Good morning, and welcome to the Palomar Holdings, Inc.'s First Quarter 2021 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference line will be opened up for questions with 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, sir. Thank you. You may begin.

Thank you, operator, and good morning, everyone. We appreciate your participation in our first quarter 2021 earnings call. With me here today is, Mac Armstrong, our Chairman, Chief Executive Officer and Founder. And as a reminder, a telephonic replay of this call will be available on the Investor Relations section of our website through 11:59 PM Eastern Time on May13, 2021. 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 including, but not limited to, risks and uncertainties relating to the COVID-19 pandemic. Such risks and other factors are set forth in our Quarterly Report on Form 10-Q filed with the Securities and 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.

Thank you, Chris, and good morning, everyone. Today, I will speak to our first quarter results at a high level and then discuss ongoing efforts to expand our business and drive profitable growth. From there, I'll turn the call back to Chris to discuss our financial results in more detail. We had a strong first quarter, a quarter that generated solid financial results and a quarter that puts us in a position to reap the long-term benefits of several key initiatives. Highlights of Q1, I would like to emphasize are as follows. First, our strong growth trajectory, not only continue but actually accelerated as our gross written premium increased by 45% during the quarter. We grew broadly across both new and existing offerings including Residential and Commercial Earthquake, Hawaii Hurricane and Inland Marine. Second, Our E&S carrier PESIC continued to be an important driver of growth for existing products and diversification in the new lines of business. PESIC grew rapidly approaching $100 million in annualized gross written premiums, in its second full quarter of operation. Third, we continue to refine our underwriting and risk transfer strategy, while benefiting from sustained attractive pricing environment and dislocation in selected specialty insurance markets. We've spoken to this in great length on previous calls, but I'd like to emphasize that we are committed to the ongoing improvement of Palomar across all dimensions of our business. And believe that, our actions and results this quarter reflect this commitment and capability. Fourth, we remain focused on providing visibility into our earnings base and growth. I am very pleased that the $25 million of aggregate excess of loss reinsurance limit, which we refer to as the aggregate cover that was secured in the first quarter will protect our balance sheet. Moreover, it establishes a floor for our…

Thank you Mac. 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 when we incur a net loss. We have adjusted the calculations accordingly. For the first quarter of 2021, our net income was $16.6 million or $0.63 per share compared to net income of $11.8 million or $0.48 per share for the same quarter of 2020. Our adjusted net income was $19.3 million or $0.73 per share, compared to adjusted net income of $12.3 million or $0.50 per share for the same quarter of 2020. Gross written premiums for the first quarter were $103.6 million, representing an increase of 44.9% compared to the prior year's first quarter. As Mac indicated this growth was driven by a combination of new products, sustained rate increases, expansion of our E&S footprint and extension of our distribution networks. Ceded written premiums for the first quarter were $43.4 million, representing an increase of 47% compared to the prior year's first quarter. The increase was primarily due to increased excess of loss reinsurance related to our exposure growth. Additionally, our excess of loss costs were impacted by the acceleration of expenses and charges related to the reinstatement of our reinsurance program. Separately, we had increased quota share sessions due to the growth in the volume of written premiums subject to quota shares. Ceded written premiums as a percentage of gross written premiums increased to 41.9% for the three months ended March 31, 2021 from 41.3% for the three months ended March 31, 2020. This increase was primarily due to excess of loss charges and higher…

At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Matt Carletti with JMP. You may proceed with your question.

Hi. Thanks. Good morning. Just a couple of numbers questions from me. First is on the current year attritional loss ratio. Is there anything to note in that in terms of kind of one-timers one way or the other, or is that a good kind of starting point to think about kind of where the business is today? And I would presume as we go forward and some of the newer products grow at a faster rate than some of the earthquake products that slowly drift higher?

Hey, Matt, this is Mac. Good to hear from you. Chris will chime in and have some thoughts on this as well. But what I would provide is, when you look at the attritional loss ratio there are a few things that, I believe are worth highlighting. First is exactly, what you touched upon in that it is a function of the growth in certain lines of business that have exposure to attritional loss. I'll pick one. Inland Marine for instance, it grew 315%. It has some attritional loss to it. Now mind you, it's performing in line with expectation. But as that grows at a disproportionate level or over-indexes the rest of the book that will move the loss ratio up. Similarly, that's what you would see even with the new E&S risk line of business, which is one of the big drivers of the E&S growth. That does have attritional loss so that outpaces the growth of maybe Residential Earthquake for instance, or you're going to see that attritional loss tick up. The other point that, I would make though is, we've kind of guided folks towards a slow increase of that attritional loss ratio. It was 11% in this quarter. That number is somewhat obfuscated by how Uri is being accounted for with reinstatement premiums or reinsurance expense, as opposed to being captured in the loss ratio that reduced our net premiums earned. So if you kind of normalize the 11% attritional loss ratio, it's closer to a 10%, which is just a subtle increase from the fourth quarter. So that's what I'd point out, but I'm sure Chris has a few things to offer.

Yeah. Thanks, Mac. I think you described it well obviously. When you look at it compared to what we talked about before, we have indicated – when you think about the end of 2020, the overall loss ratio for the year was about 8.5%. We had indicated that we do expect that to tick up, I think we indicated probably about two to three points for 2021, when you think about that that's right in line with that, especially when you think about the higher ceded premium that kind of makes the ratio a little bit higher. You could adjust that out and think of it more as 10%. I think seasonally also the first quarter is a little bit of a higher loss ratio month for us just naturally, because of some of the exposure that we have in Texas and other states that kind of have some hail or even with events similar to Uri. And some of our other lines had higher exposure, whether it be motor truck cargo. That was impacted by some of the icy roads that were out there. So it's just a little bit higher in nature. But overall nothing that, I would say is surprising and kind of in line with what we would expect to see based on the growth of lines, we talked about and then also some of the indications ,we gave to the market after – following the year-end results.

Yeah. And just to piggyback on that seasonality point even – you look at a line like flood for us where we write flood states like California and even in Hawaii, there's some seasonality to it. So we see a little bit higher loss in the first quarter of the year than we do the rest of the year, certainly, in a state like California.

Okay. Great. That's helpful. And then if I kind of follow-up there just as the – speaking about that extra $4 million of ceded premium that will also impact Q2, all else equal that 10 would look more like an 11 in Q2 as well, correct? And obviously, I understand the seasonality could be different and the mix of business different and so forth. But all else equal that will repeat itself in 2Q.

Yes, that's correct. Yes, there will be incremental reinsurance expense associated with Uri in the second quarter. That's exactly right.

I agree. Wonderful. Thank you very much for the color. I appreciate it.

Our next question comes from the line of David Motemaden with Evercore ISI. You may proceed with your question.

Hi. Thanks. good morning. I just had a question. Good to see growth reaccelerate this quarter. I guess I'm wondering, was there anything sort of one-off in the growth that you would call out, or is this sort of a good indication of what we should expect to see from a growth standpoint over the course of the rest of the year?

Hey, Dave, great question. We were thrilled to see the growth. We expected it. We touched upon it at the end of Q4 – or our Q4 earnings call that we saw very good momentum in the business. And it did manifest itself in Q1, and we think it's going to manifest itself through the rest of the year. To your question on one-offs, as I mentioned in my remarks, there was $3.6 million of premium that was associated with the earthquake book both commercial and residential for a partnership that we stepped into that you could argue as one-off. But at the same time, there also were around seven points call it $7 million of premium. That was wound down from the all-risk book. So net-net it washes. So I guess, the best way to describe it is not – when it's all said and done in this quarter, there's nothing really one-off because there's one thing to the good and one thing that was probably 2x back to the bad. So we feel very good about the growth in this quarter and how we're positioned for Q2 and beyond.

Got it. Thanks for that. And just on the all-risk book that's winding down the $7 million of headwind this quarter the seven points, is that going to remain around that level over the course of the year as that book non-renews, or are there some chunkier pieces that are rolling off in subsequent quarters?

I think that should be a good rule of thumb for the year. But it will probably be less pronounced in Q4 because that's when we started to non-renew but -- so the majority of the policies will be coming off into the October timeframe. But I think that is a good rule of thumb. Now the one thing that we have going for us is that the national account all-risk business the layered and shared all-risk business that we're doing in concert with Amwins is growing. It's growing nicely. It's getting great returns. It's hitting our metrics if not exceeding them from an average annual loss and a PML premium standpoint. So we're encouraged with that. So that mitigates that decline and will continue to drive growth beyond 2021. But I do think that there's that seven points of headwind associated with the wind-down of the admitted book that we'll see over the course of the next -- certainly Q2 and Q3 it might be a little bit less in Q4.

Got it. That makes sense. And then, I guess, on the other side, obviously, the E&S book continues to ramp-up. Is it -- I guess maybe could you just quantify? It sounds like $25 million this quarter of gross premiums. I believe it was $21 million last quarter so ramping up on an annualized basis by a decent amount. I guess, we sort of reached -- do you expect to see a continued sequential acceleration in that or we kind of hit the capacity now of where you think it kind of can -- like obviously still very good year-over-year growth, but maybe it slows down a bit more sequentially?

Yes, Dave, I don't want to give guidance on sequential growth, but what I would say is there's very good momentum in the E&S company right now and it's coming from Commercial Earthquake. It's coming from national property accounts. But there are also new programs that we launched in the second quarter as I said that were not meaningful contributors in particular, a builder's risk partnership for national builder's risk accounts, our excess liability program. All of those have great potential, terrific market conditions to be participating in or capture in -- taken advantage of rather, great distribution partners that can drive production in some cases an existing book of business that we can slot into. So I would say there's terrific momentum in the lines that we launched in Q3 and Q4 of 2020. There's a lot of terrific potential in products that are just getting off the ground in Q1. And then lastly we're not done. There are several more that are in various stages of R&D so to speak. So I think, you'll see more products in the E&S market come online from us this year, which gives us the conviction to say that in time the majority of our commercial business could be E&S as well as it has the potential to be the same size as the admitted company.

Got it. Great. Thanks for the color.

Our next question comes from the line of Paul Newsome with Piper Sandler. You may proceed with your question.

Congratulations on the quarter. I just have one remaining question and I apologize maybe I'm just confused. But -- a negative loss ratio is an [Technical Difficulty] I think I've seen it once in my career. But what's interesting to me is the current year was a negative number not just theproperty development. Could you talk about how that just mechanically works from an accounting perspective i.e. how you get to a negative number for the current?[Technical Difficulty] just this last month is that a function of the reinsurance, or is there something else going on?

Hi, Paul, it's Chris. Let me respond to your question. Yes, it's a good thing. You pointed out yes it is -- a little bit of something that is unusual to see. I think it just naturally happened that way based on the way that our reinsurance is structured. Obviously, we've talked about this before. We use quota share reinsurance for a lot of our attritional lines of business. And then we buffer that with excess of loss. This just happened to be an attritional loss that went into our cat tower as well. These contracts -- or these reinsurance relationships do not inure to the benefit of each other. So I think that's one thing to point out. When we look at it we think of the negative loss as being offset by the ceded premium that is related to reinstatement of the reinsurance layers. I think when you look at it in Q4 that was about $4 million. This is going to be of a similar amount in Q2 just because of the way the reinsurance is expensed through ceded premium. So if we were to combine those numbers, I think, we talked about it on the prepared remarks, we think that is a negative $1 million. So for us it's really -- the accounting treatment, kind of, shows it in two different lines, but we think of it as a combined loss. And one example or maybe an analogy that we think of is think of this as we use our reinsurance structure with a reinstatement premium function to it so that when the event happened we were able to recover 100% of the loss and then offset that with reinstatement premium. We could have also structured this with a co-participation where instead of recovering 100% we only recovered the net amount. So in that scenario our loss would have been about the same $1 million loss. You just would have seen it all through the loss line versus us we use reinstatement premium for our structure and so you can see it in the ceded premium and in the loss number. So that's, kind of, I'll call it a little bit of nuts and bolts about the accounting treatment and why it's in different lines and why it's showing up over multiple quarters. And that also reiterates the reason why we gave -- on the call we gave a half or a full -- the first half year guidance because with the ups and downs caused by that reinsurance charge, we want to make sure the market had a better view of how we were thinking about the first half of 2021 impacted by those reinsurance charges.

Yes. Chris, described it well, Paul. Ultimately, it is a negative number in that loss, but it ultimately ends up collectively being, when you factor in reinstatements and the like, a loss of $1 million, a positive loss so to speak. An actual loss.

Thanks for the color, guys. Thank you. That was very helpful. Thank you. Appreciate it.

Our next question comes from the line of Mark Hughes with Truist. You may proceed with your question.

Yes. Thank you. Good afternoon or good morning. Can you talk about capital? Kind of where you said -- obviously, PESIC is ramping up pretty quickly. How much more runway do you have with your current balance sheet?

Yes, Mark, this is Mac. It's a very good question. And what I would say is, we have ample capital to support the growth that we have in front of us. We right now are in and around a 0.5 net premiums earned to surplus ratio. Our long-term target on that is 0.9 to 1. And in fact that target could actually be moving up somewhat, because of the complexion of the book, as we write some casualty business that has a longer tail to it. So as a result, we think we are adequately capitalized, and then some, to go execute on the plan that we put in place. I also think it's the impetus behind, why we authorized a stock buyback, because we think that we can be opportunistic in how we deploy capital. We can be opportunistic to go out and do an acquisition, like we did in Hawaii and acquire a book of business. We're doing an excellent job of bringing on to our paper. We could go out and buy back our stock and acquire some -- our currency, at what we think is a very attractive valuation and get an ROE that's in the mid-teens. Or we can continue to invest it in the business, where we could bring on new teams or enter into new lines of business. And fortunately the capital position that we are in right now, really affords us the chance to do all of those. So we think that we can be very effective in how we deploy capital over the next several quarters and generate attractive ROEs in several different fashions.

Thank you for that. And then the excess liability book, how are you approaching it from an underwriting perspective? What expertise have you brought in-house? What is informing your judgment about what the pieces of business you should write?

Yes. That's a very -- it's a good question, Mark. And what I will tell you is, we have brought in a leader in Jason Sears, who's overseen all of our program business, but he's a long-standing casualty underwriter. And we have selected a partner who he has a long-standing history with, to help us build out the excess liability franchise. And I think overarchingly, what we are doing in excess liability is very similar to what we've done with all lines of business that we've gone into that are not earthquake or not Hawaiian hurricane. It might be viewed as a little further afield. And that is, be very deliberate in terms of how much we want to write in year one, very conservative in how much limit we're willing to write and then also very conservative in how we use reinsurance to support it. So in this circumstance, we will write no more than a $5 million gross line, but we're taking around 22.5% of that. So our net position is around a $1.1 million line. And we are attaching in an excess position in a market that is very hard right now. So we think we have the potential to build a nice book of business there. It's with a production plant that we have great history with in the property arena, but what we're trying to do now is get them familiar with our philosophy and strategy in this segment in casualty generally. But I think there's great promise there. But it's not a circumstance where we're going to turn around and write $50 million of excess liability in year one. It's going to be modest but it does have the potential maybe in year two, year three to be a sizable book.

Thank you.

Our next question comes from the line of Tracy Benguigui with Barclays. You may proceed with your question.

Thank you. I just wanted to follow up on some comments you made about the buyback authorization. I totally get that you're not trying to signal that you're not constructive about growth. But just help me think about how that may be attractive to you. Because usually, you tend to see companies want to buy back more stock when they're trading below or near book value and you're well above that. So if you could just help me understand the framework you have in mind.

Yes. Sure Tracy. This is Mac and it's a fair question to ask. I think for our Board and us as a management team, we look at our earnings growth potential and all of the steps that we've taken to provide consistency and stability in the earnings, whether it's with the aggregate cover, whether it's with even the cap bond. And certainly, with all the underwriting changes, we have considerable conviction and the visibility that we have in the business. That's why we took guidance up. And we think that when you look at our -- my background is a former private equity investors. We look at earnings growth and the price to earnings growth and we think that is pretty compelling at this level. It's materially below our earnings growth trajectory. And so that's part of the impetus and that's why our Board has gotten comfortable with the buyback.

Okay. Excellent. That was very helpful. You're growing in so many different areas. But if I could just take you home to your earthquake risk, I know, it is particularly within commercial that's grown pretty substantially. And I'm just wondering if others just don't have the appetite now, like what you're seeing in terms of competition and risk appetite in that space.

Sure Tracy. I think in earthquake, Commercial Earthquake, the one that you specifically called out, it did have terrific growth, in excess of 90-plus percent, 96%. That was as much of us being able to continue to take rate, especially in our small Commercial Earthquake franchise, but also opening up the E&S company to our long-standing distribution partners. So that's allowed us to get on the risk that we previously didn't have as much access to call it, mid-sized or large account business, where our admitted offering really was not acceptable or not permissible just because of forms and coverages and rigidity of such. So I think that's what's allowed us to come on and build -- show very strong growth in Q1 in the Commercial Quake. Competition-wise, I think there is competition in that market. But generally speaking, there is very good rate integrity. I actually touched upon it in large accounts. We're probably seeing a little pullback in the rate increases and the acceleration of rates. Small account, you're still seeing very good rate. So, overarchingly, I think we've got very good runway in Commercial Quake. I'm not saying that 96% is sustainable, but I do believe that the market conditions certainly is amenable to us as a new entrant, so to speak, on the E&S side and as well as a long-standing entrant on the admitted side -- or a long standing participant on the admitted side continuing to take share and drive terms and conditions.

Thank you. Very comprehensive answer, really appreciate it.

Thanks.

Our next question comes from the line of Meyer Shields with KBW. You may proceed with your question.

Great, thanks. I had a couple of numbers questions first, and then one bigger picture question. So I guess, I'm going to direct this to Chris. If we take $3.3 million of adjustments, do we get underlying operating expenses at just under $11 million? Is that a good run rate for the year?

Yes. Thanks, Meyer. No, I would say that is a decent run rate. I think as we projected before, we did expect, call it, Q1 from a percentage standpoint to be up to flat compared to where it was last year. So, I think that's a pretty good run rate. I do expect, let's call it, with the growth in earned premium the scale to be more in the latter half of 2021 and from thereon. But no, I don't -- I wouldn't shy away from that run rate from a materiality standpoint. I think it's a good call it point to pick off of.

Okay. Perfect. And then, on the reinstatement premiums, I just want to make sure that only impacts the -- I guess, ceded earned premium -- ceded written and ceded earned premium right? That doesn't impact the actual operating expenses.

That is correct. It does not impact the actual operating expenses. It's only ceded written and ceded earned. But it does impact the ratios, just because it increases -- or excuse me decreases the denominator that those ratios are calculated off of. And that's why we were kind of doing a little bit of math earlier to help break that out. But, yes, it's not in the -- any of the operating expense dollars. It is just in the net earned premium basically.

Okay. No, that's perfect. Thank you. And then Mac, a bigger picture question. I know there's a lot of conversation about construction material cost inflation. How quickly can you incorporate -- I mean if you assume that inflation will persist, how quickly can it be incorporated in pricing? And should we worry that we're seeing the larger property rate increases decelerate at the same time as maybe inflation getting worse?

Hi, Meyer, yes. It is interesting and there have been certain cases where we've had estimates move up because of the cost of lumber and the like. And so that's being factored into the underwriting. And that is -- everything that we do from underwriting at the risk level or modeling at the portfolio level and the reinsurance. We always throw demand surge on to explore expected loss and average annual loss. And so, that should be captured in how we price a risk again at the portfolio or at the individual level. So, what I would tell you is we should be staying ahead of that and having the E&S company is allowing us to do it. And I go to -- what I mentioned on the call, I'll pick on or highlight our builder's risk, right? And that's where you would most directly feel the cost day-to-day just in terms of your projects, building them and bringing them up the ground or replacing them or improving them on the heels of a loss. And we're seeing 30% rate increases for - as much as 30% rate increases for large accounts and certainly north of 24% single-shot small account business, which is definitely keeping pace with the rising cost of goods in that regard. But it's -- we're watching it, and it is something that I think the whole industry is focused on. And we're also focused on, frankly, the potential labor shortage driven by it as well with the demand for new build or in areas that we're materially impacted, like Lake Charles Louisiana. It's not just the cost. It's the labor, so we have to factor that in as well.

Okay. That’s perfect. Thank you.

Our next question comes from the line of Adam Klauber with William Blair. You may proceed with your question.

Hi. Can you talk on the sales support or field network? As you go into new products, have you been expanding that? How big is that today versus a year ago?

Adam, this is Mac. Just to clarify you're asking about the sales support and our production plan and the like, or are you talking...

Yes, your field support.

Yes. No great question. So, if you look at just year-over-year, our distribution footprint grew 22%. And a line like Inland Marine that grew 300% the distribution footprint was up 63%. Residential Earthquake was up 25% year-over-year. So these are numbers that we – or metrics that we track very closely because they are leading indicators of future growth as well as existing growth. And I'll highlight Residential Earthquake, for instance, we added on a sequential basis a couple hundred producers from Q4 to Q1. And that was driven as much by new partnerships. So the Travelers partnership, we were able to appoint new producers. Now do they all start sending over a ton of submissions and do we buy a ton of policies? No that wasn't the case but it's a good leading indicator for what the potential can be. So we are definitely expanding our distribution network. The combination of partnerships, new products and obviously, just opening up PESIC the E&S company to either existing or new distribution sources is the contributing factor to that.

Okay. Thanks. And then as far as the excess of loss and the builder's risk are those programs? And who are the distribution partners on those programs?

Yes. The excess liability is a program and that's with K2 and MGA, we've known for a long time, the leadership there. A lot of us – well, the entire management team has worked with the leadership team there. And then the builder's risk is with TRU Technical Risk Underwriters, which is part of RSG. And what we've done there is very similar to what we've done in Quake, where we have our in-house builder's risk team, led by Robert Beyerle, who's built our Inland Marine department. He oversees that program, while he's also writing it day-to-day on small commercial or midsized account basis. So it's the tried-and-true formula that we've gone for large account business. We're going to work with a partner that can use our capacity to support a layered and shared strategy while writing it in-house for small single accounts or midsized accounts. And that's what we've done in Quake, that's what we have done in builder's risk and we've done to a lesser degree in all-risk as well.

Great. And then as far as end of April, there were some I think bad storms in the South. Does your first half guidance I guess include those storms? And do you think those storms for you will have a bigger or lower impact than you saw with Uri?

First half, Adam, good question. First half guidance definitely incorporates some losses from those storms and they will not look like Uri.

Okay. And then last question, I'm sorry if you said this. As you're renewing your main capture for the end of the year, what's your limit going to be in your retention? Is it still going to be $10 million, or has that been pushed up?

So Adam, what I can tell you is we've actually finalized the placement yesterday after the earnings went out and we were pleased with the outcome and the support that we received from our reinsurers. And what I'll tell you right now is we're kind of dotting and crossing Ts and getting all the paperwork put together. We procured more limit to support our growth and this will all be out in an 8-K. We basically maintain the retention in line with what it was in 2020. The complexion is going to be a little bit different. But it's going to be basically the same number, if not, I expect a little bit less. And we've also incorporated all of the rate changes including those from loss impacted layers into our guidance. So long story short, the 6/1 went how we had hoped. And we also were able to go out and secure an aggregate and place a cap on it in addition to that, which gives us even more conviction on stability and predictability in the earnings.

Great. Okay. Thank you. Thanks very much.

Our last question comes from the line of Pablo Singzon with JPMorgan. You may proceed with your question.

Hi. Can you hear me?

Yes, loud and clear, Pablo.

Yes. Perfect. So I just wanted to follow up on your net income guidance, which increased by $2 million at both ends of the range. Did the favorable PYD factor into this at all, which I think was a little over $2 million in the first quarter, or did you have other considerations when you raised the range?

Yes Pablo, what I'd say is, as we raise the range, we factored in Q1 and from the positive development from Uri to the – or excuse me, positive development from prior quarter storms. We've also factored in the impact of Uri in the first two quarters and then also the strong growth. So we feel very good about the guidance that we've pushed up. We think that the range we provided is achievable and also ambitious. But there's just great momentum in the business. And ultimately, there's some favorable development. Q2, that's a nice dynamic to have -- or Q1 excuse me, that's, a nice dynamic to have. We're not going to hang our hat on that every quarter. So we've just assumed that everything else remains flat for the course of the year, in terms of development that is, and if we get continued favorable development that's, icing on the cake.

Understood. Second question, so you're clearly benefiting from pricing on the E&S side. Can you talk about the pricing dynamic in admitted earthquake? How does pricing there tend to move in relation to the broader P&C market? And maybe if you can distinguish between, commercial which is I guess at this point for you less admitted and residential more admitted.

Yeah. So Residential Earthquake, we are -- we -- the rates are not changing beyond an inflation guard that we have on the product. And we have not put a rate filing in place to change rate, since we've started the business. Our results have been strong. So, the residential market rates are not changing, on an admitted basis. Now we are writing E&S business on Residential Earthquake and that tends to be more high value. And therefore it's a different underwriting because of the content exposure, the cost of reconstruction, labor demand, all those questions that were asked, previously of us. And there, I would say you're looking at, rate increases and rate activity that's more similar to the commercial. So I would almost bifurcate between, E&S and admitted and residential E&S looks a lot like commercial E&S. Admitted more standard business. You are kind of governed by what the state permits. And we're not taking rate based on the historical action, and performance of the book.

Got it. And my last question is there sort of a high level where you just think about the mix of Commercial and Residential Earthquake in your books? So clearly commercial is growing much faster. I'm not sure if it makes sense to sort of look at, where your book could end-up by essentially looking at, where the overall earthquake market is right in terms of share? Or do you think at some point, just because E&S is growing so fast that, maybe commercial will become a bigger book than residential? Just sort of high-level thoughts on how that could develop overtime.

Yeah. At a high level, we want to maintain earthquake at 50% of our business, on the whole. Yeah, I mean, I think commercial is ultimately a bigger end-market. And as our balance sheet grows and as the E&S Company gets traction, I think the delta in terms of percentage mix between commercial and residential could close down. But even if you just look at where we exited the year -- or excuse me, exited the quarter there's still a pretty decent head start that residential has. And residential is still growing at a pretty good clip at 25% in the quarter. So I think the gap will shrink. But it's still 50% more. So I think there's a ways to go.

Okay. Thanks for your answers.

Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would like to turn this call back over to, Mr. Mac Armstrong for closing remarks.

Great. Thank you Operator, and thank you all for your time this morning. This concludes Palomar's first quarter earnings call. We appreciate your participation and questions and always your support. We are pleased with our first quarter results. And more importantly, I think we're very enthusiastic about our growth prospects on a go-forward basis. We executed across all facets of our plan, during the strong quarter. Illustratively, our strong premium growth, laid the ground for continued momentum in existing franchises, as well we have new lines of business that could provide incremental growth that are just getting off the ground. We have new partnerships and new geographies that we have entered into. We've also made meaningful progress on enhancing the predictability of our results. So as such, we raised our guidance. And we hope you can sense our enthusiasm for, what lays ahead of us. And hopefully you share it. So thanks everyone. We look forward to speaking to you, after the second quarter. Have a great day.

You may now disconnect your lines at this time. Thank you for your participation. Enjoy the rest of your day.