Palomar(PLMR) - 2024 Q2 - Quarterly Results

Executive Summary and Business Overview Palomar Holdings, Inc. reported strong Q2 2024 results with record premiums and adjusted net income, driven by strategic achievements and exceeding Palomar 2X strategy goals Second Quarter 2024 Highlights Palomar Holdings, Inc. reported strong second quarter 2024 results, achieving record gross written premiums and adjusted net income, with significant year-over-year growth across key financial metrics Second Quarter 2024 Key Financial Highlights (YoY Change) | Metric | Q2 2024 ($ million) | Q2 2023 ($ million) | YoY Change (%) | | :-------------------------- | :------------------ | :------------------ | :------------- | | Gross Written Premiums | 385.2 | 274.3 | 40.4% | | Net Income | 25.7 | 17.6 | 46.0% | | Adjusted Net Income | 32.0 | 21.8 | 46.8% | | Total Loss Ratio | 24.9% | 21.5% | +3.4 pp | | Combined Ratio | 79.1% | 79.0% | +0.1 pp | | Adjusted Combined Ratio | 73.1% | 72.2% | +0.9 pp | | Annualized Return on Equity | 19.9% | 17.2% | +2.7 pp | | Annualized Adjusted ROE | 24.7% | 21.3% | +3.4 pp | CEO Commentary CEO Mac Armstrong expressed satisfaction with record gross written premium and adjusted net income, highlighting robust profitable growth and strategic accomplishments including successful reinsurance placement, new leadership, and an AM Best rating upgrade to 'A' The company is tracking ahead of its Palomar 2X strategy goals - Achieved record gross written premium and adjusted net income, with year-over-year increases of 40% and 47% respectively[3] - Successfully placed core excess of loss reinsurance program at June 1st on better-than-anticipated terms[3] - AM Best upgraded Financial Strength Rating to an 'A'[3] - Company is tracking ahead of its Palomar 2X strategy goals, aiming to double underwriting income and generate an adjusted ROE over 20% within three to five years[3] About Palomar Holdings, Inc. Palomar Holdings, Inc. is a specialty insurer offering products in Earthquake, Inland Marine and Other Property, Casualty, Fronting, and Crop categories, serving residential and commercial clients through its subsidiaries, which hold an 'A' (Excellent) financial strength rating from A.M. Best - Palomar is an innovative specialty insurer serving residential and commercial clients[11] - Key product categories include Earthquake, Inland Marine and Other Property, Casualty, Fronting, and Crop[11] - Insurance subsidiaries (PSIC, Palomar Specialty Reinsurance Company Bermuda Ltd., PESIC) have an 'A' (Excellent) financial strength rating from A.M. Best[11] Financial Performance Palomar demonstrated robust financial growth in Q2 2024, with significant increases in underwriting income, net investment income, and stockholders' equity, alongside improved profitability metrics Underwriting Results Palomar's underwriting results for Q2 2024 showed significant growth in gross and net earned premiums, alongside an increase in the loss ratio primarily due to higher attritional losses and a slight rise in catastrophe losses Underwriting income and adjusted underwriting income also saw substantial increases Q2 2024 Underwriting Performance (YoY Change) | Metric | Q2 2024 ($ million) | Q2 2023 ($ million) | YoY Change (%) | | :-------------------------- | :------------------ | :------------------ | :------------- | | Gross Written Premiums | 385.2 | 274.3 | 40.4% | | Net Earned Premiums | 122.3 | 83.1 | 47.1% | | Losses & Loss Adj. Expenses | 30.4 | 17.9 | 70.0% | | Loss Ratio | 24.9% | 21.5% | +3.4 pp | | Attritional Loss Ratio | 22.1% | 18.9% | +3.2 pp | | Catastrophe Loss Ratio | 2.8% | 2.6% | +0.2 pp | | Underwriting Income | 25.6 | 17.4 | 47.0% | | Adjusted Underwriting Income| 32.9 | 23.1 | 42.4% | | Combined Ratio | 79.1% | 79.0% | +0.1 pp | | Adjusted Combined Ratio | 73.1% | 72.2% | +0.9 pp | - Catastrophe losses for Q2 2024 were $3.4 million, primarily from severe convective storms[4] Investment Results Net investment income increased significantly in Q2 2024, driven by higher yields and a larger average balance of invested assets The company's cash and invested assets totaled $777.9 million at quarter-end Q2 2024 Investment Income (YoY Change) | Metric | Q2 2024 ($ million) | Q2 2023 ($ million) | YoY Change (%) | | :-------------------- | :------------------ | :------------------ | :------------- | | Net Investment Income | 8.0 | 5.5 | 43.7% | - Increase in net investment income primarily due to higher yields on invested assets and a higher average balance of investments[6] - Cash and invested assets totaled $777.9 million at June 30, 2024[6] - Weighted average duration of the fixed-maturity investment portfolio was 3.73 years at June 30, 2024[6] Tax Rate The effective tax rate for Q2 2024 decreased slightly compared to the prior year, primarily due to non-deductible executive compensation expense Effective Tax Rate (Q2) | Period | Effective Tax Rate | | :----- | :----------------- | | Q2 2024| 22.9% | | Q2 2023| 23.7% | - The difference from the statutory rate was primarily due to non-deductible executive compensation expense[7] Stockholders' Equity and Returns Stockholders' equity increased significantly year-over-year, leading to improved annualized return on equity and annualized adjusted return on equity for Q2 2024 Stockholders' Equity and Returns (YoY Change) | Metric | June 30, 2024 ($ million) | June 30, 2023 ($ million) | YoY Change (%) | | :-------------------------- | :------------------------ | :------------------------ | :------------- | | Stockholders' Equity | 532.6 | 413.7 | 28.7% | | Annualized Return on Equity | 19.9% | 17.2% | +2.7 pp | | Annualized Adjusted ROE | 24.7% | 21.3% | +3.4 pp | - No share repurchases were made during the three months ended June 30, 2024[8] Outlook and Guidance Palomar Holdings, Inc. has raised its full-year 2024 adjusted net income guidance, incorporating anticipated catastrophe losses from recent hurricanes Full Year 2024 Outlook Palomar Holdings, Inc. has increased its full-year 2024 guidance for adjusted net income, reflecting strong performance and including anticipated catastrophe losses from recent hurricanes Full Year 2024 Adjusted Net Income Guidance | Metric | Guidance Range ($ million) | | :------------------ | :------------------------- | | Adjusted Net Income | $124 - $130 | - The guidance includes $6.8 million of catastrophe losses incurred during the first six months of 2024[9] - Additional catastrophe losses of approximately $5 million to $7 million related to Hurricanes Beryl and Debby are included in the guidance for Q3 2024[9] Detailed Financial Statements The detailed financial statements for Q2 and YTD 2024 reveal substantial growth in premiums, underwriting income, net income, and total assets, reflecting strong overall performance Summary of Operating Results The summary of operating results for Q2 and YTD 2024 demonstrates significant growth in premiums, underwriting income, and net income, both on a GAAP and adjusted basis, compared to the prior year periods Summary of Operating Results (Three Months Ended June 30, 2024 vs 2023) | Metric | Q2 2024 ($ thousand) | Q2 2023 ($ thousand) | Change ($ thousand) | % Change | | :----------------------------------------- | :------------------- | :------------------- | :------------------ | :------- | | Gross written premiums | 385,184 | 274,296 | 110,888 | 40.4% | | Net earned premiums | 122,285 | 83,107 | 39,178 | 47.1% | | Underwriting income | 25,607 | 17,416 | 8,191 | 47.0% | | Net investment income | 7,960 | 5,541 | 2,419 | 43.7% | | Income before income taxes | 33,374 | 23,020 | 10,354 | 45.0% | | Net income | 25,729 | 17,562 | 8,167 | 46.5% | | Adjusted net income | 31,980 | 21,794 | 10,186 | 46.7% | | Diluted earnings per share | $1.00 | $0.69 | | | | Diluted adjusted earnings per share | $1.25 | $0.86 | | | | Loss ratio | 24.9% | 21.5% | | | | Combined ratio | 79.1% | 79.0% | | | | Adjusted combined ratio | 73.1% | 72.2% | | | Summary of Operating Results (Six Months Ended June 30, 2024 vs 2023) | Metric | YTD 2024 ($ thousand) | YTD 2023 ($ thousand) | Change ($ thousand) | % Change | | :----------------------------------------- | :-------------------- | :-------------------- | :------------------ | :------- | | Gross written premiums | 753,262 | 524,407 | 228,855 | 43.6% | | Net earned premiums | 230,151 | 166,347 | 63,804 | 38.4% | | Underwriting income | 50,563 | 35,798 | 14,765 | 41.2% | | Net investment income | 15,098 | 10,661 | 4,437 | 41.6% | | Income before income taxes | 67,730 | 45,648 | 22,082 | 48.4% | | Net income | 52,111 | 34,874 | 17,237 | 49.4% | | Adjusted net income | 59,775 | 42,234 | 17,541 | 41.5% | | Diluted earnings per share | $2.04 | $1.37 | | | | Diluted adjusted earnings per share | $2.34 | $1.66 | | | | Loss ratio | 24.9% | 23.2% | | | | Combined ratio | 78.0% | 78.5% | | | | Adjusted combined ratio | 73.0% | 72.8% | | | Condensed Consolidated Balance Sheets Palomar's balance sheet as of June 30, 2024, shows growth in total assets and stockholders' equity compared to December 31, 2023, driven by increases in investments, premiums receivable, and reinsurance recoverables Condensed Consolidated Balance Sheet Highlights (June 30, 2024 vs Dec 31, 2023) | Metric | June 30, 2024 ($ thousand) | Dec 31, 2023 ($ thousand) | Change ($ thousand) | | :--------------------------- | :------------------------- | :------------------------ | :------------------ | | Total Assets | 2,016,049 | 1,708,022 | 308,027 | | Total Investments | 729,891 | 689,576 | 40,315 | | Premiums Receivable | 357,267 | 261,972 | 95,295 | | Reinsurance Recoverable | 381,149 | 276,794 | 104,355 | | Total Liabilities | 1,483,443 | 1,236,770 | 246,673 | | Reserve for Losses and LAE | 466,601 | 342,275 | 124,326 | | Unearned Premiums | 720,528 | 597,103 | 123,425 | | Total Stockholders' Equity | 532,606 | 471,252 | 61,354 | Condensed Consolidated Income Statement The consolidated income statement for Q2 and YTD 2024 shows robust revenue growth, particularly in net earned premiums, leading to substantial increases in income before taxes and net income compared to the previous year Condensed Consolidated Income Statement Highlights (Three Months Ended June 30, 2024 vs 2023) | Metric | Q2 2024 ($ thousand) | Q2 2023 ($ thousand) | Change ($ thousand) | | :-------------------------- | :------------------- | :------------------- | :------------------ | | Total Revenues | 131,069 | 90,396 | 40,673 | | Net Earned Premiums | 122,285 | 83,107 | 39,178 | | Net Investment Income | 7,960 | 5,541 | 2,419 | | Total Expenses | 97,695 | 67,376 | 30,319 | | Losses & Loss Adj. Expenses | 30,431 | 17,905 | 12,526 | | Income Before Income Taxes | 33,374 | 23,020 | 10,354 | | Net Income | 25,729 | 17,562 | 8,167 | Condensed Consolidated Income Statement Highlights (Six Months Ended June 30, 2024 vs 2023) | Metric | YTD 2024 ($ thousand) | YTD 2023 ($ thousand) | Change ($ thousand) | | :-------------------------- | :-------------------- | :-------------------- | :------------------ | | Total Revenues | 249,603 | 179,597 | 70,006 | | Net Earned Premiums | 230,151 | 166,347 | 63,804 | | Net Investment Income | 15,098 | 10,661 | 4,437 | | Total Expenses | 181,873 | 133,949 | 47,924 | | Losses & Loss Adj. Expenses | 57,268 | 38,557 | 18,711 | | Income Before Income Taxes | 67,730 | 45,648 | 22,082 | | Net Income | 52,111 | 34,874 | 17,237 | Underwriting Segment Analysis Palomar's underwriting segments show significant growth in gross written premiums across products, states, and subsidiaries, indicating diversification and strong performance Gross Written Premiums by Product Gross written premiums saw substantial growth across all product categories in Q2 and YTD 2024, with Casualty and Crop experiencing the most significant percentage increases, reflecting a shift in product mix Gross Written Premiums by Product (Three Months Ended June 30, 2024 vs 2023) | Product | Q2 2024 ($ thousand) | % of GWP (2024) | Q2 2023 ($ thousand) | % of GWP (2023) | Change ($ thousand) | % Change | | :------------------------ | :------------------- | :-------------- | :------------------- | :-------------- | :------------------ | :------- | | Earthquake | 135,029 | 35.1% | 107,929 | 39.3% | 27,100 | 25.1% | | Fronting | 95,896 | 24.9% | 79,724 | 29.1% | 16,172 | 20.3% | | Inland Marine and Other Property | 93,453 | 24.3% | 69,779 | 25.4% | 23,674 | 33.9% | | Casualty | 58,605 | 15.2% | 16,376 | 6.0% | 42,229 | 257.9% | | Crop | 2,201 | 0.6% | 488 | 0.2% | 1,713 | NM | | Total GWP | 385,184 | 100.0% | 274,296 | 100.0% | 110,888 | 40.4%| Gross Written Premiums by Product (Six Months Ended June 30, 2024 vs 2023) | Product | YTD 2024 ($ thousand) | % of GWP (2024) | YTD 2023 ($ thousand) | % of GWP (2023) | Change ($ thousand) | % Change | | :------------------------ | :-------------------- | :-------------- | :-------------------- | :-------------- | :------------------ | :------- | | Earthquake | 240,759 | 32.0% | 201,424 | 38.4% | 39,335 | 19.5% | | Fronting | 190,727 | 25.3% | 171,479 | 32.7% | 19,248 | 11.2% | | Inland Marine and Other Property | 170,329 | 22.6% | 122,484 | 23.4% | 47,845 | 39.1% | | Casualty | 110,539 | 14.7% | 28,532 | 5.4% | 82,007 | 287.4% | | Crop | 40,908 | 5.4% | 488 | 0.1% | 40,420 | NM | | Total GWP | 753,262 | 100.0% | 524,407 | 100.0% | 228,855 | 43.6%| - Product categorization was updated in 2024 to align with management's current strategy, with prior year amounts reclassified for comparability[29] Gross Written Premiums by State California remains the largest contributor to gross written premiums, though its percentage of total GWP decreased Florida, Texas, and 'Other' states showed notable growth, indicating diversification Gross Written Premiums by State (Three Months Ended June 30, 2024 vs 2023) | State | Q2 2024 ($ thousand) | % of GWP (2024) | Q2 2023 ($ thousand) | % of GWP (2023) | | :--------- | :------------------- | :-------------- | :------------------- | :-------------- | | California | 183,396 | 47.6% | 157,057 | 57.3% | | Florida | 29,796 | 7.7% | 12,664 | 4.6% | | Texas | 28,600 | 7.4% | 25,231 | 9.2% | | Hawaii | 18,235 | 4.7% | 12,228 | 4.5% | | Washington | 13,063 | 3.4% | 13,645 | 5.0% | | New York | 7,980 | 2.1% | 3,785 | 1.4% | | Oregon | 5,776 | 1.5% | 5,907 | 2.2% | | Michigan | 5,008 | 1.3% | 848 | 0.3% | | Other | 93,330 | 24.2% | 42,931 | 15.7% | | Total | 385,184 | 100.0% | 274,296 | 100.0% | Gross Written Premiums by State (Six Months Ended June 30, 2024 vs 2023) | State | YTD 2024 ($ thousand) | % of GWP (2024) | YTD 2023 ($ thousand) | % of GWP (2023) | | :--------- | :-------------------- | :-------------- | :-------------------- | :-------------- | | California | 340,614 | 45.2% | 288,946 | 55.1% | | Florida | 43,720 | 5.8% | 24,760 | 4.7% | | Texas | 69,396 | 9.2% | 48,441 | 9.2% | | Hawaii | 30,751 | 4.1% | 22,333 | 4.3% | | Washington | 25,066 | 3.3% | 25,617 | 4.9% | | New York | 16,010 | 2.1% | 7,656 | 1.5% | | Oregon | 12,851 | 1.7% | 12,687 | 2.4% | | Michigan | 6,711 | 0.9% | 1,711 | 0.3% | | Other | 208,143 | 27.6% | 92,256 | 17.6% | | Total | 753,262 | 100.0% | 524,407 | 100.0% | Gross Written Premiums by Subsidiary Palomar Specialty Insurance Company (PSIC) remains the largest contributor to GWP, but Palomar Excess and Surplus Insurance Company (PESIC) and Laulima Reciprocal Exchange showed significant growth and increased their share of total premiums in Q2 and YTD 2024 Gross Written Premiums by Subsidiary (Three Months Ended June 30, 2024 vs 2023) | Subsidiary | Q2 2024 ($ thousand) | % of GWP (2024) | Q2 2023 ($ thousand) | % of GWP (2023) | | :--------- | :------------------- | :-------------- | :------------------- | :-------------- | | PSIC | 193,709 | 50.3% | 159,846 | 58.3% | | PESIC | 177,109 | 46.0% | 114,450 | 41.7% | | Laulima | 14,366 | 3.7% | — | —% | | Total | 385,184 | 100.0% | 274,296 | 100.0% | Gross Written Premiums by Subsidiary (Six Months Ended June 30, 2024 vs 2023) | Subsidiary | YTD 2024 ($ thousand) | % of GWP (2024) | YTD 2023 ($ thousand) | % of GWP (2023) | | :--------- | :-------------------- | :-------------- | :-------------------- | :-------------- | | PSIC | 416,366 | 55.3% | 310,550 | 59.2% | | PESIC | 313,603 | 41.6% | 213,857 | 40.8% | | Laulima | 23,293 | 3.1% | — | —% | | Total | 753,262 | 100.0% | 524,407 | 100.0% | Gross and Net Earned Premiums Both gross and net earned premiums experienced substantial growth in Q2 and YTD 2024, with net earned premiums growing at a faster rate, leading to an increased net earned premium ratio Gross and Net Earned Premiums (Three Months Ended June 30, 2024 vs 2023) | Metric | Q2 2024 ($ thousand) | Q2 2023 ($ thousand) | Change ($ thousand) | % Change | | :---------------------- | :------------------- | :------------------- | :------------------ | :------- | | Gross earned premiums | 326,964 | 242,189 | 84,775 | 35.0% | | Ceded earned premiums | (204,679) | (159,082) | (45,597) | 28.7% | | Net earned premiums | 122,285 | 83,107 | 39,178 | 47.1% | | Net earned premium ratio| 37.4% | 34.3% | | | Gross and Net Earned Premiums (Six Months Ended June 30, 2024 vs 2023) | Metric | YTD 2024 ($ thousand) | YTD 2023 ($ thousand) | Change ($ thousand) | % Change | | :---------------------- | :-------------------- | :-------------------- | :------------------ | :------- | | Gross earned premiums | 629,835 | 467,432 | 162,403 | 34.7% | | Ceded earned premiums | (399,684) | (301,085) | (98,599) | 32.7% | | Net earned premiums | 230,151 | 166,347 | 63,804 | 38.4% | | Net earned premium ratio| 36.5% | 35.6% | | | Loss Detail Total losses and loss adjustment expenses increased significantly in Q2 and YTD 2024, driven by both catastrophe and non-catastrophe losses, with non-catastrophe losses showing a higher absolute increase Loss Detail (Three Months Ended June 30, 2024 vs 2023) | Metric | Q2 2024 ($ thousand) | Q2 2023 ($ thousand) | Change ($ thousand) | % Change | | :-------------------------------- | :------------------- | :------------------- | :------------------ | :------- | | Catastrophe losses | 3,441 | 2,159 | 1,282 | 59.4% | | Non-catastrophe losses | 26,990 | 15,746 | 11,244 | 71.4% | | Total losses and LAE | 30,431 | 17,905 | 12,526 | 70.0%| Loss Detail (Six Months Ended June 30, 2024 vs 2023) | Metric | YTD 2024 ($ thousand) | YTD 2023 ($ thousand) | Change ($ thousand) | % Change | | :-------------------------------- | :-------------------- | :-------------------- | :------------------ | :------- | | Catastrophe losses | 6,800 | 3,965 | 2,835 | 71.5% | | Non-catastrophe losses | 50,468 | 34,592 | 15,876 | 45.9% | | Total losses and LAE | 57,268 | 38,557 | 18,711 | 48.5%| Reconciliation of Reserve for Losses and LAE The reserve for losses and loss adjustment expenses (LAE) net of reinsurance recoverables increased significantly from the beginning to the end of Q2 and YTD 2024, driven by higher incurred losses, partially offset by payments Reconciliation of Reserve for Losses and LAE (Three Months Ended June 30, 2024 vs 2023) | Metric | Q2 2024 ($ thousand) | Q2 2023 ($ thousand) | | :------------------------------------------------------------------ | :------------------- | :------------------- | | Reserve for losses and LAE net of reinsurance recoverables at beginning of period | 110,163 | 81,366 | | Incurred losses and LAE, net of reinsurance, related to: | | | | Current year | 33,355 | 18,539 | | Prior years | (2,924) | (634) | | Total incurred | 30,431 | 17,905 | | Loss and LAE payments, net of reinsurance, related to: | | | | Current year | 6,861 | 6,176 | | Prior years | 14,972 | 11,795 | | Total payments | 21,833 | 17,971 | | Reserve for losses and LAE net of reinsurance recoverables at end of period | 118,761 | 81,300 | | Reinsurance recoverables on unpaid losses and LAE at end of period | 347,840 | 216,783 | | Reserve for losses and LAE gross of reinsurance recoverables at end of period | 466,601 | 298,083 | Reconciliation of Reserve for Losses and LAE (Six Months Ended June 30, 2024 vs 2023) | Metric | YTD 2024 ($ thousand) | YTD 2023 ($ thousand) | | :------------------------------------------------------------------ | :-------------------- | :-------------------- | | Reserve for losses and LAE net of reinsurance recoverables at beginning of period | 97,653 | 77,520 | | Incurred losses and LAE, net of reinsurance, related to: | | | | Current year | 59,688 | 35,839 | | Prior years | (2,420) | 2,718 | | Total incurred | 57,268 | 38,557 | | Loss and LAE payments, net of reinsurance, related to: | | | | Current year | 11,756 | 7,569 | | Prior years | 24,404 | 27,208 | | Total payments | 36,160 | 34,777 | | Reserve for losses and LAE net of reinsurance recoverables at end of period | 118,761 | 81,300 | | Reinsurance recoverables on unpaid losses and LAE at end of period | 347,840 | 216,783 | | Reserve for losses and LAE gross of reinsurance recoverables at end of period | 466,601 | 298,083 | Non-GAAP Financial Measures and Reconciliations Palomar provides comprehensive reconciliations of non-GAAP financial measures, including adjusted net income, underwriting income, and various ratios, to offer enhanced insights into its operational performance Non-GAAP and Key Performance Indicators Definitions Palomar provides definitions for several non-GAAP financial measures and key performance indicators, including underwriting revenue, underwriting income, adjusted net income, various return on equity metrics, and combined ratios, to offer additional insights into the company's operational performance - Underwriting revenue is total revenue excluding net investment income and net realized/unrealized gains/losses on investments[12] - Adjusted net income excludes the impact of certain items not indicative of underlying business trends, operating results, or future outlook, net of tax impact[13] - Adjusted combined ratio is the sum of the loss ratio and expense ratio, excluding the impact of certain non-indicative items[15] - Tangible stockholders' equity is stockholders' equity less goodwill and intangible assets[18] Underwriting Revenue Reconciliation Underwriting revenue, a non-GAAP measure, is reconciled from total revenue by excluding net investment income and net realized and unrealized gains on investments, showing significant growth in Q2 and YTD 2024 Underwriting Revenue Reconciliation (Three Months Ended June 30) | Metric | 2024 ($ thousand) | 2023 ($ thousand) | | :----------------------------------------- | :---------------- | :---------------- | | Total revenue | 131,069 | 90,396 | | Less: Net investment income | (7,960) | (5,541) | | Less: Net realized and unrealized gains on investments | (32) | (1,127) | | Underwriting revenue | 123,077 | 83,728 | Underwriting Revenue Reconciliation (Six Months Ended June 30) | Metric | 2024 ($ thousand) | 2023 ($ thousand) | | :----------------------------------------- | :---------------- | :---------------- | | Total revenue | 249,603 | 179,597 | | Less: Net investment income | (15,098) | (10,661) | | Less: Net realized and unrealized gains on investments | (3,034) | (1,273) | | Underwriting revenue | 231,471 | 167,663 | Underwriting Income and Adjusted Underwriting Income Reconciliation Underwriting income and adjusted underwriting income, both non-GAAP measures, are reconciled from income before income taxes, showing strong growth in both Q2 and YTD 2024 after adjusting for investment income, interest expense, and specific non-recurring or non-operational expenses Underwriting Income and Adjusted Underwriting Income Reconciliation (Three Months Ended June 30) | Metric | 2024 ($ thousand) | 2023 ($ thousand) | | :----------------------------------------- | :---------------- | :---------------- | | Income before income taxes | 33,374 | 23,020 | | Less: Net investment income | (7,960) | (5,541) | | Less: Net realized and unrealized gains on investments | (32) | (1,127) | | Add: Interest expense | 225 | 1,064 | | Underwriting income | 25,607 | 17,416 | | Add: Expenses associated with transactions | 472 | — | | Add: Stock-based compensation expense | 3,968 | 3,697 | | Add: Amortization of intangibles | 389 | 389 | | Add: Expenses associated with catastrophe bond | 2,483 | 1,590 | | Adjusted underwriting income | 32,919 | 23,092 | Underwriting Income and Adjusted Underwriting Income Reconciliation (Six Months Ended June 30) | Metric | 2024 ($ thousand) | 2023 ($ thousand) | | :----------------------------------------- | :---------------- | :---------------- | | Income before income taxes | 67,730 | 45,648 | | Less: Net investment income | (15,098) | (10,661) | | Less: Net realized and unrealized gains on investments | (3,034) | (1,273) | | Add: Interest expense | 965 | 2,084 | | Underwriting income | 50,563 | 35,798 | | Add: Expenses associated with transactions | 472 | — | | Add: Stock-based compensation expense | 7,789 | 7,147 | | Add: Amortization of intangibles | 779 | 703 | | Add: Expenses associated with catastrophe bond | 2,483 | 1,640 | | Adjusted underwriting income | 62,086 | 45,288 | Adjusted Net Income Reconciliation Adjusted net income, a key non-GAAP metric, is reconciled from GAAP net income by adding back specific non-operational expenses and adjusting for their tax impact, demonstrating a strong increase in both Q2 and YTD 2024 Adjusted Net Income Reconciliation (Three Months Ended June 30) | Metric | 2024 ($ thousand) | 2023 ($ thousand) | | :----------------------------------------- | :---------------- | :---------------- | | Net income | 25,729 | 17,562 | | Add: Net realized and unrealized gains on investments | (32) | (1,127) | | Add: Expenses associated with transactions | 472 | — | | Add: Stock-based compensation expense | 3,968 | 3,697 | | Add: Amortization of intangibles | 389 | 389 | | Add: Expenses associated with catastrophe bond | 2,483 | 1,590 | | Less: Tax impact | (1,029) | (317) | | Adjusted net income | 31,980 | 21,794 | Adjusted Net Income Reconciliation (Six Months Ended June 30) | Metric | 2024 ($ thousand) | 2023 ($ thousand) | | :----------------------------------------- | :---------------- | :---------------- | | Net income | 52,111 | 34,874 | | Add: Net realized and unrealized gains on investments | (3,034) | (1,273) | | Add: Expenses associated with transactions | 472 | — | | Add: Stock-based compensation expense | 7,789 | 7,147 | | Add: Amortization of intangibles | 779 | 703 | | Add: Expenses associated with catastrophe bond | 2,483 | 1,640 | | Less: Tax impact | (825) | (857) | | Adjusted net income | 59,775 | 42,234 | Annualized Adjusted Return on Equity Reconciliation The annualized adjusted return on equity, a non-GAAP measure, is calculated using annualized adjusted net income and average stockholders' equity, showing an improvement in profitability relative to equity for both Q2 and YTD 2024 Annualized Adjusted Return on Equity Reconciliation (Three Months Ended June 30) | Metric | 2024 ($ thousand) | 2023 ($ thousand) | | :----------------------------------- | :---------------- | :---------------- | | Annualized adjusted net income | 127,920 | 87,176 | | Average stockholders' equity | 517,131 | 409,178 | | Annualized adjusted return on equity | 24.7% | 21.3% | Annualized Adjusted Return on Equity Reconciliation (Six Months Ended June 30) | Metric | 2024 ($ thousand) | 2023 ($ thousand) | | :----------------------------------- | :---------------- | :---------------- | | Annualized adjusted net income | 119,550 | 84,468 | | Average stockholders' equity | 501,928 | 399,230 | | Annualized adjusted return on equity | 23.8% | 21.2% | Adjusted Combined Ratio Reconciliation The adjusted combined ratio, a non-GAAP measure, is derived from the GAAP combined ratio by excluding specific non-operational expenses, indicating a slightly higher adjusted ratio in Q2 2024 but a slight improvement YTD 2024 Adjusted Combined Ratio Reconciliation (Three Months Ended June 30) | Metric | 2024 ($ thousand) | 2023 ($ thousand) | | :----------------------------------------- | :---------------- | :---------------- | | Numerator: Sum of losses and LAE, acquisition expenses, and other underwriting expenses, net of commission and other income | 96,678 | 65,691 | | Denominator: Net earned premiums | 122,285 | 83,107 | | Combined ratio | 79.1% | 79.0% | | Adjustments to numerator: | | | | Expenses associated with transactions | (472) | — | | Stock-based compensation expense | (3,968) | (3,697) | | Amortization of intangibles | (389) | (389) | | Expenses associated with catastrophe bond | (2,483) | (1,590) | | Adjusted combined ratio | 73.1% | 72.2% | Adjusted Combined Ratio Reconciliation (Six Months Ended June 30) | Metric | 2024 ($ thousand) | 2023 ($ thousand) | | :----------------------------------------- | :---------------- | :---------------- | | Numerator: Sum of losses and LAE, acquisition expenses, and other underwriting expenses, net of commission and other income | 179,588 | 130,549 | | Denominator: Net earned premiums | 230,151 | 166,347 | | Combined ratio | 78.0% | 78.5% | | Adjustments to numerator: | | | | Expenses associated with transactions | (472) | — | | Stock-based compensation expense | (7,789) | (7,147) | | Amortization of intangibles | (779) | (703) | | Expenses associated with catastrophe bond | (2,483) | (1,640) | | Adjusted combined ratio | 73.0% | 72.8% | Diluted Adjusted Earnings Per Share Reconciliation Diluted adjusted earnings per share, a non-GAAP measure, is calculated by dividing adjusted net income by diluted weighted-average common shares outstanding, showing a significant increase in both Q2 and YTD 2024 Diluted Adjusted Earnings Per Share Reconciliation (Three Months Ended June 30) | Metric | 2024 | 2023 | | :----------------------------------------- | :----------------- | :----------------- | | Adjusted net income ($ thousand) | 31,980 | 21,794 | | Weighted-average common shares outstanding, diluted | 25,617,916 | 25,309,526 | | Diluted adjusted earnings per share | $1.25 | $0.86 | Diluted Adjusted Earnings Per Share Reconciliation (Six Months Ended June 30) | Metric | 2024 | 2023 | | :----------------------------------------- | :----------------- | :----------------- | | Adjusted net income ($ thousand) | 59,775 | 42,234 | | Weighted-average common shares outstanding, diluted | 25,554,445 | 25,384,409 | | Diluted adjusted earnings per share | $2.34 | $1.66 | Catastrophe Loss Ratio Reconciliation The catastrophe loss ratio, a non-GAAP measure, is presented as the ratio of catastrophe losses to net earned premiums, showing a slight increase in Q2 and YTD 2024 compared to the prior year Catastrophe Loss Ratio Reconciliation (Three Months Ended June 30) | Metric | 2024 ($ thousand) | 2023 ($ thousand) | | :----------------------------------------- | :---------------- | :---------------- | | Numerator: Catastrophe losses | 3,441 | 2,159 | | Denominator: Net earned premiums | 122,285 | 83,107 | | Catastrophe loss ratio | 2.8% | 2.6% | Catastrophe Loss Ratio Reconciliation (Six Months Ended June 30) | Metric | 2024 ($ thousand) | 2023 ($ thousand) | | :----------------------------------------- | :---------------- | :---------------- | | Numerator: Catastrophe losses | 6,800 | 3,965 | | Denominator: Net earned premiums | 230,151 | 166,347 | | Catastrophe loss ratio | 3.0% | 2.4% | Adjusted Combined Ratio Excluding Catastrophe Losses Reconciliation The adjusted combined ratio excluding catastrophe losses, a non-GAAP measure, is reconciled from the combined ratio by removing specific non-operational and catastrophe-related expenses, showing a slight increase in Q2 2024 but a slight decrease YTD 2024 Adjusted Combined Ratio Excluding Catastrophe Losses Reconciliation (Three Months Ended June 30) | Metric | 2024 ($ thousand) | 2023 ($ thousand) | | :----------------------------------------- | :---------------- | :---------------- | | Combined ratio | 79.1% | 79.0% | | Adjustments to numerator: | | | | Expenses associated with transactions | (472) | — | | Stock-based compensation expense | (3,968) | (3,697) | | Amortization of intangibles | (389) | (389) | | Expenses associated with catastrophe bond | (2,483) | (1,590) | | Catastrophe losses | (3,441) | (2,159) | | Adjusted combined ratio excluding catastrophe losses | 70.3% | 69.6% | Adjusted Combined Ratio Excluding Catastrophe Losses Reconciliation (Six Months Ended June 30) | Metric | 2024 ($ thousand) | 2023 ($ thousand) | | :----------------------------------------- | :---------------- | :---------------- | | Combined ratio | 78.0% | 78.5% | | Adjustments to numerator: | | | | Expenses associated with transactions | (472) | — | | Stock-based compensation expense | (7,789) | (7,147) | | Amortization of intangibles | (779) | (703) | | Expenses associated with catastrophe bond | (2,483) | (1,640) | | Catastrophe losses | (6,800) | (3,965) | | Adjusted combined ratio excluding catastrophe losses | 70.1% | 70.4% | Tangible Stockholders' Equity Reconciliation Tangible stockholders' equity, a non-GAAP measure, is calculated by subtracting goodwill and intangible assets from stockholders' equity, showing an increase from December 31, 2023, to June 30, 2024 Tangible Stockholders' Equity Reconciliation | Metric | June 30, 2024 ($ thousand) | Dec 31, 2023 ($ thousand) | | :--------------------------------- | :------------------------- | :------------------------ | | Stockholders' equity | 532,606 | 471,252 | | Less: Goodwill and intangible assets | (11,537) | (12,315) | | Tangible stockholders' equity | 521,069 | 458,937 | Additional Information This section provides practical details regarding the Q2 2024 earnings conference call and a safe harbor statement concerning forward-looking information Conference Call Details Palomar Holdings, Inc. announced details for its Q2 2024 earnings conference call, scheduled for August 6, 2024, providing access information for live participation and replay options - Conference call to discuss Q2 2024 results scheduled for Tuesday, August 6, 2024, at 12:00 p.m. (Eastern Time)[10] - Live access available via dialing 1-877-423-9813 (US) or 1-201-689-8573 (International)[10] - Replay available from August 6 to August 13, 2024, via dialing 1-844-512-2921 (US) or 1-412-317-6671 (International), passcode 13747528[10] Safe Harbor Statement and Contact The report includes a safe harbor statement cautioning against reliance on forward-looking statements due to inherent risks and uncertainties, and provides contact information for media and investor relations - Statements in the press release may contain forward-looking information based on current beliefs and expectations[19] - Actual results may differ materially due to risks and uncertainties, including unexpected expenditures, regulatory reviews, adverse events, and competitive conditions[19] - The company undertakes no obligation to update forward-looking statements[19]