0001761312false00017613122022-08-032022-08-03

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 3, 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 August 3, 2022, Palomar Holdings, Inc. (the "Company") issued a press release announcing its financial results for the fiscal quarter ended June 30, 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 August 3, 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:

August 3, 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 Second Quarter 2022 Results

LA JOLLA, Calif. (August 3, 2022) — Palomar Holdings, Inc. (NASDAQ:PLMR) (“Palomar” or “Company”) reported net income of $14.6 million, or $0.57 per diluted share, for the second quarter of 2022 compared to $12.3 million, or $0.47 per diluted share, for the second quarter of 2021. Adjusted net income(1) was $18.7 million, or $0.73 per diluted share, for the second quarter of 2022 as compared to $13.2 million, or $0.51 per diluted share, for the second quarter of 2021.

Second Quarter 2022 Highlights

Gross written premiums increased by 69.1% to $218.7 million compared to $129.4 million in the second quarter of 2021
Net income of $14.6 million, compared to $12.3 million in the second quarter of 2021
Adjusted net income(1) of $18.7 million, compared to $13.2 million in the second quarter of 2021
Total loss ratio of 17.9% compared to 13.3% in the second quarter of 2021
Combined ratio of 75.1% compared to 76.0% in the second quarter of 2021
Adjusted combined ratio(1) of 69.1%, compared to 73.8% in the second quarter of 2021
Annualized return on equity of 15.4%, compared to 13.1% in the second quarter of 2021
Annualized adjusted return on equity(1) of 19.7%, compared to 14.1% in the second quarter of 2021

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

Mac Armstrong, Chairman and Chief Executive Officer, commented, “Simply put, Palomar had a very strong second quarter. Our results clearly demonstrate further execution of our 2022 strategic objectives and “Palomar 2X”, our intermediate term strategic plan of doubling our adjusted underwriting income and delivering an adjusted return on equity of 20%. Highlights of the quarter included 69% year-over-year gross written premium growth, the successful placement of our excess of loss reinsurance program, the conversion of our Texas Specialty Homeowner’s product to a fronting program and incremental traction in our new products including professional liability and PLMR-FRONT.”    

“Predictable, profitable growth is a key tenant of Palomar 2X and the second quarter results embodied this tenant. During the quarter we achieved an adjusted combined ratio of approximately 69.1%, an annualized adjusted ROE of 19.7%, and year-over-year adjusted net income growth of 41.3%, even with $4.6 million of unrealized losses in our equity portfolio,” concluded Mr. Armstrong.

Underwriting Results

Gross written premiums increased 69.1% to $218.7 million compared to $129.4 million in the second quarter of 2021, while net earned premiums increased 48.0% compared to the prior year’s second quarter.

Losses and loss adjustment expenses for the second quarter were $14.4 million including $13.9 million of non-catastrophe attritional losses, and $0.5 million of catastrophe losses from unfavorable prior period development. The loss ratio for the quarter of 17.9% was comprised of a catastrophe loss ratio of 0.7% and an attritional loss ratio of 17.2%, compared to a loss ratio of 13.3% during the same period last year comprised of a catastrophe loss ratio of negative 2.1% and an attritional loss ratio of 15.4%. Non-catastrophe losses and loss ratio increased mainly due to the growth of lines of business subject to attritional losses, such as Inland Marine, Flood, and Commercial All Risk.

Underwriting income(1) was $20.0 million resulting in a combined ratio of 75.1% compared to underwriting income of $13.0 million and a combined ratio of 76.0% during the same period last year. Excluding expenses related to stock-based compensation, amortization of intangibles, and catastrophe bonds, the Company’s adjusted combined ratio(1) was 69.1% in the second quarter compared to 73.8% during the same period last year. The adjusted combined ratio(1) decreased primarily due to a lower expense ratio offset by a higher loss ratio during the quarter.  

Investment Results

Net investment income increased by 43.1% to $3.1 million compared to $2.2 million in the prior year’s second quarter. The year over year increase was a result of a higher average balance of investments held during the three months ended June 30, 2022 due to cash generated from operations and higher yields on fixed income investments. 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 4.18 years at June 30, 2022. Cash and invested assets totaled $552.5 million at June 30, 2022. During the second quarter, the Company recorded realized and unrealized losses of $4.7 million related to its equity investment portfolio as compared to realized and unrealized gains of $0.3 million in last year’s second quarter.  

1


Tax Rate

The effective tax rate for the three months ended June 30, 2022 was 20.2% compared to 20.5% for the three months ended June 30, 2021. For the current quarter and prior year quarter, the Company’s income tax rate was lower than the statutory rate of 21% due primarily to the tax impact of the permanent component of employee stock option exercises.

Stockholders’ Equity and Returns

Stockholders' equity was $378.1 million at June 30, 2022, compared to $376.7 million at June 30, 2021. For the three months ended June 30, 2022, the Company’s annualized return on equity was 15.4% compared to 13.1% for the same period in the prior year while adjusted return on equity(1) was 19.7% compared to 14.1% for the same period in the prior year.  During the current quarter, the Company repurchased 127,952 shares, or $7.3 million, of the Company’s previously announced $100 million share repurchase authorization. As of June 30 2022, $79.7 million remains available for future repurchases.

Full Year 2022 Outlook

For the full year 2022, the Company maintains its outlook to achieve adjusted net income of $80 million to $85 million, including $5.9 million of pre-tax unrealized losses on equity security holdings.  This range is equivalent to adjusted net income of $85 million to $90 million excluding unrealized gains and losses for the year.  

Conference Call

As previously announced, Palomar will host a conference call Thursday August 4, 2022, to discuss its second quarter 2022 results at 12:00 p.m. (Eastern Time). The conference call can be accessed live by dialing 1-877-423-9813 or for international callers, 1-201-689-8573, and requesting to be joined to the Palomar Second Quarter 2022 Earnings Conference Call. A replay will be available starting at 3:00 p.m. (Eastern Time) on August 4, 2022, and can be accessed by dialing 1-844-512-2921, or for international callers, 1-412-317-6671. The passcode for the replay is 13730139. The replay will be available until 11:59 p.m. (Eastern Time) on August 11, 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, 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 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


Annualized 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.

Adjusted underwriting income is a non-GAAP financial measure defined as underwriting income 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 income before income taxes calculated in accordance with GAAP to adjusted underwriting income.

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

3


1-619-890-5972

bbold@plmr.com

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 June 30, 2022 and 2021:

Three months ended

 

June 30, 

    

2022

    

2021

    

Change

    

% Change

($ in thousands, except per share data)

 

Gross written premiums

$

218,689

$

129,359

 

$

89,330

 

69.1

%

Ceded written premiums

 

(122,627)

(51,568)

 

(71,059)

 

137.8

%

Net written premiums

 

96,062

 

77,791

 

18,271

 

23.5

%

Net earned premiums

 

80,265

54,215

 

26,050

 

48.0

%

Commission and other income

 

990

1,006

 

(16)

 

(1.6)

%

Total underwriting revenue (1)

 

81,255

 

55,221

 

26,034

 

47.1

%

Losses and loss adjustment expenses

 

14,398

7,235

 

7,163

 

99.0

%

Acquisition expenses

 

28,663

22,424

 

6,239

 

27.8

%

Other underwriting expenses

 

18,195

12,539

 

5,656

 

45.1

%

Underwriting income (1)

 

19,999

 

13,023

 

6,976

 

53.6

%

Interest expense

 

(111)

 

(111)

 

NM

Net investment income

 

3,140

2,194

 

946

 

43.1

%

Net realized and unrealized gains (losses) on investments

 

(4,735)

300

 

(5,035)

 

NM

Income before income taxes

 

18,293

 

15,517

 

2,776

 

17.9

%

Income tax expense

 

3,704

3,177

 

527

 

16.6

%

Net income

$

14,589

$

12,340

 

$

2,249

 

18.2

%

Adjustments:

 

  

 

  

 

 

  

Stock-based compensation expense

2,704

907

 

1,797

198.1

%

Amortization of intangibles

313

252

 

61

24.2

%

Expenses associated with catastrophe bond, net of rebate

1,792

16

1,776

NM

Tax impact

(695)

(278)

(417)

150.0

%

Adjusted net income (1)

$

18,703

$

13,237

 

$

5,466

 

41.3

%

Key Financial and Operating Metrics

 

  

 

  

 

  

 

  

Annualized return on equity

 

15.4

%  

 

13.1

%  

  

 

  

Annualized adjusted return on equity (1)

 

19.7

%  

 

14.1

%  

  

 

  

Loss ratio

 

17.9

%  

 

13.3

%  

  

 

  

Expense ratio

 

57.1

%  

 

62.6

%  

  

 

  

Combined ratio

 

75.1

%  

 

76.0

%  

  

 

  

Adjusted combined ratio (1)

69.1

%  

73.8

%  

Diluted earnings per share

$

0.57

$

0.47

Diluted adjusted earnings per share (1)

$

0.73

$

0.51

Catastrophe losses

$

548

$

(1,137)

Catastrophe loss ratio (1)

0.7

%  

(2.1)

%  

Adjusted combined ratio excluding catastrophe losses (1)

68.4

%  

75.9

%  

Adjusted underwriting income (1)

$

24,808

$

14,198

$

10,610

74.7

%

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


The following table summarizes the Company’s results for the six months ended June 30, 2022 and 2021:

Six months ended

 

June 30, 

 

    

2022

    

2021

    

Change

    

% Change

 

($ in thousands, except per share data)

 

Gross written premiums

$

389,623

$

232,936

 

$

156,687

 

67.3

%

Ceded written premiums

 

(212,179)

(94,932)

 

(117,247)

 

123.5

%

Net written premiums

 

177,444

 

138,004

 

39,440

 

28.6

%

Net earned premiums

 

156,297

101,268

 

55,029

 

54.3

%

Commission and other income

 

1,767

1,717

 

50

 

2.9

%

Total underwriting revenue (1)

 

158,064

 

102,985

 

55,079

 

53.5

%

Losses and loss adjustment expenses

 

29,351

2,813

 

26,538

 

NM

Acquisition expenses

 

56,718

41,737

 

14,981

 

35.9

%

Other underwriting expenses

 

34,119

26,786

 

7,333

 

27.4

%

Underwriting income (1)

 

37,876

 

31,649

 

6,227

 

19.7

%

Interest expense

(204)

(204)

 

NM

Net investment income

 

5,719

4,413

 

1,306

 

29.6

%

Net realized and unrealized losses on investments

 

(6,014)

(439)

 

(5,575)

 

NM

Income before income taxes

 

37,377

 

35,623

 

1,754

 

4.9

%

Income tax expense

 

8,251

6,653

 

1,598

 

24.0

%

Net income

$

29,126

$

28,970

 

$

156

 

0.5

%

Adjustments:

 

  

 

  

 

 

  

Expenses associated with transactions

 

85

 

411

 

(326)

 

(79.3)

%

Stock-based compensation expense

5,463

1,845

 

3,618

 

196.1

%

Amortization of intangibles

628

589

 

39

6.6

%

Expenses associated with catastrophe bond, net of rebate

1,992

1,698

294

17.3

%

Tax impact

(1,019)

(990)

(29)

2.9

%

Adjusted net income (1)

$

36,275

$

32,523

 

$

3,752

 

11.5

%

Key Financial and Operating Metrics

 

  

 

  

 

  

 

  

Annualized return on equity

 

15.1

%  

 

15.6

%  

  

 

  

Annualized adjusted return on equity (1)

 

18.8

%  

 

17.6

%  

  

 

  

Loss ratio

 

18.8

%  

 

2.8

%  

  

 

  

Expense ratio

 

57.0

%  

 

66.0

%  

  

 

  

Combined ratio

 

75.8

%  

 

68.7

%  

  

 

  

Adjusted combined ratio (1)

70.5

%  

64.3

%  

Diluted earnings per share

$

1.13

$

1.11

Diluted adjusted earnings per share (1)

$

1.41

$

1.24

Catastrophe losses

$

1,029

$

(10,768)

Catastrophe loss ratio (1)

0.7

%  

(10.6)

%  

Adjusted combined ratio excluding catastrophe losses (1)

69.9

%  

74.9

%  

Adjusted underwriting income (1)

$

46,044

$

36,192

$

9,852

27.2

%

NM- not meaningful

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, 

2022

2021

(Unaudited)

Assets

 

  

 

  

Investments:

 

  

 

  

Fixed maturity securities available for sale, at fair value (amortized cost: $513,166 in 2022; $426,122 in 2021)

$

478,477

$

432,682

Equity securities, at fair value (cost: $41,990 in 2022; $31,834 in 2021)

 

37,509

 

33,261

Total investments

 

515,986

 

465,943

Cash and cash equivalents

 

36,471

 

50,284

Restricted cash

 

37

 

87

Accrued investment income

 

3,221

 

2,725

Premium receivable

 

119,698

 

88,012

Deferred policy acquisition costs

 

55,731

 

55,953

Reinsurance recoverable on unpaid losses and loss adjustment expenses

 

107,898

 

127,947

Reinsurance recoverable on paid losses and loss adjustment expenses

 

24,748

 

29,368

Ceded unearned premiums

 

129,724

 

58,315

Prepaid expenses and other assets

 

40,519

 

37,072

Deferred tax assets, net

7,533

Property and equipment, net

 

687

 

527

Intangible assets, net

 

8,888

 

9,501

Total assets

$

1,051,141

$

925,734

Liabilities and stockholders' equity

 

  

 

  

Liabilities:

 

  

 

  

Accounts payable and other accrued liabilities

$

17,646

$

21,284

Reserve for losses and loss adjustment expenses

 

163,667

 

173,366

Unearned premiums

 

376,809

 

284,665

Ceded premium payable

 

85,592

 

37,460

Funds held under reinsurance treaty

 

6,362

 

10,882

Deferred tax liabilities, net

3,908

Borrowings from credit agreements

23,000

Total liabilities

 

673,076

 

531,565

Stockholders' equity:

 

  

 

  

Preferred stock, $0.0001 par value, 5,000,000 shares authorized, 0 shares issued and outstanding as of June 30, 2022 and December 31, 2021

Common stock, $0.0001 par value, 500,000,000 shares authorized, 25,220,131 and 25,428,929 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively

 

3

 

3

Additional paid-in capital

 

326,473

 

318,902

Accumulated other comprehensive income (loss)

 

(27,216)

 

5,312

Retained earnings

 

78,805

 

69,952

Total stockholders' equity

 

378,065

 

394,169

Total liabilities and stockholders' equity

$

1,051,141

$

925,734

6


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

Six Months Ended

June 30, 

June 30, 

    

2022

    

2021

    

2022

    

2021

Revenues:

 

  

 

  

 

  

 

  

Gross written premiums

$

218,689

$

129,359

$

389,623

$

232,936

Ceded written premiums

 

(122,627)

 

(51,568)

 

(212,179)

 

(94,932)

Net written premiums

 

96,062

 

77,791

 

177,444

 

138,004

Change in unearned premiums

 

(15,797)

(23,576)

 

(21,147)

(36,736)

Net earned premiums

 

80,265

 

54,215

 

156,297

 

101,268

Net investment income

 

3,140

2,194

 

5,719

4,413

Net realized and unrealized gains (losses) on investments

 

(4,735)

300

 

(6,014)

(439)

Commission and other income

 

990

1,006

 

1,767

1,717

Total revenues

 

79,660

 

57,715

 

157,769

 

106,959

Expenses:

 

  

 

  

 

  

 

  

Losses and loss adjustment expenses

 

14,398

7,235

29,351

2,813

Acquisition expenses

 

28,663

22,424

56,718

41,737

Other underwriting expenses

 

18,195

12,539

34,119

26,786

Interest expense

 

111

204

Total expenses

 

61,367

 

42,198

 

120,392

 

71,336

Income before income taxes

 

18,293

 

15,517

 

37,377

 

35,623

Income tax expense

 

3,704

3,177

8,251

6,653

Net income

 

14,589

 

12,340

 

29,126

 

28,970

Other comprehensive income (loss), net:

 

  

 

  

 

  

 

  

Net unrealized gains (losses) on securities available for sale for the three and six months ended June 30, 2022 and 2021, respectively

 

(14,065)

2,710

(32,528)

(3,489)

Net comprehensive income (loss)

$

524

$

15,050

$

(3,402)

$

25,481

Per Share Data:

 

  

 

  

 

  

 

  

Basic earnings per share

$

0.58

$

0.48

$

1.15

$

1.14

Diluted earnings per share

$

0.57

$

0.47

$

1.13

$

1.11

Weighted-average common shares outstanding:

Basic

 

25,211,924

25,479,561

25,283,222

25,515,893

Diluted

25,746,780

26,104,880

25,817,442

26,181,206

7


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 June 30, 

 

Six Months Ended June 30, 

2022

2021

 

2022

2021

 

($ in thousands)

 

($ in thousands)

 

% of

% of

 

% of

% of

 

Amount

GWP

Amount

GWP

 

Amount

GWP

Amount

GWP

 

Product

    

  

    

  

    

  

    

  

    

  

    

  

    

  

    

  

Residential Earthquake

$

54,090

24.7

%  

$

42,192

32.6

%

$

100,426

25.8

%  

$

78,090

33.5

%

Fronting Premiums

42,154

19.3

%  

0.0

%

71,999

18.5

%  

0.0

%

Commercial Earthquake

 

33,103

15.1

%  

 

17,343

13.4

%

 

58,247

14.9

%  

 

38,619

16.6

%

Inland Marine

23,134

10.6

%

11,681

9.0

%

41,371

10.6

%  

19,515

8.4

%

Commercial All Risk

21,213

9.7

%  

14,976

11.6

%

31,791

8.2

%  

23,165

9.9

%

Specialty Homeowners

 

13,891

6.4

%  

 

19,135

14.8

%

 

30,176

7.7

%  

 

33,138

14.2

%

Hawaii Hurricane

 

8,240

3.8

%  

 

7,788

6.0

%

 

15,154

3.9

%  

 

13,925

6.0

%

Residential Flood

 

3,583

1.6

%  

 

2,865

2.2

%

 

6,577

1.7

%  

 

5,149

2.2

%

Other

 

19,281

8.8

%  

13,379

10.4

%

33,882

8.7

%  

21,335

9.2

%

Total Gross Written Premiums

$

218,689

 

100.0

%  

$

129,359

 

100.0

%

$

389,623

 

100.0

%  

$

232,936

 

100.0

%

Three Months Ended June 30, 

 

Six Months Ended June 30, 

2022

2021

 

2022

2021

 

($ in thousands)

 

($ in thousands)

 

% of

% of

 

% of

% of

 

Amount

GWP

Amount

GWP

 

Amount

GWP

Amount

GWP

 

State

    

  

    

  

    

  

    

  

    

  

    

  

    

  

    

  

California

$

93,130

42.6

%  

$

54,223

41.9

%

$

161,848

41.5

%  

$

104,725

45.0

%

Texas

26,286

12.0

%  

17,373

13.4

%

45,265

11.6

%  

28,427

12.2

%

Florida

14,809

6.8

%  

11,697

9.0

%

19,771

5.1

%  

17,755

7.6

%

Hawaii

 

10,191

4.7

%  

 

9,041

7.0

%

 

18,731

4.8

%  

 

15,970

6.9

%

Washington

8,937

4.1

%  

4,663

3.6

%

15,818

4.1

%  

8,751

3.8

%

Illinois

4,676

2.1

%  

3,173

2.5

%

8,949

2.3

%  

5,775

2.4

%

Oregon

 

4,371

2.0

%  

 

2,818

2.2

%

 

8,745

2.2

%  

 

5,723

2.4

%

North Carolina

3,700

1.7

%  

4,264

3.3

%

7,778

2.0

%  

8,152

3.5

%

Other

 

52,589

24.0

%  

 

22,107

17.1

%

 

102,718

26.4

%  

 

37,658

16.2

%

Total Gross Written Premiums

$

218,689

 

100.0

%  

$

129,359

 

100.0

%

$

389,623

 

100.0

%  

$

232,936

 

100.0

%

Three Months Ended June 30, 

 

Six Months Ended June 30, 

2022

2021

 

2022

2021

 

($ in thousands)

 

($ in thousands)

 

% of

% of

 

% of

% of

 

Amount

GWP

Amount

GWP

 

Amount

GWP

Amount

GWP

 

Subsidiary

PSIC

$

116,338

53.2

%  

$

95,271

73.6

%

$

220,342

56.6

%  

$

175,117

75.2

%

PESIC

102,351

46.8

%  

34,088

26.4

%

169,281

43.4

%  

57,819

24.8

%

Total Gross Written Premiums

$

218,689

 

100.0

%  

$

129,359

 

100.0

%

$

389,623

 

100.0

%  

$

232,936

 

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, 

    

2022

    

2021

    

Change

    

% Change

2022

    

2021

    

Change

    

% Change

 

($ in thousands)

($ in thousands)

Gross earned premiums

$

158,142

$

102,520

$

55,622

 

54.3

%

$

297,067

$

193,812

$

103,255

 

53.3

%

Ceded earned premiums

 

(77,877)

 

(48,305)

 

(29,572)

 

61.2

%

 

(140,770)

 

(92,544)

 

(48,226)

 

52.1

%

Net earned premiums

$

80,265

$

54,215

$

26,050

 

48.0

%

$

156,297

$

101,268

$

55,029

 

54.3

%

Net earned premium ratio

50.8%

52.9%

52.6%

52.3%

8


Loss detail

Three Months Ended

 

Six Months Ended

June 30, 

 

June 30, 

    

2022

    

2021

    

Change

    

% Change

2022

    

2021

    

Change

    

% Change

 

($ in thousands)

($ in thousands)

Catastrophe losses

$

548

$

(1,137)

$

1,685

 

NM

$

1,029

$

(10,768)

$

11,797

 

NM

Non-catastrophe losses

 

13,850

 

8,372

 

5,478

 

65.4

%

 

28,322

 

13,581

 

14,741

 

108.5

%

Total losses and loss adjustment expenses

$

14,398

$

7,235

$

7,163

 

99.0

%

$

29,351

$

2,813

$

26,538

 

NM

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

Three Months Ended June 30, 

 

Six Months Ended June 30, 

    

2022

    

2021

 

2022

    

2021

(in thousands)

 

(in thousands)

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

$

51,386

$

19,016

$

45,419

$

34,470

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

Current year

 

14,350

 

7,612

 

27,799

5,916

Prior years

 

48

 

(377)

 

1,552

(3,103)

Total incurred

 

14,398

 

7,235

 

29,351

 

2,813

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

 

  

 

  

 

  

 

  

Current year

 

4,399

(1,060)

5,889

620

Prior years

 

5,615

3,678

13,112

13,030

Total payments

 

10,014

 

2,618

 

19,001

 

13,650

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

 

55,769

 

23,633

 

55,769

 

23,633

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

 

107,898

145,459

107,898

145,459

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

$

163,667

$

169,092

$

163,667

$

169,092

Reconciliation of Non-GAAP Financial Measures

 

For the three and six months ended June 30, 2022 and 2021, 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, 

    

2022

    

2021

 

    

2022

    

2021

 

(in thousands)

 

(in thousands)

Total revenue

$

79,660

$

57,715

$

157,769

$

106,959

Net investment income

 

(3,140)

 

(2,194)

 

(5,719)

 

(4,413)

Net realized and unrealized (gains) losses on investments

 

4,735

 

(300)

 

6,014

 

439

Underwriting revenue

$

81,255

$

55,221

$

158,064

$

102,985

9


Underwriting income and adjusted underwriting income

Three Months Ended

 

Six Months Ended

June 30, 

 

June 30, 

    

2022

    

2021

 

    

2022

    

2021

 

(in thousands)

 

(in thousands)

Income before income taxes

$

18,293

    

$

15,517

$

37,377

    

$

35,623

Net investment income

 

(3,140)

 

(2,194)

 

(5,719)

 

(4,413)

Net realized and unrealized (gains) losses on investments

 

4,735

 

(300)

 

6,014

 

439

Interest expense

 

111

204

Underwriting income

$

19,999

$

13,023

$

37,876

$

31,649

Expenses associated with transactions

 

 

 

85

 

411

Stock-based compensation expense

2,704

907

5,463

1,845

Amortization of intangibles

313

252

628

589

Expenses associated with catastrophe bond, net of rebate

1,792

16

1,992

1,698

Adjusted underwriting income

$

24,808

$

14,198

$

46,044

$

36,192

Adjusted net income

Three Months Ended

 

Six Months Ended

June 30, 

 

June 30, 

    

2022

    

2021

 

    

2022

    

2021

(in thousands)

 

(in thousands)

Net income

$

14,589

    

$

12,340

$

29,126

    

$

28,970

Adjustments:

 

  

 

  

 

  

 

  

Expenses associated with transactions

 

 

 

85

 

411

Stock-based compensation expense

 

2,704

 

907

 

5,463

 

1,845

Amortization of intangibles

313

252

628

589

Expenses associated with catastrophe bond, net of rebate

1,792

16

1,992

1,698

Tax impact

(695)

(278)

(1,019)

(990)

Adjusted net income

$

18,703

$

13,237

$

36,275

$

32,523

Annualized adjusted return on equity

Three Months Ended

 

Six Months Ended

June 30, 

 

June 30, 

    

2022

    

2021

 

    

2022

    

2021

 

 

($ in thousands)

 

($ in thousands)

 

  

 

  

 

  

 

  

Annualized adjusted net income

    

$

74,812

    

$

52,948

    

    

$

72,550

    

$

65,046

    

Average stockholders' equity

$

379,232

$

376,563

$

386,117

$

370,229

Annualized adjusted return on equity

 

19.7

%  

 

14.1

%

 

18.8

%  

 

17.6

%

Adjusted combined ratio

Three Months Ended

Six Months Ended

June 30, 

June 30, 

2022

    

2021

2022

    

2021

($ in thousands)

($ in thousands)

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

$

60,266

$

41,192

$

118,421

$

69,619

Denominator: Net earned premiums

$

80,265

$

54,215

$

156,297

$

101,268

Combined ratio

 

75.1

%  

 

76.0

%  

 

75.8

%  

 

68.7

%  

Adjustments to numerator:

Expenses associated with transactions

$

$

$

(85)

$

(411)

Stock-based compensation expense

(2,704)

(907)

(5,463)

(1,845)

Amortization of intangibles

(313)

(252)

(628)

(589)

Expenses associated with catastrophe bond, net of rebate

(1,792)

(16)

(1,992)

(1,698)

Adjusted combined ratio

69.1

%  

73.8

%  

70.5

%  

64.3

%  

10


Diluted adjusted earnings per share

Three Months Ended

 

Six Months Ended

June 30, 

 

June 30, 

    

2022

    

2021

 

    

2022

    

2021

 

(in thousands, except per share data)

 

(in thousands, except per share data)

 

  

 

  

 

  

 

  

Adjusted net income

    

$

18,703

    

$

13,237

    

    

$

36,275

    

$

32,523

Weighted-average common shares outstanding, diluted

25,746,780

26,104,880

25,817,442

26,181,206

Diluted adjusted earnings per share

$

0.73

$

0.51

$

1.41

$

1.24

Catastrophe loss ratio

Three Months Ended

Six Months Ended

June 30, 

June 30, 

2022

    

2021

2022

    

2021

($ in thousands)

($ in thousands)

Numerator: Losses and loss adjustment expenses

$

14,398

$

7,235

$

29,351

$

2,813

Denominator: Net earned premiums

$

80,265

$

54,215

$

156,297

$

101,268

Loss ratio

 

17.9

%  

 

13.3

%  

 

18.8

%  

 

2.8

%  

Numerator: Catastrophe losses

$

548

$

(1,137)

$

1,029

$

(10,768)

Denominator: Net earned premiums

$

80,265

$

54,215

$

156,297

$

101,268

Catastrophe loss ratio

0.7

%  

(2.1)

%  

0.7

%  

(10.6)

%  

Adjusted combined ratio excluding catastrophe losses

Three Months Ended

Six Months Ended

June 30, 

June 30, 

2022

    

2021

2022

    

2021

($ in thousands)

($ in thousands)

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

$

60,266

$

41,192

$

118,421

$

69,619

Denominator: Net earned premiums

$

80,265

$

54,215

$

156,297

$

101,268

Combined ratio

 

75.1

%  

 

76.0

%  

 

75.8

%  

 

68.7

%  

Adjustments to numerator:

Expenses associated with transactions

$

$

$

(85)

$

(411)

Stock-based compensation expense

(2,704)

(907)

(5,463)

(1,845)

Amortization of intangibles

(313)

(252)

(628)

(589)

Expenses associated with catastrophe bond, net of rebate

(1,792)

(16)

(1,992)

(1,698)

Catastrophe losses

(548)

1,137

(1,029)

10,768

Adjusted combined ratio excluding catastrophe losses

68.4

%  

75.9

%  

69.9

%  

74.9

%  

Tangible Stockholders’ equity

June 30, 

December 31,

    

2022

    

2021

(in thousands)

Stockholders' equity

$

378,065

    

$

394,169

Intangible assets

 

(8,888)

 

(9,501)

Tangible stockholders' equity

$

369,177

$

384,668

11