There aren’t many corners of today’s market where you can still get value (10–15x PE), growth (15%+ EPS), and low beta in one shot. Yet one overlooked niche ticks all three boxes: specialty Property & Casualty insurers, the underwriters of earthquakes, cyberattacks, crop failures, and construction risks.

These firms operate in the shadows of the insurance universe. They’re niche specialists, writing policies so technical or so small in scale that the big carriers don’t bother competing. And because they own those niches, they’re quietly, consistently, and massively profitable.

Look at the structure of the insurance market: in both the U.S. and globally, these companies live in the tiny “Others” bucket, a $73 billion market-cap sliver where 45+ players are lumped together simply because they’re too small or too specialised to break out individually.

But that anonymity is exactly why the opportunity exists.



While global equities have ripped higher this year, these names have barely moved. And with rates set to stay “higher for longer,” their earnings power is only getting stronger.

Just look at Q3:

  • Palomar: +66% premium growth, 78.1% combined ratio

  • Skyward Specialty: +52% premium growth, 89.2% combined ratio

  • Hamilton Insurance Group: 87.8% combined ratio, 21% ROE, trading at 6.8x earnings

If the jargon means nothing to you, here’s the translation: these companies are minting 18–25% ROEs while trading at 7–20x earnings. The S&P 500, by comparison, trades at 24x for 8% ROE.

Specialty insurance is structurally defensive, countercyclical, and price-increasing, which means these elevated returns could persist through 2027.

While the market chases NVIDIA’s next catalyst, it’s ignoring three companies quietly compounding capital at elite returns in the least glamorous business imaginable.

This isn’t a one-quarter lucky break, but the window won’t stay open forever either.

In this edition of Impactfull Weekly, we break down the specialty-insurance resurgence, now entering year three of a multi-year profitability cycle that most investors still aren’t pricing in.

How insurance companies actually make money

But first, we should understand how this cycle came to be, and how insurance companies work, and what reinsurance is. Boring right?

Insurers work in two ways:

  • Underwriting profit: 

Collect $1 in premiums and spend less than $1 on total costs. The combined ratio is your yardstick.

If an insurer spends 78 cents per dollar of premium, the combined ratio is 78%. That 78 cents breaks down into: 

  • Claims paid out (typically 45-55 cents)
  • Loss adjustment expenses for handling claims (3-8 cents)
  • Acquisition costs like broker commissions (10-15 cents)
  • Operating expenses including salaries and technology (8-12 cents)
  • Reinsurance costs to protect against large losses (5-10 cents)

Whatever's left is underwriting profit before investment income.

  • Float income: 

Customers pay premiums up front and their claims are paid out later. That pool of cash is the float. Insurers invest it in bonds and high-quality assets to generate a healthy return. Think of it like having an interest-free loan from millions of policyholders. Until you pay back the policyholder claim, you earn the interest.

(source: Adam Mead, Watchlist Investing)

Here’s a concrete example: Palomar reported revenue of $244.7 million and a 78.1% combined ratio in Q3 2025. That implies roughly $53.6 million of underwriting profit before any investment income. If the investment portfolio earns 4% on the float, that is an additional layer of profit that compounds over time.

How specialty insurers use reinsurance as a tool

Specialty insurers like Palomar, Skyward, and Hamilton focus on underserved niches: earthquakes, crop failures, construction bonds, and other risks that standard insurers avoid. They're primary insurers writing policies directly to customers in specialised markets.

But here's their edge: they buy reinsurance strategically to manage this risk. Think of it like moving a sofa up the stairs. You carry the bottom half, but you pay your mate to take the top.

You still get paid for the move, but a bad slip won't break your back. In practice, specialty insurers buy layers of protection at different loss levels. The attachment point is their deductible. Only when losses exceed that point does the reinsurer start paying. 

Why this matters for margins: when the cost of this protection falls whilst the price you charge customers holds steady, the gap between your selling price and your wholesale cost widens. That gap is the underwriting margin.

(source: AON Reinsurance Market Dynamics Outlook, 2025)

Reinsurers are sitting on record amounts of cash after two years of relatively quiet catastrophic losses. 2023 & 2024 saw fewer major hurricanes, contained wildfires, and dormant earthquakes. Reinsurers collected premiums but paid out far less than expected.

Result: Aon reports reinsurer equity hit $605 billion in Q1 2025, up $5 billion from 2024. When you have that much capital hunting for returns, you end up competing more aggressively for every subsequent % of return. More supply → lower prices.

Three rarely aligned forces are converging

  1. Prices plateaued at elevated levels

After five demanding years, insurers pushed through higher prices and tighter policy language. Prices stopped climbing fast, but they haven't collapsed. 

Deductibles remain higher than 2019 levels, coverage remains more precise than pre-2020 terms. Starting margins are better than the late 2010s (when combined ratios averaged 99-101% versus today's 94-98% range).

Swiss Re forecasts the industry combined ratio at 98.5% for 2025, barely changed from 2024 despite increased competition. That's still in the profitable zone.

  1. Protection got cheaper

More capital returned to reinsurance, including catastrophe bonds that shift disaster risk to investors. Catastrophe bond issuance hit a record $17.7 billion in 2024, pushing the outstanding market to $47 billion.

For insurers, wholesale protection costs eased 10-15% at 2025 renewals, whilst retail pricing to customers moved only slightly. According to J.P. Morgan, property cat reinsurance pricing declined 5-15% at January renewals, with loss-free accounts seeing the steepest drops.

  1. Float still pays

Even if interest rates fall next year, reported portfolio yields continue drifting up as old low-coupon bonds mature and cash reinvests at today's higher coupons. The investment line is a quiet tailwind that most analysts underestimate.

Hamilton's investment income hit $98 million in Q3 2025, contributing significantly to its 21% ROE. Palomar's float strategy delivered returns that pushed adjusted ROE to 25.6%.

Why smaller specialty carriers lead this phase

  1. Speed and focus: specialty writers live in niches where data are better and competition is thinner. They can reprice quickly and walk away from underwriting bad risks.

  2. Excess and surplus advantage: many of these businesses write in the excess and surplus market, which gives more freedom to set prices and customise policy terms. Analogy: this is a chef’s table rather than a set menu. You can change the recipe when the ingredients and the seasons change.

  3. Capital-light architecture: modern reinsurance stacks and catastrophe bonds cap the downside. Growth converts to profit faster because less capital is trapped against extreme scenarios.

  4. Lower baggage: fewer legacy systems and cleaner books mean that expense ratios can fall as the company scales. That creates operating leverage on top of underwriting gains.

Here’s a real world example:

  • Start with $100 in premiums
  • Spend $48 on claims and $30 on operating costs (combined ratio: 78%)
  • Keep $22 of underwriting profit 

Now here's the float part: You collect $100 upfront, but claims get paid out over months or years. On average, you're holding about $50-60 in reserves per $100 of annual premium (the exact amount varies by line of business - earthquake claims pay fast, liability claims take years).

  • Invest this $52 float at 4%: that's $2.08 of investment income
  • Total profit before tax: $22 (underwriting) + $2.08 (investment) = $24.08 With sensible leverage (about 1.5-2x equity to premium), this translates to 17-22% ROE.

Why that matters now: the bear market price gains have largely stuck, the cost of protection is lower than last year, and the investment yield line is still higher than it was for most of the past decade. Those three forces rarely align for long.

What could go wrong in the next 18-24 months

This is a cycle, not a permanent state. High returns attract capital. Capital chases growth, pricing eases, and terms loosen.

A bad catastrophe season or a fast drop in interest rates can also compress margins from both sides. Treat this opportunity as a two-year window with clear rules for when to scale back.

The five risks that matter

  • Mega-catastrophe resets pricing

(source: AON)

The California wildfires in January 2025 caused $50 billion in damages ($20 billion insured). Hurricanes Helene and Milton tested the industry in 2024. Reinsurance structures largely insulated primary insurers from major losses, but a truly catastrophic event (or series of events totalling $100+ billion in insured losses) could reset pricing overnight.

  • “Social inflation” in casualty lines

US casualty insurance faces persistent challenges from social inflation: rising jury awards, litigation funding, changing social attitudes toward corporate defendants. Nuclear verdicts (judgements exceeding $10 million) are becoming more common. Some reinsurers are reducing US casualty exposure or demanding double-digit rate increases. If adverse casualty development accelerates, it could offset profitability gains from property lines.

  • Capacity rush and price erosion

The very profitability that makes this sector attractive will inevitably attract capital. New entrants and existing players adding capacity could pressure rates before insurers fully capture the benefits of hard market pricing. Commercial earthquake rates already demonstrate this: down 18% in Q3 2025 alone.

  • Interest-rate shock to the float

Premium growth partially reflects economic activity. A recession reduces exposure units (payroll for workers compensation, property values for real estate insurance, revenue for general liability). Investment income on float faces pressure if interest rates decline in response to recession. Specialty lines like construction-related coverage, surety bonds, and marine insurance are economically sensitive.

Three catalysts could extend the cycle:

  • Continued catastrophe bond growth providing alternative capital keeps reinsurance costs subdued. 
  • Disciplined capacity management by major insurers (early evidence suggests restraint). 
  • Structural growth in specialty lines (cyber, crop insurance, infrastructure-related surety) that aren't purely cyclical.

Why the window is likely 18–24 months

  • Reinsurance supply is strong today, not permanent: alternative capital can withdraw after losses. If it does, protection costs rise quickly.
  • Primary pricing is sticky, not fixed: if competition heats up, retail prices can slide 3–5% a year and terms can loosen. That closes the wedge.
  • Investment yields normalise: as central banks cut interest rates, the boost from reinvesting the bond portfolio fades. The yield line will stabilise, then step down.
  • Regulatory tides shift: certain state-level reforms that reduced legal leakage can be revisited. If that happens, claims costs rise faster than price.

Companies to watch

(Our selection of specialty insurers positioned at the inflection point)

Palomar Holdings (NASDAQ: PLMR) - Pure-play growth story

Palomar delivered a 78.1% combined ratio in Q3 2025 (amongst the best in the industry) whilst growing premiums 66% compared to last year. The company focuses on underserved niches: earthquake, inland marine, casualty, fronting, and crop insurance.

Skyward Specialty Insurance (NASDAQ: SKWD): Diversified technology play

Skyward posted an 89.2% combined ratio in Q3 whilst growing premiums 52% and delivering 19.7% return on equity. The company constructed a deliberately anti-cyclical portfolio: nearly 50% of their business sits in lines not exposed to traditional property and casualty cycles.

Hamilton Insurance Group (NYSE: HG): Undervalued specialist with margin expansion

Hamilton represents exceptional value in specialty insurance. Q3 2025 delivered an 87.8% combined ratio (amongst the best in the sector), $136 million in net income, and a 21% annualised return on equity. The stock trades at just 6.8x earnings whilst generating returns that most growth stocks would envy.

Smaller companies to invest in

To dig further into smaller companies bound to benefit from specialty insurers making a comeback, create your own StockScreener like we did:

Bonus: ETF Screener

To find out more about ETFs available to index specialty insurers making a comeback, make your own ETF Screener like we did:

Our take: this window stays open through 2027

The maths supporting mid-teens returns on equity through 2026-2027 is straightforward. 

Primary insurance rates holding (down 0-5% in most lines). Reinsurance costs declining 10-15% as capacity grows. Combined ratios in the 78-93% range generating substantial underwriting profit. Investment income on float yielding 4-5%. Total returns on equity approaching 20% for the best operators.

This profitability isn't contingent on markets rising or political outcomes. It's structural arbitrage between retained pricing power and declining input costs.

Cycles always revert. High profitability and ample capital will eventually drive competition that pressures rates back toward long-run equilibrium (combined ratios mid-90s, returns on equity low-to-mid teens). The question is timing.

Valuations remain reasonable for the growth on offer. Palomar trades at 20.4x earnings but delivers 66% premium growth and a 78% combined ratio. Skyward offers 52% growth at 14x earnings (industry average) with an accretive acquisition pending. Hamilton provides the most attractive valuation at just 6.8x earnings whilst generating 21% returns on equity and 26% premium growth.

The risk-reward at current valuations, particularly for Skyward and Hamilton, appears favourable for 18-36 month time horizons.

This isn't a decade-long structural bull market like cloud software or semiconductors. This is a limited, definite cyclical opportunity to capture profitability during a specific market structure phase. 

The investors who profit will recognise the inflection early, size positions appropriately, and exit before the inevitable margin compression begins.

Stay invested, cautiously.

https://www.marketscreener.com/news/inflection-for-insurers-ce7d5fdcd08df527