Q4 2023 Palomar Holdings Inc Earnings Call

Participants

Chris Uchida

Mac Armstrong

Paul Newsome

Peter Knudsen

Mark Hughes

Andrew Andersen

Meyer Shields

Pablo Singzon

Presentation

Operator

Good morning, and welcome to Palomar Holdings Inc's fourth quarter and full year 2023 earnings conference call. During today's presentation, all parties will be in a listen-only mode following the presentation. The conference line will be open for questions for instructions to follow at that time. As a reminder, this conference call is being recorded.
I would now like to turn the call over to Mr. Chris Uchida, Chief Financial Officer. Please go ahead.

Chris Uchida

Thank you, operator, and good morning, everyone.
We appreciate your participation in our earnings call. With me here today is Mack Armstrong, our Chairman and Chief Executive Officer. Additionally, Jon Christianson, our President, is here to answer questions during the Q&A portion of the call. As a reminder, a telephonic replay of this call will be available on the Investor Relations section of our website through 11.59 P.M. Eastern time on February 22nd, 2024.
Before we begin, let me remind everyone that this call may contain certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include remarks about management's future expectations, beliefs, estimates, plans and prospects. Such statements are subject to a variety of risks, uncertainties and other factors that could cause actual results to differ materially from those indicated or implied by such statements. Such risks and other factors are set forth in our quarterly report on Form 10 Q filed with the Securities Exchange Commission. We do not undertake any duty to update such forward-looking statements.
Additionally, during today's call, we will discuss certain non-GAAP measures, which we believe are useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with U.S. GAAP. A reconciliation of these non-GAAP measures to their most comparable GAAP measure can be found in our earnings release.
At this point, I'll turn the call over to Mac.

Mac Armstrong

Thank you, Chris, and good morning. Fourth quarter provided a strong end to what was a stellar 2023 quarterly results included record gross written premium and adjusted net income premium adjusted net income growth of 27% and 33% respectively, and importantly, an adjusted return on equity of 25%. When looking at the full year, we're equally proud of record gross written premium in adjusted net income, strong top and bottom line growth in numerous initiatives that led to diversification and reduced earnings volatility. We introduced multiple new lines of business, namely crop environmental liability and assumed reinsurance. This robust and disciplined growth translated into an adjusted return on equity well above the 20% benchmark levels fast in our polymer to X strategic plan.
Before I go into the detail on the fourth quarter, I want to take a moment to recap the accomplishments of our terrific 2023. At the beginning of last year, we outlined four strategic objectives for the year. One, sustained strong growth to manage dislocation, three enhanced earnings predictability and fourthly, scale the organization. I'm pleased to report we execute on all these objectives and the execution not only led to record gross written premium and earnings, but also put us in position for long-term success for 2023 are numerous, but selected achievements include 29.4% gross written premium growth and closer to 40% when excluding deemphasized or discontinued lines of business, successful navigation of a generationally hard property catastrophe reinsurance market in which we renewed our reinsurance program in line with the expectations implied in our full year 2020 earnings guidance and procured more access to blossom and to support our growth and earthquake, the completion of a multi-year effort to reduce our continental wind and severe convective storm exposure that resulted in reduced volatility in our earnings base. This is best exemplified by our minimal catastrophe loss this year. As an aside, if the 2020 winter season were to happen again, our total losses from the cohort of stores would be less than 10 million on a net basis, the introduction of three new lines of business and crop insurance and Per my overall liability and assumed reinsurance and incremental traction in newer lines like excess property and casualty. These nascent products will enhance our specialty insurance franchise and create shareholder value, the addition of best-in-class underwriting reinsurance data and actuarial technology talent to our team and best changing the outlook in their rating of Palomar to positive from stable.
Last and not least successful beat and raise of our quarterly adjusted net income targets every quarter of the year. These accomplishments allow us to exit the year energized by our prospects for profitable growth in 2024 and beyond.
With that, I'd like to discuss our fourth-quarter results and our 2024 strategic priorities for five product categories. Overarchingly, the quarter saw robust growth with gross written premium increasing 27% year over year, a nice sequential acceleration from 24% gross written premium growth delivered in the third quarter, excluding deemphasized lines of business, gross written premiums increased 32%. Likewise, net earned premiums grew 14% in the fourth quarter, which is an acceleration from the 10% that we delivered in the third quarter of 2023. Chris will discuss the net earned premium trend for 2020.
For looking at our five key business lines in more detail, our core earthquake franchise grew 29% in the fourth quarter, up from 23% in the 2023 third quarter. Residential Earthquake book grew 18%, and our Commercial Earthquake grew it grew a healthy 44% growth in Q4 for Commercial Earthquake favorably compared to the third quarter's growth of 35% in the second quarter's growth of 29%. Our Residential Earthquake portfolio remains our largest single line of business and a consistent performer. The market backdrop is still attractive as California homeowners' market dislocation persists, existing California Earthquake Authority policyholders are seeing reduced coverage offered at renewal, an increasing amount of historically standard line businesses move into excess and surplus line. At quarter end. Our E&S premium is 9% of total California residential earthquake premium, we believe high 10s growth sustainable in the year ahead and that a new partnership with the top 25 insurance brand offering earthquake insurance to their units policyholders could provide a further catalyst for sustained profitable growth during the quarter.
Commercial Earthquake conditions remained attractive as we achieved rate increases of approximately 26% on a risk-adjusted basis and record best levels for average annual loss in 250 year, probable all probable maximum loss to premium our most important portfolio management metrics. We did see the level of rate increases start to moderate from the prior year and expect that to be the case in 2020. For this dynamic is more pronounced in large, layered and shared accounts than it is in the middle market. We remain positive on the growth and profitability prospects of our aesthetics franchise as we enter 2024, our inland marine and our other property products grew 8% year over year as this remains our product segment, where we are judiciously managing in certain cases, reducing our exposure into product group, the best episode typifies our grower. We want mantra. We continue to invest in lines that hold attractive risk-adjusted returns like builder's risk, excess property and flood builder's risk are largely similar in the marine products exited the year with over 115 million of in-force premium and added several new underwriters to help expand our geographic reach and distribute distribution footprint.
In the quarter, we are confident the investments in builder's risk infrastructure will sustain the growth of the business through 2024. Our excess property lines are pricing 5% rate increases in the quarter and 136% year over year growth as it builds a portfolio of non-cat exposed property business like builder's risk. The excess property line is adding talent and infrastructure to profitably grow in 2024. Flood written premium grew 25% year over year in the fourth quarter and 38% for the full year. As we continue to expand the products geographic footprint. We've now reduced our continental hurricane probable maximum loss to $100 million and the average annual loss to 4 million. This concerted effort meaningfully lower the volatility in our book, but did lead to decline in our Commercial All Risk premium by 13% year over year. Importantly, the remaining commercial auto book of business is attractive with policies renewing at an average increase of more than 30% in the fourth quarter. As we have completed the triage of the book, we expect Commercial All Risk premium to grow in 2024, albeit it will come exclusively through rate increases. Flyer in premiums grew 13% in the fourth quarter of most of that growth from rate increases and our inflation guard. As we discussed last quarter, we have formed our Lima exchange fully licensed reciprocal insurance for which we serve as the attorney. In fact, manager that has new vehicle allows us to transition our business model for the Hawaiian Hurricane products from one that is restaurant one that is degenerative. We are in the process of rolling our policies and allow them and expect to have this completed by the fourth quarter of 2020 for our customers have been receptive to the well Lima transition with 90% of our policy successfully converting. Once this transition is completed, we will all but eliminate balance sheet exposure to win losses from Hurricane Katrina.
Why Turning to our casualty business, we are pleased to see premiums grew under 65% year over year. Production was highlighted by strong growth from our excess liability professional liability lines, as well as our first premium from our recently hired environmental liability team during the quarter, the books a blended rate increase of approximately 5% year over year, with rate skewing a bit higher and excess liability. Importantly, we continue to take a surgical approach to the building of our casualty business, where we focus on niche segments of the market that offer healthy risk-adjusted returns and definable exposure to social inflation we employ prudent risk management tactics such as modest gross and net line size, avoidance of heavily heavy bodily injury exposure and conservative reinsurance to minimize loss potential in the classes. We write PR approach, bringing on subject matter experts who are comfortable walking before they run, we'll build a well underwritten book of business with limited exposure to large shock loss and significant adverse court rulings for the quarter. The casualty book loss ratio remained in line with our conservative loss picks as the predominance of the book is less than two years old. We are focused on building a sizable reserve base that we expect to favorably develop over time. We expect our casualty business to be meaningful contributors to premium growth in 2024 primarily driven by our real estate, E&O, excess liability and professional lines. Our brachy business outperformed our expectations in 2023, growing premiums 63% to $364 million and delivered 24% year over year growth in the fourth quarter. We also finalized two new fronting programs in the quarter and recognized a modest level of premium from these new deals and are optimistic about the potential for 2024. As we said on past calls, our goal in funding is to provide fee generative services to a select group of MGAs carriers and reinsurers writing specialty lines of business and industry segments where we've developed investment thesis and some measure of domain expertise. We actively manage the compliance oversight, reinsurance and collateral of our funding partners and maintain our risk participation. In certain instances, the current maximum participation of 8% remains selective of our strong franchise partners and apply that selectivity to our healthy pipeline of prospects. We continue to be very optimistic about the potential for our newest product group crop insurance. As a reminder, Talmer leadership team has extensive experience in the crop insurance market, and we are now one of only 13 improved insurance underwriters or AIP.s in the 20 billion industry. Our strategic partner advance ag protection has extensive sector experience and a distinct technology that allows us to target risk at the producer and regional level, more importantly, compete effectively even without immediate scale. We're targeting business throughout the Midwest and a variety of crops with the goal of minimizing exposure to a single event or heavy accumulation of losses in any one region.
Fourth quarter is seasonally light period for crop insurers and one in which most at the Palomar included right, negligible premium during the quarter, we focused on generating premiums that will be booked at the start of the year. Thus far, the market's receptivity is encouraging, and we now expect to deliver more than $100 billion $100 million of premium in 2024. Chris will provide more detail on the seasonality of the business as it pertains to our reinsurance program, we are pleased with the outcome for our reinsurance treaties renewing January first, while only a few treaties renewed at one one. We did have a Commercial Earthquake quota share, small earthquake, only excess of loss layer and a casualty quota share renewed at the start of the year. So while limited compared to what renews June first, these renewals offered a decently broad perspective on the market, very quick quota-share renewed and improved economics with an increased ceding commission that implies a risk-adjusted decrease of approximately 5%. The XOL layer renewed at a similar, if not slightly better, risk-adjusted decrease casualty quota share renew with improved economics and our ceding commission increase from the expiring level. While the outlook for reinsurance has certainly improved from a year prior, we are conservatively budgeting for modest price increases. In our June first renewal. We are confident the apex of and historically our market is behind us, which bodes well for net earned premium growth and margin expansion to 2023 has been a banner year of profitable growth and consistent earnings for Torm for Palomar. We continue to invest in both our core lines as well as new lines of business to ensure we are positioned to achieve our Palomar to X goals, notably doubling our underwriting income over a three to five year period while delivering an adjusted return on equity above 20%.
As we set our sights on 2020 for our steadfast commitment to profitable growth remains unwavering. Our strategic imperatives in many ways emulate those are 2023 affording us conviction in their execution ability high-level strategic imperatives for 2024, summarized in the following four, Rubik's wine grow where we want to manage dislocation and diversification. Three, provide consistent earnings and for scale, the organization at considerable progress has commenced across these directives. We are pleased to offer full year 2020 for adjusted net income guidance of 110 million to 115 million. Importantly, this range includes losses incurred in the first first quarter from California flooding of approximately 3.5 million as well as full year loss estimates for severe convective storm and many cat events. Our guidance does assume a low single digit risk-adjusted increase on our S&L renewal at six one. The midpoint of our guidance implies an adjusted ROE of 21% level above our Palomar two times target.
With that, I will turn the call over to Chris to discuss our results in more detail.

Chris Uchida

Thinking back, please note that during my portion, when referring to any per share figure, I'm referring to per diluted common share as calculated using the treasury stock method. This methodology requires us to include common share equivalents, such as outstanding stock options during profitable periods and exclude them in periods, we incur a net loss for the fourth quarter of 2023. Our adjusted net income was 28 million or $1.11 per share compared to adjusted net income of 21.1 million or $0.82 per share for the same quarter of 2022. Our fourth quarter adjusted underwriting income was 29.3 million compared to $23.5 million last year. Our adjusted combined ratio was 68.8% for the fourth quarter compared to 71.4% in the fourth quarter of 2020 to for the fourth quarter of 2023, our annualized adjusted return on equity was 25.1% compared to 22.4% for the same period last year. Fourth quarter adjusted return on equity continues to validate our ability to maintain top line growth with a prudent, predictable rate of return above our Palomar to extra target of 20%.
Gross written premiums for the fourth quarter were 303.2 million, an increase of 26.8% compared to the prior year's fourth quarter. Excluding deemphasized products, our written premium growth rate was 31.7% for the quarter is important to remember the seasonality of our crop premiums. As anticipated. We did not have any crop written premium in the fourth quarter based on our current book, the majority of our crop premium, we will be written in the third quarter of each year, followed by the first quarter, which should see about a quarter of the year's premium. The second and fourth quarters will see only modest premiums as our crop premiums grow through the year, we plan on splitting out our crop premium into its own category, and we'll provide an update on our first quarter's earnings call.
Net earned premiums for the fourth quarter were 93.7 million, an increase of 14% compared to the prior year's fourth quarter. For the fourth quarter of 2023, our ratio of net earned premiums as a percentage of gross earned premiums was 33.9% compared to 38.9% in the fourth quarter of 2022 and compared sequentially to 31.6% in the third quarter of 2023 year over year decrease is reflective of our growth in fronting and lines of business use, quota-share reinsurance and the second full quarter with our renewed excess of loss reinsurance program with the mix of business matures and our excess of loss reinsurance program in place.
Our net earned premium ratio was at its low point in the third quarter of 2023 and increase in the fourth quarter. We continue to expect a slight improvement in this ratio from the first part of the year and relatively consistent patterns for 2020 for losses and loss adjustment expenses for the fourth quarter were 17.9 million, comprised almost entirely of non-catastrophe attritional losses. The loss ratio for the quarter was 19.1%, which compares to a loss ratio of 22.4% a year ago in the fourth quarter, which was comprised of a catastrophe loss ratio of 2.3% and an attritional loss ratio of 20.1%. For the full year, our loss ratio was 21%, in line with our previously expected range and which compares to 24.9% in 2022. Based on our mix of business and growth, we expect our loss ratio to move up incrementally from the 2023 levels. Our acquisition expense as a percentage of gross earned premium for the fourth quarter was 10.5% compared to 12.7% in the fourth quarter last year and compared sequentially to 9.9% in the third quarter of 2023. Additional ceding commission and fronting fees continued to drive the year-over-year improvement. The acquisition. The acquisition expense ratio may be flat to modestly up in future quarters as our business mix matures this quarter, our acquisition expense is a little higher, but was completely offset by higher commission and other income for the quarter, both related to our crop business. The ratio of other underwriting expenses, including adjustments to gross earned premiums for the fourth quarter was 6.9% compared to 6.9% in the fourth quarter last year and compared to sequentially to 6.7% in the third quarter of 2023. In line with our expectation as we continue to invest in our organization. As we continue to grow, we continue to expect long-term scale in this ratio. While we may see periods of sequential flatness as we continue to invest in scaling the organization.
Our net investment income for the fourth quarter was 7 million, an increase of 58.9% compared to the prior year's fourth quarter. The year-over-year increase was primarily driven by a higher average balance of investments held during the three months ended December 31st, 2023, and a mix shift of invested assets from lower yielding investment assets into higher yield investment assets with a similar credit quality. Our yield in the fourth quarter was 4.1% compared to 3.3% in the fourth quarter last year. The average yield on investments made in the fourth quarter was 5.9%. We continue to conservatively allocate our positions to asset classes that generate attractive risk-adjusted returns. During the quarter, there were no share repurchases, and we have 43.5 million of our authorized share repurchase program remaining as of December 31st, 2023 that we will continue to use opportunistically. At the end of the quarter, our net written premium to equity ratio was 0.87 to 1 for the year. Our strong top line performance continued to translate to the bottom line. Our adjusted net income grew 31% to 93.5 million, and our adjusted EPS grew 33.5% to $3.69. Our adjusted combined ratio was 71.2%, made up of a loss ratio and an expense ratio of 21% and 50.2%, respectively, both improvements from 2020 to ultimately resulting in an ROE of 21.9%. Our adjusted underwriting income grew 29.1% to 99.5 million, positioning us to achieve our Palomar two times objective from 2021 in less than four years as Mac mentioned, we are initiating our full year 2024 adjusted net income guidance of 110 million to 115 million, implying 20% adjusted net income growth at the midpoint of the guidance. This range includes our current estimate of the catastrophic California flood losses incurred in the first quarter of approximately 3.5 million. It is important to remember that our loss estimates and guidance include our expectations of many tests, such as severe convective storm activity. For the year, we expect our loss ratio to be approximately 21% to 25%, including the first quarter flood losses incurred to date and our estimate of mini cats, which represents approximately two to three points of our expected loss ratio.
With that, I'd like to ask the operator to open the line for any questions. Operator?

Question and Answer Session

Operator

Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue, you may press star two, if you would like to remove your question from the queue and For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Our first question is from Paul Newsome with Piper Sandler. Please proceed.

Paul Newsome

Good morning and congratulations on the quarter. Some system. Let's just tell them a little bit of a modeling question. Can you give us a little bit more thoughts on the relationship between gross and net and over the course of the next year. I mean, obviously, crop is a big reinsurance stimulated product mix shifts in there. And certainly a lot of pieces there for us to think about that. And maybe you could just talk to us about that and sort of the increasing and decreasing pieces of the reinsurances.
Yes.

Chris Uchida

Thanks for the good question. And when we think about it right, we've said this all along that the gross to net ratio was probably at its lowest point after Q3 of this year. And after the full reinsurance placement was put in place. You did see that improve slightly in the fourth quarter. What I would expect with that is I'd expect that trend to continue in Q1. So I'd expect that to move up a little bit in Q1 and expect potentially a little bit of movement up in Q2. And then when we buy reinsurance again in the end of the second quarter. I would expect kind of that stairstep, the relationship that you saw in 2023 to happen again in 2024. So overall, 2024 is going to have a higher overall load on the reinsurance costs. So I would expect the full year net earned premium ratio to be a little bit lower than what you saw in 2023. But I would expect it to kind of when you get to the second half of 2024, I would expect it to look very similar to what you saw in 2023. So those same relationships starting to play out from what you saw.
The other part of your question was related to crop right. And there is definitely some seasonality in our crop business because we will have for 2023, we were all full front for crop. So really all the seasonality that you saw was in the written premium, and I would expect that to be very similar in 2024, right? We are only participating 5%. So it will start contributing to the bottom line, but that bottom line contribution will not be as material as the seasonality that you see in the written premium written premium, as I mentioned in the prepared remarks, I would expect to see about 60% of that written premium in Q3, probably 25% of that written premium in Q1 and then a little bit spread out between Q2 and Q2 for 2024. But that seasonality you see in net written premium isn't going to be a driving factor in May. Our bottom line move significantly in a material way. And I think that noise that you guys are expecting the or isn't going to be material to our overall results. But you will see it in the written premium and then it'll just net out in the net earned.

Mac Armstrong

Well, one thing I'd add on crop the long term, we do expect that to be taking more meaningful risk participation but that wouldn't incept until January first of 25. So we'll have ample opportunity to guide on the our analysts on how that does change the relationship of earned premium and the like. But again, 2020, for like Chris described, is one where we're still more of a fee generator with a modest 5% risk participation in that makes sense.

Paul Newsome

And it competes across a little bit more, but I will anyway. And so the crop is interesting in that at least amongst the companies I cover, there are different opinions upon when the profits should emerge. So like a Chubb tends to show their profits in the third quarter in line with revenue where an American Financial Group tends to show its profits essentially is a favorable reserve development in the fourth quarter after that, from any thoughts about sort of how you we might not have treated it?
Yes, I don't know if the right answer to either way?
Yes.

Chris Uchida

Yes. I think when we look at it through the hard thing about it in the way, Chubb, does it or American financials as it Friday is not necessarily going to be a right or wrong. I think when we look at it, we plan on having most of the written premium in the third quarter because of the fact, that's when we expect the acreage reports to come in. And so when we tie the risk and the premium together, we expect probably to be a little bit more like Chubb if we were a full underwriter of this, right? And so that's when we think about it. So there will in time, as Mac mentioned, we will start taking more and so in time, I would expect us to probably look a little bit more like Chubb that where you would see a little bit of that catch-up right in Q3 from some of the earning of that premium, writing it at a premium and then also the losses that come in. But our goal isn't to have in your significant swings in our reserve we want to keep it a little bit smoother so that you'd argue where it's probably more a little bit more like American family. There's not we're not expecting to have a giant catch-up period for something like that. But we expect our premium to come in more in Q3 because that's when we're going to tie into the figures reported in knowing I'm having better confidence in what that written premium is.

Paul Newsome

Makes sense. And I think it's worthwhile to ask questions, but always thankful for the help.

Operator

Our next question is from Peter NetXen with Evercore ISI. Please proceed.

Peter Knudsen

Good afternoon.
Thanks for taking my questions. My first question, there's been some noise in the industry recently on construction oriented liability lines. I believe Palomar started writing contractors' GL in early 2021, which I know is after some of the more concerning years. But I'm just wondering if you could talk a little bit about that and how you guys are getting comfort growing in that line?

Chris Uchida

Yes, sure, Peter. Thanks for the question. Um, we did we have started writing our contractors' general liability really at the in the early part of 2022, we hired a great leader and tie Robin towards the tail in that year. So it's a nascent effort led by someone that's a 20-year veteran of that joined us from American Financial Group with long-standing distribution relationships, a keen sense of the exposure. And as such, we feel very good about what we're writing Now mind you we are conservative in our approach to this. We are writing modest line sizes, typically on average 5 million gross that wherever our net participation is between 35% and 40%. We are avoiding heavy auto liability there. And as a result, the book has performed very well. That also being said, you know, we are still booking everything in our loss picks. So we are building up a nice loss reserve base that we have not touched and don't intend to touch on, but we do expect it to develop favorably based on the quality underwriting and the underwriter leading the team.

Peter Knudsen

Okay, great. Thank you. And then my second question, it sounds like you guys saw rate in casualty remain at around 5% this quarter. I'm flat sequentially. And I guess I would have expected that to moderate slightly. So I'm just wondering if you could talk a little bit more about what you're seeing with regards to casualty rate and maybe what your outlook is for that in 24?

Chris Uchida

I mean, it's a good question. I would say on the casualty side with the 5% was kind of the blend across the multiple lines that we have. It does vary by line of business. Our real estate E&O book of business, which is right now heavily concentrated in California because of slower transaction activity, the rates were a little bit down. Excess Liability rates were 5% plus. And then if you going back to your contractors, GL, depending on the size of the account, it was 3% to 7% up. So our view is that you are going to see casualty rates flattish to modestly up over the course of this year, at least in the niche segments, where are we right.

Peter Knudsen

Great. Thanks a lot. Thank you.

Operator

Our next question is from Mark Hughes with Truist Securities. Please proceed.

Mark Hughes

Thank you. Good morning and good afternoon. The macro events and the layered and shared pricing, it might moderate the rate of gain might decelerate or do you see that flattening out or perhaps going up negative?

Chris Uchida

Yes, Mark, good question. And I should clarify. It's the rate of increase. You know, we have seen in the fourth quarter. We still saw Commercial Earthquake across all of our book, both layered and shared and mid-market blend out of the 26% rate increase. What you are seeing now is on risk-adjusted increases coming under a little bit of pressure year over year from the amount of increase. So we do think that's going to come down. That means that you will still see risk-adjusted increase, um, that's a function of price as well as enhanced terms and conditions, whether it be deductible or attachment. So I don't want to paint a picture of a circumstance where rates are going to start to decline, it's just going to be the level of increase is decelerating.

Mark Hughes

And then could you talk about the quake business you had mentioned some factors driving that, the Earthquake Authority cutting limits and you also mentioned new distribution. How far along are you in those those drivers? I think, yes, the high 10s growth is sustainable and kind of where we are in that cycle.

Chris Uchida

So yes, so good question. And I would say that the two that you bring up new distribution partnerships, that's carrier partnerships. Let's touch on that first. That has been tried and true distribution strategy of ours. And we are pleased that we have two new carrier partnerships that have gone that are going live this quarter on one focusing on high-value E and S in California, another more of a nationwide partnership. Both of those are early innings. If not the top of the first. So we think that there is good potential there, especially the one that's focusing on high-value E&S business in California. It's with an entrance operator in the space. And as it relates to the CPA. I would say that the changes in coverage that they are now offering to their policyholders at renewal didn't really start kicking into gear. The renewals weren't received by those policyholders until late Q4. So whether that be on a TRV that's over $1 million now having to move up its deductible from 5% to 10% to over 15 or 15 to 20 or it be the reduction of the coverage to your personal property protection moving down to 25,000 from 200,000. That dynamic is just starting to also emerge for us. And we think that is going to allow us to and we continue to take share from policies that are being either shop by switching that RCA policies are being shopped or are being ostensibly non-renewed.

Mark Hughes

So we think that both those are good dynamics to sustain that high 10s growth in residential Quake for the immediate future and then, Chris, did you give a kind of an overall thought about written premium for this year in light of the crop insurance, some of these other drivers that you can I consolidate that into one number range.

Chris Uchida

Yes, for 2023, obviously, the crop premium is in our fronting portfolio. I think overall for the year, we're very pleased with how it all played out. I think the one thing that we pointed out in the prepared remarks is that we do expect that crop will be broken out in the future. It will still from that of the fee generation standpoint or an underwriting risk standpoint. Still look more like upfront, but we are making significant investments there. We are very pleased with the opportunities are there. So we would expect to pick that out in the future.
Probably starting with Q1 2024, we expect to start splitting out crop into its own line of business, we will participate in about 5% on that. And so as I said earlier, in response to one of the other questions from Paul, that, yes, there will be some seasonality there. But the overall impact on the earnings for the year will still be small and shouldn't be as material and cause any significant swings from quarter to quarter at least for 2020 for spot market.
I think your question around broadly, we feel great about top line growth for the Company. We are we have not given guidance on premium growth historically. But I will say that, you know, we feel that we can certainly have strong growth that's in excess of 20 plus percent for sure. And I think that crop is going to be a nice contributor. As I mentioned previously, we thought we could we saw ourselves to doing high double digits millions of premium. Now we're saying that we can do over $100 million. So I think that's a good indicator, um, but we don't want to be overly prescriptive on premium growth. We do want to be very prescriptive on bottom line net income growth because I think that's what all of our investors and certainly us as investors and shareholders in the business are more focused on the ROE and the bottom line growth.

Peter Knudsen

Appreciate that.
Thank you.

Operator

Our next question is from Andrew Andersen with Jefferies. Please proceed.

Andrew Andersen

Hey, good morning.
Maybe going back to the NPE. to GPE. ratio. Chris, you had mentioned you think in 24 it would and be a little bit lower. I was hoping you could just unpack this a bit more for me because I suppose 24 year bearing the full cost of the 23 XOL program. So perhaps a benefit that we would see at midyear 24 renewals wouldn't really come up until 2025, then we would see the ratio increase again. Is that the right way to think about it?

Chris Uchida

So what I would describe is that to say 2023 had seven months of that full cost versus in silver, the first five months of 2023, it was at a lower rate. And then if you remember, we had about a 30% increase or six one renewal. So that full weight we saw for seven months in 23. You will continue to see that for five months in 2024. And then as Mac mentioned in our guidance, we have in our assumption, we are assuming a low single-digit type increase in our reinsurance. So you'll have five months at the current rate, then let's call it less than 5% type increase at six one 2024. So a little bit up, Brian.
So when you look at think about that 2024, we'll just have a much or not too much, but we'll have a higher overall reinsurance load in 2023, had that had the first five months at a lower reinsurance price. And so with all of that, when you look at the cycles, right, we buy our reinsurance, our excess of loss reinsurance for growth right. And so six months of this year, we will have a slight or we expect to have a slight increase plus we will buy for the growth that we expect throughout 2024 and into 2025. And so those factors together kind of create that stair-step function.
When you look at the net earned premium, right, the net earned premium in Q4 was 33.9%. It was up from Q3 of 31.6%. So I expect Q1 of 2024. That 33.9%. I expect it to move up a little bit. I expect there to be that same little bit of benefit into Q2, but then you'll get one month of that new reinsurance. And so then in Q three, with the full reinsurance with a little bit of price increase also buying for growth, I expect that ratio to then come back down a little bit kind of that same stair-step a much more, I guess, muted stair-stepping up, you probably saw in 2023, but still that little bit of stair step function. So let's say, 34 plus in Q2 in Q1, I would expect you to go back down to something that as you saw similar to Q1 or Q3 of 2023 Q3 was 31.6, somewhere around there. That's probably the right way to think about it because it's going to start smoothing out as things start to mature and the mix starts to mature a little bit in our overall portfolio.

Mac Armstrong

That's what Andrew. Yes, Andrew, one thing I would add, Chris describes it very well. It does somewhat hinge on XOL. And we like to think that we're being conservative in assuming that there's going to be a slight rate increase in XOL that renews at six oh six, one on what we saw at the start of the year is encouraging, but it's on a it's on a very small sample, set it up when you add up the quota share and the excess of loss that we renewed at one one, it constitutes about 10%, maybe a little bit more of the total limit that we buy from them. But I don't want to like 10% in form totality.
So if, um, it mirrors what we saw at one one, then it's the inverse of what Chris described, Jeff, to your point that you'll save, we're expecting a little bit of increase that if it goes the other way that margin, let's call it expansion kind of start happening and same thing in Q3, you get into Q2 and fully in Q3.

Andrew Andersen

Yes, very helpful. Thank you for the expanded answers there. And maybe going back to cat losses here and recognizing the improvement over the years and the de-risking of the book year to date, 3.5 million of cat losses, including included in the guidance, but you're also kind of talking about a CAD4 million a sale I suppose isn't exactly the same as like a cat loss ratio.
But can you kind of help us square the two in the context of guidance cat losses you're so So Andrew, the but the couple of things, it's a good question.

Mac Armstrong

On the $3.5 million, our losses related to floods in California on the atmospheric river from El Nino, what was you saw kind of a front page news in San Diego and other parts of the state of the 4 million route we are referring to is tied to our continental hurricane. So that is our continental hurricane average annual loss flood losses is a separate parallel, and it's something that we budget for. So we budget. So when Chris refers to his 0.82 to 3 points in our loss ratio for many cast that includes flood from this is just an elevated amount that's crossed a threshold that we are disclosing.
Yes.

Chris Uchida

And maybe I'll add on that a little bit for just the overall loss ratio, right. When you look at it from a guidance standpoint, we said our loss ratio for the year should be about 21% to 25%. And that includes the $3.5 million of funding loss that's going to be in the first quarter. So that first quarter loss ratio will be a little bit higher. And that's up from a quarter standpoint, that's three to four points of loss ratio for the year. It's probably less than one point of overall loss ratio. But when we think about our loss ratio in that 21% to 25% loss ratio target or expectation, we believe and we feel that we do have a cat load in there that cat load is made up of many cats, which is going to be severe convective storm is going to be normal flooding, it's going to be tropical storms. We believe that of that 21% to 25%, there are two to three points in there that is related to catastrophes. That's what we would say. Other companies bucket as catastrophes we could bucket is catastrophes, but it's something that's just part of our planned loss ratio when it does not include is a large, major hurricane or earthquake impacting our portfolio. But we believe similar to prior years that that cat load is in there, we call it mini cats because they're usually smaller for us because the way we use reinsurance because of the way we underwrite and do all different sorts of things. But we believe that we have a two to three point cat load in our guidance for next year.

Andrew Andersen

Very helpful. Thank you.

Operator

(Operator Instructions) Meyer Shields with KBW. Please proceed.

Meyer Shields

Great, thanks. Good morning, Meghan, all I misinterpreted, but it sounded like you were a little cautious on funding appetite for 2024. I understand that there's the crop issue because it will be broken out. Am I misreading what you're thinking about the growth potential?

Chris Uchida

Yes, thanks for the question. Um, I think with fronting, you know, we do take this very much more of a rifle shot approach. And so we want to go deep with existing partners that have high credit quality that we feel terrific about the collateral with that, we can orchestrate the reinsurance and we can, frankly, acutely manage from an underwriting and claims handling and compliance standpoint.
So what that means is, you know, we kind of elephant hunt to some degree. So we think we can grow fronting this year, but it's not one that's going to grow 63% like it did in 23, it's going to index the growth rate on the overall operation. So I think that's what I would say. It's not say that we don't have a pipeline. It's not to say that we are not in discussions with a range of partners, but our bar is high. And I think the other thing it helps with it's one of five product categories. So we can be selective. It's a nice fee generator, but we also have crop that we think will do over 100 million this year. We also have Quake that we feel great about high 10s, 20% growth. And then we have a casualty franchise that's really coming into its own. So it's some it's a great line of business is not the totality of what we do, which allows us to be selective.

Meyer Shields

Okay.
That's very helpful.
Thanks.
And with regard to the crop, obviously, as an approved carrier, you have the ability to buy reinsurance from the government. The plant is that so that responsibility rests with Palomar or with the companies that you'll be sharing the premiums Emeritus John, Chris and I can take that one. So that is referring to the SRA on reinsurance treaty with the FTIC., that is a benefit to Palomar. So we buy reinsurance through that government program. But then also we have supporting private market reinsurance on the completion of the totality of that 90 for 95% of risk transfer that we have in place for our reinsurance. So on that is the that has been a polymer with regard to risk transfer.

Chris Uchida

And I think Meyer, as we've said, one one, 25, the complexion of our participation will be different and therefore, the reinsurance structure will be different as well. But we've got time to put that in place and educate you guys on that.

Meyer Shields

Okay.
Perfect.
And I just wanted to send the with the Domino's life. The final question is just with regard to the guidance, you talked about conservatively anticipating higher property cat rates online, I guess for the insurance costs at June, does the guidance anticipate a meaningful change in the attachment point?
I apologize if I missed that before.

Chris Uchida

No, good question. Meyer.
No, assuming the same attachment.
Okay.
I think I don't know that I would I would expand on that just a little bit when you think about our overall book in quota shares and things like that. So our guidance estimates are basically static from a risk participation staff incentives. Obviously, we've mentioned crop that 5% is in there. But when we think about our overall portfolio and loss ratio, acquisition expense. There is all these things and then we kind of guide to a net earned premium. Those all assume, let's call it static participation or underwriting to 2023, so end of 2023.

Meyer Shields

Okay, phenomenal.
That's very helpful.
Thank you.

Operator

Pablo Singzon with JP Morgan. Please proceed.

Pablo Singzon

Hi, thanks. But first question, when thinking about the growth in underwriting income that's implied in your guidance for 24, would it be fair to assume that the improvement there will be driven by net earned premium growth. Seems like you're implying some deterioration in the combined ratio, which is consistent with what you've said in the past. Given your change in business mix. So therefore, would it be fair to assume that the uptick there it could be driven by?

Chris Uchida

Yes, that's a great question, Pablo. We do expect our net earned premium to continue to grow. We've talked about it that the insurance increase that we saw at 600 this year was about 30% or 13 million a quarter. So now I say that we've got that fully in our results for Q3 and Q4. You saw that growth not to show up in the Q3 Q4 results. I would expect those dollars to continue to grow into Q1 and Q2 right in where we're not expecting the same type of rate increase. So I would expect the growth in the top line to better translate to the growth in net earned premium throughout the year because of that factor. So overall, we feel very good about it. Do we have we tried to project that and share with everyone what we expected to happen during 2023, and we think we did a good job of that. But we are expecting to see net earned premium continued to grow throughout 2024, even with a potential slight increase at 600 this year.

Pablo Singzon

And then, Chris, I guess just a follow-up. The loss expectation you gave 24 do you want 21% to 25%. If you do the math, it sort of implies a wider range than the 110 to 1 15. You're giving 2024. So I was wondering how you sort of get from that wider loss ratio range, a tighter range than income. Can you provide more context and how that bridge?

Chris Uchida

Yes.
No, it's really it's a wider range.
Part of that is strategic just to make sure that we give those ranges out there for people because one thing while I view that range as a good range for the year. I think some people like to apply that to every single quarter. And so on a quarterly basis, our loss ratio could do I would expect to be probably in between those numbers.
Right. But for the year, I would expect something closer to the middle of that range, I would say.
Right, but because some people interpret that differently. I would like to give a little bit of a wider range there.
Right, but that is to your point even on an after-tax basis, that is probably wider than the $5 million and adjusted net income range. But overall, that's that's that's why we do it that way because different people interpreted different ways. And if for some reason it was a little higher or a little lower. It doesn't mean it's not going to be close to that at the mid Q4 is not going to close that to the midpoint when you get there for the full year, that's kind of the philosophy there. But you're absolutely right. That is from a dollar standpoint, probably a little wider range than what we give with the guidance.

Pablo Singzon

That makes sense. And then last one for me, just a smaller question. So investment income is clearly been a tailwind for Palomar like for all the other insurers and just given your run rate in the fourth quarter, right, I think you printed some you can just multiply that you can reach the high 20s and 24 easily. Could you just give a sense of your current book yield and the new money yields you're investing at?

Chris Uchida

So for the fourth quarter, our investment yield was about 4.1%. It's been improving throughout the year, which is very similar to other folks.
Right. And I think the new money yield in the fourth quarter was about 5.9%, so still above that number. So we still think there is upside in investment income.
I think the one thing I'd point out and so there is a little bit of improvement from our view in our 2024 results. But when we go back to anything like Palomar TIMERx or adjusted underwriting income in the improvements we're seeing there that's before investment income, right? We are an underwriting company first who we want to be valued on the results of our underwriting right? In that we think investment income is something that you kind of put on top of that, we are performing well. We are doing everything we need to do to help keep that performance at a very high level while still being very conservative. But overall, the growth we're seeing in the bottom line is being delivered by our underwriting results, not by our investment income. So I guess I do feel there is upside investment income, but I am happy with the overall organization and the improvements that we've made in the growth and the underwriting income that we are seeing for the organization.

Pablo Singzon

Thank you for your answers that follow.

Operator

We have reached the end of our question-and-answer session. I would like to turn the conference back over for closing comments.

Chris Uchida

Great.
Thank you operator, and thank you to all who joined us this morning. We appreciate your participation, your questions and your sustained support of Palomar.
To conclude, I'd like to just reiterate how pleased I am with not only our fourth quarter, but also our full year results. But moreover, how proud I am of the team, the Palomar who allowed us to achieve these results I'm confident that 2024 will generate equally strong performance and results in our guidance indicates as much, I am equally confident that Palomar's sound and consistent execution will be recognized by the market and will enhance will deliver real value to our shareholders.
So thank you all, and enjoy the rest of your day, and we'll talk to you next quarter.

Operator

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