PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Presents Palomar Holdings, Inc.'s unaudited condensed consolidated financial statements for Q2 and H1 2023, including balance sheets, income, equity, cash flows, and detailed notes [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) | Balance Sheet Highlights | June 30, 2023 (Unaudited) | December 31, 2022 | | :--- | :--- | :--- | | Total Investments | $601.5 million | $553.6 million | | Total Assets | $1,546.3 million | $1,306.5 million | | Total Liabilities | $1,132.6 million | $921.7 million | | Total Stockholders' Equity | $413.7 million | $384.8 million | [Condensed Consolidated Statements of Income and Comprehensive Income (Loss)](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income%20(Loss)) | Income Statement Highlights | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | | :--- | :--- | :--- | | Gross Written Premiums | $274.3 million | $218.7 million | | Net Earned Premiums | $83.1 million | $80.3 million | | Net Income | $17.6 million | $14.6 million | | Diluted Earnings Per Share | $0.69 | $0.57 | | Income Statement Highlights | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Gross Written Premiums | $524.4 million | $389.6 million | | Net Earned Premiums | $166.3 million | $156.3 million | | Net Income | $34.9 million | $29.1 million | | Diluted Earnings Per Share | $1.37 | $1.13 | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) - Total stockholders' equity increased to **$413.7 million** at June 30, 2023, from **$384.8 million** at December 31, 2022. The increase was primarily driven by net income of **$34.9 million**, partially offset by **$15.6 million** in common stock repurchases during the six-month period[13](index=13&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) | Cash Flow Summary (Six Months Ended June 30) | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $23.2 million | $82.8 million | | Net cash used in investing activities | ($52.9 million) | ($101.5 million) | | Net cash provided by financing activities | $20.1 million | $4.8 million | | Net (decrease) in cash, cash equivalents and restricted cash | ($9.6 million) | ($13.9 million) | [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) - As of June 30, 2023, the company's catastrophe event retention is **$17.5 million** for all perils. Its excess of loss (XOL) reinsurance provides protection up to **$2.66 billion** for earthquake events, **$900 million** for Hawaii hurricane events, and **$100 million** for continental U.S. hurricane events[70](index=70&type=chunk) - The company utilizes catastrophe bonds to supplement its reinsurance program. In Q2 2023, it closed a **$200 million** 144A catastrophe bond effective June 1, 2023, which provides indemnity-based reinsurance for earthquake events through June 1, 2026[71](index=71&type=chunk) | Gross Written Premiums by Product (Q2 2023) | Amount | % of GWP | | :--- | :--- | :--- | | Fronting Premiums | $80.2M | 29.2% | | Residential Earthquake | $65.1M | 23.7% | | Commercial Earthquake | $42.8M | 15.6% | | Inland Marine | $35.5M | 13.0% | | California (by State) | $157.1M | 57.3% | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's Q2 and H1 2023 financial performance, covering GWP growth, operational drivers, liquidity, and capital resources [Results of Operations - Three Months Ended June 30, 2023 vs 2022](index=26&type=section&id=Results%20of%20Operations%20-%20Three%20Months%20Ended%20June%2030%2C%202023%20vs%202022) Q2 2023 GWP grew 25.4% to **$274.3 million** driven by Fronting premiums, net income rose 20.4% to **$17.6 million**, and the combined ratio increased to **79.0%** due to higher loss ratio | Key Metrics (Q2 2023 vs Q2 2022) | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | Gross Written Premiums | $274.3M | $218.7M | | Net Income | $17.6M | $14.6M | | Adjusted Net Income (Non-GAAP) | $21.8M | $22.4M | | Loss Ratio | 21.5% | 17.9% | | Combined Ratio | 79.0% | 75.1% | | Adjusted Combined Ratio (Non-GAAP) | 72.2% | 69.1% | - The **25.4%** growth in GWP was led by a **$38.1 million** (**90.3%**) increase in Fronting Premiums. Significant growth was also seen in Residential Earthquake (**+$11.0M**), Commercial Earthquake (**+$9.7M**), and Inland Marine (**+$12.4M**)[120](index=120&type=chunk) - The increase in the loss ratio was driven by **$2.2 million** in catastrophe losses, primarily from severe convective storms, compared to **$0.5 million** in the prior year period. The non-catastrophe loss ratio also increased to **18.9%** from **17.2%**[129](index=129&type=chunk)[130](index=130&type=chunk) [Results of Operations - Six Months Ended June 30, 2023 vs 2022](index=31&type=section&id=Results%20of%20Operations%20-%20Six%20Months%20Ended%20June%2030%2C%202023%20vs%202022) H1 2023 GWP increased 34.6% to **$524.4 million** driven by Fronting premiums, net income grew 19.7% to **$34.9 million**, and the combined ratio rose to **78.5%** due to higher loss ratio | Key Metrics (Six Months 2023 vs 2022) | H1 2023 | H1 2022 | | :--- | :--- | :--- | | Gross Written Premiums | $524.4M | $389.6M | | Net Income | $34.9M | $29.1M | | Adjusted Net Income (Non-GAAP) | $42.2M | $41.0M | | Loss Ratio | 23.2% | 18.8% | | Combined Ratio | 78.5% | 75.8% | | Adjusted Combined Ratio (Non-GAAP) | 72.8% | 70.5% | - Ceded written premiums increased by **60.0%** to **$339.5 million**, driven by growth in fronting and quota share agreements. This raised the ceded premium ratio to **64.7%** from **54.5%** in the prior year period[144](index=144&type=chunk)[145](index=145&type=chunk) - Catastrophe losses for the six-month period were **$4.0 million** (**2.4%** loss ratio), related to floods and severe convective storms, compared to **$1.0 million** (**0.7%** loss ratio) in the prior year[151](index=151&type=chunk) [Liquidity and Capital Resources](index=41&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with **$660.2 million** in cash and investments and **$413.7 million** in stockholders' equity as of June 30, 2023 - Cash flow from operations was **$23.2 million** for the first six months of 2023, a decrease from **$82.8 million** in the same period of 2022, with the variation attributed to the timing of premium receipts, claim payments, and reinsurance activities[195](index=195&type=chunk)[196](index=196&type=chunk) - The company repurchased **301,162 shares** for **$15.6 million** in the first six months of 2023, with **$50.0 million** remaining available under its share repurchase program[200](index=200&type=chunk) - Total stockholders' equity increased to **$413.7 million**, and tangible stockholders' equity (a non-GAAP measure) increased to **$400.6 million** as of June 30, 2023[206](index=206&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=45&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks are interest rate and credit risk, managed conservatively with high-quality fixed maturity securities - The company manages credit risk by investing primarily in high-quality securities. As of June 30, 2023, approximately **78.9%** of the fixed maturity portfolio was rated 'A-' or better, and **1.6%** was rated below investment grade or unrated[220](index=220&type=chunk) - The fixed income investment portfolio had a book yield of **3.60%** as of June 30, 2023, an increase from **3.30%** as of December 31, 2022[208](index=208&type=chunk) [Item 4. Controls and Procedures](index=46&type=section&id=Item%204.%20Controls%20and%20Procedures) As of June 30, 2023, disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[223](index=223&type=chunk) - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, internal controls[224](index=224&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=47&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in ordinary course legal proceedings, not expected to materially adversely affect its financial position - The company states that ongoing legal proceedings are not expected to have a material adverse effect on its consolidated financial position[227](index=227&type=chunk) [Item 1A. Risk Factors](index=47&type=section&id=Item%201A.%20Risk%20Factors) Outlines significant risks including catastrophe events, reinsurance reliance, loss reserve adequacy, geographic concentration, competition, and regulatory changes - A primary risk is exposure to unpredictable and severe catastrophe events. The company's reinsurance coverage exhausts at **$2.66 billion** for earthquake events and **$900 million** for Hawaii hurricane events, with a catastrophe event retention of **$17.5 million** for all perils[231](index=231&type=chunk)[238](index=238&type=chunk) - The business is geographically concentrated, with California and Texas representing **57%** and **9%** of gross written premiums, respectively, for the six months ended June 30, 2023, exposing the company to regional loss activity and regulatory environments[269](index=269&type=chunk) - The company relies on a select group of brokers and program administrators. For the six months ended June 30, 2023, the two largest program administrators distributed **31.3%** and **14.7%** of gross written premiums, respectively[276](index=276&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=70&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Details the company's share repurchase activity during Q2 2023, totaling **166,482 shares** under its publicly announced plan | Share Repurchases (Q2 2023) | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 2023 | 84,547 | $54.02 | | May 2023 | 68,061 | $49.52 | | June 2023 | 13,874 | $54.96 | | **Total** | **166,482** | | - As of June 30, 2023, approximately **$50.0 million** remained available for future repurchases under the company's **$100 million** share repurchase program, which extends through March 31, 2024[375](index=375&type=chunk)[376](index=376&type=chunk) [Item 5. Other Information](index=70&type=section&id=Item%205.%20Other%20Information) A new executive employment agreement was approved, specifying severance benefits for executive officers upon termination or change in control - A new form of executive employment agreement was approved, providing for severance payments equal to **12 months' base salary** plus a pro-rata target bonus upon termination without cause or for good reason[380](index=380&type=chunk)[381](index=381&type=chunk) - If termination without cause or resignation for good reason occurs within **12 months** of a change in control, the executive is entitled to severance pay and acceleration of unvested equity awards[382](index=382&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Commission File Number: 001-38873 Palomar Holdings, Inc. (Exact name of registrant as specified in its charter) (State or other jur ...

Palomar Holdings, Inc. (NASDAQ:PLMR) Q1 2023 Earnings Conference Call May 4, 2023 12:00 PM ET Company Participants Chris Uchida - Chief Financial Officer Mac Armstrong - Chairman and Chief Executive Officer Jon Christianson - President Conference Call Participants Tracy Benguigui - Barclays Matt Carletti - JMP David Motemaden - Evercore ISI Paul Newsome - Piper Sandler Mark Hughes - Truist Securities Andrew Anderson - Jefferies Jing Li - KBW Pablo Singzon - J.P. Morgan Operator Good morning, and welcome to ...

PART I [Item 1. Business](index=4&type=section&id=Item%201.%20Business) Palomar Holdings is a specialty property and casualty insurer focusing on underserved markets with significant growth driven by a multi-channel distribution model and advanced data analytics - Palomar Holdings, Inc. is a specialty insurance company providing property and casualty insurance products, particularly in underserved markets like earthquake insurance, utilizing proprietary data analytics and a modern technology platform[12](index=12&type=chunk) - The company has diversified its product portfolio since 2021, introducing General Casualty, Fronting, Excess Liability, and Excess Property to capitalize on market opportunities and reduce reliance on earthquake insurance, which now accounts for **39% of gross written premiums** (down from 100% in 2014)[16](index=16&type=chunk)[22](index=22&type=chunk) Gross Written Premiums and Net Income Growth (2014-2022) | Metric | 2014 (Initial) | 2022 | CAGR (since 2014/2016) | | :----- | :------------- | :--- | :---------------------- | | Gross Written Premiums | $16.6 million | $881.9 million | ~64% | | Net Income (since 2016) | N/A | N/A | 41% | [Who We Are](index=4&type=section&id=Who%20We%20Are) The company operates as a specialty property insurer with highly-rated subsidiaries, using a multi-channel distribution and robust reinsurance program - Palomar Holdings, Inc. is a specialty property and casualty insurance company, providing products for underserved markets, notably earthquake insurance, through proprietary data analytics and a modern technology platform[12](index=12&type=chunk) - The company operates through two insurance subsidiaries: Palomar Specialty Insurance Company (PSIC) for admitted products and Palomar Excess and Surplus Insurance Company (PESIC) for E&S products, both holding an **'A-' rating from A.M. Best**[13](index=13&type=chunk) - Products are distributed via retail agents, program administrators, wholesale brokers, and partnerships with other insurance companies, supported by a comprehensive reinsurance program to manage risk[14](index=14&type=chunk) [Our Business](index=4&type=section&id=Our%20Business) The company targets unmet needs in specialty insurance, achieving significant market share in earthquake insurance through superior risk-adjusted return strategies - The company addresses unmet needs in specialty insurance markets, offering both admitted products (state-approved rates, backed by guaranty funds) for personal lines and surplus lines products (less regulation, quicker market reaction) primarily for commercial business[17](index=17&type=chunk) - Palomar aims for superior risk-adjusted returns through granular pricing and underwriting, becoming the **4th largest earthquake insurer in California** and **5th largest in the U.S.**[18](index=18&type=chunk) Gross Written Premiums Diversification | Metric | 2014 | 2022 | | :----- | :--- | :--- | | Earthquake Premiums (% of GWP) | 100% | 39% | | Non-Earthquake Premiums Growth (YoY 2022) | N/A | 96% | | Earthquake Premiums Growth (YoY 2022) | N/A | 32% | [Our Competitive Strengths](index=8&type=section&id=Our%20Competitive%20Strengths) Competitive advantages are derived from a focus on underserved markets, differentiated products, proprietary technology, and an experienced management team - The company's competitive strengths include a focus on underserved specialty markets, differentiated products with flexible features, offerings in both admitted and E&S markets, analytically driven underwriting, a multi-channel distribution model, and a sophisticated risk transfer program[26](index=26&type=chunk)[27](index=27&type=chunk)[28](index=28&type=chunk)[29](index=29&type=chunk)[30](index=30&type=chunk)[32](index=32&type=chunk) - Proprietary technology and analytics, including the Palomar Automated Submission System (PASS), enable automated pricing, real-time data access, and efficient risk management[33](index=33&type=chunk) - An entrepreneurial and experienced management team, with an average of **over twenty years of industry experience**, and a board of accomplished industry veterans, further bolster competitive advantage[34](index=34&type=chunk) [Our Strategy](index=10&type=section&id=Our%20Strategy) The company's strategy centers on market expansion, product diversification, conservative reinsurance, and continuous technology investment to drive profitable growth - The company's strategy focuses on expanding its presence in existing markets by gaining market share, growing its distribution network, and increasing the total addressable market with attractive products[35](index=35&type=chunk) - Key strategic pillars include maintaining a diversified book of business, leveraging underwriting and analytics for fee income (e.g., fronting business), purchasing conservative reinsurance, and continuously investing in proprietary technology[38](index=38&type=chunk)[39](index=39&type=chunk)[40](index=40&type=chunk)[41](index=41&type=chunk) Return on Equity (ROE) Trends | Metric | 2022 | 2021 | | :----- | :--- | :--- | | ROE | 13.4% | 12.1% | | Adjusted ROE | 18.3% | 13.8% | [History](index=12&type=section&id=History) Founded in 2013, the company has established key operating, reinsurance, and surplus lines subsidiaries to support its growth and market presence - Palomar Holdings, Inc. was incorporated in the Cayman Islands in October 2013, domesticated to Delaware in March 2019, and its primary operating subsidiary, PSIC, was formed in February 2014[42](index=42&type=chunk) - Key milestones include the incorporation of Bermuda-based reinsurance subsidiary PSRE in August 2014, Palomar Insurance Agency (PIA) in August 2015, and the capitalization of Arizona-domiciled surplus lines insurer PESIC in 2020[44](index=44&type=chunk) [Our Products](index=14&type=section&id=Our%20Products) The company offers a diversified portfolio of personal and commercial specialty insurance products with a geographic focus in catastrophe-prone states - Palomar offers personal and commercial specialty insurance products, including Residential and Commercial Earthquake, Fronting, and Inland Marine, expanding its portfolio to cover multiple specialty risks across the U.S. and licensed in **37 states** as an admitted insurer[45](index=45&type=chunk)[46](index=46&type=chunk) Gross Written Premiums by State (2020-2022) | State | 2022 Amount ($ thousands) | 2022 % of GWP | 2021 Amount ($ thousands) | 2021 % of GWP | 2020 Amount ($ thousands) | 2020 % of GWP | | :------------ | :------------------------ | :------------ | :------------------------ | :------------ | :------------------------ | :------------ | | California | $418,809 | 47.5% | $244,416 | 45.6% | $172,765 | 48.8% | | Texas | 90,459 | 10.3% | 62,893 | 11.8% | 67,974 | 19.2% | | Washington | 41,827 | 4.7% | 23,608 | 4.4% | 14,328 | 4.0% | | Hawaii | 40,157 | 4.5% | 34,993 | 6.5% | 16,398 | 4.6% | | Florida | 38,715 | 4.4% | 27,386 | 5.1% | 5,795 | 1.7% | | Oregon | 24,108 | 2.7% | 13,677 | 2.6% | 10,038 | 2.8% | | Illinois | 17,368 | 2.0% | 12,133 | 2.3% | 6,133 | 1.7% | | North Carolina | 12,776 | 1.5% | 15,271 | 2.9% | 11,143 | 3.1% | | Other | 197,649 | 22.4% | 100,798 | 18.8% | 49,786 | 14.1% | | **Total GWP** | **$881,868** | **100.0%** | **$535,175** | **100.0%** | **$354,360** | **100.0%** | Gross Written Premiums by Product Line (2020-2022) | Product | 2022 Amount ($ thousands) | 2022 % of GWP | 2021 Amount ($ thousands) | 2021 % of GWP | 2020 Amount ($ thousands) | 2020 % of GWP | | :-------------------- | :------------------------ | :------------ | :------------------------ | :------------ | :------------------------ | :------------ | | Fronting | $223,249 | 25.3% | $11,459 | 2.2% | — | NM | | Residential Earthquake | 213,803 | 24.2% | 171,048 | 32.0% | 140,934 | 39.8% | | Commercial Earthquake | 131,677 | 14.9% | 90,552 | 16.9% | 58,890 | 16.6% | | Inland Marine | 105,068 | 11.9% | 57,124 | 10.7% | 15,423 | 4.3% | | Commercial All Risk | 51,671 | 5.9% | 38,640 | 7.2% | 53,933 | 15.2% | | Casualty | 35,791 | 4.1% | 9,584 | 1.9% | — | NM | | Hawaii Hurricane | 32,967 | 3.7% | 30,298 | 5.6% | 13,824 | 3.9% | | Specialty Homeowners | 29,959 | 3.4% | 67,894 | 12.7% | 49,849 | 14.1% | | Residential Flood | 14,539 | 1.7% | 11,652 | 2.2% | 8,176 | 2.3% | | Other | 43,144 | 4.9% | 46,924 | 8.6% | 13,331 | 3.8% | | **Total GWP** | **$881,868** | **100.0%** | **$535,175** | **100.0%** | **$341,029** | **100.0%** | [Marketing and Distribution](index=19&type=section&id=Marketing%20and%20Distribution) A multi-channel distribution model leverages retail agents, wholesale brokers, program administrators, and carrier partnerships to drive growth and market penetration - Palomar employs a multi-channel distribution model, including retail agents (primarily for personal lines, high retention), wholesale brokers (primarily for commercial lines), program administrators (leveraging existing infrastructure), and carrier partnerships (specialty partner, fronting, reinsurance)[62](index=62&type=chunk)[63](index=63&type=chunk)[64](index=64&type=chunk)[65](index=65&type=chunk)[66](index=66&type=chunk) - The Value Select Residential Earthquake program, administered through Arrowhead, accounted for **$173.1 million of written premiums in 2022**[65](index=65&type=chunk) - Carrier partnerships, totaling **over 25 as of December 31, 2022**, are a scalable distribution model, allowing Palomar to provide companion offers, direct agents to its system, or offer assumed reinsurance arrangements[66](index=66&type=chunk) [Underwriting](index=21&type=section&id=Underwriting) The underwriting process combines data analysis with experienced techniques, utilizing automated systems for personal lines and robust analysis for commercial lines - Palomar's underwriting combines data analysis with experienced techniques to build a profitable and diversified book of business, focusing on 'writing what we know' and collaborating with actuarial teams for pricing and risk exposure[68](index=68&type=chunk)[69](index=69&type=chunk) - Personal lines policies (**37% of 2022 GWP**) are issued via automated underwriting for efficiency, while commercial lines involve robust risk analysis and underwriter expertise due to complexity[70](index=70&type=chunk)[71](index=71&type=chunk) - Ongoing risk management includes using third-party catastrophe modeling software to evaluate geographic risk spread, average annual loss (AAL), and probable maximum loss (PML) to optimize reinsurance[73](index=73&type=chunk) [Claims Management](index=21&type=section&id=Claims%20Management) Claims handling is primarily outsourced to third-party administrators to manage costs and leverage specialized expertise, with a focus on rapid catastrophe response - Claims handling is primarily outsourced to multiple third-party administrators (TPAs) to manage costs and leverage specialized expertise, with Palomar's management overseeing loss reserves and event preparation[74](index=74&type=chunk) - For catastrophe events, technology and data analytics enable immediate identification of affected policies and rapid mobilization of claims adjusters through the TPA network, mitigating 'demand surge'[76](index=76&type=chunk) [Reinsurance](index=23&type=section&id=Reinsurance) A comprehensive reinsurance program utilizing traditional and insurance-linked securities is central to managing catastrophe exposure and limiting earnings volatility - Palomar purchases significant reinsurance (catastrophe excess of loss, quota share, property per risk, facultative) to reduce exposure to catastrophe and attritional losses, limit earnings volatility, and enhance earnings visibility[78](index=78&type=chunk)[79](index=79&type=chunk) - The reinsurance program includes traditional reinsurers and insurance-linked securities (e.g., catastrophe bonds), with **over 100 reinsurers rated 'A-' or better** by A.M. Best or posting collateral[80](index=80&type=chunk)[82](index=82&type=chunk) Catastrophe XOL Reinsurance Coverage (as of Dec 31, 2022) | Peril | Coverage Limit | | :-------------------- | :------------- | | Earthquake Events | $2.11 billion | | Hawaii Hurricane Events | $1.01 billion | | Continental U.S. Hurricane Events | $250 million | | Company Retention (all perils) | $12.5 million | [Technology](index=26&type=section&id=Technology) A proprietary, modern technology platform integrates pricing, quoting, and analytics to enable efficient operations and sophisticated risk management - Palomar's proprietary operating platform, built without legacy technology, integrates pricing models, quoting tools, policy administration, and portfolio analytics, emphasizing automated processes and granular data[91](index=91&type=chunk) - The Palomar Automated Submission System (PASS) provides direct access for producers to retail and wholesale products, enabling rapid quoting and binding, and real-time transparency in underwriting and aggregate management[91](index=91&type=chunk) - Technology is also central to analytics and Enterprise Risk Management (ERM), with the analytics team using multiple catastrophe modeling software applications for ongoing risk exposure evaluation and real-time reporting[93](index=93&type=chunk) [Reserves](index=27&type=section&id=Reserves) Loss reserves are established based on actuarial projections to cover ultimate losses and are subject to regular review and adjustment - Loss reserves are established to cover estimated ultimate losses and loss adjustment expenses, including reported claims (case reserves) and incurred but not yet reported (IBNR) claims, net of reinsurance recoveries[94](index=94&type=chunk) - Estimates are based on actuarial projections, past loss experience, current trends, and economic/legal/social conditions, and are subject to significant uncertainty and regular review and adjustment[94](index=94&type=chunk)[97](index=97&type=chunk) Net Ultimate Loss and LAE Development (2019-2022) | Accident Year | 2019 (in thousands) | 2020 (in thousands) | 2021 (in thousands) | 2022 (in thousands) | Development- (Favorable) Unfavorable 2019 to 2020 (in thousands) | Development- (Favorable) Unfavorable 2020 to 2021 (in thousands) | Development- (Favorable) Unfavorable 2021 to 2022 (in thousands) | | :------------ | :------------------ | :------------------ | :------------------ | :------------------ | :---------------------------------------------------------------- | :---------------------------------------------------------------- | :---------------------------------------------------------------- | | Prior | $33,958 | $33,894 | $33,487 | $33,870 | $(64) | $(407) | $383 | | 2020 | — | 64,179 | 61,001 | 64,171 | — | (3,178) | 3,170 | | 2021 | — | — | 45,042 | 43,872 | — | — | (1,170) | | 2022 | — | — | — | 76,289 | — | — | — | | **Total** | | | | | **$(64)** | **$(3,585)** | **$2,383** | [Investments](index=28&type=section&id=Investments) The investment strategy prioritizes capital preservation through a portfolio of high-quality fixed maturity securities, with a secondary focus on risk-adjusted returns - Investment income is a crucial component of earnings, with reserves primarily invested in fixed maturity investments managed by Conning, Inc. under Board-approved guidelines[100](index=100&type=chunk) - The investment policy prioritizes capital preservation, primarily in high-quality fixed maturity securities (minimum 'A' rating), with a secondary focus on maximizing risk-adjusted returns, and includes a commitment to green bonds[105](index=105&type=chunk) Investment Securities Available (Fair Value) (2021-2022) | Category | Dec 31, 2022 Value ($ thousands) | Dec 31, 2022 % of Total | Dec 31, 2021 Value ($ thousands) | Dec 31, 2021 % of Total | | :-------------------------------------- | :------------------------------- | :--------------------- | :------------------------------- | :--------------------- | | Fixed maturities | $515,064 | 93.9% | $432,682 | 92.9% | | Equity securities | 38,576 | 6.1% | 33,261 | 7.1% | | **Total Investments** | **$553,640** | **100.0%** | **$465,943** | **100.0%** | [Enterprise Risk Management ("ERM")](index=30&type=section&id=Enterprise%20Risk%20Management%20(%22ERM%22)) A dedicated ERM function analyzes and monitors risks within established tolerances, supported by a comprehensive business continuity plan - Palomar maintains a dedicated ERM function to analyze, report, and monitor risks within established tolerances, guided by the NAIC's ORSA model and NIST cybersecurity framework[106](index=106&type=chunk) - ERM includes a business continuity plan with an executive management team, offsite data storage, geographically diverse data centers, and a redundant office location to ensure operational resilience during disruptions[108](index=108&type=chunk) [Environmental, Social and Governance Matters](index=32&type=section&id=Environmental%2C%20Social%20and%20Governance%20Matters) The company integrates ESG considerations into its strategy and operations, overseen by a dedicated Board committee - The Board of Directors established an ESG Committee in 2021 to oversee and guide strategies related to environmental, social, corporate responsibility, governance, sustainability, and public policy matters[109](index=109&type=chunk) - The company acknowledges climate change impacts on natural disasters and incorporates scenarios into catastrophe modeling, undertakes carbon footprint audits, and integrates ESG factors into its investment strategy[111](index=111&type=chunk)[112](index=112&type=chunk)[113](index=113&type=chunk) [Competition](index=34&type=section&id=Competition) The company operates in a highly competitive specialty insurance market, competing against larger national carriers, E&S markets, and state-managed entities - The specialty insurance industry is highly competitive, with Palomar competing against larger national insurance companies (e.g., AIG, Chubb), the E&S market (Lloyd's), and state-managed entities (e.g., California Earthquake Authority, NFIP)[116](index=116&type=chunk) - Competition is based on factors such as insurer reputation, coverage, pricing, customer service, broker relationships, financial strength ratings, and management experience[116](index=116&type=chunk) [Ratings](index=34&type=section&id=Ratings) The company's insurance subsidiaries maintain an 'A-' (Excellent) rating from A.M. Best, reflecting strong financial health - Both PSIC and PESIC hold an **'A-' (Excellent) (Outlook Stable) rating from A.M. Best**, which is the fourth highest rating and reflects financial strength, operating performance, and ability to meet policyholder obligations[117](index=117&type=chunk) [Intellectual Property](index=34&type=section&id=Intellectual%20Property) The company protects its brand through trademark registration and will pursue additional intellectual property protection as needed - Palomar has registered its logo as a trademark in the U.S. and plans to pursue additional intellectual property protection as beneficial and cost-effective[118](index=118&type=chunk) [Human Capital](index=34&type=section&id=Human%20Capital) The company focuses on attracting and retaining talent through competitive compensation, comprehensive benefits, and a commitment to diversity and inclusion - As of December 31, 2022, Palomar employed **191 team members**, representing a **26% increase** from the prior year, with a turnover rate of approximately 14%[119](index=119&type=chunk) - The company is committed to diversity and inclusion, with **40% of team members identifying as ethnic minorities** in 2022 (up from 39% in 2021) and **50% of senior executive team members identifying as ethnic minorities**[121](index=121&type=chunk) - Palomar offers competitive compensation, comprehensive benefits, health and wellness programs, and talent development opportunities, including 2,903 hours of training in 2022 and a $3,000 tuition/certification reimbursement[126](index=126&type=chunk)[129](index=129&type=chunk) [Item 1A. Risk Factors](index=39&type=section&id=Item%201A.%20Risk%20Factors) Palomar Holdings faces numerous risks across its business, industry, technology, and regulations, with key concerns in catastrophe events, reinsurance, and market concentration - The company is exposed to claims from unpredictable and severe catastrophe events (e.g., earthquakes, hurricanes), which could significantly reduce earnings and stockholders' equity, and limit underwriting capacity[139](index=139&type=chunk) - Risks include reinsurers failing to pay claims, inadequate loss reserves based on estimates, inability to purchase sufficient reinsurance on acceptable terms, and the failure of risk management models to adequately manage catastrophe exposure[145](index=145&type=chunk)[147](index=147&type=chunk)[153](index=153&type=chunk)[162](index=162&type=chunk) - Business concentration in **California and Texas (47% and 10% of 2022 GWP, respectively)** exposes the company to higher loss activity and specific regulatory environments in these states[175](index=175&type=chunk) - Technology risks include potential failure of IT and telecommunications systems, security breaches, cyber-attacks, and reliance on third-party licensed software, which could disrupt operations and damage reputation[226](index=226&type=chunk)[228](index=228&type=chunk)[232](index=232&type=chunk) - Extensive regulation in multiple states (Oregon, Arizona, California) and Bermuda, including capital requirements and dividend restrictions, may limit business objectives and incur penalties for non-compliance[237](index=237&type=chunk)[238](index=238&type=chunk)[241](index=241&type=chunk)[242](index=242&type=chunk)[243](index=243&type=chunk) [Summary Risk Factors](index=39&type=section&id=Summary%20Risk%20Factors) Key risks include catastrophe events, reinsurance dependency, reserve adequacy, market concentration, and technology vulnerabilities - Key risks include adverse economic factors, severe catastrophe events, reinsurer non-payment, inadequate loss reserves, difficulty in expanding catastrophe coverage, and concentration in California and Texas[135](index=135&type=chunk) - Additional risks involve reliance on a select group of brokers, intense industry competition, technology failures, security breaches, extensive regulation, and potential volatility in the company's stock price[135](index=135&type=chunk)[136](index=136&type=chunk)[137](index=137&type=chunk) [Risks Related to Our Business and Industry](index=41&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Industry) The business faces significant risks from catastrophe events, reinsurance counterparty credit, reserve adequacy, market concentration, and intense competition - Catastrophe events, potentially exacerbated by climate change, pose significant risks, with the company's net loss retention at **$12.5 million for all perils**, and reinsurance coverage exhausting at **$2.11 billion for earthquake**, **$1.01 billion for Hawaii hurricane**, and **$250 million for continental U.S. hurricane events**[139](index=139&type=chunk)[144](index=144&type=chunk) - The company faces risks from reinsurers defaulting on claims, inadequate loss reserves (totaling **$231.4 million gross at Dec 31, 2022**), and the inability to secure reinsurance on commercially acceptable terms, especially in a hard market cycle[145](index=145&type=chunk)[147](index=147&type=chunk)[155](index=155&type=chunk) - Business is concentrated in **California and Texas (47% and 10% of 2022 GWP, respectively)**, increasing exposure to regional loss activity and regulatory changes[175](index=175&type=chunk) - Reliance on a select group of brokers and program administrators (**two account for 47% of 2022 GWP**) creates risk if these relationships are discontinued or if administrators fail to comply with underwriting guidelines[181](index=181&type=chunk)[183](index=183&type=chunk) - Intense competition, potential for inaccurate claim evaluation, and the need for additional capital in the future are ongoing business risks[188](index=188&type=chunk)[195](index=195&type=chunk)[200](index=200&type=chunk) [Risks Related to the Economic Environment](index=60&type=section&id=Risks%20Related%20to%20the%20Economic%20Environment) Adverse economic conditions and market volatility pose risks to premium levels, profitability, and the investment portfolio's value - Adverse economic factors (recession, inflation, high unemployment) could reduce policy sales, increase claim frequency/defaults, and negatively impact premium levels and profitability[212](index=212&type=chunk)[213](index=213&type=chunk) - The investment portfolio is subject to market risks, including interest rate changes and credit quality deterioration, which could reduce net investment income and result in realized losses[215](index=215&type=chunk)[216](index=216&type=chunk)[217](index=217&type=chunk) - The company may be forced to sell investments to meet liquidity requirements, potentially at unfavorable prices, leading to significant realized losses[224](index=224&type=chunk) [Risks Related to Technology](index=62&type=section&id=Risks%20Related%20to%20Technology) The company is exposed to operational disruptions and reputational damage from IT system failures, cyber-attacks, and reliance on third-party software - Failure of information technology and telecommunications systems, including third-party systems, could severely limit the ability to write business, provide customer service, or process claims[226](index=226&type=chunk) - Security breaches or cyber-attacks pose risks of operational disruptions, unauthorized data access, legal claims, regulatory scrutiny, and reputational damage, with insurance coverage potentially insufficient for all losses[228](index=228&type=chunk)[230](index=230&type=chunk) - Reliance on third-party licensed software and cloud-based services introduces risks related to license maintenance, software functionality, integration issues, and service failures, which could adversely affect operations[232](index=232&type=chunk)[235](index=235&type=chunk) [Risks Related to Laws and Regulations](index=66&type=section&id=Risks%20Related%20to%20Laws%20and%20Regulations) Extensive state and international regulations impose constraints on business objectives, with risks from changing interpretations and dividend restrictions - Palomar is subject to extensive regulation in Oregon, Arizona, California, and Bermuda, with regulations primarily protecting policyholders and potentially imposing timing/expense constraints on business objectives[237](index=237&type=chunk)[238](index=238&type=chunk) - Unexpected changes in interpretation of policy coverage, loss limitations, or exclusions could broaden coverage or increase claim frequency/severity, materially affecting financial condition[244](index=244&type=chunk) - The company faces risks from increased state assessments (**PSIC paid $0.6 million in 2022**), changes in tax laws, and new cybersecurity regulations (e.g., NAIC's Insurance Data Security Model Law)[250](index=250&type=chunk)[253](index=253&type=chunk)[254](index=254&type=chunk) - As a holding company, dividend payments depend on distributions from subsidiaries, which are restricted by state and Bermuda insurance laws based on solvency, surplus, and capital requirements[258](index=258&type=chunk)[259](index=259&type=chunk) [Risks Related to Ownership of Our Common Stock](index=78&type=section&id=Risks%20Related%20to%20Ownership%20of%20Our%20Common%20Stock) Stock ownership risks include potential price volatility from operational results and market conditions, dilution from future capital raises, and anti-takeover provisions - Future capital-raising transactions, such as sales of common stock under shelf registration statements, could lower the market price of the stock and impair the ability to raise capital[282](index=282&type=chunk) - The company's operating results and stock price may be volatile due to various factors, including economic conditions, catastrophe events, interest rates, competition, and investment performance[283](index=283&type=chunk) - Anti-takeover provisions in organizational documents (e.g., classified board, super-majority voting, blank-check preferred stock) could delay or prevent a change of control, potentially limiting share price[287](index=287&type=chunk)[288](index=288&type=chunk) [SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS](index=83&type=section&id=SPECIAL%20NOTE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) The report contains forward-looking statements that are subject to substantial risks and uncertainties, and actual results may differ materially - The report contains forward-looking statements subject to substantial risks and uncertainties, including those related to catastrophe events, reinsurance, economic factors, and regulatory changes[295](index=295&type=chunk)[296](index=296&type=chunk)[299](index=299&type=chunk) - Actual results may differ materially from expectations due to various factors, and the company undertakes no obligation to update these statements except as required by law[296](index=296&type=chunk)[304](index=304&type=chunk) [Item 1B. Unresolved Staff Comments](index=87&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) There are no unresolved staff comments from the SEC regarding the company's filings - No unresolved staff comments were reported[305](index=305&type=chunk) PART II [Item 2. Properties](index=89&type=section&id=Item%202.%20Properties) The company leases its primary executive offices in California and an additional office in Minnesota, owning no real property - Primary executive offices are in La Jolla, California (**14,700 sq ft**, $0.7 million annual rent, lease expires 2024)[308](index=308&type=chunk) - An additional office is located in Edina, Minnesota (**7,457 sq ft**, $0.2 million annual rent, lease expires 2027)[308](index=308&type=chunk) - The company does not own any real property and considers its current facilities sufficient for its needs[309](index=309&type=chunk) [Item 3. Legal Proceedings](index=89&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in routine legal proceedings but none are expected to have a material adverse effect on its business - The company is subject to routine legal proceedings in the normal course of its insurance business[310](index=310&type=chunk) - No legal proceedings are expected to have a material adverse effect on the company's business, results of operations, or financial condition[310](index=310&type=chunk) [Item 4. Mine Safety Disclosures](index=89&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to Palomar Holdings, Inc - Not applicable[311](index=311&type=chunk) [Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=89&type=section&id=Item%205.%20Market%20for%20the%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's stock trades on NASDAQ, no dividends are planned, and a share repurchase program is active - Common shares began trading on the NASDAQ Global Select Market under **'PLMR' on April 17, 2019**[313](index=313&type=chunk) - The company does not intend to declare and pay cash dividends in the foreseeable future, as dividend payments from its insurance subsidiaries (PSIC, PESIC, PSRE) are restricted by state and Bermuda insurance laws[314](index=314&type=chunk)[315](index=315&type=chunk) Share Repurchase Program Activity | Program | Authorization | Period | 2022 Repurchases | Remaining | | :------ | :------------ | :----- | :--------------- | :-------- | | Current | $100 million | Through March 31, 2024 | 621,415 shares for $34.4 million | $65.6 million | [Item 6. [Reserved]](index=92&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=92&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) The company reported strong growth in premiums and net income for 2022, driven by new business and expansion, while maintaining a solid liquidity position - Gross written premiums increased significantly due to new business with existing partners, strong premium retention, expanded distribution, and substantial rate increases for commercial products[363](index=363&type=chunk) - Ceded written premiums rose by **134.8% to $524.6 million**, primarily due to increased cessions under quota share and fronting agreements, and higher excess of loss (XOL) reinsurance expense[368](index=368&type=chunk) Key Financial Highlights (Year Ended December 31, 2022 vs. 2021) | Metric | 2022 ($ thousands) | 2021 ($ thousands) | Change ($ thousands) | % Change | | :-------------------------------------- | :----------------- | :----------------- | :------------------- | :------- | | Gross written premiums | $881,868 | $535,175 | $346,693 | 64.8% | | Net earned premiums | $316,466 | $233,826 | $82,640 | 35.3% | | Underwriting income | $62,076 | $46,821 | $15,255 | 32.6% | | Net income | $52,170 | $45,847 | $6,323 | 13.8% | | Adjusted net income | $71,334 | $52,434 | $18,900 | 36.0% | | Net investment income | $13,877 | $9,080 | $4,797 | 52.8% | | Net realized & unrealized (losses) gains on investments | $(7,529) | $1,277 | $(8,806) | NM | | Combined ratio | 80.4% | 80.0% | N/A | N/A | | Adjusted combined ratio | 75.6% | 76.1% | N/A | N/A | [Overview](index=92&type=section&id=Overview) The company is a specialty property and casualty insurer leveraging data analytics and a modern technology platform to serve underserved markets - Palomar Holdings, Inc. is a specialty property and casualty insurer focusing on underserved markets, leveraging proprietary data analytics and a modern technology platform for flexible, granular pricing[323](index=323&type=chunk) - The company's subsidiaries, PSIC (admitted) and PESIC (E&S), both hold an **'A-' rating from A.M. Best**, distributing products through multiple channels and supported by a comprehensive reinsurance program[324](index=324&type=chunk)[325](index=325&type=chunk) Growth Metrics (2014-2022) | Metric | 2014 (Initial) | 2022 | CAGR | | :-------------------- | :------------- | :--- | :--- | | Gross Written Premiums | $16.6 million | $881.9 million | ~64% | | Net Income (since 2016) | N/A | N/A | 41% | [Components of Our Results of Operations](index=94&type=section&id=Components%20of%20Our%20Results%20of%20Operations) Operational results are driven by premium growth, reinsurance costs, loss expenses, and investment performance - Gross written premiums are influenced by new business, renewal rates, product offerings, and new/exited partnerships[328](index=328&type=chunk) - Ceded written premiums are affected by gross written premiums, changes in XOL limits/retention, quota share co-participation, and fronting agreements[329](index=329&type=chunk) - Losses and loss adjustment expenses are driven by catastrophe and non-catastrophe losses, business mix, reinsurance agreements, geographic exposure, and legal/regulatory changes[335](index=335&type=chunk) - Net investment income depends on the size and yield of the investment portfolio, while net realized and unrealized gains/losses reflect market fluctuations and credit losses[341](index=341&type=chunk)[342](index=342&type=chunk) [Key Financial and Operating Metrics](index=99&type=section&id=Key%20Financial%20and%20Operating%20Metrics) The company utilizes several non-GAAP metrics to provide insight into underlying business performance by excluding non-recurring or volatile items - Key non-GAAP metrics include underwriting revenue, underwriting income, adjusted net income, annualized adjusted return on equity, adjusted combined ratio, diluted adjusted earnings per share, catastrophe loss ratio, adjusted combined ratio excluding catastrophe losses, and tangible stockholders' equity[346](index=346&type=chunk)[347](index=347&type=chunk)[348](index=348&type=chunk)[350](index=350&type=chunk)[352](index=352&type=chunk)[353](index=353&type=chunk)[354](index=354&type=chunk)[356](index=356&type=chunk)[358](index=358&type=chunk) - These metrics provide insight into underlying business performance by excluding non-recurring items or investment income volatility[346](index=346&type=chunk)[347](index=347&type=chunk)[348](index=348&type=chunk)[350](index=350&type=chunk)[352](index=352&type=chunk)[353](index=353&type=chunk)[354](index=354&type=chunk)[356](index=356&type=chunk)[358](index=358&type=chunk) [Results of Operations](index=102&type=section&id=Results%20of%20Operations) The company achieved significant premium growth in 2022, driven by fronting and core product lines, though net income growth was tempered by higher loss expenses and investment losses - Fronting business, launched in Q4 2021, was a significant growth driver in 2022, while Specialty Homeowners premiums declined due to cessation of writing outside Texas and conversion to a fronting arrangement[365](index=365&type=chunk)[366](index=366&type=chunk) - Net investment income increased by **52.8% to $13.9 million** due to a higher average investment balance and higher yields, but net realized and unrealized losses on investments totaled **$7.5 million in 2022**[382](index=382&type=chunk)[383](index=383&type=chunk) Consolidated Results of Operations (2022 vs. 2021) | Metric | 2022 ($ thousands) | 2021 ($ thousands) | Change ($ thousands) | % Change | | :-------------------------------------- | :----------------- | :----------------- | :------------------- | :------- | | Gross written premiums | $881,868 | $535,175 | $346,693 | 64.8% | | Ceded written premiums | $(524,575) | $(223,443) | $(301,132) | 134.8% | | Net written premiums | $357,293 | $311,732 | $45,561 | 14.6% | | Net earned premiums | $316,466 | $233,826 | $82,640 | 35.3% | | Commission and other income | $4,272 | $3,608 | $664 | 18.4% | | Total underwriting revenue | $320,738 | $237,434 | $83,304 | 35.1% | | Losses and loss adjustment expenses | $78,672 | $41,457 | $37,215 | 89.8% | | Acquisition expenses | $110,771 | $95,433 | $15,338 | 16.1% | | Other underwriting expenses | $69,219 | $53,723 | $15,496 | 28.8% | | Underwriting income | $62,076 | $46,821 | $15,255 | 32.6% | | Interest expense | $(873) | $(40) | $(833) | NM | | Net investment income | $13,877 | $9,080 | $4,797 | 52.8% | | Net realized and unrealized (losses) gains on investments | $(7,529) | $1,277 | $(8,806) | NM | | Income before income taxes | $67,551 | $57,138 | $10,413 | 18.2% | | Income tax expense | $15,381 | $11,291 | $4,090 | 36.2% | | Net income | $52,170 | $45,847 | $6,323 | 13.8% | Gross Written Premiums by Product Line (2022 vs. 2021) | Product | 2022 Amount ($ thousands) | 2022 % of GWP | 2021 Amount ($ thousands) | 2021 % of GWP | Change ($ thousands) | % Change | | :-------------------- | :------------------------ | :------------ | :------------------------ | :------------ | :------------------- | :------- | | Fronting | $223,249 | 25.3% | $11,459 | 2.2% | $211,790 | NM | | Residential Earthquake | 213,803 | 24.2% | 171,048 | 32.0% | 42,755 | 25.0% | | Commercial Earthquake | 131,677 | 14.9% | 90,552 | 16.9% | 41,125 | 45.4% | | Inland Marine | 105,068 | 11.9% | 57,124 | 10.7% | 47,944 | 83.9% | | Commercial All Risk | 51,671 | 5.9% | 38,640 | 7.2% | 13,031 | 33.7% | | Casualty | 35,791 | 4.1% | 9,584 | 1.9% | 26,207 | 273.4% | | Hawaii Hurricane | 32,967 | 3.7% | 30,298 | 5.6% | 2,669 | 8.8% | | Specialty Homeowners | 29,959 | 3.4% | 67,894 | 12.7% | $(37,935) | (55.9)% | | Residential Flood | 14,539 | 1.7% | 11,652 | 2.2% | 2,887 | 24.8% | | Other | 43,144 | 4.9% | 46,924 | 8.6% | $(3,780) | (8.1)% | | **Total GWP** | **$881,868** | **100.0%** | **$535,175** | **100.0%** | **$346,693** | **64.8%** | Losses and Loss Adjustment Expenses (2022 vs. 2021) | Category | 2022 ($ thousands) | 2021 ($ thousands) | Change ($ thousands) | % Change | | :-------------------------- | :----------------- | :----------------- | :------------------- | :------- | | Catastrophe losses | $15,394 | $5,015 | $10,379 | 207.0% | | Non-catastrophe losses | $63,278 | $36,442 | $26,836 | 73.6% | | **Total LLAE** | **$78,672** | **$41,457** | **$37,215** | **89.8%** | | Catastrophe loss ratio | 4.9% | 2.1% | N/A | N/A | | Non-catastrophe loss ratio | 20.0% | 15.6% | N/A | N/A | [Reconciliation of Non-GAAP Financial Measures](index=111&type=section&id=Reconciliation%20of%20Non-GAAP%20Financial%20Measures) This section provides reconciliations of non-GAAP measures like adjusted net income and adjusted combined ratio to their nearest GAAP equivalents Adjusted Net Income Reconciliation (2022 vs. 2021) | Metric | 2022 ($ thousands) | 2021 ($ thousands) | | :------------------------------------------ | :----------------- | :----------------- | | Net income (GAAP) | $52,170 | $45,847 | | Adjustments: | | | | Net realized and unrealized losses (gains) on investments | 7,529 | (1,277) | | Expenses associated with transactions | 130 | 563 | | Stock-based compensation expense | 11,624 | 5,584 | | Amortization of intangibles | 1,255 | 1,251 | | Expenses associated with catastrophe bond, net of rebate | 1,992 | 1,704 | | Tax impact | (3,366) | (1,238) | | **Adjusted net income (Non-GAAP)** | **$71,334** | **$52,434** | Adjusted Combined Ratio Reconciliation (2022 vs. 2021) | Metric | 2022 | 2021 | | :------------------------------------------ | :--- | :--- | | Combined ratio (GAAP) | 80.4% | 80.0% | | Adjustments to numerator: | | | | Expenses associated with transactions | (130) | (563) | | Stock-based compensation expense | (11,624) | (5,584) | | Amortization of intangibles | (1,255) | (1,251) | | Expenses associated with catastrophe bond, net of rebate | (1,992) | (1,704) | | **Adjusted combined ratio (Non-GAAP)** | **75.6%** | **76.1%** | Tangible Stockholders' Equity Reconciliation (2022 vs. 2021) | Metric | Dec 31, 2022 ($ thousands) | Dec 31, 2021 ($ thousands) | | :-------------------------- | :------------------------- | :------------------------- | | Stockholders' equity (GAAP) | $384,754 | $394,169 | | Intangible assets | (8,261) | (9,501) | | **Tangible stockholders' equity (Non-GAAP)** | **$376,493** | **$384,668** | [Liquidity and Capital Resources](index=115&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity is maintained through operating cash flows and a high-quality investment portfolio, while capital is managed under regulatory dividend restrictions - The company's ability to pay dividends relies on distributions from its subsidiaries (PSIC, PESIC, PSRE), which are subject to state and Bermuda regulatory restrictions on dividend amounts based on statutory surplus and net income[406](index=406&type=chunk)[407](index=407&type=chunk)[408](index=408&type=chunk)[409](index=409&type=chunk)[411](index=411&type=chunk)[416](index=416&type=chunk)[418](index=418&type=chunk) - Stockholders' equity decreased to **$384.8 million at December 31, 2022** (from $394.2 million in 2021), primarily due to unrealized losses on fixed maturity securities and share repurchases, partially offset by net income[436](index=436&type=chunk) - The company has a **$100 million revolving credit facility** with U.S. Bank (no outstanding borrowings as of Dec 31, 2022) and **$36.4 million in borrowings outstanding** from the FHLB line of credit[431](index=431&type=chunk)[435](index=435&type=chunk) Cash Flows (2022 vs. 2021) | Activity | 2022 ($ thousands) | 2021 ($ thousands) | | :-------------------- | :----------------- | :----------------- | | Operating activities | $169,584 | $87,814 | | Investing activities | $(156,808) | $(58,188) | | Financing activities | $5,017 | $(13,041) | | **Change in cash, cash equivalents, and restricted cash** | **$17,793** | **$16,585** | Investment Portfolio Composition (Fair Value) (2022 vs. 2021) | Category | Dec 31, 2022 ($ thousands) | Dec 31, 2022 % of Total | Dec 31, 2021 ($ thousands) | Dec 31, 2021 % of Total | | :-------------------------------------- | :------------------------- | :--------------------- | :------------------------- | :--------------------- | | Fixed maturity securities | $515,064 | 93.9% | $432,682 | 92.9% | | Equity securities | 38,576 | 6.1% | 33,261 | 7.1% | | **Total Investments** | **$553,640** | **100.0%** | **$465,943** | **100.0%** | [Critical Accounting Policies and Estimates](index=125&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Key estimates include reserves for losses, investment valuation, and deferred income taxes, which involve significant management judgment - The reserve for losses and loss adjustment expenses is a critical estimate, representing the ultimate cost of reported and IBNR losses, determined through actuarial analysis and subject to significant judgment and variability[443](index=443&type=chunk)[446](index=446&type=chunk)[447](index=447&type=chunk) - Investment valuation and fair value measurements are critical, with fixed maturity securities classified as available-for-sale and equity securities carried at fair value, using a three-tier hierarchy (Level 1, 2, 3) based on input observability[465](index=465&type=chunk)[466](index=466&type=chunk)[467](index=467&type=chunk) - Deferred income taxes are accounted for using the asset and liability method, with deferred tax assets (e.g., NOLs, unrealized losses) and liabilities (e.g., deferred acquisition costs) recognized, and a valuation allowance established if realization is not more-likely-than-not[478](index=478&type=chunk)[479](index=479&type=chunk)[480](index=480&type=chunk) Gross and Net Reserves for Losses and LAE (2022 vs. 2021) | Category | Dec 31, 2022 Gross ($ thousands) | Dec 31, 2022 % of Total | Dec 31, 2022 Net ($ thousands) | Dec 31, 2022 % of Total | | :-------------------------------- | :----------------------------- | :-------------------- | :--------------------------- | :-------------------- | | Case reserves | $72,598 | 31.4% | $34,084 | 44.0% | | IBNR | $158,817 | 68.6% | $43,436 | 56.0% | | **Total reserves** | **$231,415** | **100.0%** | **$77,520** | **100.0%** | [Recent Accounting Pronouncements](index=137&type=section&id=Recent%20Accounting%20Pronouncements) No recently issued accounting pronouncements are expected to have a significant impact on the company's financial statements - The company has not adopted any new accounting guidance during the year ended December 31, 2022, and no recently issued pronouncements are expected to have significant impact[485](index=485&type=chunk)[480](index=480&type=chunk) [Off-Balance Sheet Arrangements](index=137&type=section&id=Off-Balance%20Sheet%20Arrangements) The company has no off-balance sheet arrangements that are reasonably likely to have a material effect on its financial condition - The company has no off-balance sheet arrangements that are reasonably likely to have a material effect on its financial condition, results of operations, liquidity, capital expenditures, or capital resources[486](index=486&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=137&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is primarily exposed to market risks from interest rate changes and equity price fluctuations in its investment portfolio - Primary market risks include equity price risk from equity securities and interest rate risk from fixed maturities, with no material exposure to foreign currency or commodity risk[487](index=487&type=chunk) - Credit risk in municipal and corporate bond portfolios is managed through investing in high-quality, diversified securities[488](index=488&type=chunk)[489](index=489&type=chunk) - A **100-basis point increase in interest rates** is estimated to cause a **3.7% decline** in the fair value of fixed maturities, while a **100-basis point decrease** would cause a **3.9% increase**[491](index=491&type=chunk) - Inflation in excess of assumptions could lead to higher losses and loss adjustment expenses, and increased reinsurance costs. Seasonal weather events (June-November) can increase losses in Commercial All Risk and Hawaii Hurricane lines[492](index=492&type=chunk)[494](index=494&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=140&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the audited consolidated financial statements, which received an unqualified opinion from the independent registered public accounting firm - Ernst & Young LLP issued an **unqualified opinion** on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2022[498](index=498&type=chunk)[499](index=499&type=chunk)[505](index=505&type=chunk)[506](index=506&type=chunk) - The valuation of the reserve for losses and loss adjustment expenses is identified as a **critical audit matter** due to the highly judgmental nature of assumptions and their significant effect on IBNR reserves[509](index=509&type=chunk)[511](index=511&type=chunk) Consolidated Balance Sheets (as of December 31, 2022 and 2021) | Asset/Liability | 2022 ($ thousands) | 2021 ($ thousands) | | :---------------------------------------------------- | :----------------- | :----------------- | | Total investments | $553,640 | $465,943 | | Cash and cash equivalents | $68,108 | $50,284 | | Premium receivable | $162,858 | $88,012 | | Reinsurance recoverable on unpaid losses and LAE | $153,895 | $127,947 | | Total assets | $1,306,450 | $925,734 | | Reserve for losses and loss adjustment expenses | $231,415 | $173,366 | | Unearned premiums | $471,314 | $284,665 | | Ceded premium payable | $146,127 | $37,460 | | Borrowings from credit agreements | $36,400 | — | | Total liabilities | $921,696 | $531,565 | | Total stockholders' equity | $384,754 | $394,169 | Consolidated Statements of Income and Comprehensive Income (Year Ended December 31, 2022, 2021, 2020) | Revenue/Expense | 2022 ($ thousands) | 2021 ($ thousands) | 2020 ($ thousands) | | :-------------------------------------- | :----------------- | :----------------- | :----------------- | | Gross written premiums | $881,868 | $535,175 | $354,360 | | Net earned premiums | $316,466 | $233,826 | $155,068 | | Net investment income | $13,877 | $9,080 | $8,612 | | Net realized and unrealized (losses) gains on investments | $(7,529) | $1,277 | $1,488 | | Total revenues | $327,086 | $247,791 | $168,463 | | Losses and loss adjustment expenses | $78,672 | $41,457 | $64,115 | | Acquisition expenses | $110,771 | $95,433 | $64,041 | | Other underwriting expenses | $69,219 | $53,723 | $34,084 | | Total expenses | $259,535 | $190,653 | $162,240 | | Net income | $52,170 | $45,847 | $6,257 | | Diluted earnings per share | $2.02 | $1.76 | $0.24 | Consolidated Statements of Cash Flows (Year Ended December 31, 2022, 2021, 2020) | Activity | 2022 ($ thousands) | 2021 ($ thousands) | 2020 ($ thousands) | | :------------------------------------------ | :----------------- | :----------------- | :----------------- | | Net cash provided by operating activities | $169,583 | $87,814 | $57,493 | | Net cash used in investing activities | $(156,807) | $(58,188) | $(185,385) | | Net cash provided by (used in) financing activities | $5,017 | $(13,041) | $128,329 | | **Net increase in cash, cash equivalents and restricted cash** | **$17,793** | **$16,585** | **$437** | [1. Summary of Operations and Basis of Presentation](index=153&type=section&id=1.%20Summary%20of%20Operations%20and%20Basis%20of%20Presentation) The company is an insurance holding company with multiple subsidiaries focused on specialty property markets, preparing financial statements under U.S. GAAP - Palomar Holdings, Inc. is a Delaware-incorporated insurance holding company with subsidiaries PSIC (Oregon-domiciled, admitted insurer), PSRE (Bermuda-based reinsurer), PESIC (Arizona-domiciled, surplus lines insurer), and PGIA (California-domiciled insurance agency)[525](index=525&type=chunk)[526](index=526&type=chunk)[527](index=527&type=chunk)[528](index=528&type=chunk) - The company's core focus is residential and commercial earthquake markets, with expanded offerings in Fronting, Inland Marine, Hawaii hurricane, Specialty Homeowners, Casualty, and Flood products[526](index=526&type=chunk) - Financial statements are prepared in accordance with U.S. GAAP, consolidating all wholly-owned subsidiaries, and involve significant management estimates and assumptions[531](index=531&type=chunk)[533](index=533&type=chunk) [2. Significant Accounting Policies](index=155&type=section&id=2.%20Significant%20Accounting%20Policies) Key accounting policies cover investment classification, premium recognition, deferred acquisition costs, loss reserves, and stock-based compensation - Key accounting policies include classifying fixed maturity securities as available-for-sale (fair value, unrealized gains/losses in OCI) and equity securities at fair value (unrealized gains/losses in net income)[536](index=536&type=chunk)[538](index=538&type=chunk) - Premiums are earned ratably over the policy term, and a premium deficiency is recognized if expected costs exceed unearned premiums. Acquisition costs (commissions, taxes) are deferred and amortized[555](index=555&type=chunk)[556](index=556&type=chunk)[557](index=557&type=chunk) - Loss reserves include case reserves and IBNR, estimated using actuarial techniques and reviewed regularly. Reinsurance recoverables are evaluated for credit risk, with reinsurers required to be highly rated or post collateral[565](index=565&type=chunk)[567](index=567&type=chunk)[571](index=571&type=chunk)[572](index=572&type=chunk) - Stock-based compensation is recognized straight-line over vesting periods, and income taxes are accounted for under the asset and liability method, with deferred taxes and valuation allowances[573](index=573&type=chunk)[574](index=574&type=chunk)[576](index=576&type=chunk) [3. Investments](index=165&type=section&id=3.%20Investments) The investment portfolio consists primarily of available-for-sale fixed maturity securities, with unrealized losses driven by interest rates rather than credit quality - As of December 31, 2022, the company held 543 fixed maturity securities with **$46.9 million in gross unrealized losses**, primarily due to interest rate environment, not credit quality. No credit loss allowance was material[583](index=583&type=chunk)[586](index=586&type=chunk) Available-for-Sale Investments (Fair Value) (2022 vs. 2021) | Category | Dec 31, 2022 Fair Value ($ thousands) | Dec 31, 2021 Fair Value ($ thousands) | | :-------------------------------------- | :------------------------------------ | :------------------------------------ | | U.S. Governments | $48,551 | $16,870 | | States, territories, and possessions | $5,354 | $4,014 | | Political subdivisions | $4,298 | $6,380 | | Special revenue excluding mortgage/asset-backed securities | $32,799 | $44,498 | | Industrial and miscellaneous | $254,095 | $249,046 | | Mortgage/asset-backed securities | $169,967 | $111,874 | | **Total available-for-sale investments** | **$515,064** | **$432,682** | Net Investment Income Summary (2020-2022) | Component | 2022 ($ thousands) | 2021 ($ thousands) | 2020 ($ thousands) | | :-------------------------- | :----------------- | :----------------- | :----------------- | | Interest income | $13,631 | $9,119 | $8,554 | | Dividend income | $739 | $461 | $489 | | Investment management fees and expenses | $(493) | $(500) | $(431) | | **Net investment income** | **$13,877** | **$9,080** | **$8,612** | Net Realized and Unrealized Investment Gains and Losses (2020-2022) | Category | 2022 ($ thousands) | 2021 ($ thousands) | 2020 ($ thousands) | | :------------------------------------------ | :----------------- | :----------------- | :----------------- | | Net realized investment gains (losses) | $(2,326) | $1,881 | $449 | | Net unrealized gains (losses) on equity securities | $(5,203) | $(604) | $1,039 | | **Net realized and unrealized gains (losses) on investments** | **$(7,529)** | **$1,277** | **$1,488** | [4. Fair value measurements](index=169&type=section&id=4.%20Fair%20value%20measurements) Financial assets are measured at fair value using a three-tier hierarchy, with the vast majority classified as Level 1 or Level 2 - Fair value measurements for financial assets and liabilities are categorized into a three-tier hierarchy (Level 1, 2, 3) based on the observability of inputs[547](index=547&type=chunk)[548](index=548&type=chunk) - As of December 31, 2022, there were no fixed income securities classified as Level 3, indicating increased observability of market inputs compared to 2021[595](index=595&type=chunk) Fair Value Hierarchy of Financial Assets (Dec 31, 2022) | Asset Category | Level 1 ($ thousands) | Level 2 ($ thousands) | Level 3 ($ thousands) | Total ($ thousands) | | :-------------------------------------- | :-------------------- | :-------------------- | :-------------------- | :------------------ | | Fixed maturity securities | — | $515,064 | — | $515,064 | | Equity securities | $38,576 | — | — | $38,576 | | Cash, cash equivalents, and restricted cash | $68,164 | — | — | $68,164 | | **Total assets** | **$106,740** | **$515,064** | **—** | **$621,804** | [5. Policy Acquisition Costs](index=170&type=section&id=5.%20Policy%20Acquisition%20Costs) Policy acquisition costs are deferred and amortized over the policy term, with the balance reflecting the growth in written premiums Deferred Policy Acquisition Costs (2020-2022) | Metric | 2022 ($ thousands) | 2021 ($ thousands) | 2020 ($ thousands) | | :-------------------------------- | :----------------- | :----------------- | :----------------- | | Balance, beginning of year | $55,953 | $35,481 | $25,201 | | Total net additions | $109,925 | $109,202 | $70,439 | | Amortization of net policy acquisition costs | $(109,138) | $(88,730) | $(60,159) | | **Balance, end of year** | **$56,740** | **$55,953** | **$35,481** | Acquisition Expenses (2020-2022) | Metric | 2022 ($ thousands) | 2021 ($ thousands) | 2020 ($ thousands) | | :-------------------------------- | :----------------- | :----------------- | :----------------- | | Amortization of net policy acquisition costs | $109,138 | $88,730 | $60,159 | | Period costs | $1,633 | $6,703 | $3,882 | | **Total Acquisition expenses** | **$110,771** | **$95,433** | **$64,041** | [6. Intangible Assets](index=171&type=section&id=6.%20Intangible%20Assets) Intangible assets consist of state insurance licenses and amortizing customer relationships, with no impairments recognized - Customer relationships, representing acquired policy renewal rights, are amortized over 8 years, with **$1.3 million amortization expense** in both 2022 and 2021[598](index=598&type=chunk) - No impairments of intangible assets were recognized for the years ended December 31, 2022, 2021, or 2020[563](index=563&type=chunk) Intangible Assets (2022 vs. 2021) | Category | Dec 31, 2022 ($ thousands) | Dec 31, 2021 ($ thousands) | | :------------------------------------------ | :------------------------- | :------------------------- | | State insurance licenses (indefinite-lived) | $744 | $744 | | Customer relationships (finite-lived) | $10,023 | $10,008 | | Accumulated amortization on finite-lived intangibles | $(2,506) | $(1,251) | | **Total intangible assets** | **$8,261** | **$9,501** | [7. Capitalized Assets](index=171&type=section&id=7.%20Capitalized%20Assets) Capitalized assets primarily consist of software, which is amortized, and property and equipment, which is depreciated - Depreciation expense for property and equipment was **$0.2 million** for each of the years ended December 31, 2022, 2021, and 2020[601](index=601&type=chunk) Capitalized Software (Net Book Value) (2022 vs. 2021) | Metric | Dec 31, 2022 ($ thousands) | Dec 31, 2021 ($ thousands) | | :-------------------- | :------------------------- | :------------------------- | | Capitalized Software | $12,319 | $9,374 | | Amortization expense | $2,600 (2022) | $2,100 (2021) | Property and Equipment (Net Book Value) (2022 vs. 2021) | Category | Dec 31, 2022 ($ thousands) | Dec 31, 2021 ($ thousands) | | :-------------------------- | :------------------------- | :------------------------- | | Leasehold improvements | $185 | $303 | | Computer hardware | $197 | $146 | | Office equipment and furniture | $221 | $78 | | **Total** | **$603** | **$527** | [8. Leases](index=172&type=section&id=8.%20Leases) The company recognizes right-of-use assets and liabilities for its operating leases for office space - The company has operating leases for office space, with ROU assets and liabilities recognized based on the present value of lease payments using the incremental borrowing rate[602](index=602&type=chunk)[603](index=603&type=chunk) - Operating lease costs were **$0.8 million in 2022** and $0.7 million in both 2021 and 2020, recognized straight-line as other underwriting expenses[604](index=604&type=chunk) Operating Lease Information (Dec 31, 2022) | Metric | Amount/Value | | :------------------------------------------ | :------------- | | Operating cash outflows from operating leases | $922 thousand | | Operating lease ROU assets | $1,688 thousand | | Operating lease liabilities | $2,066 thousand | | Weighted-average remaining lease term | 2.7 years | | Weighted-average discount rate | 1.4% | [9. Reserve for Losses and Loss Adjustment Expenses](index=173&type=section&id=9.%20Reserve%20for%20Losses%20and%20Loss%20Adjustment%20Expenses) Loss reserves represent management's best estimate of ultimate claim costs, with 2022 showing unfavorable development from prior accident years - Loss and loss adjustment expense reserves represent management's best estimate of ultimate costs for reported and IBNR losses, not discounted, and are subject to trends in loss severity and frequency[606](index=606&type=chunk)[607](index=607&type=chunk) - In 2022, net incurred losses for prior accident years developed **unfavorably by $2.4 million**, primarily due to higher-than-expected severity from certain 2020 Hurricanes, partially offset by favorable development in 2021 attritional and catastrophe losses[611](index=611&type=chunk) Reconciliation of Net Reserve for Losses and LAE (2020-2022) | Metric | 2022 ($ thousands) | 2021 ($ thousands) | 2020 ($ thousands) | | :---------------------------------------------------- | :----------------- | :----------------- | :----------------- | | Reserve for losses and LAE net of reinsurance at beginning of period | $45,419 | $34,470 | $3,869 | | Total incurred (net of reinsurance) | $78,672 | $41,457 | $64,115 | | Total payments (net of reinsurance) | $46,571 | $30,508 | $33,514 | | **Reserve for losses and LAE net of reinsurance at end of period** | **$77,520** | **$45,419** | **$34,470** | [10. Reinsurance](index=178&type=section&id=10.%20Reinsurance) The company utilizes extensive reinsurance, including XOL and quota share, to manage loss exposure, with a significant portion of ceded premiums from fronting arrangements - Palomar uses XOL and quota share reinsurance to limit loss exposure and writes premiums under fronting agreements, ceding most risk for a fronting fee[627](index=627&type=chunk)[629](index=629&type=chunk) - The company's catastrophe event retention is **$12.5 million for all perils**, with XOL protection up to **$2.11 billion for earthquake**, **$1.01 billion for Hawaii hurricane**, and **$250 million for continental U.S. hurricane events**[628](index=628&type=chunk) - Reinsurance recoverables are managed by evaluating reinsurer financial condition, requiring 'A-' or better A.M. Best ratings or collateral, and including special termination provisions in contracts[572](index=572&type=chunk) Ceded Written Premiums by Arrangement (2020-2022) | Line of Business | 2022 ($ thousands) | 2021 ($ thousands) | 2020 ($ thousands) | | :-------------------- | :----------------- | :----------------- | :----------------- | | Fronting | $237,285 | $11,001 | — | | Inland Marine | $63,627 | $28,389 | $5,339 | | Specialty Homeowners | $4,946 | $27,394 | $22,295 | | Commercial Earthquake | $20,467 | $14,447 | $6,929 | | Commercial All Risk | $6,260 | $3,948

Palomar Holdings, Inc. (NASDAQ:PLMR) Q4 2022 Earnings Conference Call February 16, 2023 12:00 PM ET Company Participants Chris Uchida - Chief Financial Officer Mac Armstrong - Chairman and Chief Executive Officer Conference Call Participants Mark Hughes - Truist Securities Paul Newsome - Piper Sandler Tracy Benguigui - Barclays David Motemaden - Evercore ISI Andrew Anderson - Jefferies Meyer Shields - KBW Pablo Singzon - JPMorgan Operator Good morning and welcome to Palomar Holdings Incorporated Fourth Quar ...

Palomar Holdings, Inc. (NASDAQ:PLMR) Q3 2022 Earnings Conference Call November 3, 2022 12:00 PM ET Company Participants Mac Armstrong - Chairman and Chief Executive Officer Chris Uchida - Chief Financial Officer Conference Call Participants Mark Hughes - Truist David Motemaden - Evercore ISI Pablo Singzon - JPMorgan Tracy Benguigui - Barclays Operator Good morning and welcome to Palomar Holdings, Inc. Third Quarter 2022 Earnings Conference Call. During today’s presentation, all parties will be in a listen-o ...

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents Palomar Holdings, Inc.'s unaudited condensed consolidated financial statements, highlighting asset growth, increased net income, and a decrease in equity due to investment losses [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased to $1.22 billion, liabilities rose to $848.6 million, and stockholders' equity decreased to $367.8 million due to comprehensive loss Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2022 (Unaudited) | Dec 31, 2021 | | :--- | :--- | :--- | | **Total Assets** | **$1,216,466** | **$925,734** | | Total Investments | $512,262 | $465,943 | | Premiums receivable, net | $186,850 | $88,012 | | **Total Liabilities** | **$848,621** | **$531,565** | | Reserve for losses and LAE | $205,823 | $173,366 | | Unearned premiums | $443,463 | $284,665 | | **Total Stockholders' Equity** | **$367,845** | **$394,169** | [Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20%28Loss%29%20and%20Comprehensive%20Income%20%28Loss%29) Net income increased to $33.4 million for the nine-month period, driven by a 41% rise in net earned premiums and substantial growth in gross written premiums Income Statement Summary (in thousands, except per share data) | Metric | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Gross written premiums | $642,751 | $385,267 | | Net earned premiums | $234,239 | $165,988 | | Total revenues | $238,461 | $174,620 | | Losses and LAE | $60,251 | $31,288 | | **Net income** | **$33,411** | **$29,215** | | Diluted earnings per share | $1.29 | $1.12 | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity) Stockholders' equity decreased to $367.8 million, primarily due to a $47.9 million other comprehensive loss and $23.3 million in share repurchases, partially offset by net income - Key drivers for the change in stockholders' equity during the first nine months of 2022 include net income of **$33.4 million**, offset by a **$47.9 million** other comprehensive loss and **$23.3 million** in common stock repurchases[15](index=15&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities significantly increased to $94.5 million, while investing activities used $121.4 million, resulting in a $20.8 million net decrease in cash Cash Flow Summary (in thousands) | Activity | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $94,544 | $37,030 | | Net cash used in investing activities | ($121,422) | ($15,805) | | Net cash provided by (used in) financing activities | $6,051 | ($13,377) | | **Net decrease in cash** | **($20,827)** | **$7,848** | [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail accounting policies, investment portfolio changes including increased unrealized losses, significant gross written premium growth, and specifics of the reinsurance program and credit facilities - Gross unrealized losses on fixed maturity securities increased significantly to **$54.2 million** as of September 30, 2022, from **$2.7 million** at year-end 2021, primarily due to the interest rate environment[28](index=28&type=chunk) Gross Written Premiums by Product (Nine Months Ended Sep 30, in thousands) | Product | 2022 | 2021 | | :--- | :--- | :--- | | Fronting Premiums | $154,232 | $0 | | Residential Earthquake | $159,995 | $128,165 | | Commercial Earthquake | $90,894 | $66,052 | | Inland Marine | $72,214 | $39,047 | | **Total GWP** | **$642,751** | **$385,267** | - The company's catastrophe event retention is **$12.5 million** for all perils, with XOL reinsurance protection up to **$2.08 billion** for earthquake events and **$900 million** for Hawaii hurricane events[78](index=78&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, highlighting significant Q3 gross written premium growth, improved net income despite catastrophe losses, strong liquidity, and a robust reinsurance program [Results of Operations](index=33&type=section&id=Results%20of%20Operations) Q3 2022 gross written premiums grew 66.2% to $253.1 million, driven by new fronting business, with net income improving despite $12.5 million in catastrophe losses Q3 2022 vs Q3 2021 Performance (in thousands) | Metric | Q3 2022 | Q3 2021 | | :--- | :--- | :--- | | Gross written premiums | $253,128 | $152,332 | | Net earned premiums | $77,942 | $64,720 | | Catastrophe losses | $12,500 | $17,487 | | Net income | $4,286 | $246 | | Combined ratio | 94.8% | 102.8% | - The growth in gross written premiums was primarily driven by the launch of the fronting business (PLMR-FRONT) in Q4 2021, which contributed **$82.2 million** in GWP in Q3 2022[129](index=129&type=chunk) - Catastrophe losses for Q3 2022 were **$12.5 million**, related to Hurricane Ian, compared to **$17.5 million** in Q3 2021 from Hurricanes Ida and Nicholas[138](index=138&type=chunk) [Liquidity and Capital Resources](index=55&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains sufficient liquidity from premiums and investment income, supported by credit facilities, despite a decrease in stockholders' equity due to unrealized investment losses and share repurchases - The company's primary sources of cash are written premiums, investment income, and reinsurance recoveries; management believes liquidity is sufficient for the foreseeable future[199](index=199&type=chunk)[201](index=201&type=chunk) - The company has a **$100 million** revolving credit facility (undrawn) and an FHLB line of credit with **$26.4 million** outstanding[209](index=209&type=chunk)[212](index=212&type=chunk) - Under its **$100 million** share repurchase program, the company purchased **399,198 shares** for **$23.3 million** during the first nine months of 2022[207](index=207&type=chunk) [Reinsurance](index=64&type=section&id=Reinsurance) The company employs a robust reinsurance program, including traditional reinsurers and ILS, to mitigate catastrophe losses with a $12.5 million retention and coverage up to $2.08 billion for earthquake events - The company's reinsurance program is designed to reduce volatility and exposure to catastrophe losses, utilizing over **80 reinsurers** and insurance-linked securities[219](index=219&type=chunk)[220](index=220&type=chunk) - The company's catastrophe event retention is **$12.5 million** for all perils; reinsurance coverage exhausts at **$2.08 billion** for earthquake events and **$900 million** for Hawaii hurricane events[222](index=222&type=chunk) - The company has secured **$25 million** of aggregate XOL reinsurance, which attaches at **$30 million** of losses across all perils, providing further protection against frequent catastrophe events[223](index=223&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=46&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks are equity price and interest rate fluctuations, with credit risk managed through high-quality, diversified fixed maturity investments averaging 'AA-' rating - Primary market risks include equity price risk and interest rate risk from the investment portfolio[225](index=225&type=chunk) - Credit risk is managed by investing in high-quality securities; the fixed maturity portfolio has an average rating of **'AA-'** and approximately **78.8%** is rated **'A-' or better**[227](index=227&type=chunk) [Item 4. Controls and Procedures](index=46&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of September 30, 2022, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[230](index=230&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2022[231](index=231&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=48&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in ordinary course legal proceedings not expected to materially affect its consolidated financial position - The company is involved in ordinary course legal proceedings which are not expected to have a material adverse effect on its financial position[234](index=234&type=chunk) [Item 1A. Risk Factors](index=48&type=section&id=Item%201A.%20Risk%20Factors) The company faces various risks including severe catastrophe events, reinsurer non-payment, reserve inadequacy, business concentration, economic downturns, technology failures, and extensive regulation [Risks Related to Our Business and Industry](index=49&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Industry) Key business risks include severe catastrophe events, reinsurer default, inadequate loss reserves, geographic concentration in California and Texas, and intense competition - Claims from unpredictable and severe catastrophe events, potentially exacerbated by climate change, could eliminate earnings and stockholders' equity[238](index=238&type=chunk) - The company is exposed to reinsurer credit risk; if reinsurers fail to pay claims, Palomar remains primarily liable to policyholders[244](index=244&type=chunk) - A significant portion of business is concentrated in California (**46% of GWP**) and Texas (**11% of GWP** for the nine months ended Sep 30, 2022), increasing exposure to localized events and regulatory environments[268](index=268&type=chunk) [Risks related to the Economic Environment](index=59&type=section&id=Risks%20related%20to%20the%20Economic%20Environment) Economic risks include the COVID-19 pandemic's impact, potential economic downturns reducing demand and increasing claims, and investment portfolio vulnerabilities to interest rate and credit risks - The COVID-19 pandemic and its economic effects could disrupt operations, reduce demand for products, and negatively impact the investment portfolio[298](index=298&type=chunk) - Adverse economic factors like recession and inflation could lead to fewer policies sold, an increase in claims frequency, and premium defaults[300](index=300&type=chunk) - The investment portfolio is subject to market risks, including interest rate changes and credit quality deterioration, which could adversely affect financial results[303](index=303&type=chunk)[304](index=304&type=chunk)[305](index=305&type=chunk) [Risks related to Technology](index=61&type=section&id=Risks%20related%20to%20Technology) Technology risks include high dependence on IT systems, potential for system failures, security breaches, or cyber-attacks, leading to operational disruption and data exposure - The business is highly dependent on IT and telecommunications systems, and failures could severely limit the ability to write business, process claims, and operate[315](index=315&type=chunk) - Security breaches or cyber-attacks could expose the company to liability, reputational damage, and operational disruptions due to the processing and storage of confidential data[317](index=317&type=chunk)[319](index=319&type=chunk) [Risks Related to Laws and Regulations](index=63&type=section&id=Risks%20Related%20to%20Laws%20and%20Regulations) The company faces risks from extensive regulation, including capital and dividend restrictions, and potential adverse impacts from changes in laws or their interpretation, particularly concerning policy coverage and holding company dividend capacity - The company is subject to extensive regulation regarding capital, investments, dividends, and solvency, which may adversely affect business objectives[324](index=324&type=chunk)[325](index=325&type=chunk) - Unexpected changes in the judicial or regulatory interpretation of policy coverage and exclusions could broaden coverage beyond underwriting intent, leading to higher losses[331](index=331&type=chunk) - As a holding company, the ability to pay dividends is dependent on receiving dividends from its insurance subsidiaries, which are restricted by state and Bermuda regulations[342](index=342&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=72&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company's Board approved a $100 million share repurchase plan, under which $23.3 million of common stock was repurchased during the first nine months of 2022 - The company has a **$100 million** share repurchase program authorized through March 2024[382](index=382&type=chunk) - In the nine months ended September 30, 2022, the company repurchased **$23.3 million** of its stock, with **$76.7 million** remaining under the authorization[383](index=383&type=chunk) [Item 3. Defaults Upon Senior Securities](index=72&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities were reported - None[384](index=384&type=chunk) [Item 4. Mine Safety Disclosures](index=72&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's operations - Not applicable[385](index=385&type=chunk) [Item 5. Other Information](index=72&type=section&id=Item%205.%20Other%20Information) No other material information is reported in this section - None[386](index=386&type=chunk) [Item 6. Exhibits](index=72&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including officer certifications and Inline XBRL data files - Lists exhibits filed with the report, including Sarbanes-Oxley certifications and XBRL data[387](index=387&type=chunk)

Palomar Holdings, Inc. (NASDAQ:PLMR) Q2 2022 Earnings Conference Call August 4, 2022 12:00 PM ET Company Participants Chris Uchida - Chief Financial Officer Mac Armstrong - Chairman and Chief Executive Officer Conference Call Participants Tracy Benguigui - Barclays Pablo Singzon - JPMorgan Mark Hughes - Truist David Motemaden - Evercore Derek Han - KBW Operator Good morning and welcome to the Palomar Holdings, Inc. Second Quarter 2022 Earnings Conference Call. [Operator Instructions] As a reminder, this con ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Commission File Number: 001-38873 Palomar Holdings, Inc. (Exact name of registrant as specified in its charter) (State or other juri ...

Palomar Holdings, Inc. (NASDAQ:PLMR) Q1 2022 Earnings Conference Call May 5, 2022 12:00 PM ET Company Participants Chris Uchida - Chief Financial Officer Mac Armstrong - Chairman, Chief Executive Officer & Founder Conference Call Participants Matt Carletti - JMP Pablo Singzon - JPMorgan Mark Hughes - Truist Securities Dave Motemaden - Evercore ISI Meyer Shields - KBW Tracy Benguigui - Barclays Operator Greetings and welcome to the Palomar Holdings Incorporated First Quarter 2022 Earnings Conference Call. Du ...