Close

Form 10-Q Palomar Holdings, Inc. For: Jun 30

August 4, 2022 5:18 PM EDT

News and research before you hear about it on CNBC and others. Claim your 1-week free trial to StreetInsider Premium here.
1111--12-312022Q20001761312false00P2Y2542892925220131P1YP1YP1YP1YP1Y0001761312us-gaap:CommonStockMember2022-01-012022-06-300001761312us-gaap:CommonStockMember2021-01-012021-06-300001761312us-gaap:RetainedEarningsMember2022-06-300001761312us-gaap:AdditionalPaidInCapitalMember2022-06-300001761312us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-06-300001761312us-gaap:RetainedEarningsMember2021-12-310001761312us-gaap:AdditionalPaidInCapitalMember2021-12-310001761312us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-12-310001761312us-gaap:RetainedEarningsMember2021-06-300001761312us-gaap:AdditionalPaidInCapitalMember2021-06-300001761312us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-06-300001761312us-gaap:RetainedEarningsMember2020-12-310001761312us-gaap:AdditionalPaidInCapitalMember2020-12-310001761312us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-3100017613122021-01-012021-12-310001761312plmr:EquityIncentivePlan2019Member2022-06-300001761312plmr:EmployeeStockPurchasePlan2019Member2022-06-300001761312us-gaap:EmployeeStockMember2019-04-160001761312us-gaap:RestrictedStockUnitsRSUMemberplmr:EquityIncentivePlan2019Member2022-06-300001761312us-gaap:PerformanceSharesMemberplmr:EquityIncentivePlan2019Member2022-06-300001761312us-gaap:RestrictedStockUnitsRSUMember2021-12-310001761312us-gaap:PerformanceSharesMember2021-12-310001761312us-gaap:EmployeeStockOptionMemberus-gaap:ShareBasedCompensationAwardTrancheTwoMember2022-01-012022-06-300001761312us-gaap:EmployeeStockOptionMemberus-gaap:ShareBasedCompensationAwardTrancheOneMember2022-01-012022-06-300001761312us-gaap:EmployeeStockOptionMemberplmr:ShareBasedPaymentArrangementTrancheTwoFirstAnniversaryMember2022-01-012022-06-300001761312us-gaap:EmployeeStockOptionMemberplmr:ShareBasedPaymentArrangementTrancheOneFirstAnniversaryMember2022-01-012022-06-300001761312srt:MinimumMemberus-gaap:RestrictedStockUnitsRSUMember2022-01-012022-06-300001761312srt:MaximumMemberus-gaap:RestrictedStockUnitsRSUMember2022-01-012022-06-300001761312us-gaap:CatastropheMember2022-01-012022-06-300001761312us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-01-012022-06-300001761312us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-012021-06-300001761312us-gaap:RetainedEarningsMember2022-01-012022-06-300001761312us-gaap:RetainedEarningsMember2021-01-012021-06-300001761312us-gaap:RevolvingCreditFacilityMemberplmr:U.s.BankCreditAgreementMember2021-12-3100017613122022-03-310001761312us-gaap:EmployeeStockOptionMember2022-06-300001761312us-gaap:RestrictedStockUnitsRSUMember2022-06-300001761312us-gaap:PerformanceSharesMember2022-06-300001761312us-gaap:RestrictedStockUnitsRSUMember2022-01-012022-06-300001761312us-gaap:PerformanceSharesMember2022-01-012022-06-300001761312us-gaap:EmployeeStockOptionMember2022-01-012022-06-300001761312us-gaap:RevolvingCreditFacilityMemberplmr:U.s.BankCreditAgreementMemberus-gaap:BaseRateMember2021-12-012021-12-310001761312us-gaap:RevolvingCreditFacilityMemberplmr:U.s.BankCreditAgreementMemberplmr:SofrRateMember2021-12-012021-12-310001761312us-gaap:CommonStockMember2022-06-300001761312us-gaap:CommonStockMember2021-12-310001761312us-gaap:CommonStockMember2021-06-300001761312us-gaap:CommonStockMember2020-12-3100017613122021-06-3000017613122020-12-310001761312us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2022-06-300001761312us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:AssetBackedSecuritiesMember2022-06-300001761312us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberplmr:StatesTerritoriesPossessionsDebtSecuritiesMember2022-06-300001761312us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberplmr:SpecialRevenueExcludingAssetBackedSecuritiesMember2022-06-300001761312us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberplmr:PoliticalSubdivisionsDebtSecuritiesMember2022-06-300001761312us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberplmr:CorporateDebtSecuritiesAndOtherDebtObligationsMember2022-06-300001761312us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2022-06-300001761312us-gaap:FairValueMeasurementsRecurringMemberus-gaap:AssetBackedSecuritiesMember2022-06-300001761312us-gaap:FairValueMeasurementsRecurringMemberplmr:StatesTerritoriesPossessionsDebtSecuritiesMember2022-06-300001761312us-gaap:FairValueMeasurementsRecurringMemberplmr:SpecialRevenueExcludingAssetBackedSecuritiesMember2022-06-300001761312us-gaap:FairValueMeasurementsRecurringMemberplmr:PoliticalSubdivisionsDebtSecuritiesMember2022-06-300001761312us-gaap:FairValueMeasurementsRecurringMemberplmr:CorporateDebtSecuritiesAndOtherDebtObligationsMember2022-06-300001761312plmr:SecuritiesOnDepositWithStateRegulatoryAuthoritiesMember2022-06-300001761312us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:AssetBackedSecuritiesMember2021-12-310001761312us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2021-12-310001761312us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:AssetBackedSecuritiesMember2021-12-310001761312us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberplmr:StatesTerritoriesPossessionsDebtSecuritiesMember2021-12-310001761312us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberplmr:SpecialRevenueExcludingAssetBackedSecuritiesMember2021-12-310001761312us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberplmr:PoliticalSubdivisionsDebtSecuritiesMember2021-12-310001761312us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberplmr:CorporateDebtSecuritiesAndOtherDebtObligationsMember2021-12-310001761312us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2021-12-310001761312us-gaap:FairValueMeasurementsRecurringMemberus-gaap:AssetBackedSecuritiesMember2021-12-310001761312us-gaap:FairValueMeasurementsRecurringMemberplmr:StatesTerritoriesPossessionsDebtSecuritiesMember2021-12-310001761312us-gaap:FairValueMeasurementsRecurringMemberplmr:SpecialRevenueExcludingAssetBackedSecuritiesMember2021-12-310001761312us-gaap:FairValueMeasurementsRecurringMemberplmr:PoliticalSubdivisionsDebtSecuritiesMember2021-12-310001761312us-gaap:FairValueMeasurementsRecurringMemberplmr:CorporateDebtSecuritiesAndOtherDebtObligationsMember2021-12-310001761312plmr:SecuritiesOnDepositWithStateRegulatoryAuthoritiesMember2021-12-310001761312us-gaap:USGovernmentAgenciesDebtSecuritiesMember2022-06-300001761312us-gaap:AssetBackedSecuritiesMember2022-06-300001761312plmr:StatesTerritoriesPossessionsDebtSecuritiesMember2022-06-300001761312plmr:SpecialRevenueExcludingAssetBackedSecuritiesMember2022-06-300001761312plmr:PoliticalSubdivisionsDebtSecuritiesMember2022-06-300001761312plmr:CorporateDebtSecuritiesAndOtherDebtObligationsMember2022-06-300001761312us-gaap:USGovernmentAgenciesDebtSecuritiesMember2021-12-310001761312us-gaap:AssetBackedSecuritiesMember2021-12-310001761312plmr:StatesTerritoriesPossessionsDebtSecuritiesMember2021-12-310001761312plmr:SpecialRevenueExcludingAssetBackedSecuritiesMember2021-12-310001761312plmr:PoliticalSubdivisionsDebtSecuritiesMember2021-12-310001761312plmr:CorporateDebtSecuritiesAndOtherDebtObligationsMember2021-12-310001761312us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2022-06-300001761312us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2021-12-310001761312us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2021-12-310001761312us-gaap:AdditionalPaidInCapitalMember2022-01-012022-06-300001761312us-gaap:AdditionalPaidInCapitalMember2021-01-012021-06-3000017613122021-12-310001761312us-gaap:EmployeeStockMember2022-06-300001761312plmr:EquityIncentivePlan2019Member2019-04-160001761312us-gaap:PerformanceSharesMemberus-gaap:ShareBasedCompensationAwardTrancheTwoMember2022-01-012022-06-300001761312us-gaap:HurricaneMember2022-06-300001761312us-gaap:EarthquakeMember2022-06-300001761312us-gaap:PerformanceSharesMember2021-07-152021-07-150001761312us-gaap:ServiceOtherMember2022-04-012022-06-300001761312stpr:WA2022-04-012022-06-300001761312stpr:TX2022-04-012022-06-300001761312stpr:OR2022-04-012022-06-300001761312stpr:NC2022-04-012022-06-300001761312stpr:IL2022-04-012022-06-300001761312stpr:HI2022-04-012022-06-300001761312stpr:FL2022-04-012022-06-300001761312stpr:CA2022-04-012022-06-300001761312plmr:SpecialtyHomeownersMember2022-04-012022-06-300001761312plmr:ResidentialEarthquakeMember2022-04-012022-06-300001761312plmr:PalomarSpecialtyInsuranceCompanyMember2022-04-012022-06-300001761312plmr:PalomarExcessAndSurplusInsuranceCompanyMember2022-04-012022-06-300001761312plmr:OtherStatesMember2022-04-012022-06-300001761312plmr:InlandMarineMember2022-04-012022-06-300001761312plmr:HawaiiHurricaneMember2022-04-012022-06-300001761312plmr:FrontingPremiumMember2022-04-012022-06-300001761312plmr:FloodInsuranceProductMember2022-04-012022-06-300001761312plmr:CommercialEarthquakeMember2022-04-012022-06-300001761312plmr:CommercialAllRiskMember2022-04-012022-06-300001761312us-gaap:ServiceOtherMember2022-01-012022-06-300001761312stpr:WA2022-01-012022-06-300001761312stpr:TX2022-01-012022-06-300001761312stpr:OR2022-01-012022-06-300001761312stpr:NC2022-01-012022-06-300001761312stpr:IL2022-01-012022-06-300001761312stpr:HI2022-01-012022-06-300001761312stpr:FL2022-01-012022-06-300001761312stpr:CA2022-01-012022-06-300001761312plmr:SpecialtyHomeownersMember2022-01-012022-06-300001761312plmr:ResidentialEarthquakeMember2022-01-012022-06-300001761312plmr:PalomarSpecialtyInsuranceCompanyMember2022-01-012022-06-300001761312plmr:PalomarExcessAndSurplusInsuranceCompanyMember2022-01-012022-06-300001761312plmr:OtherStatesMember2022-01-012022-06-300001761312plmr:InlandMarineMember2022-01-012022-06-300001761312plmr:HawaiiHurricaneMember2022-01-012022-06-300001761312plmr:FrontingPremiumMember2022-01-012022-06-300001761312plmr:FloodInsuranceProductMember2022-01-012022-06-300001761312plmr:CommercialEarthquakeMember2022-01-012022-06-300001761312plmr:CommercialAllRiskMember2022-01-012022-06-300001761312us-gaap:ServiceOtherMember2021-04-012021-06-300001761312stpr:WA2021-04-012021-06-300001761312stpr:TX2021-04-012021-06-300001761312stpr:OR2021-04-012021-06-300001761312stpr:NC2021-04-012021-06-300001761312stpr:IL2021-04-012021-06-300001761312stpr:HI2021-04-012021-06-300001761312stpr:FL2021-04-012021-06-300001761312stpr:CA2021-04-012021-06-300001761312plmr:SpecialtyHomeownersMember2021-04-012021-06-300001761312plmr:ResidentialEarthquakeMember2021-04-012021-06-300001761312plmr:PalomarSpecialtyInsuranceCompanyMember2021-04-012021-06-300001761312plmr:PalomarExcessAndSurplusInsuranceCompanyMember2021-04-012021-06-300001761312plmr:OtherStatesMember2021-04-012021-06-300001761312plmr:InlandMarineMember2021-04-012021-06-300001761312plmr:HawaiiHurricaneMember2021-04-012021-06-300001761312plmr:FrontingPremiumMember2021-04-012021-06-300001761312plmr:FloodInsuranceProductMember2021-04-012021-06-300001761312plmr:CommercialEarthquakeMember2021-04-012021-06-300001761312plmr:CommercialAllRiskMember2021-04-012021-06-300001761312us-gaap:ServiceOtherMember2021-01-012021-06-300001761312stpr:WA2021-01-012021-06-300001761312stpr:TX2021-01-012021-06-300001761312stpr:OR2021-01-012021-06-300001761312stpr:NC2021-01-012021-06-300001761312stpr:IL2021-01-012021-06-300001761312stpr:HI2021-01-012021-06-300001761312stpr:FL2021-01-012021-06-300001761312stpr:CA2021-01-012021-06-300001761312plmr:SpecialtyHomeownersMember2021-01-012021-06-300001761312plmr:ResidentialEarthquakeMember2021-01-012021-06-300001761312plmr:PalomarSpecialtyInsuranceCompanyMember2021-01-012021-06-300001761312plmr:PalomarExcessAndSurplusInsuranceCompanyMember2021-01-012021-06-300001761312plmr:OtherStatesMember2021-01-012021-06-300001761312plmr:InlandMarineMember2021-01-012021-06-300001761312plmr:HawaiiHurricaneMember2021-01-012021-06-300001761312plmr:FrontingPremiumMember2021-01-012021-06-300001761312plmr:FloodInsuranceProductMember2021-01-012021-06-300001761312plmr:CommercialEarthquakeMember2021-01-012021-06-300001761312plmr:CommercialAllRiskMember2021-01-012021-06-300001761312us-gaap:PerformanceSharesMemberus-gaap:ShareBasedCompensationAwardTrancheOneMember2022-01-012022-06-300001761312us-gaap:RevolvingCreditFacilityMemberplmr:U.s.BankCreditAgreementMember2021-12-012021-12-3100017613122022-04-012022-06-3000017613122021-04-012021-06-3000017613122021-01-012021-06-3000017613122022-06-3000017613122021-03-310001761312us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2022-06-300001761312us-gaap:FairValueMeasurementsRecurringMember2022-06-300001761312us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2021-12-310001761312us-gaap:FairValueMeasurementsRecurringMember2021-12-3100017613122022-08-0100017613122022-01-012022-06-30xbrli:sharesiso4217:USDxbrli:sharesiso4217:USDplmr:Dxbrli:pureplmr:securityplmr:segment

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

or

            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission File Number: 001-38873

Palomar Holdings, Inc.

(Exact name of registrant as specified in its charter)

Delaware

83-3972551

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer Identification No.)

7979 Ivanhoe Avenue, Suite 500

La Jolla, California

92037

(Address of principal executive offices)

(Zip Code)

​ ​(619) 567-5290​ ​

Registrant’s telephone number, including area code)

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 (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes      No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes     No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer 

Accelerated filer 

Non-accelerated filer  

Smaller reporting company 

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 Section 13(a) of the Exchange Act.    

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes     No  

Number of shares of the registrant’s common shares outstanding at August 1, 2022: 25,246,123

PALOMAR HOLDINGS, INC.

TABLE OF CONTENTS

 

Page

PART I. FINANCIAL INFORMATION

 

 

Item 1.

Financial Statements

Condensed Consolidated Balance Sheets at June 30, 2022 (Unaudited) and December 31, 2021

3

Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) (Unaudited) for the Three and Six Months Ended June 30, 2022 and 2021

4

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the Six Months Ended June 30, 2022 and 2021

5

Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2022 and 2021

6

Notes to Condensed Consolidated Financial Statements (Unaudited)

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

46

Item 4.

Controls and Procedures

46

 

 

PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

48

Item 1A.

Risk Factors

48

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

72

Item 3.

Defaults Upon Senior Securities

72

Item 4.

Mine Safety Disclosures

72

Item 5.

Other Information

72

Item 6.

Exhibits

72

Signatures

73

2

Part I: FINANCIAL INFORMATION

Item 1: Financial Statements

Palomar Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(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

See accompanying notes.

3

Palomar Holdings, Inc. and Subsidiaries

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

(in thousands, except shares and per share data)

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

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

See accompanying notes.

4

Palomar Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

(in thousands, except share data)

    

Number of

    

    

    

Accumulated

    

    

Common

Additional

Other

Total

Shares

Common

Paid-In

Comprehensive

Retained

Stockholders'

Outstanding

Stock

Capital

Income (Loss) 

Earnings

Equity

Balance at December 31, 2020

 

25,525,796

$

3

$

310,507

$

13,246

$

39,957

$

363,713

Other comprehensive loss, net of tax

 

 

 

 

(3,489)

 

 

(3,489)

Stock-based compensation

 

 

 

1,845

 

 

 

1,845

Issuance of common stock via employee stock purchase plan

4,596

333

333

Issuance of common stock via equity incentive plan

78,207

1,225

1,225

Repurchases of common stock

(239,096)

(15,852)

(15,852)

Net income

 

 

 

 

 

28,970

 

28,970

Balance at June 30, 2021

 

25,369,503

$

3

$

313,910

$

9,757

$

53,075

$

376,745

Balance at December 31, 2021

 

25,428,929

3

$

318,902

$

5,312

$

69,952

$

394,169

Other comprehensive loss, net of tax

 

(32,528)

 

(32,528)

Stock-based compensation

 

5,463

 

5,463

Issuance of common stock via employee stock purchase plan

6,078

333

333

Issuance of common stock via equity incentive plan

132,137

1,775

1,775

Repurchases of common stock

(347,013)

(20,273)

(20,273)

Net income

 

29,126

 

29,126

Balance at June 30, 2022

 

25,220,131

$

3

$

326,473

$

(27,216)

$

78,805

$

378,065

See accompanying notes.

5

Palomar Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

Six Months Ended

June 30, 

    

2022

    

2021

Operating activities

 

  

 

  

Net cash provided by (used in) operating activities

$

82,799

$

(7,067)

Investing activities

 

 

Purchases of property and equipment

 

(267)

 

(18)

Capitalized software costs

(2,757)

(2,285)

Purchases of fixed maturity securities

 

(203,616)

 

(56,267)

Purchases of equity securities

 

(10,156)

 

(6,157)

Sales and maturities of fixed maturity securities

 

115,314

 

52,164

Sales of equity securities

 

 

24,268

Change in securities receivable or payable, net

1,500

Payment of additional costs associated with purchase of policy renewal rights

(15)

(11)

Net cash provided by (used in) investing activities

 

(101,497)

 

13,194

Financing activities

 

  

 

  

Proceeds from line of credit

23,000

Proceeds from common stock issued via employee stock purchase plan

333

333

Proceeds from common stock issued via stock option exercises

1,775

1,225

Repurchases of common stock

(20,273)

(15,852)

Net cash provided by (used in) financing activities

 

4,835

 

(14,294)

Net decrease in cash, cash equivalents and restricted cash

 

(13,863)

 

(8,167)

Cash, cash equivalents and restricted cash at beginning of period

 

50,371

 

33,786

Cash, cash equivalents and restricted cash at end of period

$

36,508

$

25,619

Supplementary cash flow information:

 

  

 

  

Cash paid for income taxes

$

13,085

$

The following table summarizes our cash and cash equivalents and restricted cash and cash equivalents within the condensed consolidated balance sheets (in thousands):

June 30, 

December 31, 

2022

2021

(unaudited)

Cash and cash equivalents

$

36,471

$

50,284

Restricted cash

 

37

 

87

Cash and cash equivalents and restricted cash

$

36,508

$

50,371

See accompanying notes.

6

Palomar Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Summary of Operations and Basis of Presentation

Summary of Operations

Palomar Holdings, Inc. (the “Company”) is a Delaware incorporated insurance holding company that was founded in 2014. The Company has several wholly owned subsidiaries including an Oregon domiciled insurance company, Palomar Specialty Insurance Company (“PSIC”), a Bermuda based reinsurance company, Palomar Specialty Reinsurance Company Bermuda Ltd. (“PSRE”), an Arizona domiciled surplus lines insurance company, Palomar Excess and Surplus Insurance Company (“PESIC”), and a California domiciled property and casualty insurance agency, Palomar Insurance Agency, DBA Palomar General Insurance Agency (“PGIA”).

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and include the accounts of the Company and its wholly-owned subsidiaries. These condensed consolidated financial statements do not contain all information and footnotes required by U.S. GAAP for complete consolidated financial statements. For a more complete description of the Company’s business and accounting policies, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 24, 2022 (the “2021 Annual Report on Form 10-K”)

In the opinion of management, all adjustments necessary for a fair presentation of the condensed consolidated financial statements have been included. Such adjustments consist only of normal recurring items. All intercompany balances and transactions have been eliminated in consolidation. Interim results are not necessarily indicative of results of operations for the full year.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported in the condensed consolidated financial statements and accompanying notes. Such estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported and disclosed herein. All revisions to accounting estimates are recognized in the period in which the estimates are revised. Significant estimates reflected in the Company’s condensed consolidated financial statements include, but are not limited to, reserves for losses and loss adjustment expenses, reinsurance recoverables on unpaid losses, and the fair values of investments.

Recent Accounting Pronouncements

Recently adopted accounting pronouncements

The Company has not adopted any new accounting guidance during the three months ended June 30, 2022.

Recently issued accounting pronouncements not yet adopted

There are not currently any recent accounting pronouncements or pending accounting guidance that have significance, or potential significance, to the Company’s consolidated financial statements.

7

2. Investments

The Company’s available-for-sale investments are summarized as follows:

    

    

Gross

    

Gross

    

Amortized

Unrealized

Unrealized

Fair

June 30, 2022

Cost or Cost

Gains

Losses

Value

 

(in thousands)

Fixed maturities:

 

 

  

 

  

 

  

U.S. Governments

$

46,397

$

3

$

(1,232)

$

45,168

States, territories, and possessions

 

5,866

 

74

 

(360)

 

5,580

Political subdivisions

 

6,744

 

7

 

(707)

6,043

Special revenue excluding mortgage/asset-backed securities

 

43,126

 

5

 

(4,154)

 

38,977

Corporate and other

 

265,896

 

121

 

(19,610)

 

246,407

Mortgage/asset-backed securities

 

145,137

 

53

 

(8,889)

 

136,301

Total available-for-sale investments

$

513,166

$

263

$

(34,952)

$

478,477

    

    

Gross

    

Gross

    

Amortized

Unrealized

Unrealized

Fair

December 31, 2021

Cost or Cost

Gains

Losses

Value

 

(in thousands)

Fixed maturities:

 

  

 

  

 

  

 

  

U.S. Governments

$

16,713

$

347

$

(190)

$

16,870

States, territories, and possessions

 

3,789

 

288

 

(63)

 

4,014

Political subdivisions

 

6,295

 

107

 

(22)

 

6,380

Special revenue excluding mortgage/asset-backed securities

 

43,301

 

1,273

 

(76)

 

44,498

Corporate and other

 

245,064

 

5,873

(1,891)

 

249,046

Mortgage/asset-backed securities

 

110,960

 

1,377

 

(463)

 

111,874

Total available-for-sale investments

$

426,122

$

9,265

$

(2,705)

$

432,682

Security holdings in an unrealized loss position

As of June 30, 2022, the Company held 762 fixed maturity securities in an unrealized loss position with a total estimated fair value of $437.7 million and total gross unrealized losses of $35.0 million. As of December 31, 2021, the Company held 231 fixed maturity securities in an unrealized loss position with a total estimated fair value of $170.1 million and total gross unrealized losses of $2.7 million.

8

The aggregate fair value and gross unrealized losses of the Company’s investments aggregated by investment category and the length of time these individual securities have been in a continuous unrealized loss position as of June 30, 2022 and December 31, 2021, are as follows:

Less Than 12 Months

More Than 12 Months

Total

    

Fair

    

Unrealized

    

Fair

    

Unrealized

    

Fair

    

Unrealized

June 30, 2022

Value

Losses

Value

Losses

Value

Losses

(in thousands)

Fixed maturity securities:

 

  

 

  

 

  

 

  

 

  

 

  

U.S. Governments

 

$

37,120

$

(659)

$

6,478

$

(573)

$

43,598

$

(1,232)

States, territories, and possessions

 

1,669

(360)

 

 

 

1,669

 

(360)

Political subdivisions

 

4,015

(435)

 

1,546

 

(272)

 

5,561

 

(707)

Special revenue excluding mortgage/asset-backed securities

 

37,841

(4,154)

 

 

 

37,841

 

(4,154)

Corporate and other

 

203,674

(16,868)

 

15,103

 

(2,742)

 

218,777

 

(19,610)

Mortgage/asset-backed securities

 

123,990

(8,209)

 

6,240

 

(680)

 

130,230

 

(8,889)

Total

$

408,309

$

(30,685)

$

29,367

$

(4,267)

$

437,676

$

(34,952)

Less Than 12 Months

More Than 12 Months

Total

    

Fair

    

Unrealized

    

Fair

    

Unrealized

    

Fair

    

Unrealized

December 31, 2021

Value

Losses

Value

Losses

Value

Losses

(in thousands)

Fixed maturity securities:

 

  

 

  

 

  

 

  

 

  

 

  

U.S. Governments

$

5,968

$

(147)

$

1,457

$

(43)

$

7,425

$

(190)

States, territories, and possessions

 

1,444

(63)

 

 

 

1,444

 

(63)

Political subdivisions

 

1,815

(22)

 

 

 

1,815

 

(22)

Special revenue excluding mortgage/asset-backed securities

 

6,280

(76)

 

 

 

6,280

 

(76)

Corporate and other

 

94,020

(1,468)

 

5,570

 

(423)

 

99,590

 

(1,891)

Mortgage/asset-backed securities

 

51,246

(412)

 

2,319

 

(51)

 

53,565

 

(463)

Total

$

160,773

$

(2,188)

$

9,346

$

(517)

$

170,119

$

(2,705)

The Company reviews all securities with unrealized losses on a quarterly basis to assess whether the decline in the securities fair value necessitates the recognition of an allowance for credit losses. The Company considers numerous factors in its review as described in Footnote 1 of the Notes to the Consolidated Financial Statements in the 2021 Annual Report on Form 10-K.

The Company has recorded an immaterial allowance for credit losses pertaining to one investment security. Based on the Company’s review as of June 30, 2022, for the remainder of securities, the Company determined that the fixed maturity securities’ unrealized losses were primarily the result of the interest rate environment and not the credit quality of the issuers. The Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before the recovery of their amortized cost basis.

9

Contractual maturities of available-for-sale fixed maturity securities

The amortized cost and fair value of fixed maturity securities at June 30, 2022, by contractual maturity, are shown below.

    

Amortized

    

Fair

Cost

Value

 

(in thousands)

Due within one year

$

32,742

$

32,461

Due after one year through five years

 

174,358

 

166,479

Due after five years through ten years

 

126,703

 

114,076

Due after ten years

 

34,226

 

29,160

Mortgage and asset-backed securities

 

145,137

 

136,301

$

513,166

$

478,477

Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations.

Net investment income summary

Net investment income is summarized as follows:

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2022

    

2021

    

2022

    

2021

 

(in thousands)

 

(in thousands)

Interest income

$

3,082

$

2,262

$

5,640

$

4,501

Dividend income

 

185

 

58

 

340

 

157

Investment expense

 

(127)

 

(126)

 

(261)

 

(245)

Net investment income

$

3,140

$

2,194

$

5,719

$

4,413

Net realized and unrealized investment gains and losses

The following table presents net realized and unrealized investment gains and losses:

Three Months Ended

 

Six Months Ended

June 30, 

 

June 30, 

    

2022

    

2021

 

2022

    

2021

 

(in thousands)

 

(in thousands)

Realized gains:

 

  

 

  

 

  

 

  

Gains on sales of fixed maturity securities

$

7

$

166

$

10

$

218

Gains on sales of equity securities

 

 

420

 

 

1,229

Total realized gains

 

7

 

586

 

10

 

1,447

Realized losses:

 

  

 

  

 

  

 

  

Losses on sales of fixed maturity securities

 

(116)

 

 

(116)

(2)

Losses on sales of equity securities

 

 

 

Total realized losses

 

(116)

 

 

(116)

 

(2)

Net realized investment gains (losses)

 

(109)

 

586

 

(106)

 

1,445

Net unrealized gains (losses) on equity securities

 

(4,626)

 

(286)

 

(5,908)

 

(1,884)

Net realized and unrealized gains (losses) on investments

$

(4,735)

$

300

$

(6,014)

$

(439)

Realized gains and losses on disposition of investments are based on specific identification of the investments sold on the settlement date.

10

Proceeds from the sale of fixed maturity securities were $1.0 million and $4.8 million for the three months ended June 30, 2022 and 2021, respectively.

Proceeds from the sale of fixed maturity securities were $5.8 million and $11.1 million for the six months ended June 30, 2022 and 2021, respectively.

The Company places securities on statutory deposit with certain state agencies to retain the right to do business in those states. These securities are included in available-for-sale investments on the balance sheet. As of June 30, 2022, the carrying value of securities on deposit with state regulatory authorities was $8.4 million. As of December 31, 2021, the carrying value of securities on deposit with state regulatory authorities was $7.5 million.

3. Fair Value Measurements

Fair value is defined as the price that the Company would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment.

The three-tier hierarchy of inputs is summarized in the three broad levels listed below:

Level 1—Unadjusted quoted prices are available in active markets for identical investments as of the reporting date.

Level 2—Pricing inputs are quoted prices for similar investments in active markets; quoted prices for identical or similar investments in inactive markets; or valuations based on models where the significant inputs are observable or can be corroborated by observable market data.

Level 3—Pricing inputs into models are unobservable for the investment. The unobservable inputs require significant management judgment or estimation.

To measure fair value, the Company obtains quoted market prices for its investment securities from its outside investment managers. If a quoted market price is not available, the Company uses prices of similar securities. The fair values obtained from the outside investment managers are reviewed for reasonableness and any discrepancies are investigated for final valuation.

The fair value of the Company’s investments in fixed maturity securities is estimated using relevant inputs, including available market information, benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing. An Option Adjusted Spread model is also used to develop prepayment and interest rate scenarios. Industry standard models are used to analyze and value securities with embedded options or prepayment sensitivities. These fair value measurements are estimated based on observable, objectively verifiable market information rather than market quotes. Therefore, these investments are classified and disclosed in Level 2 of the hierarchy.

11

The following tables present the hierarchy for financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2022 and December 31, 2021.

June 30, 2022

    

Level 1

    

Level 2

    

Level 3

    

Total

 

(in thousands)

Assets:

 

  

 

  

 

  

 

  

Fixed maturity securities

 

  

 

  

 

  

 

  

U.S. Governments

$

$

45,168

$

$

45,168

States, territories, and possessions

 

 

5,580

 

 

5,580

Political subdivisions

 

 

6,043

 

 

6,043

Special revenue excluding mortgage/asset-backed securities

 

 

38,977

 

 

38,977

Corporate and other

 

 

246,407

 

 

246,407

Mortgage/asset-backed securities

 

 

136,301

 

 

136,301

Equity securities

 

37,509

 

 

 

37,509

Cash, cash equivalents, and restricted cash

 

36,508

 

 

 

36,508

Total assets

$

74,017

$

478,476