A Confluence of Headwinds Affected Palomar (PLMR) in Q3

Riverwater Partners, an investment management company, released its “Small Cap Strategy” Q3 2025 investor letter. A copy of the letter can be downloaded here. The Small Cap Core Strategy reported solid results for the quarter but did not keep pace with the sharp rally, thus lagging the benchmark. The market’s preference for lower-quality companies persisted in the quarter and contributed significantly to the benchmark’s outperformance. On the other hand, the strategy remains focused on higher-quality companies with enduring fundamentals, consistent revenue, and a transparent path to profitability. The firm strongly believes that the strategy is well-positioned in the challenging quarter. In addition, you can check the fund’s top 5 holdings to determine its best picks for 2025.

In its third-quarter 2025 investor letter, Riverwater Partners Small Cap Strategy highlighted stocks such as Palomar Holdings, Inc. (NASDAQ:PLMR). Palomar Holdings, Inc. (NASDAQ:PLMR), with a market capitalization of $3.362 billion, is a specialty insurance company. The one-month return of Palomar Holdings, Inc. (NASDAQ:PLMR) was -3.16%, and its shares gained 12.93% of their value over the last 52 weeks. On December 15, 2025, Palomar Holdings, Inc. (NASDAQ:PLMR) stock closed at $125.52 per share.

Riverwater Partners Small Cap Strategy stated the following regarding Palomar Holdings, Inc. (NASDAQ:PLMR) in its third quarter 2025 investor letter:

“Palomar Holdings, Inc.’s (NASDAQ:PLMR) stock underperformance in Q3 likely reflects a confluence of headwinds: weaker commercial market pricing pressure, a broader rotation away from defensive, insurance-oriented names into more cyclically exposed “risk on” sectors, and investor concerns about underwriting margin compression. In particular, rate reductions in the commercial earthquake and property markets have squeezed premium renewal yields, pressuring growth in the core book. Meanwhile, with markets rallying behind growthier, more volatile sectors, capital may have rotated out of specialty insurers like Palomar in favor of higher beta plays. That said, the name still merits attention: the company has strong visibility into premium growth via its multi-year rate plans, along with expansion into more diversified lines like casualty and crop insurance that offer structural premium growth. Combined with a high return on equity and proven ability to reinvest capital efficiently, Palomar retains upside if market sentiment eventually rotates back to quality insurance franchises.”

In another article, we covered Palomar Holdings, Inc. (NASDAQ:PLMR) and shared Alger Weatherbie Specialized Growth Fund’s views on the company. In addition, please check out our hedge fund investor letters Q3 2025 page for more investor letters from hedge funds and other leading investors.

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Disclosure: None. This article is originally published at Insider Monkey.