Palomar(PLMR) - 2024 Q4 - Annual Report

Reinsurance and Catastrophe Coverage - The company's reinsurance coverage currently exhausts at $3.08 billion for earthquake events,$735 million for Hawaii hurricane events, and $117.5 million for continental U.S. hurricane events[136]. - The company's catastrophe event retention is currently$20 million for earthquake events and $15.5 million for hurricane events and all other perils[136]. - As of December 31, 2024, the company had$395.2 million of aggregate reinsurance recoverables[138]. - The company closed a $400 million catastrophe bond effective June 1, 2021, and a$275 million catastrophe bond effective June 1, 2022, among others, to enhance its reinsurance coverage[149]. - The company may seek similar catastrophe bond offerings in the future, but there is no assurance that it will be able to complete such offerings on acceptable terms[150]. - The company is exposed to significant risks from unpredictable catastrophe events, which could materially adversely affect its business and financial condition[134]. - The company may be unable to purchase third-party reinsurance or expand its catastrophe coverage on commercially acceptable terms, which could adversely affect its business[146]. - The reinsurance market is cyclical, and hard market cycles may increase the cost of reinsurance or limit the amount of reinsurance the company can purchase[148]. Financial Performance and Growth - Total assets increased to $2,262,220,000 in 2024 from$1,708,022,000 in 2023, representing a growth of 32.4%[504]. - Gross written premiums rose to $1,541,962,000 in 2024, up 35.1$1,141,558,000 in 2023[506]. - Net income for 2024 reached $117,573,000, a 48.3$79,201,000 in 2023[506]. - Net earned premiums increased to $510,687,000 in 2024, up 47.5$345,913,000 in 2023[506]. - Total revenues grew to $553,863,000 in 2024, a 47.3$375,926,000 in 2023[506]. - Cash and cash equivalents increased to $80,438,000 in 2024 from$51,546,000 in 2023, reflecting a growth of 55.9%[504]. - Total liabilities rose to $1,533,190,000 in 2024, up from$1,236,770,000 in 2023, an increase of 24.0%[504]. - Stockholders' equity increased to $729,030,000 in 2024, a significant rise from$471,252,000 in 2023, representing a growth of 54.6%[504]. - Basic earnings per share improved to $4.61 in 2024, compared to$3.19 in 2023, marking a 44.5% increase[506]. - The company issued 1,380,000 shares in a stock offering, raising $115,724,000 net of offering costs[509]. Risk Management and Operational Challenges - The company’s loss reserves are established based on estimates, which may be inadequate to cover actual incurred losses, potentially impacting its financial condition[139]. - The company relies on a select group of brokers and program administrators, and such relationships may not continue, posing a risk to its operations[130]. - The company faces intense competition from larger specialty and standard insurance companies, which may impact its market position and pricing strategies[177][180]. - The company's risk management approach relies on subjective variables and third-party data, which introduces significant uncertainties in estimating probable maximum losses[155][159]. - The company is exposed to potential losses from pandemics and public health crises, which could adversely affect operational and financial performance[164][165]. - Changes in estimates or assumptions used in risk models could lead to actual losses being materially higher than expected, impacting financial results[155][159]. - The company’s business practices and financial strength rating could be adversely affected by unfavorable market trends or regulatory changes[162][163]. - The concentration of business in California increases exposure to regulatory and economic risks, which could lead to significant premium reductions or increased loss exposure[166]. - The company relies on accurate renewals of existing policies for future written premiums, which could be adversely affected if actual renewals do not meet expectations[181]. - The company must evaluate and pay claims accurately and timely; failure to do so could lead to regulatory actions and adversely affect financial condition[182]. Regulatory and Compliance Issues - The company is subject to extensive regulations in multiple states, which could impose penalties and affect financial condition if compliance is not maintained[228]. - Risk-based capital requirements are in place for the company's U.S. insurance subsidiaries, and failure to meet these could lead to regulatory actions[232]. - The company may face additional government regulations related to cybersecurity, which could adversely impact operations[237]. - Legislative changes regarding premium refunds or extended grace periods could significantly increase expenses and decrease short-term revenues, impacting liquidity[238]. - The company is required to comply with the NAIC's Insurance Data Security Model Law, which mandates the establishment of a cybersecurity program and related policies[239]. - The company is subject to various legal and regulatory challenges, which could lead to significant expenses and impact business operations[249]. - The company’s financial results may be materially affected by changes in accounting practices and the implementation of new regulations[254]. - The company is subject to insurance laws in Oregon, California, and Arizona, which require state insurance commissioner approval for any acquisition of 10$40.5 million as of December 31, 2024, is subject to various market risks that could adversely affect financial results[209]. - The company is exposed to market risks, including equity price risk and interest rate risk, but does not have significant exposure to foreign currency exchange rate risk or commodity risk[472]. - As of December 31, 2024, the estimated fair value of the fixed maturities portfolio was $939.0 million, with a potential 3.7$40.5 million, primarily consisting of exchange-traded funds tracking the U.S. stock market[478]. - The company manages interest rate risk through disciplined asset/liability matching and capital management processes[476]. - The company anticipates that substantial future increases in inflation could lead to higher interest rates, negatively affecting the market value of the investment portfolio[480]. Operational and Technological Risks - The company relies heavily on information technology and telecommunications systems for underwriting, claims processing, and financial reporting, with potential risks from system failures due to various external events[216]. - Remote work increases the operational risk associated with the company's information technology systems, necessitating reliable performance[217]. - Cybersecurity threats are evolving, and the company faces risks from potential breaches that could lead to operational disruptions and reputational damage[220]. - The company incurs significant costs as a public entity, including compliance with the Sarbanes-Oxley Act, which diverts management's attention from revenue-generating activities[256]. - The company must maintain effective internal controls over financial reporting as required by Section 404 of the Sarbanes-Oxley Act, with potential consequences for non-compliance[261]. - The company may face increased operational costs due to evolving disclosure requirements related to climate change and other regulations[257]. Capital and Financing - The company may require additional capital in the future, which could be unavailable or only available on unfavorable terms, impacting operations[187]. - The company reported a net cash provided by financing activities of $73,774, a turnaround from a net cash used of$3,940 in the previous year[511]. - Future capital-raising transactions could negatively impact the company's stock price, as substantial sales of common stock may lower market value[266]. - The ability to pay dividends is restricted by state insurance laws, and the company does not intend to declare cash dividends in the foreseeable future[246]. - The company faces potential impacts from changes in tax laws, which could increase tax expenses and affect profitability[242].