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): November 10, 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. ◻

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Item 2.02. Results of Operations and Financial Condition.

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On November 10, 2020, Palomar Holdings, Inc. (the "Company") issued a press release announcing its financial results for the fiscal quarter ended September 30, 2020. A copy of the press release is attached hereto as Exhibit 99.1.

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The information contained in this Item 2.02 and in the accompanying exhibit 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 liabilities of that section, or incorporated by reference in any filing under the Exchange Act or the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing

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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 Third Quarter 2020 Results

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La Jolla, CA, November 10, 2020 – Palomar Holdings, Inc. (NASDAQ:PLMR) (“Palomar” or the “Company”) reported a net loss of $15.7 million, or $0.62 per diluted share, for the third quarter of 2020 compared to net income of $7.5 million, or $0.31 per diluted share, for the third quarter of 2019.

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Third Quarter 2020 Highlights

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Mac Armstrong, Chairman and Chief Executive Officer, commented, “The third quarter demonstrated the sustained execution of Palomar’s strategic plan while also serving as a test of our analytically driven underwriting and risk management frameworks due to the impact from several damaging hurricanes that made landfall in areas of our exposure. Our third quarter results were highlighted by a 55.4%, year-over-year increase in gross written premiums, as we experienced meaningful growth across all of our product lines, most notably commercial earthquake and inland marine. We launched our newly established surplus lines subsidiary, Palomar Excess and Surplus Insurance Company (“PESIC”) in August. PESIC bound policies across several existing lines of business during the quarter and will enable Palomar to expand our lines of business and geographic footprint in an expedient fashion. We believe PESIC enhances our ability to pursue profitable growth and respond favorably to the continuing hardening rate environment. Finally, we executed several notable partnerships across multiple lines of business and maintained our commitment to building a world class team and organization centered around strong and enduring values.”

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Mr. Armstrong continued, “Our country experienced an unusual frequency of severe weather-related events during the quarter, from the Midwest derecho to an unprecedented windstorm season to the devastating wildfires in our home state of California. Palomar and our policyholders were impacted by the spate of hurricanes that made landfall in the United States including Hurricanes Hanna, Isaias, Laura, Sally, and Beta. I am very proud of our team’s rapid response as we worked to help our policyholders and their communities recover from these damaging events. These events also afford Palomar the opportunity to learn from this wind season and apply the data we have gathered to improve our underwriting, analytics and risk transfer strategy and, moreover, to ensure predictable earnings long-term.”

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Underwriting Results

Gross written premiums increased 55.4% to $103.0 million compared to $66.2 million in the third quarter of 2019, while net earned premiums increased 51.9% compared to the prior year’s third quarter. Losses and loss adjustment expenses for the third quarter were $41.1 million including $36.5 million of catastrophe losses and $4.6 million of non-catastrophe attritional losses. The loss ratio for the quarter was 97.7%, comprised of a catastrophe loss ratio of 86.9%⁽¹⁾ and an attritional loss ratio of 10.8%, compared to a loss ratio of 8.8%, comprised entirely of attritional losses, during the same period last year. The third quarter results include $0.3 million of unfavorable prior year development.  Underwriting loss⁽¹⁾ was $24.0 million resulting in a combined ratio of 157.1% compared to underwriting income of $7.4 million and a combined ratio of 73.4% during the same period last year. The third quarter of 2020 results include certain expenses related to stock-based compensation and catastrophe losses. The third quarter of 2019 results include certain expenses related to a secondary offering and one-time incentive cash bonuses and stock-based compensation. Without these items, the Company’s adjusted combined ratio excluding catastrophe losses⁽¹⁾ was 68.9% in the third quarter compared to 63.6% during the same period last year. The Company had a net loss of $15.7 million in the third quarter compared to net income of $7.5 million during the same period last year. The Company had adjusted net income excluding catastrophe losses⁽¹⁾ of $13.7 million in the third quarter, compared to $9.6 million during the same period last year.

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Investment Results

Net investment income increased by 23.7% to $2.1 million compared to $1.7 million in the prior year’s third quarter. The year-over-year increase was primarily due to a higher average balance of investments held during the three months ended September 30, 2020 due primarily to cash generated from operations as well as proceeds from the Company’s January and June 2020 stock offerings. 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 2.33% as of September 30, 2020. Cash and invested assets totaled $450.0 million at September 30, 2020. During the third quarter, the Company recognized realized and unrealized gains of $0.02 million related to its investment portfolio compared to $0.4 million in last year’s third quarter.

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Tax Rate

The effective tax rate for the three months ended September 30, 2020 was 28.2% compared to 21.1% for the three months ended September 30, 2019. For the current quarter, company’s income tax rate differed from the statutory rate due to the tax impact of the permanent component of employee stock option exercises.

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Stockholders’ Equity and Returns

Stockholders' equity was $361.9 million at September 30, 2020, compared to $218.6 million at December 31, 2019. For the three months ended September 30, 2020, the Company’s annualized return on equity was (17.0)% compared to 14.6% for the same period last year.

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Full Year 2020 Outlook

For the full year 2020, the Company updated its previous full year 2020 guidance of adjusted net income of $50.5 to $53.0 million, to adjusted net income of $51.0 to $52.0 million excluding catastrophe losses, equating to a growth rate of 35% to 37% compared to the full year 2019.

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The Company will discuss this guidance and provide additional information related to the impact of COVID-19 on its upcoming earnings call on November 11, 2020.

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Conference Call

As previously announced, Palomar will host a conference call November 11, 2020, to discuss its third 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 Third 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 13711590. The telephonic replay will be available until 11:59 pm (Eastern Time) on November 18, 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 holding company of  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 expertise 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 principal insurance subsidiary, Palomar Specialty Insurance Company, is an admitted carrier in 31 states and has an A.M. Best financial strength rating of “A-” (Excellent).

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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 (loss) 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 estimated tax rate at

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which the company received a deduction for these adjustments. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of net income calculated in accordance with GAAP to adjusted net income (loss).

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 (loss) 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.

Catastrophe loss ratio is a non-GAAP financial measure defined as the ratio of catastrophe losses to net earned premiums. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of loss ratio calculated using unadjusted GAAP numbers to catastrophe loss ratio.

Adjusted combined ratio excluding catastrophe losses is a non-GAAP financial measure defined as adjusted combined ratio excluding the impact of catastrophe losses.  See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of combined ratio calculated using unadjusted GAAP numbers to adjusted combined ratio excluding catastrophe losses.

Adjusted net income excluding catastrophe losses is a non-GAAP financial measure defined as adjusted net income excluding catastrophe losses, net of tax impact. We calculate the tax impact using the estimated tax rate at which the company received a deduction for these adjustments.  See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of income before income taxes calculated in accordance with GAAP to adjusted net income excluding catastrophe losses.

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 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

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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 September 30, 2020 and 2019:

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

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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

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

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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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