UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): August 4, 2020

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Palomar Holdings, Inc.

(Exact name of registrant as specified in its charter)

Commission File Number: 001-38873

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7979 Ivanhoe Avenue, Suite 500

La Jolla, California 92037

(Address of principal executive offices, including zip code)

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(619) 567-5290

(Registrant’s telephone number, including area code)

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(Former Name or Former Address, if Changed Since Last Report)

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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

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 Securities registered pursuant to Section 12(b) of the Act:

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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR 230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR 240.12b-2).

Emerging Growth Company ⌧

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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Selection 13(a) of the Exchange Act. ◻

Item 2.02. Results of Operations and Financial Condition.

On August 4, 2020, Palomar Holdings, Inc. (the "Company") issued a press release announcing its financial results for the fiscal quarter ended June 30, 2020. A copy of the press release is attached hereto as Exhibit 99.1.

The information contained under this Item 2.02, including Exhibit 99.1 attached hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or under the Exchange Act, regardless of any general incorporation language in any such filing, unless the Company expressly sets forth in such filing that such information is to be considered “filed” or incorporated by reference therein.

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Item 9.01. Financial Statements and Exhibits.

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(d)Exhibits

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized.

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Exhibit 99.1

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Palomar Holdings, Inc. Reports Second Quarter 2020 Results

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La Jolla, CA, August 4, 2020 – Palomar Holdings, Inc. (NASDAQ:PLMR) (“Palomar” or the “Company”) reported net income of $12.0 million, or $0.48 per diluted share, for the second quarter of 2020 compared to a net income of $6.7 million, or $0.30 per diluted share, for the second quarter of 2019. Adjusted net income⁽¹⁾ was $13.0 million, or $0.52 per diluted share, an increase of 63.0% for the second quarter of 2020 as compared to $8.0 million, or $0.36 per diluted share, for the second quarter of 2019.  

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Second Quarter 2020 Highlights

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Mac Armstrong, Chairman and Chief Executive Officer, commented, “The second quarter found Palomar continuing to operate capably in a difficult environment. While the COVID -19 pandemic and civil unrest challenged our nation, we navigated and will continue to navigate through these uncharted waters by focusing on Palomar’s founding principles, which compel us to help build and restore challenged and damaged areas of our country. That mantra along with our Company’s values and culture will allow us to ably face today’s challenges and moreover make a meaningful and lasting impact. A hallmark of our success has been our ability to not only embrace change but also to anticipate it. This mentality is ingrained in our people and our operations and it will ensure that we remain focused on delivering innovative products that meet the needs of our customers.”  

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Mr. Armstrong continued, “Our ability to execute in this tumultuous environment is seen in our second quarter 2020 results. We delivered year-over-year gross written premium growth of 43.6% and year-over-year adjusted net income growth of 63.0%. We also successfully completed our June 1st reinsurance placement procuring an incremental $200 million of limit to support future growth. Lastly, we announced the formation of Palomar Excess and Surplus Insurance Company (“Palomar E&S”), our newly established surplus lines insurance company. Palomar E&S presents a natural and exciting progression in our Company’s evolution as we extend our specialty property franchise to the surplus lines insurance market. We capitalized Palomar E&S with approximately $100 million in surplus including proceeds from a primary share issuance in June. We expect to begin writing business during the third quarter.”

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Underwriting Results

Gross written premiums increased 43.6% to $83.8 million compared to $58.3 million in the second quarter of 2019, while net earned premiums increased 69.4% compared to the prior year’s second quarter. Losses and loss adjustment expenses for the second quarter were $4.0 million, which resulted in a 10.1% loss ratio. Loss activity during the second quarter was primarily attributable to attritional losses in the Company’s commercial all risk and specialty homeowners lines. The second quarter results include $0.1 million of unfavorable prior year development. Underwriting income⁽¹⁾ was $12.4 million resulting in a combined ratio of 68.4% compared to underwriting income of $7.2 million and a combined ratio of 69.2% during the same period last year. The second quarter of 2020 combined ratio includes certain expenses related to the Company’s stock offerings, stock-based compensation, and expenses associated

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with a catastrophe bond. The second quarter of 2019 combined ratio includes certain expenses related to the Company’s initial public offering (IPO) and tax restructuring, stock-based compensation, and expenses associated with the retirement of debt. Excluding those items, the Company’s adjusted combined ratio⁽¹⁾ was 65.1% in the second quarter compared 63.8% in the same period in 2019. The Company’s adjusted net income⁽¹⁾ increased by 63.0% to $13.0 million in the second quarter compared to $8.0 million in last year’s second quarter.

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Investment Results

Net investment income increased by 42.5% to $2.1 million compared to $1.5 million in the prior year’s second quarter. The year-over-year increase was primarily due to a higher average balance of investments held during the three months ended June 30, 2020 due primarily to proceeds from the Company’s April 2019 IPO, investing of cash generated from operations, and proceeds from the Company’s January 2020 secondary offering. Funds are generally invested conservatively in high quality securities, including government agency, asset and mortgage-backed securities, and municipal and corporate bonds with an average credit quality of "A1/A+." The Company’s fixed income investment portfolio had a book yield of 2.83% as of June 30, 2020. Cash and invested assets totaled $430.4 million at June 30, 2020. During the second quarter, the Company recognized realized and unrealized gains of $0.8 million related to its investment portfolio compared to $0.5 million in last year’s second quarter.

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Tax Rate

The effective tax rate for the three months ended June 30, 2020 was 21.5% compared to 21.1% for the three months ended June 30, 2019.

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Stockholders’ Equity and Returns

Stockholders' equity was $375.2 million at June 30, 2020, compared to $218.6 million at December 31, 2019. For the three months ended June 30, 2020, the Company’s annualized return on equity was 15.1% compared to 17.8% for the same period last year and annualized adjusted return on equity⁽¹⁾ was 16.4% compared to 21.2% for the same period last year. The change in return on equity reflects a significant increase in the Company’s stockholders’ equity, primarily due to the addition of $213.1 million in capital raised in multiple stock offerings which have taken place since April 2019.

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Full Year 2020 Outlook

For the full year 2020, the Company affirms prior guidance of adjusted net income of $50.5 to $53.0 million, equating to a growth rate of 33% to 40% compared to the full year 2019.

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Conference Call

As previously announced, Palomar will host a conference call August 5, 2020, to discuss its second quarter 2020 results at 12:00 p.m. (Eastern Time). The conference call can be accessed by dialing 1-877-423-9813 (domestic) or 1-201-689-8573 (international) and asking for the Palomar Second Quarter 2020 Earnings Call. A telephonic replay will be available approximately two hours after the call and can be accessed by dialing 1-844-512-2921, or for international callers 1-412-317-6671 and providing the access code 13706037. The telephonic replay will be available until 11:59 pm (Eastern Time) on August 12, 2020.

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Interested investors and other parties may also listen to a simultaneous webcast of the conference call by logging onto the investor relations section of the Company’s website at http://ir.palomarspecialty.com/. The online replay will remain available for a limited time beginning immediately following the call.

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About Palomar Holdings, Inc.

Palomar Holdings, Inc. is the ultimate parent and insurance holding company of its operating subsidiaries, Palomar Specialty Insurance Company, Palomar Specialty Reinsurance Company Bermuda Ltd., Palomar Insurance Agency, Inc. and Palomar Excess and Surplus Insurance Company. Palomar is an innovative insurer that focuses on the provision of specialty property insurance for residential and commercial clients. Palomar’s underwriting and analytical acumen allow it to concentrate on certain markets that it believes are underserved by other insurance companies, such as the markets for earthquake, wind and flood insurance. Palomar’s insurance subsidiaries, Palomar Specialty Insurance Company, Palomar Specialty Reinsurance Company Bermuda Ltd., and Palomar Excess and Surplus Insurance Company, have a financial strength rating of “A-” (Excellent) from A.M. Best.

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Non-GAAP and Key Performance Indicators

Palomar discusses certain key financial and operating metrics, described below, which provide useful information about the Company’s business and the operational factors underlying the Company’s financial performance.

Underwriting revenue is a non-GAAP financial measure defined as total revenue, excluding net investment income and net realized and unrealized gains and losses on investments. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of total revenue calculated in accordance with GAAP to underwriting revenue.

Underwriting income is a non-GAAP financial measure defined as income before income taxes excluding net investment income, net realized and unrealized gains and losses on investments and interest expense. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of income before income taxes calculated in accordance with GAAP to underwriting income.

Adjusted net income is a non-GAAP financial measure defined as net income excluding the impact of certain items that may not be indicative of underlying business trends, operating results, or future outlook, net of tax impact. Palomar calculates the tax impact only on adjustments which would be included in calculating the Company’s income tax expense using the effective tax rate at the end of each period. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of net income calculated in accordance with GAAP to adjusted net income.

Return on equity is net income expressed on an annualized basis as a percentage of average beginning and ending stockholders’ equity during the period.

Adjusted return on equity is a non-GAAP financial measure defined as adjusted net income expressed on an annualized basis as a percentage of average beginning and ending stockholders’ equity during the period. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of return on equity calculated using unadjusted GAAP numbers to adjusted return on equity.

Loss ratio, expressed as a percentage, is the ratio of losses and loss adjustment expenses, to net earned premiums.

Expense ratio, expressed as a percentage, is the ratio of acquisition and other underwriting expenses, net of commission and other income to net earned premiums.

Combined ratio is defined as the sum of the loss ratio and the expense ratio. A combined ratio under 100% generally indicates an underwriting profit. A combined ratio over 100% generally indicates an underwriting loss.

Adjusted combined ratio is a non-GAAP financial measure defined as the sum of the loss ratio and the expense ratio calculated excluding the impact of certain items that may not be indicative of underlying business trends, operating results, or future outlook. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of combined ratio calculated using unadjusted GAAP numbers to adjusted combined ratio.

Diluted adjusted earnings per share is a non-GAAP financial measure defined as adjusted net income divided by the weighted-average common shares outstanding for the period, reflecting the dilution which could occur if equity-based awards are converted into common share equivalents as calculated using the treasury stock method. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of diluted earnings per share calculated in accordance with GAAP to diluted adjusted earnings per share.

Tangible stockholders’ equity is a non-GAAP financial measure defined as stockholders’ equity less intangible assets. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of stockholders’ equity calculated in accordance with GAAP to tangible stockholders’ equity.

Safe Harbor Statement

Palomar cautions you that statements contained in this press release may regard matters that are not historical facts but are forward-looking statements. These statements are based on the company’s current beliefs and expectations. The inclusion of forward-looking statements should not be regarded as a representation by Palomar that any of its plans will be achieved. Actual results may differ from those set forth in this press release due to the risks and uncertainties inherent in the Company’s business. The forward-looking statements are typically, but not always, identified through use of the words "believe," "expect," "enable," "may," "will," "could," "intends," "estimate," "anticipate," "plan," "predict," "probable," "potential," "possible," "should," "continue," and other words of similar meaning. Actual results could differ materially from the expectations contained in forward-looking statements as a result of several factors, including unexpected expenditures and costs, unexpected results or delays in development and regulatory review, regulatory approval

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requirements, the frequency and severity of adverse events. competitive conditions, and the impact of COVID-19 and related economic conditions, including the Company's assessment of the vulnerability of certain categories of investments to the economic disruptions associated with COVID-19 and legislative or regulatory developments affecting the insurance industry. These and other factors that may result in differences are discussed in greater detail in the Company's filings with the Securities and Exchange Commission. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof, and the Company undertakes no obligation to update such statements to reflect events that occur or circumstances that exist after the date hereof. All forward-looking statements are qualified in their entirety by this cautionary statement, which is made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

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Investor Relations

1-619-771-1743

investors@palomarspecialty.com  

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Source: Palomar Holdings, Inc.

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Summary of Operating Results

The following table summarizes the Company’s results for the three months ended June 30, 2020 and 2019:

(1)- Indicates Non-GAAP financial measure- see above for definition of Non-GAAP financial measures and see below for reconciliation of Non-GAAP financial measures to their most directly comparable measures prepared in accordance with GAAP.

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The following table summarizes the Company’s results for the six months ended June 30, 2020 and 2019:

(1)- Indicates Non-GAAP financial measure- see above for definition of Non-GAAP financial measures and see below for reconciliation of Non-GAAP financial measures to their most directly comparable measures prepared in accordance with GAAP.

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Condensed Consolidated Balance sheets

Palomar Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (unaudited)

(in thousands, except shares and par value data)

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Condensed Consolidated Income Statement

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Palomar Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) (Unaudited)

(in thousands, except shares and per share data)

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Underwriting Segment Data

The Company has a single reportable segment and offers primarily earthquake, wind, and flood insurance products. Gross written premiums (GWP) by product and location are presented below:

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Gross and net earned premiums

The table below shows the amount of premiums the Company earned on a gross and net basis and the Company’s net earned premiums as a percentage of gross earned premiums for each period presented:

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Reconciliation of Non-GAAP Financial Measures

For the three and six months ended March 31, 2020 and 2019, the Non-GAAP financial measures discussed above reconcile to their most comparable GAAP measures as follows:

Underwriting revenue

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