0001761312false00017613122023-05-032023-05-03

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): May 3, 2023

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 3, 2023, Palomar Holdings, Inc. (the "Company") issued a press release announcing its financial results for the fiscal quarter ended March 31, 2023. 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 3, 2023

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 3, 2023

/s/ T. Christopher Uchida

T. Christopher Uchida

Chief Financial Officer

(Principal Financial and Accounting Officer)

Exhibit 99.1

Graphic

Palomar Holdings, Inc. Reports First Quarter 2023 Results

LA JOLLA, Calif. (May 3, 2023) — Palomar Holdings, Inc. (NASDAQ:PLMR) (“Palomar” or “Company”) reported net income of $17.3 million, or $0.68 per diluted share, for the first quarter of 2023 compared to net income of $14.5 million, or $0.56 per diluted share, for the first quarter of 2022. Adjusted net income(1) was $20.4 million, or $0.80 per diluted share, for the first quarter of 2023 as compared to $18.6 million, or $0.72 per diluted share, for the first quarter of 2022. Effective December 31, 2022, the Company adjusts for net realized and unrealized gains and losses when calculating and presenting adjusted net income, diluted adjusted earnings per share, and adjusted return on equity. All prior period amounts have been adjusted accordingly.

First Quarter 2023 Highlights

Gross written premiums increased by 46.3% to $250.1 million compared to $170.9 million in the first quarter of 2022
Net income of $17.3 million, compared to $14.5 million in the first quarter of 2022
Adjusted net income(1) of $20.4 million, compared to $18.6 million in the first quarter of 2022
Total loss ratio of 24.8% compared to 19.7% in the first quarter of 2022
Combined ratio of 77.9% compared to 76.5% in the first quarter of 2022
Adjusted combined ratio(1) of 73.3%, compared to 72.1%, in the first quarter of 2022
Annualized return on equity of 17.5%, compared to 15.0% in the first quarter of 2022
Annualized adjusted return on equity(1) of 20.7%, compared to 19.2% in the first quarter of 2022

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

Mac Armstrong, Chairman and Chief Executive Officer, commented, “Following a record year in 2022, I am pleased with the strong start to 2023. Our first quarter results demonstrate continued momentum in our business and further execution of our Palomar 2X strategy. Highlights for the quarter include gross written premium growth of 46%, an adjusted combined ratio of 73.3%, and an adjusted return on equity of 20.7%. Importantly, these results were achieved even with elevated catastrophe activity during the quarter.”

Mr. Armstrong continued, “Additionally, in March we secured approximately $188 million of incremental excess of loss (“XOL”) limit providing support for further growth in our core earthquake business. Pricing for the recent XOL placement was in line with budgeted expectations and as a result, we remain confident in our ability to deliver our full-year target of $86 million to $90 million of adjusted net income.”

Underwriting Results

Gross written premiums increased 46.3% to $250.1 million compared to $170.9 million in the first quarter of 2022, while net earned premiums increased 9.5% compared to the prior year’s first quarter.

Losses and loss adjustment expenses for the first quarter were $20.7 million including $18.9 million of non-catastrophe attritional losses, and $1.8 million of catastrophe losses from the California flood activity during the first quarter offset slightly by favorable prior period development of catastrophe losses. The loss ratio for the quarter was 24.8%, comprised of a catastrophe loss ratio(1) of 2.2% and an attritional loss ratio of 22.6%, compared to a loss ratio of 19.7% during the same period last year comprised of a catastrophe loss ratio(1) of 0.6% and attritional loss ratio of 19.1%.

Underwriting income(1) for the first quarter was $18.4 million resulting in a combined ratio of 77.9% compared to underwriting income of $17.9 million resulting in a combined ratio of 76.5% during the same period last year. The Company’s adjusted underwriting income(1) was $22.2 million resulting in an adjusted combined ratio(1) of 73.3% in the first quarter compared to adjusted underwriting income(1) of $21.2 million and an adjusted combined ratio(1) of 72.1% during the same period last year.

Investment Results

Net investment income increased by 98.5% to $5.1 million compared to $2.6 million in the prior year’s first quarter. The increase was primarily due to higher yields on invested assets and a higher average balance of investments held during the three months ended March 31, 2023 due to cash generated from operations. The weighted average duration of the fixed-maturity investment portfolio, including cash equivalents, was 3.93 years at March 31, 2023. Cash and invested assets totaled $674.2 million at March 31, 2023. During the first quarter, the Company recorded net realized and unrealized gains of $0.1 million related to its investment portfolio as compared to realized and unrealized losses of $1.3 million in last year’s first quarter.

Tax Rate

The effective tax rate for the three months ended March 31, 2023 was 23.5% compared to 23.8% for the three months ended March 31, 2022. For the current quarter and prior year quarter, the Company’s income tax rate differed from the statutory rate due primarily to the

1


non-deductible executive compensation expense, offset slightly by the tax impact of the permanent component of employee stock option exercises.

Stockholders’ Equity and Returns

Stockholders' equity was $404.6 million at March 31, 2023, compared to $380.4 million at March 31, 2022. For the three months ended March 31, 2023, the Company’s annualized return on equity was 17.5% compared to 15.0% for the same period in the prior year while adjusted return on equity(1) was 20.7% compared to 19.2% for the same period in the prior year. During the current quarter, the Company repurchased 134,680 shares for $6.8 million of the Company’s previously announced $100 million share repurchase authorization. As of March 31, 2023, $58.8 million remains available for future repurchases.

Full Year 2023 Outlook

For the full year 2023, the Company expects to achieve adjusted net income of $86 million to $90 million.  This includes catastrophe losses incurred in the first quarter of approximately $1.8 million.  The expected results do not include any additional catastrophe losses.

Conference Call

As previously announced, Palomar will host a conference call Thursday May 4, 2023, to discuss its first quarter 2023 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 First Quarter 2023 Earnings Conference Call. A replay will be available starting at 4:00 p.m. (Eastern Time) on May 4, 2023, and can be accessed by dialing 1-844-512-2921, or for international callers, 1-412-317-6671. The passcode for the replay is 13737957. The replay will be available until 11:59 p.m. (Eastern Time) on May 11, 2023.

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 serving residential and commercial clients in specialty markets including the market for earthquake 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.  

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.

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.

2


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 

Lindsay Conner 

1-551-206-6217 

lconner@plmr.com 

Investor Relations

Jamie Lillis

1-203-428-3223

investors@plmr.com

Source: Palomar Holdings, Inc.

3


Summary of Operating Results:

The following table summarizes the Company’s results for the three months ended March 31, 2023 and 2022:

Three months ended

 

March 31, 

    

2023

    

2022

    

Change

    

% Change

($ in thousands, except per share data)

 

Gross written premiums

$

250,112

$

170,934

 

$

79,178

 

46.3

%

Ceded written premiums

 

(170,344)

(89,552)

 

(80,792)

 

90.2

%

Net written premiums

 

79,768

 

81,382

 

(1,614)

 

(2.0)

%

Net earned premiums

 

83,241

76,032

 

7,209

 

9.5

%

Commission and other income

 

695

777

 

(82)

 

(10.6)

%

Total underwriting revenue (1)

 

83,936

 

76,809

 

7,127

 

9.3

%

Losses and loss adjustment expenses

 

20,652

14,954

 

5,698

 

38.1

%

Acquisition expenses, net of ceding commissions and fronting fees

 

25,679

28,054

 

(2,375)

 

(8.5)

%

Other underwriting expenses

 

19,222

15,925

 

3,297

 

20.7

%

Underwriting income (1)

 

18,383

 

17,876

 

507

 

2.8

%

Interest expense

 

(1,020)

(93)

 

(927)

 

NM

Net investment income

 

5,120

2,579

 

2,541

 

98.5

%

Net realized and unrealized gains (losses) on investments

 

146

(1,278)

 

1,424

 

(111.4)

%

Income before income taxes

 

22,629

 

19,084

 

3,545

 

18.6

%

Income tax expense

 

5,316

4,547

 

769

 

16.9

%

Net income

$

17,313

$

14,537

 

$

2,776

 

19.1

%

Adjustments:

 

  

 

  

 

 

Net realized and unrealized (gains) losses on investments(2)

(146)

1,278

(1,424)

 

(111.4)

%

Expenses associated with transactions

 

 

86

 

(86)

 

(100.0)

%

Stock-based compensation expense

3,450

2,760

 

690

25.0

%

Amortization of intangibles

313

315

 

(2)

(0.6)

%

Expenses associated with catastrophe bond

50

200

(150)

(75.0)

%

Tax impact

(540)

(592)

52

(8.8)

%

Adjusted net income (1)(2)

$

20,440

$

18,584

 

$

1,856

 

10.0

%

Key Financial and Operating Metrics

 

  

 

  

 

  

 

  

Annualized return on equity

 

17.5

%  

 

15.0

%  

  

 

  

Annualized adjusted return on equity (1)

 

20.7

%  

 

19.2

%  

  

 

  

Loss ratio

 

24.8

%  

 

19.7

%  

  

 

  

Expense ratio

 

53.1

%  

 

56.8

%  

  

 

  

Combined ratio

 

77.9

%  

 

76.5

%  

  

 

  

Adjusted combined ratio (1)

73.3

%  

72.1

%  

Diluted earnings per share

$

0.68

$

0.56

Diluted adjusted earnings per share (1)

$

0.80

$

0.72

Catastrophe losses

$

1,806

$

481

Catastrophe loss ratio (1)

2.2

%  

0.6

%  

Adjusted combined ratio excluding catastrophe losses (1)

71.2

%  

71.4

%  

Adjusted underwriting income (1)

$

22,196

$

21,237

$

959

4.5

%

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.

(2)- We now include the impact of net realized and unrealized losses and gains on investments as an adjustment to our net income. As this line is primarily driven by equity market fluctuations rather than our underlying business performance, we believe adding this adjustment provides a more meaningful comparison of our performance. We have also changed the prior year adjusted net income to conform to this presentation.

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, 

2023

2022

(Unaudited)

Assets

 

  

 

  

Investments:

 

  

 

  

Fixed maturity securities available for sale, at fair value (amortized cost: $594,736 in 2023; $561,580 in 2022)

$

554,489

$

515,064

Equity securities, at fair value (cost: $42,352 in 2023; $42,352 in 2022)

 

39,356

 

38,576

Total investments

 

593,845

 

553,640

Cash and cash equivalents

 

80,295

 

68,108

Restricted cash

 

65

 

56

Accrued investment income

 

4,077

 

3,777

Premiums receivable

 

187,910

 

162,858

Deferred policy acquisition costs, net of ceding commissions and fronting fees

 

54,187

 

56,740

Reinsurance recoverable on paid losses and loss adjustment expenses

 

45,801

 

39,718

Reinsurance recoverable on unpaid losses and loss adjustment expenses

 

183,601

 

153,895

Ceded unearned premiums

 

232,425

 

204,084

Prepaid expenses and other assets

 

41,291

 

44,088

Deferred tax assets, net

9,005

10,622

Property and equipment, net

 

540

 

603

Intangible assets, net

 

7,948

 

8,261

Total assets

$

1,440,990

$

1,306,450

Liabilities and stockholders' equity

 

  

 

  

Liabilities:

 

  

 

  

Accounts payable and other accrued liabilities

$

19,401

$

25,760

Reserve for losses and loss adjustment expenses

 

264,967

 

231,415

Unearned premiums

 

496,182

 

471,314

Ceded premium payable

 

173,035

 

146,127

Funds held under reinsurance treaty

 

11,356

 

10,680

Borrowings from credit agreements

71,400

36,400

Total liabilities

 

1,036,341

 

921,696

Stockholders' equity:

 

  

 

  

Preferred stock, $0.0001 par value, 5,000,000 shares authorized, 0 shares issued and outstanding as of March 31, 2023 and December 31, 2022

Common stock, $0.0001 par value, 500,000,000 shares authorized, 24,942,196 and 25,027,467 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively

 

3

 

3

Additional paid-in capital

 

337,492

 

333,558

Accumulated other comprehensive loss

 

(31,041)

 

(36,515)

Retained earnings

 

98,195

 

87,708

Total stockholders' equity

 

404,649

 

384,754

Total liabilities and stockholders' equity

$

1,440,990

$

1,306,450

5


Condensed Consolidated Income Statement

Palomar Holdings, Inc. and Subsidiaries

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

(in thousands, except shares and per share data)

Three Months Ended

March 31, 

    

2023

    

2022

Revenues:

 

  

 

  

Gross written premiums

$

250,112

$

170,934

Ceded written premiums

 

(170,344)

 

(89,552)

Net written premiums

 

79,768

 

81,382

Change in unearned premiums

 

3,473

(5,350)

Net earned premiums

 

83,241

 

76,032

Net investment income

 

5,120

2,579

Net realized and unrealized gains (losses) on investments

 

146

(1,278)

Commission and other income

 

695

777

Total revenues

 

89,202

 

78,110

Expenses:

 

  

 

  

Losses and loss adjustment expenses

20,652

14,954

Acquisition expenses, net of ceding commissions and fronting fees

25,679

28,054

Other underwriting expenses

19,222

15,925

Interest expense

1,020

93

Total expenses

 

66,573

 

59,026

Income before income taxes

 

22,629

 

19,084

Income tax expense

5,316

4,547

Net income

 

17,313

 

14,537

Other comprehensive income (loss), net:

 

  

 

  

Net unrealized gains (losses) on securities available for sale

5,474

(18,463)

Net comprehensive income (loss)

$

22,787

$

(3,926)

Per Share Data:

 

  

 

  

Basic earnings per share

$

0.69

$

0.57

Diluted earnings per share

$

0.68

$

0.56

Weighted-average common shares outstanding:

Basic

24,969,703

25,362,179

Diluted

25,442,902

25,899,290

6


Underwriting Segment Data

 

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

Three Months Ended March 31, 

2023

2022

 

($ in thousands)

 

% of

% of

 

Amount

GWP

Amount

GWP

 

Product

    

  

    

  

    

  

    

  

Fronting Premiums

$

91,755

36.7

%  

$

29,845

17.5

%

Residential Earthquake

55,725

22.3

%  

46,336

27.1

%

Commercial Earthquake

 

37,770

15.1

%  

 

25,144

14.7

%

Inland Marine

31,049

12.4

%  

18,237

10.7

%

Casualty

11,733

4.7

%  

5,007

2.9

%

Commercial All Risk

8,376

3.3

%  

11,210

6.6

%

Hawaii Hurricane

 

8,073

3.2

%  

 

6,914

4.0

%

Residential Flood

 

4,235

1.7

%  

 

2,993

1.8

%

Specialty Homeowners

 

(59)

%  

 

16,284

9.5

%

Other

1,455

0.6

%  

8,964

5.2

%

Total Gross Written Premiums

$

250,112

 

100.0

%  

$

170,934

 

100.0

%

Three Months Ended March 31, 

2023

2022

 

($ in thousands)

 

% of

% of

 

Amount

GWP

Amount

GWP

 

State

    

  

    

  

    

  

    

  

California

$

131,889

52.7

%  

$

68,718

40.2

%

Texas

23,210

9.3

%  

18,979

11.1

%

Florida

12,096

4.8

%  

4,962

2.9

%

Washington

 

11,972

4.8

%  

 

6,881

4.0

%

Hawaii

10,105

4.0

%  

8,540

5.0

%

Oregon

6,780

2.7

%  

4,373

2.6

%

Illinois

4,702

1.9

%  

4,273

2.5

%

New York

 

3,871

1.5

%  

 

2,380

1.4

%

Other

 

45,487

18.3

%  

 

51,828

30.3

%

Total Gross Written Premiums

$

250,112

 

100.0

%  

$

170,934

 

100.0

%

Three Months Ended March 31, 

2023

2022

 

($ in thousands)

 

% of

% of

 

Amount

GWP

Amount

GWP

 

Subsidiary

PSIC

$

150,704

60.3

%  

$

104,004

60.8

%

PESIC

99,408

39.7

%  

66,930

39.2

%

Total Gross Written Premiums

$

250,112

 

100.0

%  

$

170,934

 

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, 

    

2023

    

2022

    

Change

    

% Change

 

($ in thousands)

Gross earned premiums

$

225,243

$

138,924

$

86,319

 

62.1

%

Ceded earned premiums

 

(142,002)

 

(62,892)

 

(79,110)

 

125.8

%

Net earned premiums

$

83,241

$

76,032

$

7,209

 

9.5

%

Net earned premium ratio

37.0%

54.7%

Loss detail

Three Months Ended

March 31, 

    

2023

    

2022

    

Change

    

% Change

 

($ in thousands)

Catastrophe losses

$

1,806

$

481

$

1,325

 

275.5

%

Non-catastrophe losses

 

18,846

 

14,473

 

4,373

 

30.2

%

Total losses and loss adjustment expenses

$

20,652

$

14,954

$

5,698

 

38.1

%

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

 

Three Months Ended March 31, 

 

2023

    

2022

 

(in thousands)

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

$

77,520

$

45,419

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

Current year

 

17,300

13,449

Prior years

 

3,352

1,505

Total incurred

 

20,652

 

14,954

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

 

  

 

  

Current year

1,393

1,490

Prior years

15,413

7,497

Total payments

 

16,806

 

8,987

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

 

81,366

 

51,386

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

183,601

113,726

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

$

264,967

$

165,112

Reconciliation of Non-GAAP Financial Measures

 

For the three months and year ended March 31, 2023 and 2022, the Non-GAAP financial measures discussed above reconcile to their most comparable GAAP measures as follows:

 

Underwriting revenue

Three Months Ended

March 31, 

    

2023

    

2022

 

(in thousands)

Total revenue

$

89,202

$

78,110

Net investment income

 

(5,120)

 

(2,579)

Net realized and unrealized (gains) losses on investments

 

(146)

 

1,278

Underwriting revenue

$

83,936

$

76,809

8


Underwriting income and adjusted underwriting income

Three Months Ended

March 31, 

    

2023

    

2022

 

(in thousands)

Income before income taxes

$

22,629

    

$

19,084

Net investment income

 

(5,120)

 

(2,579)

Net realized and unrealized (gains) losses on investments

 

(146)

 

1,278

Interest expense

1,020

93

Underwriting income

$

18,383

$

17,876

Expenses associated with transactions

 

 

86

Stock-based compensation expense

3,450

2,760

Amortization of intangibles

313

315

Expenses associated with catastrophe bond

50

200

Adjusted underwriting income

$

22,196

$

21,237

Adjusted net income

Three Months Ended

March 31, 

    

2023

    

2022

(in thousands)

Net income

$

17,313

    

$

14,537

Adjustments:

 

  

 

  

Net realized and unrealized (gains) losses on investments

(146)

1,278

Expenses associated with transactions

 

 

86

Stock-based compensation expense

 

3,450

 

2,760

Amortization of intangibles

313

315

Expenses associated with catastrophe bond

50

200

Tax impact

(540)

(592)

Adjusted net income

$

20,440

$

18,584

Annualized adjusted return on equity

Three Months Ended

March 31, 

    

2023

    

2022

 

 

($ in thousands)

 

  

 

  

Annualized adjusted net income

    

$

81,761

    

$

74,336

    

Average stockholders' equity

$

394,701

$

387,284

Annualized adjusted return on equity

 

20.7

%  

 

19.2

%

Adjusted combined ratio

Three Months Ended

March 31, 

2023

    

2022

($ in thousands)

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

$

64,858

$

58,156

Denominator: Net earned premiums

$

83,241

$

76,032

Combined ratio

 

77.9

%  

 

76.5

%  

Adjustments to numerator:

Expenses associated with transactions

$

$

(86)

Stock-based compensation expense

(3,450)

(2,760)

Amortization of intangibles

(313)

(315)

Expenses associated with catastrophe bond

(50)

(200)

Adjusted combined ratio

73.3

%  

72.1

%  

9


Diluted adjusted earnings per share

Three Months Ended

March 31, 

    

2023

    

2022

 

(in thousands, except per share data)

 

  

 

  

Adjusted net income

    

$

20,440

    

$

18,584

Weighted-average common shares outstanding, diluted

25,442,902

25,899,290

Diluted adjusted earnings per share

$

0.80

$

0.72

Catastrophe loss ratio

Three Months Ended

March 31, 

2023

    

2022

($ in thousands)

Numerator: Losses and loss adjustment expenses

$

20,652

$

14,954

Denominator: Net earned premiums

$

83,241

$

76,032

Loss ratio

 

24.8

%  

 

19.7

%  

Numerator: Catastrophe losses

$

1,806

$

481

Denominator: Net earned premiums

$

83,241

$

76,032

Catastrophe loss ratio

2.2

%  

0.6

%  

Adjusted combined ratio excluding catastrophe losses

Three Months Ended

March 31, 

2023

    

2022

($ in thousands)

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

$

64,858

$

58,156

Denominator: Net earned premiums

$

83,241

$

76,032

Combined ratio

 

77.9

%  

 

76.5

%  

Adjustments to numerator:

Expenses associated with transactions

$

$

(86)

Stock-based compensation expense

(3,450)

(2,760)

Amortization of intangibles

(313)

(315)

Expenses associated with catastrophe bond

(50)

(200)

Catastrophe losses

(1,806)

(481)

Adjusted combined ratio excluding catastrophe losses

71.2

%  

71.4

%  

Tangible Stockholders’ equity

March 31, 

December 31,

    

2023

    

2022

(in thousands)

Stockholders' equity

$

404,649

    

$

384,754

Intangible assets

 

(7,948)

 

(8,261)

Tangible stockholders' equity

$

396,701

$

376,493

10