Earnings Call Transcript - PLMR Q2 2021

Operator, Operator

Good morning, and welcome to the Palomar Holdings, Inc. Second 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.

Chris Uchida, CFO

Thank you, operator, and good morning, everyone. We appreciate your participation in our Second Quarter 2021 Earnings Call. With me here today is Mac Armstrong, our Chairman, Chief Executive Officer and Founder. 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 August 12, 2021. Before we begin, let me remind everyone that this call may contain certain statements that constitute forward-looking statements within the meanings 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 actuals to differ materially from those indicated or implied by such statements, including, but not limited to, the 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.

Mac Armstrong, CEO

Thank you, Chris, and good morning, everyone. Today, I will speak to our second quarter results at a high level and then discuss our strategic initiatives and efforts to drive profitable growth. From there, I'll turn the call back to Chris to review our financial results in more detail. The second quarter was a very good one and one in which we generated a record written premium, solid profitability and positioned Palomar for further execution on key strategic initiatives underway or identified. As such, I'm eager to speak to several of Q2's highlights. First, our premium growth not only maintained the first quarter of 2020 levels, but actually strengthened this quarter as we grew broadly across our product portfolio suite. We grew gross written premiums by 54% compared to the first quarter growth rate of 45%. Premium growth was driven by a combination of new product launches, sustained performance in existing products, rate increases, new and existing partnerships and the extension of our distribution network. Strong premium growth products included, but were not limited to, residential commercial earthquake, specialty homeowners, Hawaii Hurricane and Inland Marine. Additionally, we saw very strong traction in Palomar Excess and Surplus Insurance Company, PESIC, our newly launched E&S carrier, which grew 42% sequentially from the first quarter of 2021. Second, we look to build on our success as we continue to broaden our product suite and partnership slate. During the quarter, we launched several new products and partnerships via PESIC and continue to harvest existing products and partnerships, most notably those in the residential earthquake sector. These efforts allow us to grow new and existing lines of business, capitalize on conducive market conditions and dislocations and diversify our overall portfolio. New products in the quarter included casualty offerings like layered and shared excess liability and small contractors general liability. Our newest partners with pure programs announced in June is another prime example, as it allowed us to enter into the high-value builders risk segment and complements our commercial builders risk product offering. Third, our successful June 1 reinsurance renewal further demonstrated our commitment to profitable and predictable growth. We secured incremental earthquake and hurricane limit to support our growth trajectory, enhance our already robust panel of reinsurers and kept our retention at a level below that of 2020 when factoring in the elimination of co-participations. We believe the incremental limit, manageable retention and the aggregate limit procured in the first quarter ensures earnings stability and puts the floor in our results of approximately 11% for adjusted return on equity and $41 million for adjusted net income for the year. Fourth, we may focus on continuous improvement as we constantly assess our products and markets to ensure we are earning adequate risk-adjusted returns. We are optimizing every aspect of our business and developing tools that provide insights into the complex markets we serve as we strive to deliver predictable returns and steady growth. For instance, we continue to take rate on our commercial business, run off unprofitable segments like admitted All Risk or Louisiana homeowners, utilize quota share reinsurance for attritional loss-exposed casualty products and drive terms, conditions or risk attachment points. Market conditions have been favorable on a portfolio basis, and we remain optimistic on the outlook through the balance of the year. Lastly, we opportunistically bought back 239,000 shares for $15.8 million during the second quarter. We know that we have the capital to execute our strategy for the foreseeable future and believe this action underscores our confidence in the business, our results to date, our strategy and our ability to create value. Turning to our results in more detail, we delivered strong premium growth of 54% during the second quarter. Overall earthquake premium grew 29%, while non-earthquake premium increased 85%. Our commercial earthquake products were up 47% driven primarily by a rate in new business from distribution partners accessing testing. Other primary distributors were Inland Marine and Hawaii Hurricane with 239% and 140% year-over-year growth, respectively. Specialty Homeowners showed a healthy increase of 65% year-over-year. Our commercial lines premium grew 70% during the quarter and it is worth highlighting, we are delivering this growth despite the continued runoff of our admitted All Risk policies, which impacted our second quarter premium growth by nearly 14 percentage points. As we speak here today, our mid All Risk business, which contributed 64% of the hurricane loss in 2020 has been 68% runoff. As I previously mentioned, PESIC continued to experience strong growth as we expanded our product offerings and distribution relationships. We believe that our E&S business, which delivered $34.1 million in gross written premium grew 4% sequentially and from the first quarter of the year is in the very early innings of its development and can approach the size of our admitted carrier over time. The second quarter's considerable growth was due to strength in existing property lines of business, such as commercial earthquake and layered and shared national property and further footing within our new lines like excess liability and Inland Marine. We are excited by PESIC's long-term prospects, and I look forward to updating you on our continued progress in future quarters. Our focus on existing and new partner relationships continues to provide increased distribution, geographic expansion and product diversification. This concentration helped expand our distribution footprint 5.4% sequentially and 21% year-over-year. Our aforementioned new partnership with PURE Programs enables PESIC to enter another focused market that of high-value residential builders risk insurance. We will continue to develop and seek new partnerships like PURE that enabled Palomar to aggressively grow our market share within profitable market segments. In addition to our overall top line momentum, we delivered strong earnings and grew adjusted net income of $13.2 million in spite of $3.9 million of previously disclosed nonrecurring reinsurance charges incurred as a result of winter storm Uri. Our adherence to conservative levels of reinsurance coverage is exemplified by the successful completion of our reinsurance placement at June 1, where we procured approximately $180 million of incremental limit for earthquakes and $100 million of incremental limit for wind storms. Our reinsurance coverage now exhausts at $1.65 billion for earthquake events and $700 million for hurricane events, providing ample capacity for our sustained growth. We also increased our event retention from $10 million to $12.5 million for all perils, but actually reduced our true retention when factoring in co-participations. Successful 6/1 placement is emblematic of the strength and collaborative nature of our reinsurance relationships and moreover, positions us to take advantage of compelling market conditions. The underlying cost of reinsurance continues to be subsidized by the favorable pricing and overall dislocation in the specialty insurance marketplace. The average rate increase on renewals during the second quarter for commercial earthquake policies was 14% versus 18% in the first quarter of 2021. Our Builder's Risk products saw new business come on at a blended rate increase of approximately 21%, with large accounts increasing as much as 25%. As it pertains to All Risk, our new business policies are being written at an average risk-adjusted rate 25% higher than our expiring All Risk business, with rates increasing between 12% and 25% depending on the geography and size of the account. It is worth highlighting that it's not just in our commercial business where we are increasing rates. In Coastal North Carolina, the State Department of Insurance improved a 14.3% rate increase on our Specialty Homeowners book. We remain confident that we will be able to sustain material rate increases throughout the remainder of the year. Separately, our premium retention in the second quarter was 86% for the total portfolio, excluding the runoff of our admitted All Risk business. Turning to corporate sustainability and responsibility. I'm happy to report that we are continuing to make progress on the development and execution of Palomar's ESG initiatives. We recognize that strong ESG management better serves our employees, our business partners, our environment, our communities and all our stakeholders. We are building our ESG team and are continuing to strategize and formalize our policies. I look forward to updating you on the progress of our ESG initiatives going forward. Additionally, we announced last week the addition of Daina Middleton to our Board. Daina has nearly 30 years of experience in operational leadership, customer relationship development, branding, marketing and the use of technology and analytics to grow businesses and will add significant value to Palomar as we continue on our strategic mission. Overall, I'm delighted with our results. The execution of our growth strategy and the opportunity that I see ahead. It is important to emphasize that we have the capital to fully execute our growth strategy and repurchase shares in an opportunistic fashion. As a result, we bought back approximately 239,000 shares or $15.8 million of our $40 million share repurchase authorization in the second quarter. We will be invested as we capitalize on opportunity to maximize our growth and drive long-term value creation for our shareholders. For the full year 2021, we continue to believe that our adjusted net income will be between $64 million and $69 million. This range considers additional investments in talent, systems, infrastructure and reinsurance, both excessive loss and quota share we have made or expect to make in the second half of '21 that we ultimately feel will generate strong returns over the next several years. Additionally, the aggregate cover put into place establishes a flow of approximately 11% for adjusted return on equity and $41 million for adjusted net income for the year. With that, I'll turn the call over to Chris to discuss our results in more detail.

Chris Uchida, CFO

Thank you, Mac. Please note that during my portion, 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 reach a net loss. We have adjusted the calculations accordingly. For the second quarter of 2020, we had net income of $12.3 million or $0.47 per share compared to net income of $12 million or $0.48 per share for the same quarter in 2020. Our adjusted net income was $13.2 million or $0.51 per share compared to adjusted net income of $13 million or $0.52 per share for the same quarter of 2020. With the interplay between the first two quarters losses and reinsurance premium, we believe the first half of the year is a better representation of our steady-state business. For the first half of 2021, our adjusted net income was $32.5 million or $1.24 per share compared to $25.4 million or $1.02 per share for the same period last year. Additionally, we are pleased to report that our first half of 2021 adjusted net income was above the midpoint of the guidance provided with the first quarter results. Gross written premiums for the second quarter were $129.4 million, representing an increase of 54.4% compared to the prior year's second quarter. As Mac indicated, this growth was driven by a combination of growth within our product portfolio, sustained rate increases, expansion of our E&S footprint and extension of our distribution networks. Ceded written premiums for the second quarter were $51.6 million, representing an increase of 70.8% compared to the prior year second quarter. The increase was primarily due to increased catastrophe XOL reinsurance expense related to our exposure growth and additional nonrecurring charges resulting from winter storm Uri. Secondly, we had increased quota share sessions due to growth in the volume of written premiums subject to quota shares. Ceded written premiums as a percentage of gross written premium increased to 39.9% for the three months ended June 30, 2021, from 36% for the three months ended June 30, 2020. This increase was primarily due to catastrophe XOL charges and a higher proportion of our written premiums being subject to quota shares. Net earned premiums for the second quarter were $54.2 million, an increase of 37.9% compared to the prior year's second quarter due to the growth in earning of higher gross written premiums offset by the growth in earning of higher ceded written premiums under reinsurance agreements. For the second quarter of 2021, net earned premiums as a percentage of gross earned premiums were 52.9% compared to 55.5% in the second quarter of 2020. As previously mentioned, with the additional reinsurance expense impacting the first and second quarters, we expected pressure on this ratio in the second quarter. This ratio would have been above 56%, excluding the additional nonrecurring reinsurance premium. We believe the ratio of net earned premiums to gross earned premiums is a better metric for assessing our business versus the ratio of net written premiums to gross written premiums. As part of our recent reinsurance renewal, we adjusted our participation in our attritional quota share arrangements. With these changes, we expect this ratio to be around 53% to 55% on an annual basis, lower at the beginning of a new reinsurance placement and higher at the end with our expected growth in written premium. The expected net earned premium ratio contemplates our new aggregate cover that will provide improved earnings visibility and increased protection should we be faced with multiple catastrophic events going forward. Losses and loss adjustment expenses, or LAE, incurred for the second quarter were $7.2 million due to attritional losses of $8.4 million, offset by $1.1 million of favorable development on current and prior year catastrophe losses. The loss ratio for the quarter was 13.3%, including an attritional loss ratio of 15.4% compared to a loss ratio of 10.1% during the same period last year comprised entirely of attritional losses. Non-catastrophe losses increased due to an active tornado and hail season and the growth of lines of business subject to attritional losses such as specialty homeowners, flood, Inland Marine and our newer lines of business with conservative loss estimates as we continue to grow the premium base. Our expense ratio for the second quarter of 2021 was 62.6% compared to 58.3% in the second quarter of 2020. On an adjusted basis, our expense ratio was 60.5% for the quarter compared to 54.9% in the second quarter of 2021. The increased expense ratio was driven by additional reinsurance placements with increased written premiums, including the aforementioned additional nonrecurring ceded premium and continued investment in the PESIC talent, systems and other infrastructure. Similar to our net earned premium ratio, we feel it's a better representation of our business to look at our expense ratio as a percentage of earned premium. Our acquisition expense as a percentage of gross earned premiums for the second quarter of 2021 was 21.9%, up slightly from 21% in the second quarter of 2020. This increase was influenced by the change in business mix and the growth of our E&S business. The ratio of our other underwriting expenses, excluding adjustments to gross earned premiums for the second quarter of 2021 was 11.1%, improved sequentially from 11.9% in the first quarter of 2021. Our combined ratio for the second quarter was 76% compared to 68.4% in the second quarter of 2020. Our adjusted combined ratio, which we believe is a better assessment of our efforts was 73.8% during the second quarter compared to 65.1% in the prior year second quarter. Excluding the additional nonrecurring fee reinsurance premium in the quarter, our adjusted combined ratio would have been approximately 69% for the quarter, made up of a loss ratio and an expense ratio of approximately 13% and 56%, respectively. We believe these ratios show a more accurate picture of our business. Net investment income for the second quarter was $2.2 million, an increase of 3.8% compared to the prior year second quarter. The year-over-year increase was primarily due to higher average balance of investments held during the three months ended June 30, 2021, offset slightly by lower yield on invested assets. Our fixed income investment portfolio yield during the second quarter was 2.25% compared to 2.83% for the second quarter of 2020. The weighted average duration of our fixed maturity investment portfolio, including cash equivalents, was 3.84 years at the end of the quarter. Cash and invested assets totaled $427.8 million as compared to $430.4 million at June 30, 2020. For the second quarter, we recognized gains on investments in the consolidated statement of income of $300,000 compared to a gain of $778,000 in the prior year second quarter. Our effective tax rate for the second quarter was 20.5% compared to 21.5% for the three months ended June 30, 2020. For the current quarter, our income tax rate differed from the statutory rate due to the tax impact of the permanent component of employee stock option exercises. Our stockholders' equity was $376.7 million at June 30, 2021, compared to $363.7 million at December 31, 2020, and $376.4 million at March 31, 2021. Importantly, the June 30, 2021 balance reflects our $15.8 million of stock repurchases. For the second quarter of 2021, annualized return on equity was 13.1% compared to 15.1% for the same period last year. Our annualized adjusted return on equity was 14.1% compared to 16.4% for the same period last year. Again, we believe the first half of the year is a better representation of our steady-state business. For the first half of 2021, our annualized adjusted return on equity was 17.6% compared to 17.1% for the same period last year, which included the capital release in June of 2020. As Mac indicated, looking ahead to the remainder of 2021, we are maintaining our adjusted net income guidance of between $64 million and $69 million. As of June 30, we had 25,992,585 diluted shares outstanding as calculated using the treasury stock method. We do not anticipate a material increase in this number during the year-end.

Operator, Operator

Our first question is from Paul Newsome with Piper Sandler.

Paul Newsome, Analyst

Congratulations on the quarter. I was wondering if you could talk a little bit more about operating leverage, particularly with the other underwriting expenses. And just give us a sense of how these may or may not grow in proportion to the clearly rapid revenues you're building?

Chris Uchida, CFO

Paul, it's Chris. Thanks for the question. Yes. So when we look at operating leverage and especially, like you pointed out, the other underwriting expenses, we do think about that, and we talked about it really over the last couple of quarters that we expected that to kind of be flat but potentially up from where it was before. So we do feel that we have established what's called a good base as we've kind of built and invested. We do plan on continuing to invest, but I do expect that ratio to improve over the second half of the year and kind of into 2022. Like I said, we will still invest in new talent, new systems and making sure that we are building scale in the organization over the long term. But even with those investments, I do expect that ratio to continue to improve, like you saw sequentially, especially compared to gross earned premium between the first quarter and the second quarter. In the second quarter, it was about 11.1% versus the first quarter of about 11.9%. So you're starting to see that scale kind of build-up, and I would expect that to continue.

Mac Armstrong, CEO

And Paul, this is Mac. Chris describes that well. Looking at it long term, another factor that will drive operating leverage is our launch of new products. As you know, we are very cautious in our use of reinsurance, whether it's quota share or per risk. As these products gain traction, our risk appetite likely increases, which will allow us to retain more and drive further scale. So, thinking about it long term, in '22 and '23, you can expect to see even more leverage come into play.

Paul Newsome, Analyst

I wanted to ask a similar question about net investment income because I assume there's a bit of leverage involved as you transition from earthquake to E&S, which I believe is a longer tail line of business. Additionally, with low interest rates, investment income is likely affected in a particular direction. Could you provide some insight into how this might develop over time, considering the changes in your product mix?

Mac Armstrong, CEO

Yes, Paul, you brought up an excellent point. The history of Palomar and our focus on specialty property has resulted in a relatively short duration in our investment portfolio, which is quite conservative. Most of our income comes from underwriting. However, as the portfolio evolves, it may extend our duration and change the investment portfolio's composition, particularly if we do not hold equities. This development will take time, especially as we engage in longer tail business, which allows us to explore longer durations on the yield curve. It is more of a long-term trend. I do not foresee a significant increase in investment income over the next two quarters. However, you are correct that this situation may give us the opportunity to take on a bit more in the investment portfolio, aligning it better with our exposure pattern.

Jeff Schmitt, Analyst

Just looking at the attritional loss ratio of 15% in the quarter versus 10% last year, how much of that was driven just by kind of above normal non-cat weather versus the change in business mix? And could you provide any detail on how much you increased participation in the various quota shares?

Chris Uchida, CFO

Yes, Jeff, a lot to inbox there, but a very good question. So when we think about that and we think about just the pure attritional loss ratio of about 15 points for the quarter, some of that was influenced by the additional reinsurance expense. As I mentioned on the prepared remarks, if you take out that reinsurance expense, that probably drops closer to about 14%. So still a little bit elevated than what we've guided to you before, but I think a little bit closer in line with expectations when you think about the second quarter of the year is a little more seasonal from a loss standpoint for us on the attritional side. We do have a total hail exposure in Texas and then some of the other Gulf states. So that was impacted the industry this quarter. So looking at those two things, it was a little bit elevated. The other thing I would like to add to that is, when we think about the new lines of business, those lines of business, we do feel that we are being conservative in our loss estimates and that can be influenced by some of the inflation that we are seeing. But also on those newer lines, we don't have a lot of earned premium yet and don't have a lot of history. I think we're also being conservative in the loss picks we're using to try and estimate those lines. So those are some of the things influencing the quarter as we look at it. When I've talked about kind of our range of loss ratio looking at it on a long-term perspective. Generally, I'm giving that on an annual basis, not necessarily a quarter-to-quarter basis, so it can move up and down. But I do expect that to normalize a little bit. You got to a good point on the other part, the quota shares. With the 6/1 renewal, we did change our quota share participation so that will increase the loss ratio a little bit over time basis to the guidepost I've given before. I wouldn't expect it to jump again. And I think that's probably going to go up let's call it, one to two points over time from what the guide post I gave before, which was kind of call it two to three points on the 8.5% for the year. So now we're probably talking four to five points over compared to last year as that continues to grow. You don't see a lot of that in Q2 yet because quota shares just changed at 6/1. You'll probably see a little more of that in Q3 and Q4. The other thing I'd add to that is with that additional loss ratio, the one thing you're going to get, and we always talk about this is you're going to get a little more net earned premium. So that net earned premium now is going to be between 53% to 55%. I'd even mention to say over a 12-month period, that 55% might actually get to 56%. We're not going to give too much color on that. But obviously, it's always lower at the beginning when we set new reinsurance treaties and then higher at the end and that kind of compares to what I mentioned on the prepared remarks is that our adjusted net earned premium would have been closer to 56% this quarter versus the 52.9% with the additional reinsurance expense associated with the backup things related to Uri. So a lot of different pieces there. But I think overall, with that additional quota share or our participation in the quota share, it's going to be positive to the bottom line because this is additional participation in lines of business that are doing well in the lines of business that we're very comfortable with.

Mac Armstrong, CEO

Jeff, this is Mac. Chris provided a solid answer. I wanted to share a couple more points regarding the loss ratio. Notably, about 12% of the loss ratio, roughly a point or so, came from our admitted All Risk business, which is winding down. This factor had a relatively large impact. If we adjust for that, the 13% to 14% that Chris mentioned seems like a reasonable estimate. Additionally, regarding our increased participation in quota shares, the approach is specific to each line. In some lines, we're adding an extra 5% or 10%, but overall, it averages out to an increase of around 5% to 7.5%. Our balance sheet, underwriting results, and historical data support this strategy, making it a sensible next step as we enhance our balance sheet and gain more familiarity and positive track record in our underwriting results.

Matt Carletti, Analyst

Couple of questions. First one, I wanted to ask you a question on capital. I mean, obviously, you feel comfortable and you're buying back stock, so there's excess. But the question is, as we look forward with the changing mix of business, more growth in specialty lines, and obviously, some changes in quota share. How should we think about kind of the leverage ratio or some other metric that kind of is the appropriate capital level for the Company going forward versus what you might have been a little higher in the past given more earthquake exposure?

Mac Armstrong, CEO

Matt, this is Mac. Thanks for your question. It's great to hear from you. Historically, the foundry we have used is 1x our net premiums written to surplus, and currently, we stand at 0.64x. This is one reason why we have taken the opportunity to buy back stock. The stock repurchases were funded by the free cash flow generated in the quarter or surplus accumulated on our balance sheet. Given that we are still relatively overcapitalized, we are confident in our ability to implement our long-term growth strategy and sustain the premium growth we've mentioned, targeting around 40%, similar to last year, but we're currently exceeding that, with over 50% year-to-date. Your observation is valid that as our portfolio evolves, particularly regarding the investment side, targets may adjust as well. While it’s conceivable to shift to a leverage ratio of 1.1x or 1.2x, such a change isn't significant, especially considering how the book is developing; for example, earthquake and Hawaiian hurricane lines have grown 36% in the first part of the year, making them substantial contributors despite being capital-intensive non-loss bearing lines.

Mark Hughes, Analyst

You talked a lot about the losses in other expenses, but how about acquisition expenses? Any particular trajectory there? Or is this a good run rate?

Chris Uchida, CFO

Mark, it's Chris. Good to hear from you. Yes, the acquisition expense has increased slightly on a quarter-over-quarter basis, but I think it's a reasonable run rate right now. It might see a small uptick due to the quota shares we've discussed before. By participating more, we will lose a bit of that CD commission, which will raise the acquisition expense slightly. Additionally, we are still expanding our lines of business, particularly in commercial lines and the E&S lines, which are primarily driven through wholesaler channels that generally have higher costs than retail. So, that could lead to a slight increase. However, for this quarter, with the gross basis around 21.9%, I believe this is a solid run rate. It might fluctuate to around 22%, 22.5%, or 21.5%, depending on the quarter-to-quarter mix. But overall, I do not anticipate a significant change. We are not altering our new ventures, and there are no major retail players likely to impact the acquisition expense. I expect it to remain relatively stable.

Meyer Shields, Analyst

Great. Is there any room to adjust the inflation guard when we're seeing the sort of building materials cost inflations that we're seeing now?

Mac Armstrong, CEO

The inflation guard, depending on the state, needs to be approved by the Department of Insurance. And so we have an automatic 5% increase in residential earthquake in California. I mean, that is similar for Hawaii. I will say for our more complicated risk and residential quake, we're writing them E&S. And by writing the E&S, we always do factor in the cost of inflation. And level in not only demand surge but a rising cost of goods and replacement cost of goods. I think just overarchingly, as you think about inflation, it's all already been in our portfolio with the inflation guard that you talk about, but also how we use demand surge in setting the base level AAL for a risk. We price risk off of AAL by having demand surge and that reflects heightened cost of labor, heightened cost of material goods, when there is a catastrophe. So that lever, if you would, is factored into all of our unit-level pricing. So we think that we can adjust for it. I think the other thing that I would add to is just the short-tail nature of our business will allow us to cycle through inflationary increases probably quicker than others that may be exposed to social inflation or just a longer tail of loss cost development. I know that's more than you asked, but I thought I'd add that.

Chris Uchida, CFO

Yes. So I think this nonrecurring charge that we're talking about is a lot of this or most if not all is really related to Uri. So those events can happen again. I think the way we have restructured our reinsurance program now is less likely. And I think there's a couple of factors we don't have any co-pars right now, no reinstatement obviously coming into play. And then also we have the aggregate later, more importantly, that will limit the downside impact of multiple events on our portfolio. So I think those three factors don't know, eliminating completely, but I think they basically provide that we don't feel that this is going to happen, it's definitely not something we're building into the models that we're using because it would take a unique set of events for something like that to occur again.

Mac Armstrong, CEO

Well, I think I don't foresee happening for the reasons Chris talked about, but also the loss came from the line of business that we're exiting. More than 80% of the loss came from the admitted All Risk business. So that's a line that we're out of. So it's not to say that we couldn't see E&S losses from a winter storm like that, but it's not going to be a similar type of exposure. So it is fundamentally, it is absolutely nonrecurring.

Pablo Singzon, Analyst

Another question on the attritional loss ratio this time more short term. I want to make sure I understood you correctly. So if you take 14%, 15% as a base, would it be reasonable to assume a step-up in the second half of this year just because of the reinsurance program kicking in? And I guess, should you also think about some elements of seasonality given that weather losses tend to be more concentrated in the second half of the year?

Chris Uchida, CFO

Well, so I would say that for our book of business, when we talk about it, the attritional losses are usually weighted more to the first half of the year. There is going to be a lot more total hail. Obviously, we do have a significant Texas exposure for our purposes. So if you're thinking about it from an attritional standpoint, we view it as more a first half of the year type of phenomenon. So with that, I would say, generally speaking, we do see loss planning to improvement in our book for the second half of the year. Definitely, you see that in Q4. With that, I did indicate that we did change our participation in some of the quota shares. So I wouldn't expect our loss ratio to go up. But I would expect it to kind of be in that range of where we were before, let's call it, 11% to 13% to 14%, unexpected to blend out there, so there could be ups and downs, but I generally view the second half of our year from an attritional standpoint to be lower. Now obviously, we are in the midst of hurricane season. But like we said, we don't go blend into our own.

Mac Armstrong, CEO

Yes, Pablo. Again, just to add a little more color. Again, the nonrecurring reinsurance charge, that influenced the attritional loss ratio by two points or so. So if you back that out, the loss ratio is 13%. So you should, sequentially, you can grow the loss ratio off a back base as opposed to a higher number. So that's why Chris feels good about that 11% to 14% range he's referring to.

Operator, Operator

Ladies and gentlemen, we have reached the end of the question-and-answer section. And I would like to turn the call back to management for closing remarks.

Mac Armstrong, CEO

Thanks very much, operator, and thank you, everyone, for your participation today. Hopefully, you walked away with the sense that Palomar is performing at a very high level. And that we have a considerable amount, if not a ton of conviction in all that we have in front of us. The growth is very strong. The profitable growth is equally strong. We are very focused on providing consistent earnings and look forward to sharing our results with you in the third quarter in the months to come. So be well, and thanks very much for your time.

Operator, Operator

This concludes today's conference. You may disconnect your lines at this time. Thank you very much for your participation, and have a great day.