Palomar seeks $50m IPO, will repay Fermat & Cohen debt investments

Palomar Insurance Holdings, the speciality California-based insurer that provides largely catastrophe exposed property covers, as seeking to raise $50 million in a Nasdaq initial public offering (IPO), adding to the $20 million it raised in a debt issuance invested in by ILS specialists Fermat Capital Management and investor Cohen & Company.

Palomar Insurance has expansive ambitions to grow as a provider of insurance to areas of the market that it feels are underserved, leveraging reinsurance and ILS capital to support its underwriting of catastrophe exposed property risks.

In particular Palomar has had a focus on the flood, wind and earthquake insurance markets, areas where significant reinsurance support are clearly required to operate sustainably.

The insurance-linked securities (ILS) market has also featured as a provider of efficient risk and reinsurance capital for the firm, as Palomar had issued a catastrophe bond back in 2017, the $166 million Torrey Pines Re Ltd. (Series 2017-1), and also utilises other ILS fund capacity in its reinsurance provisions we understand.

The company targets growth, seeing these areas of the market as an opportunity currently due to other insurers unwillingness to write the risks, or expand rapidly into certain areas.

Palomar’s growth ambitions were recently assisted through its issuance of $20 million of private debt that was invested in by Cohen & Company Inc. subsidiaries and specialist ILS and reinsurance fund manager Fermat Capital Management.

That debt issuance last year provided some ammunition to fund ongoing growth for Palomar.

Palomar Chief Executive Officer Mac Armstrong explained at the time, “This investment not only bolsters our capital position but also enables Palomar to continue executing its objective of becoming a market leading specialty insurer.”

John Butler, Head of Cohen’s U.S. Insurance Debt Strategy, said after the issuance completed, “We are delighted that via our newly re-launched U.S. insurance private debt (‘PriDe’) platform we are able to support well performing insurance groups such as Palomar.”

Now the insurer is clearly keen for more growth and is seeking to issue $50 million of shares to investors in an initial public offering that will be listed on the Nasdaq.

Currently Palomar is majority controlled by an 85% investment from private equity firm Genstar Capital.

The insurers main focus is on California earthquake exposed property business, hence capital use will be relatively intensive and reinsurance costs will matter as Palomar continues on its growth track.

With the IPO Palomar seeks to gain more financial flexibility, capital for growth and also to pay back the debt investments made by Cohen and Fermat.

Paying back that debt will cost the insurer, as a 2% prepayment premium must be provided to Cohen & Co. and Fermat to compensate them for the early withdrawal of debt securities that had been due to pay the three-month treasury rate plus 6.50% per annum through to maturity in 2028.

The majority of the capital raised looks set to be used to fund subsidiary Palomar Specialty Insurance for further growth, which will likely be in earthquake risks largely, resulting in further increases in the need for reinsurance at Palomar.

The added benefit of enhanced access to investors through a stock exchange listing on the Nasdaq Global Select Market under the symbol “PLMR” will also mean Palomar is well-positioned to raise follow-on capital to fund future growth as well.

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