Heritage vs. Palomar: Which P&C Insurer Offers Better Returns?

The property and casualty (P&C) insurance industry is witnessing a rise in catastrophic events. To add to the woes, the Fed lowered rates for the first time in 2025 by 25 basis points and hinted two more cuts this year. Despite the odds, the industry is poised for continued growth, fueled by a shift toward personalized offerings and enhanced customer engagement through digital advancements. Insurers are sustaining profitability through increased premium volumes, driven by strong policyholder retention, expanded exposure across various business lines and favorable rate environments. Insurers like Heritage Insurance Holdings HRTG and Palomar Holdings PLMR are well-positioned, banking on their core strengths.

To boost financial resilience, insurers are increasingly utilizing reinsurance strategies. The adoption of sophisticated climate risk modeling is further refining risk assessment processes. However, elevated reinsurance costs, more stringent contract terms and persistent inflation are exerting upward pressure on pricing across the industry.

Yet, as an investment option, which stock is more attractive? Let’s closely look at the fundamentals of these stocks.

Factors to Consider for HRTG

Heritage Insurance is sharpening its focus on profitability by maintaining rate adequacy, applying stringent underwriting criteria, and limiting new policy issuance in saturated or underperforming markets. In response to reduced returns and a strained reinsurance market, the company ceased writing new personal lines policies in Florida and the Northeast as of December 2022. However, recent legislative changes in Florida and a more favorable reinsurance environment have prompted Heritage to cautiously resume personal lines underwriting, guided by a measured and strategic growth approach.

In 2025, the company aims to re-enter carefully selected, high-margin markets while maintaining a disciplined approach to capital deployment. Heritage continues to emphasize rate integrity, data-driven exposure management, and operational efficiency to support long-term, sustainable growth. These efforts are expected to stabilize and increase the in-force policy count over the course of 2025 and 2026.

The excess and surplus (E&S) lines segment remains a major growth driver, as Heritage expands its footprint into new states. Its reinsurance strategy is structured to provide strong protection from catastrophic weather events in coastal areas. The company projects a meaningful decrease in its ceded premium ratio, supported by improved reinsurance cost efficiency and rising gross premiums. Heritage also recently finalized its 2025-2026 indemnity-based catastrophe excess-of-loss reinsurance program across its insurance subsidiaries.

Simultaneously, Heritage is advancing its technology investments to bolster its InsurTech capabilities. Tools such as Guidewire Cloud, its collaboration with Slide, and the use of predictive modeling, cloud-based systems, and pricing analytics are enhancing underwriting precision and expediting claims processing. To further deliver shareholder value, the company has also initiated a $10 million share buyback program.

Factors to Consider for PLMR

This specialty insurer, banking on data analytics, underwriting prudence and risk transfer expertise, is well-positioned to capitalize on market dislocations. In fact, the specialty lines (earthquake, casualty, inland marine & other property, as well as fronting and crop) focus helps it lower volatility in operations.

Palomar has been displaying a good track record of net written premiums driven by increased volume of policies written across the lines of business, backed by new business generated with existing partners, strong premium retention rates for existing business, expansion of their products’ geographic and distribution footprint, and new partnerships. 

Palomar envisions being an industry leader in the crop business and among the top 10 crop premium riders in the United States by 2025, with projections exceeding $200 million in premiums for the year. It also believes the crop business will secure $500 million of premium in the intermediate future. Premiums should also continue to benefit from its solid product portfolio (short tail in nature) as well as geographic expansion, appointment of new producers, strategic partnerships with other insurance carriers and rate increases.

PLMR’s investment income continues to grow due to an increased average balance of investments and higher yields on invested assets. High-quality fixed income securities, a higher average balance of investments and an increase in fixed-income yields should continue to drive the momentum going forward.

Its risk transfer strategy lowers exposure to major events, which reduces earnings volatility and favors combined ratio improvement. Its inorganic growth story is impressive. While the buyouts (recent ones are First Indemnity of America and Advanced AgProtection) expand the addressable market, they also add scale and diversification.

Palomar maintains a strong capital position and boasts a debt-free balance sheet. As part of wealth distribution to shareholders, PLMR engages in share buybacks. PLMR expects adjusted net income of $198 million to $205 million in 2025.

Estimates for HRTG and PLMR

The Zacks Consensus Estimate for HRTG’s 2025 revenues and EPS implies a year-over-year increase of 3.1% and 104%, respectively. EPS estimates have moved 26.2% northward over the past 60 days. 

On the other hand, the Zacks Consensus Estimate for PLMR’s 2025 revenues implies a year-over-year increase of 47%. The consensus estimate for EPS indicates an increase of 42.6% year over year. EPS estimates have moved 1.5% northward over the past 60 days. 

Are HRTG and PLMR Shares Expensive?

Heritage is trading at a price-to-book multiple of 2.01, above its median of 0.68 over the last five years. PLMR’s price-to-book multiple sits at 3.63, above its median of 4.14 over the last five years.

Conclusion

A growing commercial residential business, expanded personal lines capacity, improving E&S business, better pricing, increasing top line, expanding margins and solid earnings bode well for HRTG’s growth.

Palomar aims to be an industry leader in the crop business and its focus on Surety bodes well for growth. Solid product portfolio as well as geographic expansion, appointment of new producers, strategic partnerships with other insurance carriers and rate increases should drive growth.  

On the basis of return on equity, which reflects a company’s efficiency in generating profit from shareholders' equity as well as gives a clear picture of the company's financial health, HRTG, with a ROE of 33.4% scores higher than PLMR, which has a ROE of 22.6%.  

HRTG shares have gained 105.6% year to date, and PLMR shares have gained 9%. Both have outperformed the industry. HRTG shares are less expensive than those of PLMR.  HRTG sports a Zacks Rank #1 (Strong Buy), while PLMR carries a Zacks Rank #3 (Hold). Thus, HRTG seems a safer bet to seeks higher returns.

You can see the complete list of today’s Zacks #1 Rank stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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