0001761312false00017613122022-05-042022-05-04

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): May 4, 2022

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 May 4, 2022, Palomar Holdings, Inc. (the "Company") issued a press release announcing its financial results for the fiscal quarter ended March 31, 2022. 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

9

Exhibit No.

Description

99.1

Press release, dated May 4, 2022

104

Cover Page Interactive Data File (embedded within the Inline XBRL document)

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:

May 4, 2022

/s/ T. Christopher Uchida

T. Christopher Uchida

Chief Financial Officer

(Principal Financial and Accounting Officer)

Exhibit 99.1

Logo

Description automatically generated

 

Palomar Holdings, Inc. Reports First Quarter 2022 Results

LA JOLLA, Calif. (May 4, 2022) — Palomar Holdings, Inc. (NASDAQ:PLMR) (“Palomar” or “Company”) reported net income of $14.5 million, or $0.56 per diluted share, for the first quarter of 2022 compared to $16.6 million, or $0.63 per diluted share, for the first quarter of 2021. Adjusted net income(1) was $17.6 million, or $0.68 per diluted share, for the first quarter of 2022 compared to $19.3 million, or $0.73 per diluted share, for the first quarter of 2021.

First Quarter 2022 Highlights

Gross written premiums increased by 65.0% to $170.9 million compared to $103.6 million in the first quarter of 2021
Net income of $14.5 million compared to $16.6 million in the first quarter of 2021
Adjusted net income(1) of $17.6 million compared to $19.3 million in the first quarter of 2021
Total loss ratio of 19.7% compared to negative 9.4% in the first quarter of 2021
Combined ratio of 76.5% compared to 60.4% in the first quarter of 2021
Adjusted combined ratio(1) of 72.1% compared to 53.3% in the first quarter of 2021
Annualized return on equity of 15.0 % compared to 18.0% in the first quarter of 2021
Annualized adjusted return on equity(1) of 18.1% compared to 20.8% in the first quarter of 2021

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

Mac Armstrong, Chairman and Chief Executive Officer, commented, “We are pleased to report another strong quarter for Palomar.  When we began the year, we identified four strategic priorities for calendar 2022: produce strong premium growth, continue to deliver consistent and predictable earnings, monetize investments made over the course of 2021, and scale our organization.  I am very happy to report that we made strong progress across all four initiatives during the first quarter. Selected highlights of Q1 2022 include: delivering a 65% gross written premium increase compared to the prior year period and record residential earthquake new business, the successful renewal of our aggregate reinsurance program that effectively places a floor on our adjusted return on equity of 14% for 2022, writing $30 million of managed written premium for PLMR-FRONT in its second quarter of operation, and achieving an expense ratio of 56.8%, which constituted a meaningful sequential and year-over-year improvement. The momentum of our first quarter results well positions Palomar to deliver sustained growth and profitability in the year ahead.”

Underwriting Results

Gross written premiums increased 65.0% to $170.9 million compared to $103.6 million in the first quarter of 2021, while net earned premiums increased 61.6% compared to the prior year’s first quarter.

Losses and loss adjustment expenses for the first quarter were $15.0 million including $14.5 million of non-catastrophe attritional losses, and $0.5 million of unfavorable development on catastrophe losses from prior periods. The loss ratio for the quarter was 19.7%, comprised of a catastrophe loss ratio of 0.6%(1) and an non-catastrophe attritional loss ratio of 19.1%, compared to a loss ratio of negative 9.4% during the same period last year comprised of a catastrophe loss ratio of negative 20.5% and non-catastrophe attritional loss ratio of 11.1%.

Underwriting income(1) was $17.9 million resulting in a combined ratio of 76.5% compared to underwriting income of $18.6 million and a combined ratio of 60.4% during the same period last year. Excluding expenses related to transactions, stock-based compensation, amortization of intangibles, and catastrophe bonds, the Company’s adjusted combined ratio(1) was 72.1% in the first quarter compared to 53.3% during the same period last year. Non-catastrophe losses and loss ratio increased mainly due to the growth of lines of business subject to attritional losses, such as Specialty Homeowners, Flood, and Inland Marine.

When comparing our 2022 results to our first and second quarter results for 2021, it is important to remember the impact that Winter Storm Uri (“Uri”) had on our results during those periods. Uri resulted in negative losses and a negative loss ratio in the first quarter of 2021 offset by additional reinsurance expense, or ceded premium, in the first and second quarters of 2021.

Investment Results

Net investment income increased by 16.2% to $2.6 million compared to $2.2 million in the prior year’s first quarter. The year over year increase was primarily due to a higher average balance of investments held during the three months ended March 31, 2022 due to cash generated from operations. Funds are generally invested conservatively in high quality securities, including government agency, asset and mortgage-backed securities, municipal and corporate bonds with an average credit quality of "A1/A+" with a small portion of our portfolio invested in equity securities. The weighted average duration of the fixed-maturity investment portfolio, including cash equivalents, was 4.17 years at March 31, 2022. Cash and invested assets totaled $533.2 million at March 31, 2022. During the first

1


quarter, the Company recorded realized and unrealized losses of $1.3 million related to its investment portfolio as compared to realized and unrealized losses of $739 thousand in last year’s first quarter.  

Tax Rate

The effective tax rate for the three months ended March 31, 2022 was 23.8% compared to 17.3% for the three months ended March 31, 2021. For the current quarter, the Company’s income tax rate was higher than the statutory rate due primarily to non-deductible executive compensation expense. For the three months ended March 31, 2021 our income tax rate was lower than the statutory rate due primarily to the tax impact of the permanent component of employee stock option exercises.

Stockholders’ Equity and Returns

Stockholders' equity was $380.4 million at March 31, 2022 compared to $394.2 million at December 31, 2021. For the three months ended March 31, 2022, the Company’s annualized return on equity was 15.0% compared to 18.0% for the same period in the prior year while adjusted return on equity(1) was 18.1% compared to 20.8% for the same period in the prior year.  During the current quarter, the Company repurchased 219,061 shares, or $13.0 million, of the Company’s previously announced $100 million share repurchase authorization.

Full Year 2022 Outlook

For the full year 2022, the Company expects to achieve adjusted net income of $80 million to $85 million.

Conference Call

As previously announced, Palomar will host a conference call Thursday May 5, 2022, to discuss its first quarter 2022 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 First Quarter 2022 Earnings Call. A telephonic replay will be available starting at 3:00 p.m (Eastern Time) on May 5, 2022 and can be accessed by dialing 1-844-512-2921, or for international callers 1-412-317-6671 and providing the access code 13728464. The telephonic replay will be available until 11:59 pm (Eastern Time) on May 12, 2022.

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 holding company of subsidiaries Palomar Specialty Insurance Company (“PSIC”), Palomar Specialty Reinsurance Company Bermuda Ltd., Palomar Insurance Agency, Inc. and Palomar Excess and Surplus Insurance Company (“PESIC”). Palomar is an innovative insurer that focuses on the provision of specialty 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, hurricane 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.

To learn more, visit PLMR.com.  

Follow Palomar on Facebook, LinkedIn and Twitter: @PLMRInsurance

Non-GAAP and Key Performance Indicators

Palomar discusses certain key performance indicators, 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 and net realized and unrealized gains and losses on investments. 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 estimated tax rate at 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.

2


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

Annualized 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.

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.

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 and competitive conditions. 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.

Contact

Media Inquiries

Bill Bold

1-619-890-5972

bbold@plmr.com

3


Investor Relations

Jamie Lillis

1-203-428-3223

investors@plmr.com

Source: Palomar Holdings, Inc.

Summary of Operating Results

The following table summarizes the Company’s results for the three months ended March 31, 2022 and 2021:

Three months ended

 

March 31, 

    

2022

    

2021

    

Change

    

% Change

($ in thousands, except per share data)

 

Gross written premiums

$

170,934

$

103,577

 

$

67,357

 

65.0

%

Ceded written premiums

 

(89,552)

(43,364)

 

(46,188)

 

106.5

%

Net written premiums

 

81,382

 

60,213

 

21,169

 

35.2

%

Net earned premiums

 

76,032

47,053

 

28,979

 

61.6

%

Commission and other income

 

777

711

 

66

 

9.3

%

Total underwriting revenue (1)

 

76,809

 

47,764

 

29,045

 

60.8

%

Losses and loss adjustment expenses

 

14,954

(4,423)

 

19,377

 

NM

Acquisition expenses

 

28,054

19,313

 

8,741

 

45.3

%

Other underwriting expenses

 

15,925

14,248

 

1,677

 

11.8

%

Underwriting income (1)

 

17,876

 

18,626

 

(750)

 

(4.0)

%

Interest expense

 

(93)

 

(93)

 

NM

Net investment income

 

2,579

2,219

 

360

 

16.2

%

Net realized and unrealized losses on investments

 

(1,278)

(739)

 

(539)

 

72.9

%

Income before income taxes

 

19,084

 

20,106

 

(1,022)

 

(5.1)

%

Income tax expense

 

4,547

3,476

 

1,071

 

30.8

%

Net income

$

14,537

$

16,630

 

$

(2,093)

 

(12.6)

%

Adjustments:

 

  

 

  

 

 

  

Expenses associated with transactions and stock offerings

 

86

 

410

 

(324)

 

(79.0)

%

Stock-based compensation expense

2,760

938

 

1,822

194.2

%

Amortization of intangibles

315

337

 

(22)

(6.5)

%

Expenses associated with catastrophe bond, net of rebate

200

1,683

(1,483)

NM

Tax impact

(325)

(712)

387

NM

Adjusted net income (1)

$

17,573

$

19,286

 

$

(1,713)

 

(8.9)

%

Key Financial and Operating Metrics

 

  

 

  

 

  

 

  

Annualized return on equity

 

15.0

%  

 

18.0

%  

  

 

  

Annualized adjusted return on equity (1)

 

18.1

%  

 

20.8

%  

  

 

  

Loss ratio

 

19.7

%  

 

(9.4)

%  

  

 

  

Expense ratio

 

56.8

%  

 

69.8

%  

  

 

  

Combined ratio

 

76.5

%  

 

60.4

%  

  

 

  

Adjusted combined ratio (1)

72.1

%  

53.3

%  

Diluted earnings per share

$

0.56

$

0.63

Diluted adjusted earnings per share (1)

$

0.68

$

0.73

Catastrophe losses

$

481

$

(9,631)

Catastrophe loss ratio (1)

0.6

%  

(20.5)

%  

Adjusted combined ratio excluding catastrophe losses (1)

71.4

%  

73.7

%  

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


Condensed Consolidated Balance sheets

Palomar Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (unaudited)

(in thousands, except shares and par value data)

    

March 31, 

    

December 31, 

2022

2021

(Unaudited)

Assets

 

  

 

  

Investments:

 

  

 

  

Fixed maturity securities available for sale, at fair value (amortized cost: $461,206 in 2022; $426,122 in 2021)

$

444,320

$

432,682

Equity securities, at fair value (cost: $41,836 in 2022; $31,834 in 2021)

 

41,983

 

33,261

Total investments

 

486,303

 

465,943

Cash and cash equivalents

 

46,876

 

50,284

Restricted cash

 

63

 

87

Accrued investment income

 

2,648

 

2,725

Premium receivable

 

94,615

 

88,012

Deferred policy acquisition costs

 

54,977

 

55,953

Reinsurance recoverable on unpaid losses and loss adjustment expenses

 

113,726

 

127,947

Reinsurance recoverable on paid losses and loss adjustment expenses

 

32,082

 

29,368

Ceded unearned premiums

 

84,975

 

58,315

Prepaid expenses and other assets

 

31,479

 

37,072

Property and equipment, net

 

483

 

527

Intangible assets, net

 

9,201

 

9,501

Total assets

$

957,428

$

925,734

Liabilities and stockholders' equity

 

  

 

  

Liabilities:

 

  

 

  

Accounts payable and other accrued liabilities

$

26,561

$

21,284

Reserve for losses and loss adjustment expenses

 

165,112

 

173,366

Unearned premiums

 

316,675

 

284,665

Ceded premium payable

 

47,318

 

37,460

Funds held under reinsurance treaty

 

6,362

 

10,882

Deferred tax liabilities, net

3,908

Borrowings from credit agreements

15,000

Total liabilities

 

577,028

 

531,565

Stockholders' equity:

 

  

 

  

Preferred stock, $0.0001 par value, 5,000,000 shares authorized, 0 shares issued and outstanding as of March 31, 2022 and December 31, 2021

Common stock, $0.0001 par value, 500,000,000 shares authorized, 25,231,571 and 25,428,929 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively

 

3

 

3

Additional paid-in capital

 

322,048

 

318,902

Accumulated other comprehensive income (loss)

 

(13,151)

 

5,312

Retained earnings

 

71,500

 

69,952

Total stockholders' equity

 

380,400

 

394,169

Total liabilities and stockholders' equity

$

957,428

$

925,734

5


Condensed Consolidated Income Statement

Palomar Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited)

(in thousands, except shares and per share data)

Three Months Ended

March 31, 

    

2022

    

2021

Revenues:

 

  

 

  

Gross written premiums

$

170,934

$

103,577

Ceded written premiums

 

(89,552)

 

(43,364)

Net written premiums

 

81,382

 

60,213

Change in unearned premiums

 

(5,350)

(13,160)

Net earned premiums

 

76,032

 

47,053

Net investment income

 

2,579

2,219

Net realized and unrealized losses on investments

 

(1,278)

(739)

Commission and other income

 

777

711

Total revenues

 

78,110

 

49,244

Expenses:

 

  

 

  

Losses and loss adjustment expenses

14,954

(4,423)

Acquisition expenses

28,054

19,313

Other underwriting expenses

15,925

14,248

Interest expense

93

Total expenses

 

59,026

 

29,138

Income before income taxes

 

19,084

 

20,106

Income tax expense

4,547

3,476

Net income

 

14,537

 

16,630

Other comprehensive income, net:

 

  

 

  

Net unrealized losses on securities available for sale for the three months ended March 31, 2022 and 2021, respectively

(18,463)

(6,199)

Net comprehensive income (loss)

$

(3,926)

$

10,431

Per Share Data:

 

  

 

  

Basic earnings per share

$

0.57

$

0.65

Diluted earnings per share

$

0.56

$

0.63

Weighted-average common shares outstanding:

Basic

25,362,179

25,552,629

Diluted

25,899,290

26,256,281

6


Underwriting Segment Data

 

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

Three Months Ended March 31, 

2022

2021

 

($ in thousands)

 

% of

% of

 

Amount

GWP

Amount

GWP

 

Product

    

  

    

  

    

  

    

  

Residential Earthquake

$

46,336

27.1

%  

$

35,898

34.7

%

Fronting Premiums

29,845

17.5

%  

0.0

%

Commercial Earthquake

 

25,144

14.7

%  

 

21,277

20.5

%

Inland Marine

18,237

10.7

%  

7,834

7.6

%

Specialty Homeowners

 

16,284

9.5

%  

 

14,002

13.5

%

Commercial All Risk

11,210

6.6

%  

8,190

7.9

%

Hawaii Hurricane

 

6,914

4.0

%  

 

6,137

5.9

%

Residential Flood

 

2,993

1.8

%  

 

2,283

2.2

%

Other

13,971

8.1

%  

7,956

7.7

%

Total Gross Written Premiums

$

170,934

 

100.0

%  

$

103,577

 

100.0

%

Three Months Ended March 31, 

2022

2021

 

($ in thousands)

 

% of

% of

 

Amount

GWP

Amount

GWP

 

State

    

  

    

  

    

  

    

  

California

$

68,718

40.2

%  

$

50,502

48.8

%

Texas

18,979

11.1

%  

11,054

10.7

%

Hawaii

8,540

5.0

%  

6,920

6.7

%

Washington

 

6,881

4.0

%  

 

4,088

3.9

%

Florida

4,962

2.9

%  

6,058

5.8

%

Oregon

4,373

2.6

%  

2,904

2.8

%

Illinois

 

4,273

2.5

%  

 

2,522

2.4

%

North Carolina

4,078

2.4

%  

3,888

3.8

%

Other

 

50,130

29.3

%  

 

15,641

15.1

%

Total Gross Written Premiums

$

170,934

 

100.0

%  

$

103,577

 

100.0

%

Three Months Ended March 31, 

2022

2021

 

($ in thousands)

 

% of

% of

 

Amount

GWP

Amount

GWP

 

Subsidiary

PSIC

$

104,004

60.8

%  

$

79,845

77.1

%

PESIC

66,930

39.2

%  

23,732

22.9

%

Total Gross Written Premiums

$

170,934

 

100.0

%  

$

103,577

 

100.0

%

7


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

 

March 31, 

 

    

2022

    

2021

    

Change

    

% Change

 

($ in thousands)

Gross earned premiums

$

138,924

$

91,293

$

47,631

 

52.2

%

Ceded earned premiums

 

(62,892)

 

(44,240)

 

(18,652)

 

42.2

%

Net earned premiums

$

76,032

$

47,053

$

28,979

 

61.6

%

Net earned premium ratio

54.7%

51.5%

Loss detail

Three Months Ended

March 31, 

    

2022

    

2021

    

Change

    

% Change

 

($ in thousands)

Catastrophe losses

$

481

$

(9,631)

$

10,112

 

(105.0)

Non-catastrophe losses

 

14,473

 

5,208

 

9,265

 

177.9

%

Total losses and loss adjustment expenses

$

14,954

$

(4,423)

$

19,377

 

(438.1)

%

The following table represents a reconciliation of changes in the ending reserve balances for losses and loss adjustment expenses:

 

Three Months Ended March 31, 

 

2022

    

2021

 

(in thousands)

Reserve for losses and LAE net of reinsurance recoverables at beginning of period

$

45,419

$

34,470

Add: Incurred losses and LAE, net of reinsurance, related to:

Current year

 

13,449

(1,696)

Prior years

 

1,505

(2,727)

Total incurred

 

14,954

 

(4,423)

Deduct: Loss and LAE payments, net of reinsurance, related to:

 

  

 

  

Current year

1,490

1,680

Prior years

7,497

9,351

Total payments

 

8,987

 

11,031

Reserve for losses and LAE net of reinsurance recoverables at end of period

 

51,386

 

19,016

Add: Reinsurance recoverables on unpaid losses and LAE at end of period

113,726

188,448

Reserve for losses and LAE gross of reinsurance recoverables on unpaid losses and LAE at end of period

$

165,112

$

207,464

8


Reconciliation of Non-GAAP Financial Measures

 

For the three ended March 31, 2022 and 2021, the Non-GAAP financial measures discussed above reconcile to their most comparable GAAP measures as follows:

 

Underwriting revenue

Three Months Ended

March 31, 

    

2022

    

2021

 

(in thousands)

Total revenue

$

78,110

$

49,244

Net investment income

 

(2,579)

 

(2,219)

Net realized and unrealized (gains) losses on investments

 

1,278

 

739

Underwriting revenue

$

76,809

$

47,764

Underwriting income

Three Months Ended

March 31, 

    

2022

    

2021

 

(in thousands)

Income before income taxes

$

19,084

    

$

20,106

Net investment income

 

(2,579)

 

(2,219)

Net realized and unrealized (gains) losses on investments

 

1,278

 

739

Underwriting income

$

17,876

$

18,626

Adjusted net income

Three Months Ended

March 31, 

    

2022

    

2021

(in thousands)

Net income

$

14,537

    

$

16,630

Adjustments:

 

  

 

  

Expenses associated with transactions and stock offerings

 

86

 

410

Stock-based compensation expense

 

2,760

 

938

Amortization of intangibles

315

337

Expenses associated with catastrophe bond, net of rebate

200

1,683

Tax impact

(325)

(712)

Adjusted net income

$

17,573

$

19,286

Annualized adjusted return on equity

Three Months Ended

March 31, 

    

2022

    

2021

 

 

($ in thousands)

 

  

 

  

Annualized adjusted net income

    

$

70,292

    

$

77,144

    

Average stockholders' equity

$

387,284

$

370,048

Annualized adjusted return on equity

 

18.1

%  

 

20.8

%

9


Adjusted combined ratio

Three Months Ended

March 31, 

2022

    

2021

($ in thousands)

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

$

58,156

$

28,427

Denominator: Net earned premiums

$

76,032

$

47,053

Combined ratio

 

76.5

%  

 

60.4

%  

Adjustments to numerator:

Expenses associated with transactions and stock offerings

$

(86)

$

(410)

Stock-based compensation expense

(2,760)

(938)

Amortization of intangibles

(315)

(337)

Expenses associated with catastrophe bond, net of rebate

(200)

(1,683)

Adjusted combined ratio

72.1

%  

53.3

%  

Diluted adjusted earnings per share

Three Months Ended

March 31, 

    

2022

    

2021

 

(in thousands, except per share data)

 

  

 

  

Adjusted net income

    

$

17,573

    

$

19,286

Weighted-average common shares outstanding, diluted

25,899,290

26,256,281

Diluted adjusted earnings per share

$

0.68

$

0.73

Catastrophe loss ratio

Three Months Ended

March 31, 

2022

    

2021

($ in thousands)

Numerator: Losses and loss adjustment expenses

$

14,954

$

(4,423)

Denominator: Net earned premiums

$

76,032

$

47,053

Loss ratio

 

19.7

%  

 

(9.4)

%  

Numerator: Catastrophe losses

$

481

$

(9,631)

Denominator: Net earned premiums

$

76,032

$

47,053

Catastrophe loss ratio

0.6

%  

(20.5)

%  

10


Adjusted combined ratio excluding catastrophe losses

Three Months Ended

March 31, 

2022

    

2021

($ in thousands)

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

$

58,156

$

28,427

Denominator: Net earned premiums

$

76,032

$

47,053

Combined ratio

 

76.5

%  

 

60.4

%  

Adjustments to numerator:

Expenses associated with transactions and stock offerings

$

(86)

$

(410)

Stock-based compensation expense

(2,760)

(938)

Amortization of intangibles

(315)

(337)

Expenses associated with catastrophe bond, net of rebate

(200)

(1,683)

Catastrophe losses

(481)

9,631

Adjusted combined ratio excluding catastrophe losses

71.4

%  

73.7

%  

Tangible Stockholders’ equity

March 31, 

December 31,

    

2022

    

2021

(in thousands)

Stockholders' equity

$

380,400

    

$

394,169

Intangible assets

 

(9,201)

 

(9,501)

Tangible stockholders' equity

$

371,199

$

384,668

11