The outlook of a parent company with a Bermudian-based subsidiary has been revised to positive from stable by AM Best, the credit ratings agency.

The agency also affirmed the “bbb-” long-term issuer credit rating of Palomar Holdings of Delaware.

Palomar Holdings is the ultimate parent and insurance holding company of Palomar Specialty Reinsurance Company Bermuda, Palomar Specialty Insurance Company of California and Palomar Excess and Surplus Insurance Company of Phoenix.

AM Best also said it has revised the outlooks to positive from stable and affirmed the A- financial strength rating and the “a-” long-term issuer credit rating of Palomar Re, PSIC, and PESIC.

The agency said the credit ratings reflect Palomar’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.

AM Best said: “These positive outlooks reflect Palomar’s profitable operating performance in recent periods, which compares favourably to composite averages.

“Palomar reported an increase in net income in each of the last five calendar years, achieving even greater levels of profitability in 2021 and 2022.”

It added: “Results have been influenced by favourable underwriting performance as reflected in a five-year combined ratio average below 90. Management strategically targets segments that have low attritional loss activity, which lends itself to comparatively favourable loss experience, offset by an elevated expense ratio position.”

AM Best said: “Management has been able to effectively manage its expense position and generate consistent returns. To support continued profitability, Palomar regularly reviews its portfolio and has pivoted away from markets that have either been unprofitable or do not align with its strategic plans”.

The agency said Palomar’s overall balance sheet strength is supported by the strongest level of risk-adjusted capitalisation, as measured by Best’s capital adequacy ratio, equity growth in most years, solid liquidity and positive operating cashflows.

It added: “While loss reserve development has been somewhat inconsistent, reported deficiencies have not had a material impact on results, and in part relate to lines of business that have been discontinued.

“The group has elevated reinsurance dependency, reflective of its catastrophe exposed risk profile with the strategic use of excess of loss and quota share arrangements to mitigate potential volatility.”

AM Best said Palomar writes a variety of risks through its admitted and non-admitted entities.

It is primarily focused on earthquake coverage in California, inland marine and commercial excess and surplus all-risk products.

AM Best said distribution channels include retail agents, wholesale brokers, programme administrators and carrier partnerships.

It added that while growth has been significant, an appropriate ERM programme has been implemented to partially mitigate volatility.