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

Palomar Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

Commission File Number: 001-38873

Delaware

83-3972551

(State or other jurisdiction

of incorporation)

(I.R.S. Employer

Identification No.)

7979 Ivanhoe Avenue, Suite 500

La Jolla, California 92037

(Address of principal executive offices, including zip code)

(619) 567-5290

(Registrant’s telephone number, including area code)

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

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):

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

PLMR

Nasdaq Global Select Market

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

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.

Item 9.01. Financial Statements and Exhibits.

(d)Exhibits

Exhibit No.

Description

99.1

Press release, dated August 4, 2020

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.

PALOMAR HOLDINGS, INC.

Date:

August 4, 2020

/s/ T. Christopher Uchida

T. Christopher Uchida

Chief Financial Officer

(Principal Financial and Accounting Officer)


Exhibit 99.1

Graphic

Palomar Holdings, Inc. Reports Second Quarter 2020 Results

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.  

Second Quarter 2020 Highlights

Gross written premiums increased by 43.6% to $83.8 million compared to $58.3 million in the second quarter of 2019
Net income increased by 79.3% to $12.0 million, or $0.48 per diluted share, compared to a net income of $6.7 million, or $0.30 per diluted share, in the second quarter of 2019
Adjusted net income(1) increased by 63.0% to $13.0 million, or $0.52 per diluted share, compared to $8.0 million, or $0.36 per diluted share, in the second quarter of 2019
Total loss ratio of 10.1% compared to 2.8% in the second quarter of 2019
Combined ratio of 68.4% compared to 69.2% in the second quarter of 2019
Adjusted combined ratio(1) of 65.1%, compared to 63.8% in the second quarter of 2019
Annualized return on equity of 15.1%, compared to 17.8% in the second quarter of 2019
Annualized adjusted return on equity(1) of 16.4%, compared to 21.2% in the second quarter of 2019

(1)See discussion of “Non-GAAP and Key Performance Indicators” below.

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.”  

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.”

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

1


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.

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.

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.

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.

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.

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.

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.

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.

2


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

3


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.

Investor Relations

1-619-771-1743

investors@palomarspecialty.com  

Source: Palomar Holdings, Inc.

Summary of Operating Results

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

Three months ended

 

June 30, 

Percent

    

2020

    

2019

    

Change

    

Change

($ in thousands, except per share data)

 

Revenue:

 

  

 

  

 

  

 

  

Gross written premiums

$

83,807

58,346

 

$

25,461

 

43.6

%

Ceded written premiums

 

(30,198)

(24,632)

 

(5,566)

 

22.6

%

Net written premiums

 

53,609

 

33,714

 

19,895

 

59.0

%

Net earned premiums

 

39,320

23,208

 

16,112

 

69.4

%

Commission and other income

 

937

721

 

216

 

30.0

%

Total underwriting revenue (1)

 

40,257

 

23,929

 

16,328

 

68.2

%

Losses and loss adjustment expenses

 

3,978

643

 

3,335

 

518.7

%

Acquisition expenses

 

14,886

8,971

 

5,915

 

65.9

%

Other underwriting expenses

 

8,976

7,165

 

1,811

 

25.3

%

Underwriting income (1)

 

12,417

 

7,150

 

5,267

 

73.7

%

Interest expense

 

(639)

 

639

 

(100.0)

%

Net investment income

 

2,114

1,483

 

631

 

42.5

%

Net realized and unrealized gains on investments

 

778

493

 

285

 

57.8

%

Income before income taxes

 

15,309

 

8,487

 

6,822

 

80.4

%

Income tax expense

 

3,297

1,789

 

1,508

 

84.3

%

Net income

$

12,012

$

6,698

 

$

5,314

 

79.3

%

Adjustments:

 

  

 

  

 

 

  

Expenses associated with stock offerings and tax restructuring

 

456

 

50

 

406

 

NM

Stock-based compensation expense

464

306

 

158

NM

Expenses associated with retirement of debt

1,297

 

(1,297)

NM

Expenses associated with catastrophe bond

399

399

NM

Tax impact

(284)

(349)

65

NM

Adjusted net income (1)

$

13,047

$

8,002

 

$

5,045

 

63.0

%

Key Financial and Operating Metrics

 

  

 

  

 

  

 

  

Annualized return on equity

 

15.1

%  

 

17.8

%  

  

 

  

Annualized adjusted return on equity (1)

 

16.4

%  

 

21.2

%  

  

 

  

Loss ratio

 

10.1

%  

 

2.8

%  

  

 

  

Expense ratio

 

58.3

%  

 

66.4

%  

  

 

  

Combined ratio

 

68.4

%  

 

69.2

%  

  

 

  

Adjusted combined ratio (1)

65.1

%  

63.8

%  

Diluted earnings per share

$

0.48

$

0.30

Diluted adjusted earnings per share (1)

$

0.52

$

0.36

NM- not meaningful

(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.

4


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

Six months ended

 

June 30, 

Percent

 

    

2020

    

2019

    

Change

    

Change

 

($ in thousands, except per share data)

 

Revenue:

 

  

 

  

 

  

 

  

Gross written premiums

$

155,301

$

112,377

 

$

42,924

 

38.2

%

Ceded written premiums

 

(59,693)

 

(50,737)

 

(8,956)

 

17.7

%

Net written premiums

 

95,608

 

61,640

 

33,968

 

55.1

%

Net earned premiums

 

74,126

 

41,559

 

32,567

 

78.4

%

Commission and other income

 

1,675

 

1,306

 

369

 

28.3

%

Total underwriting revenue (1)

 

75,801

 

42,865

 

32,936

 

76.8

%

Losses and loss adjustment expenses

 

5,841

959

 

4,882

 

509.1

%

Acquisition expenses

 

27,933

15,946

 

11,987

 

75.2

%

Other underwriting expenses

 

16,928

36,017

 

(19,089)

 

(53.0)

%

Underwriting income (loss) (1)

 

25,099

 

(10,057)

 

35,156

 

(349.6)

%

Interest expense

 

(1,068)

 

1,068

 

(100.0)

%

Net investment income

 

4,148

2,443

 

1,705

 

69.8

%

Net realized and unrealized gains on investments

 

1,219

2,904

 

(1,685)

 

(58.0)

%

Income before income taxes

 

30,466

 

(5,778)

 

36,244

 

(627.3)

%

Income tax expense

 

6,681

1,934

 

4,747

 

245.4

%

Net income (loss)

$

23,785

$

(7,712)

 

$

31,497

 

(408.4)

%

Adjustments:

 

  

 

  

 

 

  

Expenses associated with stock offerings and tax restructuring

 

708

408

 

300

 

NM

Stock-based compensation expense

 

907

23,267

 

(22,360)

 

NM

Expenses associated with retirement of debt

1,297

(1,297)

NM

Expenses associated with catastrophe bond

399

399

NM

Tax impact

(433)

(424)

(9)

NM

Adjusted net income (1)

$

25,366

$

16,836

 

$

8,530

 

50.7

%

Key Financial and Operating Metrics

 

  

 

  

 

  

 

  

Annualized return on equity

 

16.0

%  

 

(10.4)

%  

  

 

  

Annualized adjusted return on equity (1)

 

17.1

%  

 

22.8

%  

  

 

  

Loss ratio

 

7.9

%  

 

2.3

%  

  

 

  

Expense ratio

 

58.3

%  

 

121.9

%  

  

 

  

Combined ratio

 

66.1

%  

 

124.2

%  

  

 

  

Adjusted combined ratio (1)

63.4

%  

65.1

%  

Diluted earnings per share

$

0.95

$

(0.40)

Diluted adjusted earnings per share (1)

$

1.02

$

0.86

NM- not meaningful

(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.

5


Condensed Consolidated Balance sheets

Palomar Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (unaudited)

(in thousands, except shares and par value data)

    

June 30, 

    

December 31, 

2020

2019

(Unaudited)

Assets

 

  

 

  

Investments:

 

  

 

  

Fixed maturity securities available for sale, at fair value (amortized cost: $270,852 in 2020; $211,278 in 2019)

$

282,855

$

217,151

Equity securities, at fair value (cost: $35,577 in 2020; $21,336 in 2019)

 

37,649

 

22,328

Total investments

 

320,504

 

239,479

Cash and cash equivalents

 

109,323

 

33,119

Restricted cash

 

619

 

230

Accrued investment income

 

2,014

 

1,386

Premium receivable

 

44,626

 

36,237

Deferred policy acquisition costs

 

30,135

 

25,201

Reinsurance recoverable on unpaid losses and loss adjustment expenses

 

17,129

 

12,952

Reinsurance recoverable on paid losses and loss adjustment expenses

 

7,549

 

4,303

Ceded unearned premiums

 

24,298

 

26,105

Prepaid expenses and other assets

 

26,318

 

14,861

Property and equipment, net

 

791

 

845

Intangible assets

 

744

 

744

Total assets

$

584,050

$

395,462

Liabilities and stockholders' equity

 

  

 

  

Liabilities:

 

  

 

  

Accounts payable and other accrued liabilities

$

10,469

$

13,555

Reserve for losses and loss adjustment expenses

 

24,216

 

16,821

Unearned premiums

 

150,048

 

130,373

Ceded premium payable

 

10,575

 

11,383

Funds held under reinsurance treaty

 

2,420

 

1,658

Income and excise taxes payable

 

6,620

 

1,117

Deferred tax liabilities, net

4,459

1,999

Total liabilities

 

208,807

 

176,906

Stockholders' equity:

 

  

 

  

Preferred stock, $0.0001 par value, 5,000,000 shares authorized as of June 30, 2020 and December 31, 2019, respectively, 0 shares issued and outstanding as of June 30, 2020 and December 31, 2019

Common stock, $0.0001 par value, 500,000,000 shares authorized, 25,468,321 and 23,468,750 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively

 

2

 

2

Additional paid-in capital

 

308,071

 

180,012

Accumulated other comprehensive income

 

9,529

 

4,686

Retained earnings

 

57,641

 

33,856

Total stockholders' equity

 

375,243

 

218,556

Total liabilities and stockholders' equity

$

584,050

$

395,462

6


Condensed Consolidated Income Statement

Palomar Holdings, Inc. and Subsidiaries

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

(in thousands, except shares and per share data)

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2020

    

2019

    

2020

    

2019

Revenues:

 

  

 

  

 

  

 

  

Gross written premiums

$

83,807

$

58,346

$

155,301

$

112,377

Ceded written premiums

 

(30,198)

 

(24,632)

 

(59,693)

 

(50,737)

Net written premiums

 

53,609

 

33,714

 

95,608

 

61,640

Change in unearned premiums

 

(14,289)

(10,506)

 

(21,482)

(20,081)

Net earned premiums

 

39,320

 

23,208

 

74,126

 

41,559

Net investment income

 

2,114

1,483

 

4,148

2,443

Net realized and unrealized gains on investments

 

778

493

 

1,219

2,904

Commission and other income

 

937

721

 

1,675

1,306

Total revenues

 

43,149

 

25,905

 

81,168

 

48,212

Expenses:

 

  

 

  

 

  

 

  

Losses and loss adjustment expenses

 

3,978

643

5,841

959

Acquisition expenses

 

14,886

8,971

27,933

15,946

Other underwriting expenses (includes stock-based compensation of $464 and $306 for the three months ended June 30, 2020 and 2019, respectively and $907 and $23,267 for the six months ended June 30, 2020 and 2019, respectively)

 

8,976

7,165

16,928

36,017

Interest expense

 

639

1,068

Total expenses

 

27,840

 

17,418

 

50,702

 

53,990

Income (loss) before income taxes

 

15,309

 

8,487

 

30,466

 

(5,778)

Income tax expense

 

3,297

1,789

6,681

1,934

Net income (loss)

 

12,012

 

6,698

 

23,785

 

(7,712)

Other comprehensive income, net:

 

  

 

  

 

  

 

  

Net unrealized gains on securities available for sale for the three and six months ended June 30, 2020 and 2019, respectively

 

10,676

3,298

4,843

5,485

Net comprehensive income (loss)

$

22,688

$

9,996

$

28,628

$

(2,227)

Per Share Data:

 

  

 

  

 

  

 

  

Basic earnings per share

$

0.49

$

0.30

$

0.98

$

(0.40)

Diluted earnings per share

$

0.48

$

0.30

$

0.95

$

(0.40)

Weighted-average common shares outstanding:

Basic

 

24,343,425

 

21,975,962

 

24,231,344

 

19,501,727

Diluted

25,057,029

22,105,009

24,922,630

19,501,727

7


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:

Three Months Ended June 30, 

 

Six Months Ended June 30, 

2020

2019

 

2020

2019

 

($ in thousands)

 

($ in thousands)

 

% of

% of

 

% of

% of

 

Amount

GWP

Amount

GWP

 

Amount

GWP

Amount

GWP

 

Product

    

  

    

  

    

  

    

  

    

  

    

  

    

  

    

  

Residential Earthquake

$

34,240

40.9

%  

$

29,987

 

51.4

%

$

62,996

40.6

%  

$

59,294

 

52.8

%

Commercial All Risk

14,841

17.7

%  

7,288

 

12.5

%

27,297

17.6

%  

14,852

 

13.2

%

Commercial Earthquake

 

11,818

14.1

%  

 

8,085

 

13.8

%

 

22,666

14.6

%  

 

14,618

 

13.0

%

Specialty Homeowners

 

11,568

13.8

%  

 

8,646

 

14.8

%

 

21,413

13.8

%  

 

16,426

 

14.6

%

Inland Marine

3,451

4.1

%

229

0.4

%

5,341

3.4

%  

229

0.2

%  

Hawaii Hurricane

 

3,242

3.9

%  

 

2,675

 

4.6

%

 

5,937

3.8

%  

 

4,750

 

4.2

%

Residential Flood

 

2,032

2.4

%  

 

1,271

 

2.2

%

 

3,558

2.3

%  

 

2,043

 

1.8

%

Other

 

2,615

3.1

%  

165

0.3

%

6,093

3.9

%  

165

0.2

%

Total Gross Written Premiums

$

83,807

 

100.0

%  

$

58,346

 

100.0

%

$

155,301

 

100.0

%  

$

112,377

 

100.0

%

Three Months Ended June 30, 

 

Six Months Ended June 30, 

2020

2019

 

2020

2019

 

($ in thousands)

 

($ in thousands)

 

% of

% of

 

% of

% of

 

Amount

GWP

Amount

GWP

 

Amount

GWP

Amount

GWP

 

State

    

  

    

  

    

  

    

  

    

  

    

  

    

  

    

  

California

$

38,420

45.9

%  

$

32,306

 

55.4

%

$

71,172

45.8

%  

$

62,754

 

55.8

%

Texas

18,796

22.4

%  

11,000

18.8

%

34,587

22.3

%  

21,439

19.1

%

Hawaii

3,840

4.6

%  

2,921

5.0

%

6,892

4.5

%  

5,013

4.5

%

Washington

3,055

3.7

%  

1,926

3.3

%

5,661

3.6

%  

3,520

3.1

%

South Carolina

 

2,704

3.2

%  

 

1,686

 

2.9

%

 

5,114

3.3

%  

 

3,355

 

3.0

%

North Carolina

2,609

3.1

%  

947

 

1.6

%

4,293

2.8

%  

1,687

 

1.5

%

Oregon

2,289

2.7

%  

1,671

 

2.9

%

4,386

2.8

%  

3,126

 

2.8

%

Mississippi

 

2,034

2.4

%  

 

1,222

2.1

%

 

3,455

2.2

%  

 

2,068

1.8

%

Other

 

10,060

12.0

%  

 

4,667

8.0

%

 

19,741

12.7

%  

 

9,415

8.4

%

Total Gross Written Premiums

$

83,807

 

100.0

%  

$

58,346

 

100.0

%

$

155,301

 

100.0

%  

$

112,377

 

100.0

%

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:

Three Months Ended

 

Six Months Ended

June 30, 

 

June 30, 

    

2020

    

2019

    

Change

    

% Change

2020

    

2019

    

Change

    

% Change

 

($ in thousands)

($ in thousands)

Gross earned premiums

$

70,864

$

47,208

$

23,656

 

50.1

%

$

135,838

$

88,102

$

47,736

 

54.2

%

Ceded earned premiums

 

(31,544)

 

(24,000)

 

(7,544)

 

31.4

%

 

(61,712)

 

(46,543)

 

(15,169)

 

32.6

%

Net earned premiums

$

39,320

$

23,208

$

16,112

 

69.4

%

$

74,126

$

41,559

$

32,567

 

78.4

%

Net earned premium ratio

55.5%

49.2%

54.6%

47.2%

8


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

Three Months Ended

 

Six Months Ended

June 30, 

 

June 30, 

    

2020

    

2019

 

    

2020

    

2019

 

(in thousands)

 

(in thousands)

Total revenue

$

43,149

$

25,905

$

81,168

$

48,212

Net investment income

 

(2,114)

 

(1,483)

 

(4,148)

 

(2,443)

Net realized and unrealized gains on investments

 

(778)

 

(493)

 

(1,219)

 

(2,904)

Underwriting revenue

$

40,257

$

23,929

$

75,801

$

42,865

Underwriting income (loss)

Three Months Ended

 

Six Months Ended

June 30, 

 

June 30, 

    

2020

    

2019

 

    

2020

    

2019

 

(in thousands)

 

(in thousands)

Income (loss) before income taxes

$

15,309

    

$

8,487

$

30,466

    

$

(5,778)

Net investment income

 

(2,114)

 

(1,483)

 

(4,148)

 

(2,443)

Net realized and unrealized gains on investments

 

(778)

 

(493)

 

(1,219)

 

(2,904)

Interest expense

 

639

1,068

Underwriting income (loss)

$

12,417

$

7,150

$

25,099

$

(10,057)

Adjusted net income

Three Months Ended

 

Six Months Ended

June 30, 

 

June 30, 

    

2020

    

2019

 

    

2020

    

2019

(in thousands)

 

(in thousands)

Net income (loss)

$

12,012

    

$

6,698

$

23,785

    

$

(7,712)

Adjustments:

 

  

 

  

 

  

 

  

Expenses associated with stock offerings and tax restructuring

 

456

 

50

 

708

 

408

Stock-based compensation expense

 

464

 

306

 

907

 

23,267

Expenses associated with retirement of debt

1,297

1,297

Expenses associated with catastrophe bond

399

399

Tax impact

(284)

(349)

(433)

(424)

Adjusted net income

$

13,047

$

8,002

$

25,366

$

16,836

Annualized adjusted return on equity

Three Months Ended

 

Six Months Ended

June 30, 

 

June 30, 

    

2020

    

2019

 

    

2020

    

2019

 

 

($ in thousands)

 

($ in thousands)

 

  

 

  

 

  

 

  

Annualized adjusted net income

    

$

52,188

    

$

32,008

    

    

$

50,732

    

$

33,672

    

Average stockholders' equity

$

318,032

$

150,773

$

296,900

$

147,964

Annualized adjusted return on equity

 

16.4

%  

 

21.2

%

 

17.1

%  

 

22.8

%

9


Adjusted combined ratio

Three Months Ended

Six Months Ended

June 30, 

June 30, 

2020

    

2019

2020

    

2019

($ in thousands)

($ in thousands)

Numerator: Sum of losses and loss adjustment expenses, acquisition expenses, and other underwriting expenses, net of commission and other income

$

26,903

$

16,058

$

49,027

$

51,616

Denominator: Net earned premiums

$

39,320

$

23,208

$

74,126

$

41,559

Combined ratio

 

68.4

%  

 

69.2

%  

 

66.1

%  

 

124.2

%  

Adjustments to numerator:

Expenses associated with stock offerings and tax restructuring

$

(456)

$

(50)

$

(708)

$

(408)

Stock-based compensation expense

(464)

(306)

(907)

(23,267)

Portion of expenses associated with retirement of debt classified as other underwriting expenses

(897)

(897)

Expenses associated with catastrophe bond

(399)

(399)

Adjusted combined ratio

65.1

%  

63.8

%  

63.4

%  

65.1

%  

Diluted adjusted earnings per share

Three Months Ended

 

Six Months Ended

June 30, 

 

June 30, 

    

2020

    

2019

 

    

2020

    

2019

 

(in thousands, except per share data)

 

(in thousands, except per share data)

 

  

 

  

 

  

 

  

Adjusted net income

    

$

13,047

    

$

8,002

    

    

$

25,366

    

$

16,836

Weighted-average common shares outstanding, diluted

$

25,057,029

22,105,009

24,922,630

19,501,727

Diluted adjusted earnings per share

$

0.52

$

0.36

$

1.02

$

0.86

Tangible Stockholders’ equity

June 30, 

December 31,

    

2020

    

2019

(in thousands)

Stockholders' equity

$

375,243

    

$

218,556

Intangible assets

 

(744)

 

(744)

Tangible stockholders' equity

$

374,499

$

217,812

10