quarter of earnings and less than 5% of stockholders' equity. Our current per occurrence retention, inclusive of co-participations for earthquake at $20 million and for all other perils excluding earthquake at $15.5 million equates on a pretax basis to only 2.7% and 2.1%, respectively, of our year-end 2024 group equity of $729 million. In addition, we secured sufficient reinsurance limit to conservatively cover cat losses in excess of our 1 in 250 year peak zone probable maximum loss. To evaluate and stress test the adequacy of our reinsurance program on a monthly basis, we conduct a variety of portfolio analytics utilizing multiple stochastic models such as catastrophe models, deterministic loss scenarios and exposure profiling to quantify and assess the risk associated with our various lines of business. In addition, prudent gross and net line size management is also a key element in managing volatility. Currently, our maximum net lines are $3.5 million for property and $3 million for casualty risks. Palomar's risk transfer program provides a significant amount of the requisite capital to support both its current writings along with any future growth, including any increased demand we may experience post event. To achieve this, we have designed our risk transfer program to scale with exposure growth and evolve with the coverage needs of underwriting. Specifically, as the underwriting team uncovers new opportunities to write additional businesses, or additional business at attractive risk-adjusted returns. Providing stability to the sources of this risk capital, we work with a diverse and well-capitalized panels of reinsurers. This panel has sufficient security and adequate capital and has demonstrated the readiness to support our growth across market cycles. Lastly, as Palomar's own capital has increased, and continues to increase, we will look to raise our retentions, where doing so is accretive to our risk-adjusted return on capital. The skilled buyers who understand the marketplace and reinsurers appetite, we designed programs that strike an appropriate balance between comprehensive protection and cost efficiency. Bolstering our approach toward this end, we employ quantitative and stochastic risk models that allow us to run simulations with multiple alternative reinsurance structure options and use these to evaluate the cost benefit trade-offs associated with each option. These risk models are parameterized by the use of catastrophe models as well as actuarial models informed by Palomar's actual loss experience and industry loss data. Lastly, to generate competitive pricing tension, we access both traditional and nontraditional forms of risk capital, specifically insurance-linked securities. Palomar makes a use of a comprehensive and diverse set of risk transfer tools to meet the needs of its various lines of business. The tools fall into 2 basic categories: facultative and treating. Facultative reinsurance applies to individual risks and treaty covers risks -- I'm sorry, and treaty reinsurance applies to a portfolio of risks. We utilize facultative reinsurance to augment limits provided by our treaty coverage or cover risks excluded from our treaty reinsurance. The vast majority of our ceded risk is transferred via treaty, of which we have 2 types. Quota share reinsurance provides first dollar pro-rata coverage for a portfolio of risk in exchange for ceding pro-rata premium less the ceding commission. We use quota share reinsurance to mitigate against outsized volatility from attritional losses as well as individual shock losses. Most of our lines with attritional loss exposure have quota share coverage. The session percentage will vary depending on the subject business. And typically, the session percentage is set to align the net limit any one risk with our risk appetite. Quota share reinsurance also provides a source of fee income via an override in the ceding commission above our acquisition expenses. Excess of loss reinsurance provides coverage above a fixed dollar retention. Most of our property catastrophe reinsurance limit is purchased on an excess of loss basis. We also use excess of loss on a per risk basis in a more limited way for subsets of our inland marine and other property. Catastrophe bonds provide us with a nontraditional source of capital for our catastrophe excess of loss reinsurance program. In general, as one moves from left to right across the various products on this slide, the risk transfer transaction becomes more complex, requiring more analytical sophistication in the design and decision-making around the reinsurance purchase. However, through this process, there are efficiencies to be gained in the form of reduced ceded margin. As our newer lines of business mature and the credibility and our loss experience increases, we will likely look to reduce the use of quota share reinsurance to capture more underwriting profit and manage individual shock losses and support gross limit needs through expanded use of excess of loss at some point in the future. The slide also highlights which reinsurance products our various business segments employ and to illustrate how some of our business units currently utilize various aspects of our reinsurance programs. Here are 3 examples. Our inland marine team leverages their reinsurance capacity to write and deploy larger gross limits, which enables our underwriters to drive better terms and pricing and take advantage of attractive market conditions. Our niche Casualty segment is one of our most diversified underwriting pillars, and the reinsurance purchase is bespoke to each portfolio. We use reinsurance as a feedback mechanism for our underwriters. For example, E&S casualty purchases facultative reinsurance as a second set of eyes on complex exposures. The continued support of our quota share reinsurance partners provides validation that our portfolio is in line with market expectations and addressing loss trends appropriately. For our crop business in 2025, we shifted from a more of a fronted model with a minimal risk participation to becoming a larger risk participant by taking a 30% retained share in order to capture more of the expected underwriting income. At the same time, we introduced stop loss excess of loss structure that mitigates our downside from an adverse crop season. This current risk transfer strategy is complementary to the growth plans that Benson outlined earlier. Leveraging multiple forms of reinsurance enables us to build a more resilient risk transfer strategy that can respond to shifts in market conditions, including post event. This is demonstrated by the approach we have taken in the design of our property catastrophe reinsurance program. The strategy combines the use of quota share, excess of loss and catastrophe bonds into a comprehensive reinsurance program that has enabled us to build and maintain a leading market share in the U.S. market, while conservatively managing our potential net retained loss should a reasonably severe earthquake or hurricane affect our portfolio. This program is supported by over 100 highly rated reinsurers or capital providers that fully collateralize their obligations. Our current property catastrophe reinsurance program is a reflection of some key evolutionary steps over the years. One of these steps was the introduction of catastrophe bonds in 2017. And ever since ILS capacity is contributing a meaningful share of our total catastrophe risk capital with the exception of our June 1, 2020 treaty year. It currently provides $895 million part of approximately $3.2 billion in total earthquake limit. In addition to the competitive pricing tension ILS Capital brings, it also provides committed limit at fixed economics over a multiyear period. This was beneficial in helping us manage the hardening reinsurance market, in our 2022 and 2023 renewals. Another step was our decision to reduce our exposure to Continental U.S. hurricane and associated secondary apparels beginning in Q4 of 2020. This multiyear process has been very well received by -- as it better aligns our reinsurance program with the low frequency, high severity single peril exposure preferred by our reinsurance partners. This is evidenced by the substantial increase in limit committed to our program over the last few years. As mentioned with our Q4 earnings commentary, we did renew our California commercial earthquake quota share at January 1, 2025 along with adding $155 million of incremental earthquake excess of loss limit to support growth. These placements were priced with risk-adjusted decreases of approximately 15%. The majority of our catastrophe excess of loss limit will renew effective June 1, and we are in full swing with the renewal process. While we expect the impact of the recent fires in California to temper the softening market we saw at January 1, we remain confident in our ability to achieve our objectives with the upcoming renewal and as reflected in our 2025 plan. With that, I will now turn the presentation over to Ethan Genteman, Palomar's Chief Actuarial Officer to walk you through Palomar's actuarial strategy and reserving philosophy.

Thanks, Jon. Hi, and good morning. I'm Ethan Genteman, Chief Actuarial at Palomar. I joined the company in 2019, bringing experience from P&C Carrier, Intact Insurance and reinsurance broker, TigerRisk, now Howden Re. I lead our reserving and pricing functions, focusing on quantitative modeling to complement the strong business acumen across Palomar. Today, I'll discuss Palomar's reserving methodology, how it supports our strong financial position, and creates a pricing feedback loop that ensures strong sustainable margins. I'll also cover our business mix and strategic use of reinsurance, providing insight into our reserve evolution over the past 5 years. A key theme I want to highlight is that we prioritize disciplined growth in all of our lines of business. Palomar's reserving methodology is quantitative conservative and collaborative. This is a disciplined approach that ensures long-term stability and financial strength. First, our methodology is quantitative. We leverage actuarial standard stochastic models to provide unbiased data-driven reserve estimates. Our models incorporate loss trends, mix of business, and external factors to ensure reserves are both robust and responsive. We also analyzed loss types separately, accounting for seasonality, demand surges and other economic factors. For example, severe convective storms in Texas drive higher Q2 losses compared to Q1, a trend we integrate into our reserving models. Second, our approach is conservative. We initialized expected loss ratios at prudent levels, often above historical performance to provide a cushion against emerging loss trends. For example, in our E&S all-risk segment, despite experiencing over 50% in rate increases, we have not lowered our expected loss ratios, ensuring built-in redundancy and risk mitigation. Additionally, we are swift to react to adverse developments while remaining cautious with favorable trends, reducing the likelihood of premature reserve releases. Finally, our process is collaborative. We work closely with claims professionals, underwriters and senior management to integrate real-world insights into our reserving models. This ensures that our assumptions reflect not just historical data but also forward-looking business intelligence. The result is a reserving strategy that is not only data driven, but also aligned with our broader business objectives. Having established our reserving methodology, let's now examine how it reflects in our actual reserve composition over time. Over the past 5 years, Palomar's reserve composition has evolved. At year-end 2020, our reserve balance was 100% in the marine and other property. On the heels of our E&S company launch, we strategically diversified into new business lines leading to the emergence of front-ending casualty reserves in 2021. By 2023, each of these grew to approximately 20% of our gross unpaid liabilities. Today, at year-end 2024, our $503 million gross reserve balance is 6% crop, 25% casualty fronting and 25% in the marine and other property. On a net basis, our reserves are $155 million, which shows that our reinsurance strategy plays a big part in our reserve composition. Up until this year, our fronting and crop segments have retained little to no risk, shifting the net reserve weight to other lines. Not only does this shape our composition, it also plays a crucial role in scaling back our retained reserves to a prudent level. At year-end 2024, our net composition is roughly a 50-50 split between casualty and inland marine and other property. This intentional diversification and scaling align with our core strategy of growing in targeted markets while maintaining a risk-mitigated approach. A well-balanced reserve composition is critical to financial strength. While our net reserves are now 50% casualty, this is by design and a result of our carefully structured portfolio mix. To illustrate, consider our earthquake franchise, which accounts for 34% of written premium. Earthquake is a binary risk and because they occur infrequently. This segment does not contribute significantly to reserves. It adds substantial net income, strengthening our financial position without a proportional increase in reserves. Over the past 3 years, our net reserve balance relative to surplus has remained steady at approximately 20%. This is a testament to our disciplined portfolio construction and targeted growth strategy. Four years ago, when we started our casualty franchise, this metric was 11%, demonstrating measured deliberate expansion. At our financial size, our relative reserve balance is small, positioning us favorably relative to the broader P&C industry. Even in a stress test scenario of a 20% adverse casualty reserve development, our surplus impact would be limited to just 2%. This balance between disciplined growth and conservative reserving is central to our approach. Our casualty reserves remain relatively small and we remain quick to react to adverse developments while deliberately cautious with favorable trends. To date, we have released little to no reserves in our casualty segment despite limited claim activity. Over the past 4 years, our net IBNR as a percentage of unpaid reserves has grown from 41% to 74%. Put another way, we now hold 3x more in IBNR than in case reserves simply because we have maintained a disciplined, cautious reserving philosophy. Compared to industry metrics, this places us in a strong reserves position. While the data and models might suggest future reserve releases are possible, our focus remains on long-term stability, not short-term gains. Maintaining reserve adequacy while scaling our business requires both discipline and agility. Our commitment to stability extends beyond models, it is reinforced by cross-functional collaboration. While our actuarial approach is deeply quantitative, it is strengthened by real-world insights from underwriters, executives and claims professionals. A seamless feedback loop between reserving and pricing is essential as we adapt to market trends in real time. Given the pace at which we bring new products to market, Maintaining this alignment requires robust operations and cutting-edge technology. To discuss how we execute on our reserving and pricing strategy at scale, leveraging technology, automation and operational excellence, I'm pleased to introduce our Chief Operating Officer, Rudy Hervé.

Thank you, Ethan. I'll start with little personal story. It's a full circle moment for me. My first job at college was as an equity research analyst in London. And it's true back then, the smart kids would have the technical industries, so technology, banking and insurance and I was covering food and drinks. So well done to you guys, must be nice. So I joined Palomar in July of last year as Chief Operating Officer. I'm honored to lead the technology and operations team in charge of empowering Palomar 2X. I have 15 years of experience in the insurance industry, started at QB North America as part of the strategy team. My first big assignment was to take ownership of the turnaround and sale of several MGA assets. And later, I was heading the operations for the specialty insurance unit. And during that time, we launched 7 new teams, 30 new products and grew premium from $200 million to about $1 billion. And I think that specific experience is probably what's going to be an interview with Mac. After that, I joined SCOR for 4.5 years, first as CEO of the North America insurance business and later, head of operations for insurance, which included a large MGA portfolio, large share-in layer portfolio in the Lloyd's syndicate and most recently was appointed to head the operations of SCOR for the entire P&C business. So reinsurance, claims actuarial in addition to insurance. Pleasure to be here. I would mention that we also have our Chief Technology Officer, James Long, over here and our EVP of Operations, Jake Armstrong over there. I would be very disappointed if you don't somehow harass them at some point and ask them a lot of questions. So our challenges at Palomar are all very similar on the tech and ops front, as you would find in any other company. But what sets us apart is the need for speed. To enable Palomar 2X, we constantly need to be able to launch new products, onboard new MGAs, do that at speed. And how we do that? First, there's a strong core of insurance systems, brand names that you would recognize, our environment for application development is Pega, our billing platform is Majesco, our general ledger is Sage. So it's not an environment in which you're betting with dozens of systems and trying to figure out how to consolidate all of this. We have the luxury of starting with the core, and we try to maintain that core. Two, we have proven playbooks and how to launch products and how to onboard MGAs. The best example I can give you is with my friend David, who joined us in September last year. By October, he was able to book his first policies on the casualty system. So by no means, it means that this platform is completely done, but we like to have a very agile development mode and keep building incrementally until all the functional is all done, but there's a very strong bias for execution and deployment. And three, for everything that we cannot readily give you a system for, we have ability to throw bodies at it through outsourcing agreements. So if -- for data entry and the running support, tech development, testing, we have long-standing business processing outsourcing agreements in place. Beyond our core insurance systems, we -- our secret sauce, what we like to maintain as our secret sauce is threefold. First one would be for anything that touches our producing partners. So PASS is a very important system for us. It's the Palomar Automated Submission System. It's a very slick portal by which we distribute all our quake, flood and wind products. It's connected to 6,000 agents currently. And we were processing 130,000 policies on it last year. It's very slick. It's completely integrated with our producing partner system. So they just enter basically an address. It feeds our pricing model, they can quote right away. If the policy is within the appetite that we set, they can buy, it's automatic and then it feeds the information directly to the back end system. So we run periodically surveys to make sure -- to check how we're doing to the competition. And we did high scores. The last time we ran the survey was in February, and we got a Net Promoter Score of 55. The financial services industry average is around 35. The scores we got for the functionality of the system was 4.4, 4.5, which was also going up from when we ran that same survey a couple of years before. So we like to stay on top of our customer experience. And certainly, we're getting good grades now. Second part of our differentiation would be pricing. We like to think that we have the best flood rating in the state of California. We have 23 million rating territories. The granularity at which we can rate flood in California is down to the personal level in high-density areas, so 30 meters by 30 meters. And we're constantly evolving this. We involve with Princeton University research and a few start-ups in the space trying to get even more granular and square meter level. And obviously, there's going to be some limitations to the granularity at which we will be able to file in the admitted space, but certainly for nonadmitted pricing or risk selection or even just talking to reinsurance and be able to present our portfolio, that -- continuing that effort is important. And then the third piece -- the third element for our secret sauce would be really around data. Half of our technology team is in data and analytics. So whether we're talking data engineers and people worried about infrastructure or the analytics that support the rest of our business because risk transfer, as Jon articulated, is such a big component of our strategy. We invest a lot in terms of people to properly assess performance and exposures. And we've built proprietary tools on the data side and also leverage a lot of the brand names for data cleansing and analytics. And finally, so as I mentioned, we had a luxury of starting Palomar not so long ago, so the technology stack is really modern, so cloud-based. But obviously, since 2023, there's been a big acceleration in the space that is driven by AI. And so the way we use AI -- and first, I want to make the point, we're not competing with AI technologies. I would love to have the $100 million of R&D spend that AI companies at Silicon Valley have, but Chris hasn't given that yet. But so, we're not competing with those companies, but we're really trying to constantly assess what they're doing and how they can help us. Two examples. Number one, again, on the quake side, we're involved with a company founded by 2 PhDs, Stanford PhDs, in structural engineering and the goal of the project right now is to continue to understand the vulnerability to quake events of the building that we insure. And so nobody is more excited about this project that Jon Christianson. The way the pilot we run, for instance, is we give them a big sample of our data in the buildings that we insure. They tell us what they think the near -- the variables compared to ours, and then we look at the discrepancies. So that would be the first thing that we try to do is do you really know our building better? The second one would be okay, all the new variables that you guys can bring to the floor that we haven't considered and turned out now with AI. There's 5, 6, 7 new key metrics on any building that we didn't know. So I don't know yet if this is something we can use in pricing or in risk selection, but it's really something that we're always trying to assess to make us smarter. Another way we include AI, obviously, is through automation. I've been working on trying to automate data ingestion since my QBE days, obviously at SCOR, at Palomar. I can say the very first example of complete automation with strong data accuracy that I've seen is with a product line that was launched at Palomar 2 years ago, and we were able to cut the end-to-end life cycle of the policy by 80% in the last couple of months. So something really strong that then we can potentially deploy to other lines of business. So obviously, a lot of very interesting work happening now with AI, and it's going to continue at pace because that's the Palomar way. So we view ourselves as an insurance company that's empowered by technology. You'll find us very comfortable adopting new -- adopting start-ups, working with startups, constantly running pilots, assessing new tech. We have the benefit of being based in California. So obviously, no connections to the insurtech scene is very robust and is further enhanced by the relationships that either Palomar employees and certainly our Board members bring to us. Getting that balance right between build versus buy and adopting new tech is really key parts of our technology and ops philosophy. So what can you look forward to in 2025? So obviously, developing the tools to launch crop, [ integrate surely that's job one. We're going to continue to work on our systems. I mentioned automation that's now available to one line of business, so we're going to try and extend that to others. We have big foundational initiatives. If you've worked with data before, you know you're never done. So we continue that journey, building a large mirror lake for the entire Palomar organization. And specific work, as I mentioned, in the area of pricing for earthquake, flood but also obviously, crop and casualty. I want to leave you with 3 parting thoughts. Because what we really after -- if you look at Palomar now and the size that we are and the technology that we have, we quickly define. What Mac has asked us to do is to -- building consistent infrastructure to build a much larger company. So we have Palomar 2X in mind. We're really trying to build the technology that will support an organization that could be much larger than where we are now. So that's number one. Number two is, and Chris will touch base on this as well. Technology is really in support of the risk selection and pricing for sure, but the expense ratio, right? So how can we continue to build scale in the business and make sure that as we grow revenue, we grow operational expenses more slowly. And then the third part, I insisted on this, but I'll say it again. We would like you to think of us as fast adopters of new tech when we have good connections in the industry. And if you'd be ever excited or interested in talking about what we see in the insurtech business, we'll be always happy to have a conversation around that. And with that, I look forward to engaging with many of you later on. And I would like to introduce our Chief Claims Officer, Althea Garvey.

Good morning, everyone. My name is Althea Garvey. And I made that joke because this is a full circle moment for me. I grew up in New York City, but now, I live out in Los Angeles. And I'm like, "Oh, what time is it?" It's Palomar time, right? So again, my name is Althea Garvey. I joined Palomar in October of 2024 as the Chief Claims Officer. With 30 years of experience in the insurance industry, my background combines my legal expertise. I've worked as a trial attorney in insurance defense and as a plaintiff counsel and I have extensive claims experience up through management. So I've been everything from an adjuster to a claims executive. But I started my legal career here in New York City as a public servant. I was an Assistant District Attorney for the Bronx D.A.'s office for 6 years. And yes, I tried homicide. Before joining Palomar, I held key positions at U.S. F&G Insurance Company. I spent 15 years at AIG and I worked as Chief Claims Officer at Life Care Insurance Company, which is a third-party administrator for 8 years. So I'd like to say that I bring a 360-degree perspective to claims management. Supporting Palomar's claims team is Eileen Fay, who is our Vice President of Casualty Claims. She's also an attorney. Eileen has over 20 years' experience in the insurance industry. And before joining Palomar, she had leadership positions at Chubb Insurance Company and W.R. Berkley. Additionally, we have Teresa Urban, who serves as our Vice President of Property. She too has more than 30 years of experience and has held leadership positions at Kemper Insurance, GEICO and National General Insurance. So today, I will share how our holistic TPA oversight framework strengthens claims handling, optimizes actuarial underwriting and reinsurance functions and ultimately enhances profitability and market competitiveness. At Palomar, claims management isn't just a function. It's a strategic asset. Our ability to handle claims efficiently, cost effectively and with precision directly impacts our bottom line. And a key component of this strategy is our disciplined approach to utilizing and managing our third-party administrators. You may hear me use the term TPAs and our program partners. So for example, we cover a number of other lines, but we cover catastrophic events. So we strategically leverage our TPAs for such as time as these specialized events. So we work with partners who have catastrophe-focused expertise, our TPA specialized in handling high severity, high-volume claims from earthquakes, hurricanes and floods. Our TPA network also allows us to expand capacity instantly in catastrophic events while keeping year around cost low. In other words, instead of us maintaining a large, full in-house team year round, we pay for claim handling capacity only when it's needed, thereby reducing our overhead. And TPAs also help us meet state, federal and reinsurance regulations. But having a network of diversified TPAs is only part of the story. Managing them successfully to align with Palomar's business is the rest of the story. Our oversight model is structured around 3 key pillars to ensure that TPAs operate as an extension of Palomar's high standards. The first pillar is strong governance and oversight. So some of the things that we do in-house, we have a dedicated in-house TPA oversight team that monitors performance and compliance. We do monthly claim reviews, we have random claim reviews, and that's just some of the things that we do. The second pillar, continuous quality assurance and compliance audits. Quarterly auditor schedules, we do SOC reviews, we do loss control, management reviews and regulatory compliance alignment with NIAC and state laws. And this is in addition to the internal auditing and monitoring that our third-party administrative vendors do within their own businesses as well. And then our third pillar is data-driven performance monitoring, which helps all of our internal business partners. Real-time claim analytics helps us refine development -- helps us refine loss development estimates and loss ratio management. So for example, in our actuarial department, where we spoke -- we've heard from Ethan previously, our third-party administrators provide real-time claims data, which allows our actuaries to refine loss reserves. Claim analytics also help our actuaries forecast claim trends and CAT event impacts, which leads to better predictive modeling. And accurate claims handling also prevents reserve underfunding or excessive allocations. Similarly, we see the results in data analytics and TPA oversight enhancing our underwriting department, data analytics enhanced risk selection and pricing. Our TPA provide insights that allow our underwriters to price policies more accurately, particularly around the CATs, which you've heard some of the successful numbers provided previously. Accurate claim outcomes also help us maintain loss ratios within target ranges, and our underwriters use claims trend data to fine-tune underwriting guidelines and minimize high-risk exposures. Same type of results spills over into our reinsurance department. Again, with the data analytics married with the TPA oversight, which results in stronger treaty negotiations and compliance. For example, TPAs provide detailed loss documentation for the reinsurers, which ensures proper reimbursement. Equally, accurate claims handling reduces reinsurer concerns, thereby lowering reinsurance costs so we'll have better risk transfer pricing. And as I mentioned earlier before, we cover a lot of catastrophes, right? So after major hurricanes, for example, some claims take over a year or longer to get fully set -- or to get to fully settle due to scale of damages and the complexity of the loss. So working collaboratively with our TPAs and our oversight, we can see that in a number between 2020 and 2024, there was a report of approximately over 6,800 catastrophe claims. And through active management and oversight, at the end of December 31, 2024, we were able to close over 90% of that pending. And similarly, if we look at 2020, we've had approximately 1,500 CAT claims that have been reported. And through oversight and working with TPA and bringing those numbers in, we were able to close approximately 60%. So between 2020 and 2024, we were able to take our reserves down by 74%. And that's actively engaging with our third-party partners. So -- and we endeavor to do more, right? So what's on the horizon for us in 2025? We are making an investment in full in-house claims handling capabilities. We're continuing with our TPA assessments and benchmarking, and we also continue with our advancements in technology and data initiatives. So, in closing, at Palomar, we don't just pay claims. We manage them as a strategic advantage. That's my Jamaican accent coming at, right? So we manage them as a strategic advantage. Our disciplined TPA oversight is to ensure that every claim is handled with precision, every reserve is set accurately and every underwriting decision is data-driven. This holistic approach enhances profitability, strengthens operational resilience and drive long-term value. By aligning claims, actuarial underwriting and reinsurance function, Palomar continues to differentiate itself in the insurance industry. Thank you. And now I'd like to introduce you to Tim Carter, our incomparable Chief People Officer.

Good morning, everyone. It's not lost on us that we're throwing a lot of information at you. And we are very appreciative of your time, your focus. Good news is we have some great information. We're very proud of our story. And you got 2 presenters left. So thank you for hanging in there. As Althea mentioned, I'm Tim Carter, I'm the Chief People Officer here, started with several of my peers back in June of 2024. And I have about 25 years of human capital management, executive leadership experience across varied industries. Prior to Palomar, however, I spent over a decade at LPL Financial. And also an executive leader there, running talent acquisition, learning and development, total rewards and community relations. I share a little bit of my resume to highlight some of the complementary -- some of the equivalencies between what I saw at LPL Financial and what we're seeing here at Palomar. During my time at LPL Financial, we tripled our workforce, also grew market cap from $4 billion to $24 billion. I make those distinctions because no promises on that growth here at Palomar, but to be prepared for that growth, we need to build the right people systems. And maybe more importantly, we need to be very, very expert at identifying the talent that's needed not only to help grow, but ultimately, to serve our stakeholders. And we're very excited about that property -- that opportunity, excuse me. So our ability to execute Palomar's strategic imperatives rests on the focus, skill, motivation and alignment of our talent. We believe that our people are at their best because we make talent decisions with our mission, vision and values at the forefront of the opportunities we pursue and the problems that we solve. Before I share a little bit about the 2025 people priorities, I'd like to highlight some of the key 2024 people metrics that are emblematic to Palomar's overall success. We ended the year at 252 -- 253, excuse me, employees. Today, we're at 310. And the delta there is because at January 1, with the acquisition of FIA, that was a large part of that growth. We continue to grow also in the areas of claims management, as discussed by my peer, Althea. We also focused on several lines I'll get into a little bit more detail. We doubled our workforce over a 3-year period. And we are prepared to continue to make those growth, should we decide to. We're very intentional and strategic in our growth. Last year, we experienced a headcount growth rate around 30%. And we'll leverage our improved people processes and infrastructure to facilitate growth this year. And one key takeaway that we'd like to emphasize and that was mentioned in Mac's earlier comments, is that, we invested in growing our headcount pragmatically and with the discipline towards growing the bottom line, as indicated by our peer-leading adjusted net income per employee metric. Our talent acquisition efforts focus on filling senior leadership roles, building out our new crop line of business, reinforcing our casualty line and supporting functions in technology, operations and claims management. And along with attracting the very best talent, we were able to retain a productive and expert workforce as measured by our employee turnover rate of 9%, and we will continue to manage attrition by offering competitive compensation -- a little bit of alliteration there -- healthy and vibrant work environment, respect for all employees and opportunities for advancement, as evidenced by the 1 out of 4 employees who were elevated last year through promotion. And because of nurturing a culture where employees are valued and trusted, have a sense of pride in the work that we all do and are loyal to those we serve, we are proud to report consistent top employee engagement scores of 87% 2 years running, by the way, which is top quartile within the larger banking, financial services, insurance sector. And 1 contributor to our high engagement score and retention of great talent is our approach to how we reward and recognize our people. Unlike many of our peers, we annually award each employee a long-term incentive grant in the form of restricted stock, which is above and beyond the employee stock purchase program we also offer. We believe this further emphasizes the importance of company ownership as a key to motivating and inspiring exceptional employee work, which leads to greater service to our stakeholders and ultimately heightens our delivery of corporate objectives. So focusing on 2025. Our people priorities are quite simple. We're going to focus on how we work. We're going to focus on how we grow, and we're going to focus on how we win. We are making intentional investments on reinforcing our integrate and operate strategic imperative with specialized talent and by creating predictable, scalable and sustainable people solutions that drive the right behaviors, leading to heightened consistent results. Example of this work are in talent acquisition, where we continue to hire for our crop surety, casualty, reinsurance and actuarial teams. In our people systems, we're modernizing how we align individual and teamwork enterprise goals through a unified accountability construct or more modern performance management system. And we are developing employees through learning programs to deliver on the scale and complexity of our 5 product categories. These learning programs are specifically designed to develop internal talent into value-based underwriters and program leaders. And developing our pipeline of high-performing employees, particularly in production roles, starts with our early in career talent programs such as internships, rotational programs and intentional career pathing. And by the way, we are seeing proven success out of our individual program. It's a 2 summer program, by the way, which is resulting in about a 40% and growing conversion rate. And of those who are converted to full-time employees, we're seeing well over 90% are staying here, which is fantastic because we are building that skill set, that capability set for -- not just today, but to hopefully in perpetuity to lead into the opportunities and problems that wait for us. But also what is another benefit of having this very focused energetic, young, highly, highly desirous of learning is they are expert ambassadors for us. And so we're starting to see some really, gains and some notoriety with on the different campuses on our product offering and more importantly, the culture that we have. We think we're pretty special, if you haven't figured that out by now. And finally, our third people priority is building great people leaders that are not just technical experts, but equally understand the necessity to employ effective leadership skills to supercharge our growth through tried and true general manager and leadership practices. We want leaders and we are building leaders and we have hired leaders and continue to develop leaders who are critical thinkers who use logic-based decision-making to inform our problem solving, who work with a sense of purpose and agility that are solving real problems, not living in theory or philosophical realm. And that takes some work, and that takes some very intentional designs on how we make sure that all of our leaders that come here understand that part of Palomar culture. So as you've heard from my peers, you'll hear from me, our talent will propel us to do great work and achieve industry-leading results. The leadership assembled here is committed to enriching our talent by making purposeful investments that lead to greater scalability, predictability and sustainability for how we work, how we grow and win and ultimately, how we serve, where we work and the communities we live in. So, with this, I'm looking forward to questions later, and I'd like to introduce Chris Uchida, our Chief Financial Officer.

Thanks, Tim. My name is Chris Uchida. I'd like to thank Alex and Lindsay for all their hard work, putting all these materials together. This, by far, is the best-looking slide that we have in the deck. So if you guys want to stay in here for a little while, feel free. I think if you guys got handouts, you can take that home with you and keep that as a souvenir of this day. . This does say CFO on there. I don't know if you guys heard the correction from Benson earlier. CEO is what I like to go. So Mac, Angela, I need to talk to you a little bit later. It will be quick and painless, I promise. But no, Chief Financial Officer is what I am today. So we'll stick with that for a little while. Hopefully, we can -- we'll talk about changes. We said we weren't going to do anything material here. So no big 8-K after this is coming out. CFO is where we're going to stick for today. During my presentation, really 3 things I want to be able to get through. I want to talk about Palomar 2X. Even though the NCAA tournament starts in about 30 minutes, we're not going to talk about the 3 ball. We're going to stay at Palomar 2X. I want to talk about 2025 guidance, and I also want to talk about the stability of our model and how we think about the model internally and how we build that. First, I want to revisit what we presented at the Investor Day a couple of years ago or in the summer of 2022. It's nice to be here in person. If you guys remember last time I was affected with COVID. So I was just a big head on the screen like that last picture. Palomar 2X is a translatable financial objective that we believe provides a great operating philosophy for our investors and our teammates. We believe that every single team member contributes to the goals related to Palomar 2X. We believe this is going to be great for all of our shareholders. And it's also very important to remember that every single teammate is also a shareholder of Palomar, something we're very proud of. When you look at Palomar 2X, the core principles remain unchanged. We plan on doubling. We plan on doubling our capital base. We plan on doubling premium. And ultimately, we plan on doubling the bottom line. So what we have done is -- and excuse me, all of that really starts with underwriting and goes through operations and the investment portfolio. So we thought it was simplify and straighten out the metrics a little bit, and we're just going to point to doubling adjusted net income. That is the item that we provide guidance on. That is the -- what we think the Street really holds us to. So we felt it was a more simplified metric to just point towards adjusted net income and focus that, I think that's the bottom line goal that everyone here is striving to achieve. And so when we look at Palomar 2X and as we leave here today, the goal for Palomar 2X is to double adjusted net income in an intermediate time frame of 3 to 5 years while maintaining an ROE of greater than 20%. So like I said, no real fundamental changes. We're still planning on doubling. We just feel like we'd make that metric a little bit tighter, get everyone on the same page. It ties up with the guidance, and so we feel like that fits our model a little bit better. The one thing we haven't talked about yet is that with this goal, we still have some levers in our quiver when we think about reinsurance. We are very conservative when we think about the reinsurance portfolio and how we use it. Right now, when you look at it, we have started to take a little bit more under our balance sheet. We will continue to do that more over time. If you look at that crop business, we were about 5% participant last year. In 2025, we were going to be about a 30% participant. But quota shares are not the only lever that we have in our model. We can also adjust our excess of loss. We can adjust the structure, the retention, terms and conditions to make it a little more favorable for us as we continue to grow and add more to adjusted net income. We can also adjust quota shares, like I talked about, but we can also adjust the line size, like Mac likes to think about. As we grow, we can start writing larger lines. So we still have those relationships, instead of writing a $1 million line, maybe we'll write a $1.5 million line. So these things will change and evolve over time, but allow us to leverage our capital base more as we continue to grow. I'd be remiss if I didn't look back at where we were at the last Investor Day and think about what we presented before. If you remember, at the last Investor Day, what we presented to the group was really a model or an illustrative of where we thought we could go and what we wanted to double. It was a model of adjusted underwriting income, excluding CATs, excluding overhead. We thought this was a high watermark with very conservative assumptions in it that did not take any benefit for scale into the model. So -- but first, we want to present that and just really show how we did the goal or milestone, as you will, because as Mac pointed out, I like to think about this as an operating philosophy. These are not set targets where we hit the target and everyone goes home. Right? Everyone knows it's what have you done for me lately. That's how we think about it. We want to keep growing this. But the goal off of that day was $220 million. You compare that to our most comparable metric, we beat that by 17%. That's pretty good, right? But again, that was just an illustrative. We want to show you some real numbers. So the most comparable metric is adjusted underwriting income ex-overhead, ex-CAT. We beat that by 22%. Another good metric? Just traded asset underwriting income, include everything else in there. We beat that by 20%. Compare that to the new metric, adjusted net income. Yes, we're ahead of that by 27%. Look at ROE. ROE, 22%, 10% ahead of our goal. It is also important to remember that 10% ahead also includes the capital we raised over the summer. It's a little bit of a drag. As we pointed out, that capital is not expected to be fully deployed until the end of 2025. So we're still getting a nice return on that capital before it's fully deployed. We've done some things to help deploy that. One of the things we announced today. Apparently, we're doing another acquisition, a little small acquisition, that will help deploy some of the capital. We also did the surety acquisition a little earlier. That will also help deploy that capital. So we're in the process of deploying. We are going to continue to leverage that capital to grow the bottom line, which ultimately grows our balance sheet and overall results and hopefully raises the share price. Looking at guidance for 2025, we put out a range of $180 million to $192 million of adjusted net income. That implies at the midpoint, 39% growth and an ROE above 20%. Additionally, it includes CAT losses of $8 million to $12 million in our model. We felt that since we are pointing towards adjusted net income, we want to put everything in there. We want to make sure that we're all thinking about the same way that we're all aligned. Additionally, that CAT target or that CAT loss assumption of $8 million to $12 million also includes all the significant underwriting changes that we've made in our portfolio over the last few years. It gives us confidence in putting out that metric, but it also only represents about 3x to 4x our average adjusted annual loss that we expect to have in our portfolio. So it has come down significantly over the last few years, again, 3x to 4x. So we feel very comfortable with that number and that metric, and we think that we do have a very strong ability to achieve that. Looking to the bottom part of this chart, what you will see is we kind of put the metrics or the goals, milestones that we need to achieve off of 2022, '23 and '24. What you will notice is that the midpoint of that guidance of $186 million, we are ahead of the '22 number. So we will achieve or we expect to hopefully achieve the '22 goal -- Palomar 2X goal within 3 years. The other thing that you'll notice, for anyone that does math on a daily basis, we're right on the heels of 2023. So we do have the ability to pension -- I'll say, it's in our range. We've got a puncher's chance at hitting that objective in 2 years. I'm not changing the goal. I'm just pointing out that we may hit that in 2 years. Our goal is still 3 to 5 years. So the next piece of this will be obviously 2024. So we want to think about the things that we need to do to kind of hit that goal of $267 million. That is our objective. Two things I would add to the slide. I talked about reinsurance a little bit earlier. That is still a lever that we have available to us to kind of pull as we start moving forward. When you think about just quota shares, not the other pieces, excess of loss limits. Just quota shares in our 2024 numbers, we had about $50 million to $65 million of underwriting profit that has been ceded off to reinsurers. Over time, that will come back on to our balance sheet -- or come on to our balance sheet, not back, on to our balance sheet. We've never had it on our balance sheet in the past. That book will grow, that number will grow. It's not like we're going to just take this away from reinsurers, reinsurers are a key partner of ours. But over time, our capital grows, we will continue to utilize that in our portfolio and in our results. But again, that does include excess of loss opportunities. It doesn't include line size opportunities. It also doesn't include the investment portfolio opportunity by keeping that cash on our balance sheet. It's important to think about all of those levers as we continue to grow as an organization and we continue to leverage our portfolio. A lot of these lines that are growing at a faster rate, whether it be crop, casualty, in the marine are much more attritional in nature and do not have the shock associated with them like our CAT business does. So we can leverage that capital for a longer period of time as we grow, so that will be great for the investment portfolio. The other thing Mac talked about, Ethan talked about it, when you think about our reinsure -- or excuse me, our net reserves is the fact that we are still -- net reserves are a very small portion of our overall balance sheet. When you look at our capital base, net reserves only represent about 31% of our overall capital base. That's a very small percent -- excuse me, 21% of our net capital base. Where I'm going next, 31% of our net reserves are from our gross number. So we are only on our balance sheet retaining 31% of our overall gross reserves. That has been great leverage of reinsurance, and it shows in our historic results. But the one thing we don't talk about that is that let's say there was some adverse development in our results. We would only have to take 31%. So yes, it has been great for historic results, but it also protects the future and how we can show consistent earnings in the future is that even if there was some adverse development only about 31% of it would affect our P&L. So we feel very comfortable with the consistency that it drives and the reinsurance structure that we put in place. All right. I was hoping to have a chalkboard for this. I can point, draw and do some stuff, but technology today does not allow that type of thing to be done. So now into the modeling sections, right? What we'll say is at Palomar, now it's crop season. We do have some seasonality in our model, it's going to show up. We've tried to highlight where it's going to show up on here. I'm going to spend a lot of time on it. Anyone can feel free to follow up with me later and talk about this. We're trying to be as transparent as possible about how we think about this. I talked about it a lot in how we model. We model of gross earned premium, that top line that you see there is our gross earned premium line. On a sequential quarterly basis, it used to be very consistent. It grows on a quarter-over-quarter basis. Before Q3 2024, I would still expect that to happen. And when you look at this on an annual basis our gross earned premium is going to grow. We plan growing, we're growing the top line, gross earned premium is going to grow. So the first metric that you get to when you think about this, is going to be reinsurance. That reinsurance cost, ceded reinsurance drives our net earned premium ratio. In 2024, on an annual basis, we ceded off our net earned premium ratio was up 36.5% meaning we ceded off about 63.5% of our business to the reinsurers through excess of loss and through quota shares. That is why we draw that line right there. That is the first and most expensive piece of what we spend our money on is reinsurance. We show it there, we model off of it of a gross earned premium, and you can see this trend there. Historically, going back to Q3 to '23, and that low point has been driven by excess of loss. We still buy excess of loss. There's still going to be a driver of that. But as our book has diversified over the years, it's really starting to be driven by the quota share business. You can see that with crop, right? In 2024, we ceded off 95% of that book. That drove the low point in Q3 of 2024, a little bit more. That trend is going to continue, right? You're going to still see a dip in Q3, but kind of like Q3 '23 on, it's going to go up, you're going to see an increase in that trend over time. For the year, in 2024, it's about 36.5%. Based on our participation changes with crop where we're taking 30%, I expect that overall line to move up to where it's a little bit closer to 40% for the year, right? So it's going to move up, but it's still going to have this trend where it dips in the third quarter. I expect to see that same type of trend that you see there, where it actually -- you look at that gross earned premium, it's going to spike a little bit or have a little bit of a mountain in the third quarter with that strong dip of net earned premium in the third quarter as well. You can actually also see on there that the third quarter for gross earned -- excuse me, the fourth quarter for gross earned premium is actually lower than the third quarter. We're talking about crop growing, crop is going to be $200 million this year that dynamic is going to be there. For people that model us, I want to make sure that you're looking at your gross earned premium and you kind of see that a little bit of a mountain in there, right? The trend line, when you look at it and you map this out for 4 more quarters is going to be upward, but there's going to be a spike in that gross earned premium in the third quarter. There's going to be a dip in that net earned premium ratio in the third quarter. We want to make sure that is something that people think about in model. The third quarter is going to look different. The model itself when you look at it is going to be very stable on an annual basis, but people that care about quarters, anyone in this room care about quarters that's going to look different. So I want to make sure people think about it. I don't want people coming to me after third quarter results and being surprised. We're trying to be transparent, It's going to be there. I don't want to say I promise, Benson, $200 million, that needs to be delivered, we plan on doing that. That's going to be in the model. This slide, I kind of want to show dollars and percentages. This slide is that net earned premium dollars, again, strong consistent growth. You can see back at Q1, Q2 of 2023, a little bit flatter. That is kind of as fronting was getting a little more mature. You can also see that dip in the net earned premium ratio going down. You also we highlighted there Q3 '23, if you guys remember, we had about a 30% increase in our excess of loss. That's part of the reason there was a big dip in that third quarter. But again, strong net earned premium growth from there, right? Strong net earned premium ratio growth, strong net earned premium dollars growth. We expect that trend to continue. The other thing I'll point out that the historic chart doesn't show is when you look at that net earned premium dollars, it's nice, consistent sequential growth, crop $200 million, I expect net earned premium dollars to actually be higher in the third quarter. It's going to have that same type of mountain effect in the third quarter that gross earned premium does. Mathematically, it makes sense, you guys play with it, you'll see it. But I would expect net earned premium to be higher in the third quarter and actually lower in the fourth quarter. I want to see that same trend in those ratios when you look at it. That's kind of what we expect to see in the dollars. I still see that dip but again, if you looked at Benson, sorry, pointing -- Benson's over there. But when you look at that chart right, we earn a significant portion of that premium in the third quarter. High dollars means high gross earned premium even though we're only keeping 30%, it's still going to give you result in high dollars from a net earning standpoint. Don't get me wrong, excess of loss still third quarter. But excess of loss is now the smaller component of what we ceded to reinsurers. Most of it we do now is quota shares will be fronting, crop, casualty, inland marine. So that dip is still going to be there and it's still going to go backup. And like I said, I expect kind of closer to 40 for the year, but still a dip in the third quarter. So when you look at those ratios, that's really what I expect. And so really, this model the biggest changer in our model is really this net earned premium ratio. Like I said, 36.5% last year, it was 34.1% in 2023. I expect that on an annual basis to be around 40% for the year. The same pattern that you're seeing here. So kind of work on that pattern, work on that spike in dollars and net earned premium. I think you get there but if there are any questions, I'm happy to talk about it. Next piece of the model, getting into the expenses. Acquisition expense, even though that ratio on a gross earned premium basis kind of goes up and down. It's actually been pretty consistent on an annual basis. It was about, 10.6% in 2023, it's about 10.7% in 2024. I would expect it to be right around there for the year in 2025. You're still going to have stuff move around, right? On a gross earned premium basis, we've circled it. A lot of that premium is going to be there again in the third quarter. It's going to push that ratio down. So maybe it's a little bit higher in Q1, Q2 and Q4, definitely lower in Q3. You're going to see that same type of trend. But when you look at the dollars, the bars represent the dollars, we're going to expect to see the dollars continue to increase sequentially over time. You should expect to see that in your model, right? There is some noise in these ratios, but the dollars, especially for acquisition expense should show nice sequential growth. So that's the one main thing I want to point out about the acquisition expense. So that's how we think about it. That's what we think will happen with acquisition expense. Again, it will be pretty much flat for the year, but dollars will go up, the acquisition expense will dip in the third quarter. Other underwriting expenses, you can expect to see the same trend. When you look at this -- when you look at that ratio to gross earned premium on an annual basis, '23 looks pretty flat. That number was actually 6.8% for all of 2023, for all 2024 it was actually 6.8% too. This is starting to show a crop on a gross earned premium ratio basis right here. That dipped to 5.9%, you're going to see that dip again in the third quarter of 2025. It's just the natural way. But again, expect this to probably be flat for the year. If it comes out 6.8% again for the year, that's what I expect. If you guys know this, we're investing in our operations, we're investing in tech, we're investing in our teams, claims, all of these things we're investing in. So I expect that to be flat. But those bars, again, represent dollars. I expect it to continue to increase over time. There's a little noise, some going on in Q2 '24. I think we hired a bunch of people. We might have had some recruiting fees. So I'm not going to blame anyone specifically, but there is a reason that Q2 of '24 was a little bit higher. But again, I expect the dollars to increase sequentially over time. When I look at Q1 for '25, apparently, we did an acquisition and hired some people, Q1 is going to have a little bit of an increase. And I also heard some other investments that we might be buying [indiscernible], so I don't look that at the Q1 numbers, but Q2 of '25 will probably also increase in that other underwriting expense. But again, strong sequential growth. We're investing in our teams, net earned premium ratio expected to be flat, but it dip in that third quarter. Those are the key pieces of our model and how we really think about it. All right. Kind of trying to wrap all of it up into one spot. We try to kind of show everything here. Still historic, we didn't kind of put this out in front of you, but we wanted to make sure we've laid out these trends. The bars represent gross and net earned premium that are improving, obviously in the dark color at the bottom. We expect the gross and net earned premium to continue to increase, no shock there, we're a growing company. We're planning on growing our earned premium and written premium. The third quarter will show some noise. I expect a spike in that gross earned premium from a dollar standpoint for both the net and the gross, that's going to spike in the third quarter. What I expect is the fourth quarter to be lower like overall, when you over 4 quarters, it's going to be a nice trend, but I expect that spike to happen in the third quarter with a dip back down in the fourth area, but if you look at it on a nice trend line, it's still going to show nice growth. Again, when you look at that gross and net earned premium ratio, I expect a dip in the third quarter. Overall, I expect that ratio again to be 40% for the year versus 36.5% last year. But again, it's going to show strong growth, but a dip in the third quarter because of all that crop premium that's going to be earned in that quarter. The next piece of this kind of the same bars, so same gross and net earned premium, but we wanted to show the expenses. You can look the acquisition expense kind of running across there. Again, we expect the acquisition expense from a dollar standpoint to continue to increase. I expect kind of be around that 10.7% on an annualized basis, a dip in the third quarter. Similarly, adjusted underwriting expenses, we expect that to be flatter for a year, again, 6.8%-ish for the year, but a dip in that third quarter. That's kind of what we expect on a gross earned premium calculation basis. So pretty straightforward. I know there's not a lot of moving pieces there. I think even though people complain there's a lot of moving pieces within our overall model. I tried to break it down as much as possible for you guys to kind of see what we expect to happen even with Crop, Earthquake, Inland Marine, Casualty, Fronting, all these things coming together. This is kind of what we expect in our model, and we try to help as much as possible. And we believe that this model will gets us to that midpoint on adjusted net income basis of $186 million. The one thing I didn't spend a lot of time talking about today is losses. We do spend a lot of time with the group talking about losses. Again, on a normal combined basis, we expect our loss ratio to be in the low 30s, up from where it was before. Crop participation as part of that, but again, you will see a spike that third quarter or that -- third quarter that gross earned premium, our 30% participation in crop doesn't come on for free. Those losses will show up there. I expect something probably closer to 40% in that third quarter. Doesn't change my view on the full year of about 31 percent-ish for that or 30% to 31%, low 30s for the year, but I expect a spike in the fourth quarter from the crop business coming on. So I want to make sure that people thought about it, and think about pointing that out and as they think about our model. Next, I'm not going to spend a ton of time on the investment portfolio. I view it as a nice gravy on top of our overall income. It's a great, nice to have. I think we are still going to be very conservative in our portfolio. I think the one thing that we do look out is starting to potentially leverage it more, right? It always has served a very important role in our portfolio, provides a nice ballast of all our earnings. But the one thing that we look at as we get into stable lines of business, whether it be crop, whether it be inland marine, whether it be casualty that don't have the shock associated with them, especially casualty that has a longer tail. We can start looking at leveraging our investment portfolio a little bit more than we have in the past. It's still to be very conservative, but we think there is room for improvement. We got people on our team looking at it on a daily basis. So it's something that we're going to look at more especially as the face of our business is getting more and more solid. We still have to be -- have that capital available to pay in earthquake, but it's not the preponderance of what we do anymore. And we can look at all of our specialty lines and leveraging our investment portfolio a little bit longer, a little bit more nuance. So we just want to show the slide where everything is. But again, very conservative, but it's something that we think that we can start doing a little bit more with over time. Last thing I'm going to leave you with, and there's not a slide on this. We didn't -- I didn't talk a lot about the AAP or the Advanced Ag acquisition. We did these slides in this before, We knew if we were going to be able to announce it or not. What I would say don't change your models, your models will still work. We expect the 2025, we expect the Advanced Ag acquisition to be neutral to overall results. What I would tell you is that there will be some geographic changes on the P&L because of it, right? This is already a partner we're working with on a day-to-day basis. The best way to think about it is that acquisition expense will move to other underwriting expense. Basically, instead of paying an acquisition expense to a partner, we basically have all that team on our books. But again, it will be neutral for the year. If you model it just like I said, you'll be right, you'll probably get in Q2 you might get acquisition and other underwriting expenses wrong, but your expense ratio will be right. So I'm not going to spend a ton of time around with it, probably with Q2 results we've made better numbers, and we'll be able to give you a little more information at that time. But right now, the model works just because I know people ask me about Advanced Ag, the model still works, it's really just going to be a geographic change for 2025. We'll talk about how it levers and performs in 2026 and beyond later on in the year and maybe even 2026. But overall, if you do that with your model, expect it to work. All right. With that, questions. I'll stay here. I'm going to monitor. All right. All questions go to Mac. Dave, Thank you.

Dave Motemaden from Evercore ISI. Just one quick one. So you spoke about the risk retention and increase in that. What is that today blended across your entire book? I know crop is 5 going to 30? But what is that today across the entire book? And where is the target? Like where do you see that going to within the new Palomar 2X plan?

Yes. I think the target very long term is we probably want to keep all of it on our balance sheet. If I told you we did that today, we don't have the capital to do it. We would need to go raise capital to do that today. So it's not going to happen overnight. The other thing to think about is that these are strong reinsurance partners that we have relationships with on quota share and on excess of loss. So we want to make sure that we treat them appropriately. We will telegraph this well to them. We will make sure that they understand what we're doing. I think when you think about it mathematically, overall, we still see -- we take our whole portfolio, we still set off the majority of our portfolio to reinsurers. Over time, we'll start decreasing in some of our lines. We are taking more of, we'll be taking 4 or 60% of versus 40% previously. Over time, we will continue to do it, but it's going to be very deliberate, right? We want to make sure we're building up a solid profitable base business that we will be able to leverage and do over time. But it's not going to be, yes, if you think about it, this is a stroke of the pen type stuff technically that we can do. But and we don't have to grow the book. We don't have to add people to do it. It's a nice thing that we can do, but we're going to be very deliberate. We're going to treat our reinsurance partners right. They're a strong partner of ours, but it will happen over time. We're not going to commit to a certain thing. Reinsurance markets change. We will look at it over time, but the goal is, yes, to start doing it. But it's not going to be, call it, 0% ceded at the end of the next 3 to 5 years. That's going to be slow and deliberate.

Dave, if I could add. You have to remember there are annual reinsurance contracts in various lines or in various stages of development and evolution. A good example is flood. We've gone from -- initially taking 10%, now we take 50%. So I agree with Chris and it evolves. I think the other thing though is if we collapse these quota shares at some point, we're not going to stop buying reinsurance on those programs. So we will have some type of stop loss or excess of loss. So it's really going to be a circumstance where the risk transfer paradigm changes some, and it does afford us the ability to retain more of that risk and get all the levers that Chris is referring to, but we will still be mindful of risk transfer and insulate ourselves from stop loss, just be a different type of mechanic.

Got it. And so that's just, I think, Chris mentioned $50 million to $60 million of underwriting profit that you guys are seeding off right now. So that's sort of what we're targeting here over time. Is that the right way to think about it?

That was a 2024 number. I mean, so that was as we were enrolling non-fronting, just to be clear on that. If you enrolled some or unwound some of those quota-shares that they're looking at. So I expect it to grow, right? The lines that use quota share reinsurance are all going to be our fastest growers right, casualty, inland marine, crop, our fastest-growing products. So that's a bigger number in '25, even bigger number in '26 and so on. So [indiscernible] what you want, yes, it will grow.

But there would be some offsetting expense associated with that with the excess loss costs.

Got it. And then just on the outlook. The doubling over 3 to 5 years. Just wondering what that considers from just a reinsurance pricing environment. I mean you guys doubled it in -- from the 2021 base and now is in one of the most difficult reinsurance markets that you've seen, at least I've seen. So I guess, how should I think about that that's baked into the outlook? And like maybe just other high-level comments on what makes you get there within 3 years versus 5 years?

Yes. Well, I think it would be good for Jon to give some thoughts on what he seen in the reinsurance. I think our assumption for this year is that it's flat to down 5%. And I think we are not making a call on a material softening in the out years to help us achieve that as Chris pointed out, it's kind of a it's a linear progression of top line growth, operating leverage and scale and net neutral reinsurance margin -- excess of loss reinsurance margin.

With respect to the kind of the near-term outlook, we -- Mac and I were over in Europe a couple of weeks back. We are evaluating secondary market trades on -- with respect to CAT bonds. We feel pretty good about the outlook that we've already provided. As I mentioned in my statements, I'd say kind of further out as you think about that, take a look at how we responded to that harder market with the last couple of years. Regardless of what the reinsurance market is I think we've constructed a business model that allows us to allocate. We're focused on those segments of the market where we can get primary pricing increases if and when needed, reinsurance pricing change and no better demonstrated than how we navigated the harder market the last couple of years.

And I think one other lever is just in our CAT retentions. I think there's the ability on the quake side certainly to explore taking that up. Some when you look at the lowest layer of the XOL, whether it's all perils or the quake only, it's a rate online, it's certainly higher than our ROE. And so as our balance sheet has grown, the capital place has grown 55% like it's -- we're not shifting our exposure disproportion of some steadfast rules we've used around net retention relative to surplus or earnings.

I was hoping you could walk us through the reinsurance tower kind of one more time. I get questions about this on a regular basis. And maybe give us some examples that would help illustrate this because it kind of looks like there's essentially kind of 3 different types of risks, right? The earthquake, hurricane and other with slightly different retentions. And a lot of the questions I got repeatedly as sort of like how that cat bond actually works? Is it sort of the first trader and then it goes away? I know this -- you've talked about this in the past, but I get enough questions about it. I think probably worth talk about it to the general public?

Yes. So as you're looking at the structured graph, if you read it more from left to right, that is the priority level, like the order of operations with respect to how it will apply to the loss. So the California earthquake loss is an example. First, flow through our California commercial earthquake quota share. Any recovery from that would reduce the subject loss to either of the next 2 towers. If the loss -- if California earthquake loss was in excess of $325 million, it would also trigger a recovery from the cat bond, reducing the subject loss to the core tower you see on the very right. That's how all of that works.

But I think simplistically, Paul, if there's an earthquake, our first $20 million will be retained by Palomar say, for the 15% that we cede off to the quota share. And then the rest of the tower kicks in. If there is a hurricane, the retention is $15.5 million, both those numbers on a pretax basis with protection up to $100 million. Hawaii hurricane, as we sit here today, it exhausted $850 million. So as long as it's inside of what we're estimated to be over $3.5 billion at [ 6.1 ] from an earthquake our loss is $20 million pretax.

And then the other -- if there's another non-earthquake or hurricane that's limits up to the $100 million?

$100 million, yes. But as a reminder, Jon and I both pointed out, like our 250-year PML is $80 million.

Yes. So our 250 years -- sorry feedback. The 250-year wind PML is now $80 million. So that's $100 million is well beyond DC probability curves.

And presumably, over time, some of these changes could be the retention could go up over time as part of that...

Well, for quake, for sure. We went public with a $15 million earthquake in a capital base that was a couple of hundred million dollars. We've tripled that of that quadruple that, and we've moved up the retention of $5 million. So that's logical. And I think by nature of the factor earthquake is the binary exposure. It's not exposed to the frequency of severity events that you see in hurricane. I think there's a scenario, though, as we continue to pull back our exposure on the wind side that the -- all the perils retention could come down. So it's just a matter of the cost and -- yes, really a matter of cost...

Again, these are all over the place. I want to start with Ethan. Do the casualty pricing actuaries and reserving actuaries use the same assumptions? Or is there more of a margin on the reserving side?

I guess I would probably say they generally start in the same position and -- and as the reserves -- as the reserving remodels start to gain experience, there's an implicit margin that gets built due to the bias towards reacting towards the adverse development swiftly, but not recognizing the favorable trends as fast. From an expected loss ratio standpoint, we tend to have a little bit of a risk margin within our reserving models that wouldn't necessarily be in the pricing discussions, but it really is dependent on line of business and really the conversations with our underwriters and other experts that understand the market at that level.

And then, Chris, one of the points you made early on in the Palomar 2x, you talked about doubling premium. And I don't know if I'm reading too much into that. But is that on the same timeframe as doubling adjusted net income?

No. No, I mean, obviously, the one thing I would say to that, though, is obviously, at some point in time, we will only double premium, right? I think we will -- I'm just pointing out that along with doubling adjusted net income, these things are all factors that are applying to that. We're going to have to double premium. That also means that the capital base will double, adjusted earning income will probably double during the same investment income will probably double as part of that, not necessarily on the same timeframe, but we'll need to double during that. At some point, that could be longer, that could be shorter. The other thing I would point out is that when you look at our adjusted net income and the way we use reinsurance and going back to Dave's question of that $50 million to $65 million of quota share type underwriting profit that we still have that we're seeing after reinsurers, we do believe that we have the ability to grow our bottom line at a faster rate than the top line. So that's something we always make sure to point out to folks because we are such a heavy user of reinsurance, we still have that tool in our tool set that we can still use and lever appropriately and deliberately, but we do have that lever that also goes to, as Mac talked about, potentially even the retention on the earthquake side, right? It still sits relatively low. Usually, the guidepost that we give from a reinsurance standpoint or from a retention standpoint is we want to be within 5% of our capital. We want to be within a quarter of earnings. Last quarter's earnings was over $40 million, assuming we can grow that, then we are well within that. So there is an opportunity there. But like Jon pointed out, we want to make sure that we understand what's going on in the reinsurance market. We're going to look at all the factors and make sure that we're getting the appropriate risk-adjusted return on any type of ship that we make and make sure that we're appropriately using our capital in the right spot. So over time, everything will double. The only one we're committing to is adjusted net income in a 3- to 5-year time span.

Okay. And then one question for Jon, if I can. Is there any advantage to adjusting your renewal schedule so you don't get caught up in the group thing if that was such an issue a couple of years ago?

It's definitely something that we've explored. Of course, there are some years that works in your favor, too. So turns into more of a logistical problem once you get sort of stuck around a particular renewal? How do you move everything to a different date. Something we're evaluating, but no immediate plans to make any change.

Any other questions Paul?

A little bit outside the box. One criticism of companies like Palomar is the use of PPAs, which are generally considered not the most effective claims organizations. Is there a thoughts or plans that certain lines of business might end up getting large enough that you'd actually start building your own claims operations?

Yes. Very good question. I think it teased a little bit. We are continuing to invest in claims from both to people and process systems with the designs for lines, most notably David's E&S Casualty to take that in-house. We've hired a heck load of crop claims professionals as well. So that will be -- we won't do it for earthquake, we won't do it for Hawaii hurricane, but they are all -- it's a lot -- it's a good question. It's a logical progression, and you'll see the first steps towards that the second half of this year.

But if they decide, if they decide to open an office in Hawaii, I volunteered for that.

I can be hired to.

It is worth pointing out, you said briefly, but the -- from a crop standpoint, those are as of April they will all be in-house, we will not use a TPA for the crop insurance business.

Pablo?

As you've expanded the gross book beyond earthquake and just increase the overall size of your writings, do you think you've got a full credit from the reinsurers for where your portfolio is now? Or do you think there's still scope on the margins that potentially get even better terms and conditions on the road?

Yes, I mean, there is definitely a potential improvement in the margins on the reinsurance side. Hold aside the excess of loss. I mean a lot of these quota shares are brand new, Tricia Panaguiton, who runs [indiscernible] on the casualty side, has done an exceptional job of getting this up and running. And looking further the traction we got with the brand new E&S casualty quota share that she and David put in place at one-on-one, but those -- as those book season and you build up a bank, there's definitely room for improvement in those economics. So yes, we by no means top tick that. Any other questions? David?

I just had a question on just on the reserving side. And I think you had mentioned it a little bit earlier, you can just recognizing bad news first. It looks like there was some adverse development on other liability occurrence in 2024, not much, and I know it's a small part of the book. I think it's like what half other liability occurrence, half of the liability claims made. But just wondering if you can talk a little bit about what was driving that adverse development there?

Yes. I would say I think on paper, it's adverse development when you're looking at the figures. But just given the conservative approach to our modeling, as our book is growing, and new exposure periods come online, we are holding expected loss ratios flat, and we are holding our reserves flat. So in the 1 in 5 or 1 in 7 exposure periods that we do have a pop early on, we are reacting to that very quickly. But we aren't giving the commensurate favorable experience on the other exposure periods that may be performing better than that expected loss ratio. So when you see kind of -- if you're looking at Schedule P or other publicly available numbers, it's a little bit of just the conservative modeling approach that sort of allows for the ebb and flow on the conservative approach. Did that answer your question or...

No, that makes sense.

I'm going to ask elementary question, that is the -- as you expand from your core business, the earthquake and some others into the additional -- sometimes adjacent, sometimes not so adjacent segments of the market. What are the criteria before you select saying, "hey, I'm going to make a move here?" So for example, let's say, what about the market size? What about your potential talent reserve, maybe there is less competition and maybe the pricing is hard. So I'm just imagining from an outside. So if you can elaborate the thinking process of getting to these fields and then how do you grow and thrive?

Yes. It's a great question, I think Kyle Morgan touched upon a little bit earlier. We have a constant -- we have a team that's constantly assessing markets. And one of the key criteria for any time we see market is that there's some measure of dislocation or need of innovation. So that could be capacity scarcity, it could be hardening pricing. And so -- and which obviously leads the potential for us to generate compelling risk-adjusted returns. But then if that's identified, there has to be some component of existing infrastructure that we can leverage to go into that market. That will provide us for speed to market and execution efficacy. If there's not, then we better figure out how to find talent to go into that market. So I think if you look at the first 6, 7 years of the business, it was premised around natural extensions into segments of the property market, earthquake into Hawaiian Hurricane. You could leverage reinsurance, similar distribution strategy, similar type of coverage and that's a binary risk. And then we moved into builder's risk and then excess natural property, pretty sequential. I think if you've seen us evolve now and part of the reason for today is to show you that there was ways for us to enter into markets, but we needed to have talent. And so a lot of those people that have been on stage today are the examples of crop was a market that John and [indiscernible] had long-standing history in, we have the ability to make an investment in strategic partner, but we needed leadership and we got that inventing. So I think that's what you'll see more and more now as we go into markets. It's -- that may not be as linear in the progression or is adjacent is -- we will be bringing in talent or we might be buying talent in the case of what we did in Surety. Surety was a market that we have looked at for several years and thought about building by nature of the underwriting, the local market underwriting and the local market claims handling it was a much better buy than build. So yes, it's a good question, and it's what we constantly are doing. Any other questions? All right. Closing remarks.

A new CEO, should I be doing those?

You know something I don't. But Chris is only willing to wax poetic about Mark's madness because his [indiscernible] got blown out by 30 in the playing game. So same place your schools at home. All right. But Thanks, Chris, and thank you to all of the Palomar team for your terrific work today and also in the preparation for what I certainly feel was a really productive session. My remarks will be somewhat brief, but I'm hoping they can put a little bit of a bow around our story. And I hope these are themes that will have resonated today, have not been beaten -- brown beaten into you. First off that this Palomar 2x is indeed a philosophy that we live by and one that's going to sustain our operating strategy and most importantly, our profitable growth. We have several growth vectors. But those growth vectors are coupled by the levers that we can pull as the business matures, as our balance sheet grows and our book seasons. But we're going to remain deliberative -- conservative and deliberative. Maybe that's our new word deliberative. And how and when we pull them, it doesn't happen overnight. It does when we have conviction and scale. We're going to continue to invest across this organization. We are bringing in the best and the brightest. Angela and I were talking earlier, like comparing it to 2022, like we brought in some amazing people in this room, but you got to see them also in Southern California, in Minneapolis and Amarillo, Texas -- Lubbock, Texas as well. So these investments are going to allow us to scale and inform our underwriting strategies and overall risk transfer strategy. But those 2 things, the conservative underwriting and the comprehensive risk transfer is going to provide stable earnings and consistent results. And it's what it's really going to ultimately make us into a specialty market leader. That's our goal. I think Rudy said it earlier, we are -- I've tasked with him to build an infrastructure for a much larger company. We want to be a much larger company. We're going to be a much larger company. We're not going to do it overnight but we're going to get there. So I can't thank you enough for your time. We were excited to tell you a story. We're excited to answer more questions at lunch. But again, thank you for your time, your partnership, your investment in Palomar and we'll talk to you at the end of Q1. Thanks. Yes. And please have yourself. We'll all be here. We'll intermix with you guys and keep asking questions. Thanks so much.