美國
證券交易委員會
華盛頓特區20549
表格
(標記一個)
| | 根據1934年證券交易法第13或15(d)條款的季度報告。 |
截至2024年6月30日季度結束
或
| | 根據1934年證券交易法第13或15(d)條款的過渡報告 |
轉型期間從_____________到_____________
委員會檔案編號：
波羅馬控股公司。
（依憑章程所載的完整登記名稱）
| | | |
| (依據所在地或其他管轄區) 的註冊地或組織地點) | （聯邦稅號） | |
| | | |
| (總部辦公地址) | （郵政編碼） |
(
註冊者的電話號碼，包括區碼)
根據法案第12(b)條規定註冊的證券：
| 每種類別的名稱 | 交易標的（s） | 每個註冊交易所的名稱 |
| | | 輝瑞公司面臨數起分開的訴訟，這些訴訟仍在進行中，需等待第三項索賠條款的裁決。2023年9月，我們與輝瑞公司同意合併2022和2023年的訴訟，並將審判日期從2024年11月推遲至2025年上半年，具體時間將由法院確定。 |
請點選勾號表示登記申請人(1)已在過去12個月裡(或是在申請人應提交此類報告的期間中，以較短時間為準)提交了證券交易所法案第13或15(d)條所規定提交的所有報告，(2)申請人在過去90日內已履行過此類提交要求。
請以√號表示，即在過去12個月內，公司是否按照《Regulation S-t》第405條（本章節第232.405條）的規定，提交了應提交的每個互動資料文件（或對於要求提交此類文件的較短期間的情況）。
勾選表示登記人是大型加速申報人、加速申報人、非加速申報人、較小型申報公司或新興成長公司。詳細定義請參閱《交易所法》第1202條中“大型加速申報人”、“加速申報人”、“較小型申報公司”和“新興成長公司”的定義。
| | 加速文件提交者 ☐ |
| 未加速歸檔人 ☐ | 較小型報告公司 |
| 新興成長型公司 |
如為新興成長公司，請勾選選項，表明登記者已選擇不使用交易所法第13(a)條所提供的任何新制訂或修訂財務會計準則的延長過渡期。 ☐
請勾選選項，表明登記者是否為空殼公司（根據法案規則120億2定義）。 是
2024年10月31日登記者的普通股股份數：
PALOMAR HOLDINGS, ☒ 20-F表格 ◻ 40-F表格
目 錄
| 頁面 |
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| 項目 1。 |
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| 項目2。 |
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| 第3項目。 |
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| 項目 4。 |
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| 項目 1。 |
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| 第1項事項 |
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| 項目2。 |
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| 项目3。 |
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| 項目 4。 |
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| 项目5。 |
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| 第六項。 |
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項目 1: 基本報表
Palomar Holdings, 公司 以及附屬公司
縮短的合併財務報表
（以千為單位，股份和面值數據除外）
| 九月三十日 | 12月31日 | |||||||
| 2024 | 2023 | |||||||
| (未經審計) | ||||||||
| 資產 | ||||||||
| 投資： | ||||||||
| 可供出售的固定到期證券，按公允價值計量（攤銷成本：$ 在2024年；$ (2023年) | $ | $ | ||||||
| 按公允價值計量的權益證券（成本：$ 在2024年；$ (2023年) | ||||||||
| 權益法投資 | ||||||||
| 其他投資 | ||||||||
| 總投資 | ||||||||
| 現金及現金等價物 | ||||||||
| 受限制現金 | ||||||||
| 應計投資收益 | ||||||||
| 應收保費 | ||||||||
| 遞延保單獲取成本，扣除承保佣金和前期費用 | ||||||||
| 已支付損失和損失調整費用的再保險可回收款 | ||||||||
| 未支付損失和損失調整費用的再保險可回收款 | ||||||||
| 已再保留的未賺保費 | ||||||||
| 預付費用和其他資產 | ||||||||
| 遞延所得稅資產，淨額 | ||||||||
| 物業及設備（淨額） | ||||||||
| 商譽和無形資產，淨額 | ||||||||
| 總資產 | $ | $ | ||||||
| 負債和股東權益 | ||||||||
| 負債： | ||||||||
| 應付賬款及其他應計負債 | $ | $ | ||||||
| 損失準備金和損失調整費用 | ||||||||
| 未賺取的保費 | ||||||||
| 轉讓保費應付 | ||||||||
| 在再保險條約下持有的基金 | ||||||||
| 應付所得稅 | ||||||||
| 來自信用協議的借款 | ||||||||
| 總負債 | ||||||||
| 股東權益： | ||||||||
| 優先股，$ 面值， 授權股份， 截至2024年9月30日和2023年12月31日已發行和流通的股份 | ||||||||
| 普通股，$ 面值， 授權股份， 和 截至2024年9月30日和2023年12月31日的已發行和流通股份 | ||||||||
| 額外實收資本 | ||||||||
| 累計其他綜合損失 | ( | ) | ( | ) | ||||
| 滾存收益 | ||||||||
| 股東權益總額 | ||||||||
| 總負債和股東權益 | $ | $ | ||||||
See accompanying notes.
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 |
Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||
| Revenues: |
||||||||||||||||
| Gross written premiums |
$ | $ | $ | $ | ||||||||||||
| Ceded written premiums |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Net written premiums |
||||||||||||||||
| Change in unearned premiums |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Net earned premiums |
||||||||||||||||
| Net investment income |
||||||||||||||||
| Net realized and unrealized gains (losses) on investments |
( |
) | ( |
) | ||||||||||||
| Commission and other income |
||||||||||||||||
| Total revenues |
||||||||||||||||
| Expenses: |
||||||||||||||||
| Losses and loss adjustment expenses |
||||||||||||||||
| Acquisition expenses, net of ceding commissions and fronting fees |
||||||||||||||||
| Other underwriting expenses |
||||||||||||||||
| Interest expense |
||||||||||||||||
| Total expenses |
||||||||||||||||
| Income before income taxes |
||||||||||||||||
| Income tax expense |
||||||||||||||||
| Net income |
$ | $ | $ | $ | ||||||||||||
| Other comprehensive income, net: |
||||||||||||||||
| Net unrealized gains (losses) on securities available for sale |
( |
) | ( |
) | ||||||||||||
| Net comprehensive income |
$ | $ | $ | $ | ||||||||||||
| Per Share Data: |
||||||||||||||||
| Basic earnings per share |
$ | $ | $ | $ | ||||||||||||
| Diluted earnings per share |
$ | $ | $ | $ | ||||||||||||
| Weighted-average common shares outstanding: |
||||||||||||||||
| Basic |
||||||||||||||||
| Diluted |
||||||||||||||||
See accompanying notes.
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, 2023 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Other comprehensive loss, net of tax | — | ( | ) | ( | ) | |||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Issuance of common stock via employee stock purchase plan | ||||||||||||||||||||||||
| Issuance of common stock via equity incentive plan | ||||||||||||||||||||||||
| Policyholder contribution to surplus | — | |||||||||||||||||||||||
| Net income | — | |||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Other comprehensive loss, net of tax | — | ( | ) | ( | ) | |||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Issuance of common stock via employee stock purchase plan | ||||||||||||||||||||||||
| Issuance of common stock via equity incentive plan | ||||||||||||||||||||||||
| Policyholder contribution to surplus | — | |||||||||||||||||||||||
| Net income | — | |||||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Other comprehensive income, net of tax | — | |||||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Issuance of common stock in stock offering, net of offering costs | ||||||||||||||||||||||||
| Issuance of common stock via employee stock purchase plan | ||||||||||||||||||||||||
| Issuance of common stock via equity incentive plan | ||||||||||||||||||||||||
| Policyholder contribution to surplus | — | |||||||||||||||||||||||
| Net income | — | |||||||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
See accompanying notes.
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, 2022 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Other comprehensive income, net of tax | — | |||||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Issuance of common stock via employee stock purchase plan | ||||||||||||||||||||||||
| Issuance of common stock via equity incentive plan | ||||||||||||||||||||||||
| Repurchases of common stock | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Net income | — | |||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Other comprehensive income, net of tax | — | ( | ) | ( | ) | |||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Issuance of common stock via employee stock purchase plan | ||||||||||||||||||||||||
| Issuance of common stock via equity incentive plan | ||||||||||||||||||||||||
| Repurchases of common stock | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Net income | — | |||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Other comprehensive loss, net of tax | — | ( | ) | ( | ) | |||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Issuance of common stock via employee stock purchase plan | ||||||||||||||||||||||||
| Issuance of common stock via equity incentive plan | ||||||||||||||||||||||||
| Repurchases of common stock | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Net income | — | |||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
See accompanying notes.
Palomar Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(以千爲單位)
| 截至九個月 | ||||||||
| 九月三十日 | ||||||||
| 2024 | 2023 | |||||||
| 運營活動 | ||||||||
| 經營活動提供的淨現金 | $ | $ | ||||||
| 投資活動 | ||||||||
| 購買房產和設備 | ( | ) | ( | ) | ||||
| 資本化的軟體費用 | ( | ) | ( | ) | ||||
| 固定到期證券的購買 | ( | ) | ( | ) | ||||
| 股票證券購買 | ( | ) | ( | ) | ||||
| 購買權益法投資 | ( | ) | ||||||
| 固定到期證券的銷售和到期 | ||||||||
| 股權證券銷售 | ||||||||
| 應收或應支付證券的變化，淨額 | ( | ) | ( | ) | ||||
| 對有限合夥企業的投資 | ( | ) | ||||||
| 收購，減去獲得現金的金額 | ( | ) | ||||||
| 投資活動中使用的淨現金 | ( | ) | ( | ) | ||||
| 融資活動 | ||||||||
| 信用額度的淨（支付）收入 | ( | ) | ||||||
| 股票發行的淨收益，扣除發行成本 | ||||||||
| 通過員工股票購買計劃發行的普通股收益 | ||||||||
| 通過股票期權行使發行的普通股收益 | ||||||||
| 投保人對盈餘的貢獻 | ||||||||
| 回購普通股 | ( | ) | ||||||
| 融資活動提供（使用）的淨現金 | ( | ) | ||||||
| 現金、現金等價物和受限現金的淨增加（減少） | ( | ) | ||||||
| 期初現金、現金等價物和受限現金 | ||||||||
| 期末現金、現金等價物和受限現金 | $ | $ | ||||||
| 補充現金流量信息： | ||||||||
| 支付的所得稅現金 | $ | $ | ||||||
| 支付的利息 | $ | $ | ||||||
下表總結了我們在簡明合併資產負債表中 現金及現金等價物 和 限制性現金及現金等價物 的情況（單位：千元）：
| 九月三十日 |
12月31日 |
|||||||
| 2024 |
2023 |
|||||||
| (未經審計) |
||||||||
| 現金及現金等價物 |
$ | $ | ||||||
| 受限制現金 |
||||||||
| 現金及現金等價物和受限制現金 |
$ | $ | ||||||
See accompanying notes.
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.（「公司」）是一家於特拉華州註冊的保險控股公司，成立於 2014. 該公司擁有多家全資子公司，包括一家位於俄勒岡州的保險公司Palomar Specialty Insurance Company（「PSIC」）、一家位於百慕大再保險公司Palomar Specialty Reinsurance Company Bermuda Ltd.（「PSRE」）、一家位於亞利桑那州的剩餘險保險公司Palomar Excess and Surplus Insurance Company（「PESIC」）、一家位於加利福尼亞州的財產和意外保險代理機構Palomar Insurance Agency，DBA Palomar General Insurance Agency（「PGIA」），以及一家在特拉華州註冊的管理公司Palomar Underwriters Exchange Organization, Inc.（「PUEO」），爲位於夏威夷的互惠交易所Laulima Exchange（「Laulima」）提供服務，擔任其代理人。
財務報表的基礎
附帶的簡明合併基本報表已根據美國公認會計原則（「GAAP」）爲中期基本財務信息編制，包括公司的賬戶及其全資子公司。簡明合併基本報表還包括Laulima的賬戶，因爲Laulima是一個變量利益實體（"VIE"），公司是主要受益人。在腳註中 7, 某些前幾年的金額已重新分類，以符合當前年份的呈現。
這些簡明合併基本報表是基於數據截至2023年10月進行的訓練。 不 包含了美國GAAP對完整合並基本報表所需的所有信息和附註。有關公司業務和會計政策的更完整描述，這些簡明合併基本報表應與公司年報表中包含的經審計合併基本報表一起閱讀。 10-k截至 2023年12月31日的合併基本報表及附註中，於 2024年2月23日（在 “2023 年度報告表格 -K）。管理層認爲，已包含公允呈現簡明合併基本報表所需的所有調整。這些調整僅包括正常的經常性項目。所有公司間餘額和交易在合併時已被消除。中期結果是 10不一定是全年運營結果的指標。 不
估計的使用
根據GAAP準備基本報表要求管理層進行估計和假設，這會影響在壓縮合並基本報表及其附註中報告的金額。這些估計和假設在未來可能會隨着更多信息的披露而改變，這可能會影響此處報告和披露的金額。所有對會計估計的修訂將在修訂估計的期間內確認。公司壓縮合並基本報表中反映的重要估計包括但不限於，損失和損失調整費用的準備金、未支付損失的再保險可回收款以及投資的公允價值。 不 包括但不限於損失和損失調整費用的準備金、未支付損失的再保險可回收款，以及投資的公允價值。
近期會計公告
最近採用的會計準則
公司已經 不 在此期間採用了任何新的會計指南。 九個月期間截至月份的營業結果 2024年9月30日.
最近發佈的會計公告 不 尚未採用
分部報告
在 2023年11月，FASB發佈了ASU 沒有。 2023-07, 分部報告（主題280）：可報告部門披露的改進），旨在通過增強關於重要分部費用的披露要求，改善可報告分部的披露要求，幫助基本報表用戶更好地理解分部利潤或損失的元件，以評估每個可報告分部及整體實體的潛在未來現金流。這些修訂通過要求披露定期提供給首席運營決策者（"CODM"）的重大分部費用，擴大了公衆實體的分部披露範圍，並澄清了何時一個實體 可能報告 一個或更多額外措施來評估各個業務部門的表現，要求增強中期披露，提供對只有一個可報告部門的實體的新披露要求，並要求其他新的披露。 ASU 2023-07自財年開始後生效 十二月 15, 2023,以及在財年開始後的中期 十二月 15, 2024.允許提前採用。 公司目前正在評估採用該標準對其合併基本報表的影響。
所得稅
在 2023年12月，FASB發佈了ASU 沒有。 2023-09, 收入稅（主題740）：對所得稅披露的改進。ASU2023-09要求上市公司披露有效稅率與法定稅率之間的調節的額外信息。此外，上市公司需要在其基本報表中對已支付的聯邦、州和外國稅款進行分類。ASU2023-09對公共業務實體在財政年度及該財政年度內的中期期間有效，適用於自 2024年12月15日之後。公司目前正在評估實施該標準對其合併基本報表的影響。
2. 投資
公司的可供出售投資彙總如下：
| 總計 | 總計 | 補貼 | ||||||||||||||||||
| 攤餘 | 未實現 | 未實現 | 爲了 | 公平 | ||||||||||||||||
| 2024年9月30日 | 成本或費用 | 收益 | 虧損 | 信用損失 | 價值 | |||||||||||||||
| (以千爲單位) | ||||||||||||||||||||
| 固定到期的投資： | ||||||||||||||||||||
| 美國政府 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||
| 美國各州、領土和政治區劃 | ( | ) | ||||||||||||||||||
| 特殊營業收入，不包括抵押貸款/資產支持證券 | ( | ) | ||||||||||||||||||
| 企業及其他 | ( | ) | ( | ) | ||||||||||||||||
| 抵押貸款/資產支持證券 | ( | ) | ||||||||||||||||||
| 可供出售的投資總額 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||
| 總計 | 總計 | 補貼 | ||||||||||||||||||
| 攤餘 | 未實現 | 未實現 | 爲了 | 公平 | ||||||||||||||||
| 2023年12月31日 | 成本或費用 | 收益 | 虧損 | 信用損失 | 價值 | |||||||||||||||
| (以千爲單位) | ||||||||||||||||||||
| 固定到期的投資： | ||||||||||||||||||||
| 美國政府 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||
| 美國州、地區及政治分區 | ( | ) | ||||||||||||||||||
| 特殊營業收入，排除抵押貸款/資產支持證券 | ( | ) | ||||||||||||||||||
| 企業及其他 | ( | ) | ( | ) | ||||||||||||||||
| 抵押貸款/資產支持證券 | ( | ) | ||||||||||||||||||
| 可供出售的投資總額 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||
處於未實現損失狀態的安防持股
截至 2024年9月30日公司於
截至，公司的投資按投資類別以及這些個別證券在持續未實現虧損狀態下的時間長度所累計的公允價值和總未實現損失總計如下： 2024年9月30日 和 2023年12月31日的合併基本報表及附註中，具體如下：
| 少於12個月 | 超過12個月 | 總計 | ||||||||||||||||||||||
| 公平 | 未實現 | 公平 | 未實現 | 公平 | 未實現 | |||||||||||||||||||
| 2024年9月30日 | 價值 | 虧損 | 價值 | 虧損 | 價值 | 虧損 | ||||||||||||||||||
| (以千爲單位) | ||||||||||||||||||||||||
| 固定到期證券： | ||||||||||||||||||||||||
| 美國政府 | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||
| 美國州、地區及政治分區 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| 特殊營業收入，排除抵押貸款/資產支持證券 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| 企業及其他 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| 抵押貸款/資產支持證券 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| 可供出售的投資總額 | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||
| 少於12個月 | 超過12個月 | 總計 | ||||||||||||||||||||||
| 公平 | 未實現 | 公平 | 未實現 | 公平 | 未實現 | |||||||||||||||||||
| 2023年12月31日 | 價值 | 虧損 | 價值 | 虧損 | 價值 | 虧損 | ||||||||||||||||||
| (以千爲單位) | ||||||||||||||||||||||||
| 固定到期證券： | ||||||||||||||||||||||||
| 美國政府 | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||
| 美國州、地區及政治分區 | ( | ) | ( | ) | ||||||||||||||||||||
| 特殊營業收入，排除抵押貸款/資產支持證券 | ( | ) | ( | ) | ||||||||||||||||||||
| 企業及其他 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| 抵押貸款/資產支持證券 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| 可供出售的投資總額 | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||
公司每季度審查所有未實現虧損的證券，以評估證券公允價值的下降是否需要確認信用損失準備。公司在審查過程中考慮了多種因素，如附註中所述 1 合併基本報表的附註中 2023 《年度報告（表格）》 10-K.
公司已記錄了不重要的信用損失準備金， 兩個 投資證券。根據公司截至 2024年9月30日的審查，對於剩餘的證券，公司確定固定到期證券的未實現損失主要是由於利率環境和 不 發行人的信用質量。公司對此沒有 不 打算出售投資，且 不 更可能 不 公司可能需要在投資回收其攤銷成本基準之前出售投資。
可用合同到期‑爲了‑出售固定到期證券
截至2023年10月，固定到期證券的攤銷成本和公允價值爲 2024年9月30日按合同到期，具體如下。
| 攤餘 | 公平 | |||||||
| 成本 | 價值 | |||||||
| (以千爲單位) | ||||||||
| 一年內到期 | $ | $ | ||||||
| 到期在一年後至五年內 | ||||||||
| 到期在五年後至十年內 | ||||||||
| 到期在十年後 | ||||||||
| 抵押貸款和資產支持證券 | ||||||||
| $ | $ | |||||||
預期到期日 可能 與合同到期日不同，因爲借款人 可能 有權看漲或提前償還義務。
淨投資收入摘要
淨投資收益總結如下：
| 截至三個月 | 截至九個月 | |||||||||||||||
| 九月三十日 | 九月三十日 | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| (以千爲單位) | (以千爲單位) | |||||||||||||||
| 利息收入 | $ | $ | $ | $ | ||||||||||||
| 股息收入 | ||||||||||||||||
| 投資費用 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| 淨投資收入 | $ | $ | $ | $ | ||||||||||||
淨實現和未實現投資收益和損失
下表展示了已實現和未實現的投資收益和損失：
| 截至三個月 | 截至九個月 | |||||||||||||||
| 九月三十日 | 九月三十日 | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| (以千爲單位) | (以千爲單位) | |||||||||||||||
| 實現的收益： | ||||||||||||||||
| 固定到期證券的銷售收益 | $ | $ | $ | $ | ||||||||||||
| 總實現收益 | ||||||||||||||||
| 實現損失： | ||||||||||||||||
| 固定到期證券銷售損失 | ( | ) | ( | ) | ( | ) | ||||||||||
| 股票證券銷售虧損 | ( | ) | ||||||||||||||
| 總實現損失 | ( | ) | ( | ) | ( | ) | ||||||||||
| 淨實現投資（損失）收益 | ( | ) | ( | ) | ||||||||||||
| 信用損失準備的變動 | ( | ) | ||||||||||||||
| 股票證券的淨未實現收益（損失） | ( | ) | ||||||||||||||
| 權益法投資的未實現淨收益（損失） | ( | ) | ( | ) | ( | ) | ||||||||||
| 其他投資的未實現淨收益 | ||||||||||||||||
| 投資的淨實現和未實現收益（損失） | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
投資處置的實現收益和損失是基於在結算日賣出的投資的具體識別。
固定到期證券的銷售收入爲$
固定期限證券銷售所得爲$
公司將證券以法定存款的方式存放在某些州的監管機構，以保留在這些州開展業務的權利。這些證券被列入資產負債表上的可供出售投資中。截至 2024年9月30日 和 2023年12月31日的合併基本報表及附註中，存放在州監管機構的證券賬面價值爲$
公司在有限合夥企業中有投資，這些投資記錄在未經審計的簡明合併資產負債表的其他投資一欄中。這些投資以每股淨資產值（或其等價物）作爲實用近似值，按估計公允價值計量。截止到 2024年9月30日，公司尚未資助的承諾爲額外投資$
3. 公允價值計量
公允價值定義爲公司在主要或最有利的市場上，以有序交易將投資出售給獨立買方時所能收到的價格。
輸入的三層層次結構總結如下： 三 下面列出了廣泛的層級：
級別 1—未調整 報告日期時，活躍市場中的相同投資的報價價格可用。
水平2—定價 輸入爲活躍市場中類似投資的報價價格；在非活躍市場中相同或類似投資的報價價格；或基於模型的估值，其中顯著輸入是可觀察的或可以通過可觀察的市場數據進行驗證。
級別3—定價 投資的模型輸入是不可觀察的。這些不可觀察的輸入需要管理層重大判斷或估計。
爲了衡量公允價值，公司從外部投資經理處獲取投資證券的報價市場價格。如果有可用的報價市場價格， 不 公司會使用類似證券的價格。外部投資經理提供的公允價值會被審查其合理性，任何差異都會被調查以進行最終估值。
公司的固定到期證券投資的公允價值是通過相關輸入進行估算的，包括可用的市場信息、基準曲線、類似證券的基準比較、行業板塊分組以及矩陣定價。期權調整利差模型也被用來開發預付款和利率情景。行業標準模型用於分析和評估帶有嵌入期權或預付款敏感性的證券。這些公允價值計量是基於可觀察的、客觀可驗證的市場信息，而不是市場報價。因此，這些投資被分類並披露在層級2 中的
以下表格展示了截至資產和負債按公允價值進行定期計量的層級結構。 2024年9月30日 和 2023年12月31日的合併基本報表及附註中.
| 2024年9月30日 | 一級 | 二級 | 第三級 | 總計 | ||||||||||||
| (以千爲單位) | ||||||||||||||||
| 資產： | ||||||||||||||||
| 固定到期證券 | ||||||||||||||||
| 美國政府 | $ | $ | $ | $ | ||||||||||||
| 美國州、地區及政治分區 | ||||||||||||||||
| 特殊營業收入，排除抵押貸款/資產支持證券 | ||||||||||||||||
| 企業及其他 | ||||||||||||||||
| 抵押貸款/資產支持證券 | ||||||||||||||||
| 權益證券 | ||||||||||||||||
| 現金、現金等價物及限制性現金 | ||||||||||||||||
| 總資產 | $ | $ | $ | $ | ||||||||||||
| 2023年12月31日 | 一級 | 二級 | 第三級 | 總計 | ||||||||||||
| (以千爲單位) | ||||||||||||||||
| 資產： | ||||||||||||||||
| 固定到期證券 | ||||||||||||||||
| 美國政府 | $ | $ | $ | $ | ||||||||||||
| 美國州、地區及政治分區 | ||||||||||||||||
| 特殊營業收入，排除抵押貸款/資產支持證券 | ||||||||||||||||
| 企業及其他 | ||||||||||||||||
| 抵押貸款/資產支持證券 | ||||||||||||||||
| 權益證券 | ||||||||||||||||
| 現金、現金等價物及限制性現金 | ||||||||||||||||
| 總資產 | $ | $ | $ | $ | ||||||||||||
附帶的簡明合併資產負債表中報告的金融資產和負債的賬面金額，包括現金及現金等價物、限制性現金、應收款項、再保險應收款和應付賬款及其他應計負債，由於其開空到期，接近公允價值。根據聯邦住房貸款銀行（「FHLB」）的信貸額度和美國銀行信貸協議（「信貸協議」）下的任何借款的賬面金額，接近公允價值，因爲信貸協議具有經常以市場利率重新定價的變量利率。
Transfers between Level 3 and Level 2 securities result from changes in the availability of observable market inputs and are recorded at the beginning of the reporting period. As of September 30, 2024 and December 31, 2023, the Company had
4. Reserve for Losses and Loss Adjustment Expenses
下表顯示了損失和損失調整費用（「LAE」）期末儲備餘額變化的調節情況：
| 截至9月30日的三個月 | 截至9月30日的九個月 | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| (以千爲單位) | (以千爲單位) | |||||||||||||||
| 期初的損失準備和保險事故相關費用淨額，扣除再保險可回收款項 | $ | $ | $ | $ | ||||||||||||
| 加：已發生的損失和保險事故相關費用，淨額，扣除再保險，涉及： | ||||||||||||||||
| 當前年度 | ||||||||||||||||
| 前幾年 | ( | ) | ( | ) | ||||||||||||
| 總髮生 | ||||||||||||||||
| 扣除：損失和保險事故相關費用支付，淨額，扣除再保險，涉及： | ||||||||||||||||
| 當前年度 | ||||||||||||||||
| 前幾年 | ( | ) | ||||||||||||||
| 總支付金額 | ||||||||||||||||
| 已計提的損失及延遲賠付準備金，扣除再保險應收款於期末的餘額 | ||||||||||||||||
| 加：期末未支付的損失及延遲賠付的再保險應收款 | ||||||||||||||||
| 已計提的損失及延遲賠付準備金，未支付的再保險應收款的總額於期末 | $ | $ | $ | $ | ||||||||||||
損失和調整損失（LAE）的準備金估計中固有相當大的變動性。儘管管理層認爲記錄的損失和LAE負債是充足的，但此估計中固有的變動性可能導致最終負債發生變化，這 可能 對股東權益產生重大影響。
公司在前一年獲得了 favorable 的發展，金額爲 $
該公司經歷了上年度的有利發展$
去年 favorable 的發展主要是由於較低於預期的 attritional 損失嚴重性。 三 截至月份 2024年9月30日 不利的去年發展是在 三截至月份的營業結果 2023年9月30日 主要是由於預期中的正常損失程度高於預期，而自然災害損失程度低於預期所造成的補償。
前一年的有利發展主要是由於損失的嚴重性低於預期。 九個月期間 截至月份 2024年9月30日 前一年不利的發展主要是因爲 九個月期間 截至月份 2023年9月30日 這主要是由於預期的常規損失嚴重程度高於預期，而預期的災難損失嚴重程度低於預期。
5. 股東’ 權益
截至 2024年9月30日 和 2023年12月31日的合併基本報表及附註中該公司授權的
在 2024年8月， 公司完成了一次註冊銷售（ 2024年8月 二次發行）每股
爲未來發行保留的普通股
截至以下日期，未來發行的普通股保留情況如下： 2024年9月30日:
| 2019年股權激勵計劃下未行使的股票期權 | ||||
| 2019年股權激勵計劃下未行使的限制性股票單位 | ||||
| 2019年股權激勵計劃下以目標爲基礎的績效股票單位 | ||||
| 2019年股權激勵計劃下未來發行的股票數量 | ||||
| 2019年員工股票購買計劃下未來發行的股票數量 | ||||
| 總計 |
基於股票的補償
下表總結了公司每個報告期的股票債務補償費用：
| 截至9月30日的三個月 | 截至9月30日的九個月 | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| (以千爲單位) | (以千爲單位) | |||||||||||||||
| 基於股票的補償 | $ | $ | $ | $ | ||||||||||||
股票基礎的薪酬費用在權益基礎獎勵的歸屬期內按照直線法確認。對於業績股票單位（「PSUs」），由於實際表現與目標之間的差異所導致的費用變化，將在獎勵的剩餘歸屬期內確認。公司不做 不 對未歸屬的獎勵應用 forfeiture 率，並在發生時記錄 forfeiture 。所有股票基礎的薪酬均包含在公司未經審計的簡明合併收益及綜合收益表中的其他承保費用中。
2019 股權激勵計劃
在 2019年4月16日， 公司的 2019 股權激勵計劃（ “2019 計劃）生效。 2019 該計劃提供股票期權、股票增值權、限制性股票、限制性股票單位（「RSU」）、業績股份和單位以及其他基於現金或股份的獎勵。此外， 2019 該計劃包含一項機制，通過該機制，公司 可能 在未來採用延期補償安排。
總計
股票期權
期權接受者可以以授予日的股票公平市場價值的價格購買公司的普通股，這個價格由授予日公司普通股的收盤價決定。期權在之間的時間段內歸屬。 和 年，在之間有
下表總結了股票期權交易的情況 九個月期間截至月份的營業結果 2024年9月30日:
| 股份數量 | 加權平均行使價格 | 加權平均剩餘合同期限（年） | 合計內在價值（千） | |||||||||||||
| 截至2024年1月1日的未到期數量 | $ | — | $ | — | ||||||||||||
| 授予的期權 | — | — | ||||||||||||||
| 期權被行使 | ( | ) | ||||||||||||||
| 期權已取消 | ( | ) | ||||||||||||||
| 截至2024年9月30日的未償還金額 | $ | $ | ||||||||||||||
| 在2024年9月30日可歸屬和行使 | $ | $ | ||||||||||||||
截至 2024年9月30日公司大約有 $
限制性股票單位
RSUs的價值是根據授予日期公司普通股的收盤價來確定的。公司已發行的RSUs具有的歸屬期爲 至 年。所有歸屬都需繼續服務。
下表總結了RSU交易情況 九個月期間截至月份的營業結果 2024年9月30日:
| 股份數量 | 加權平均授予日期公允價值 | |||||||
| 截至2024年1月1日的未到期數量 | $ | |||||||
| 授予 | ||||||||
| 已釋放方 | ( | ) | ||||||
| 被註銷 | ( | ) | ||||||
| 截至2024年9月30日尚未歸屬的未決數額 | $ | |||||||
截至 2024年9月30日公司大約有 $
業績股票單位
公司發行PSU時結合了服務、業績和市場條件。
大多數的PSU是通過授予某些高管而發行的，在 2021. 這些PSU是根據股票價格里程碑的達成情況獲得的。如果公司的股票價格達到並保持在某些里程碑上，持續
對於其他未解鎖的PSU，PSU的歸屬需要一定的未來服務期，而歸屬的股份數量取決於與公司預定的毛保費和調整後股本回報率的表現相對比，這些由薪酬委員會設定。在此之前， 2023, PSU的績效期間爲授予的財政年度。從此開始， 2023, PSU的績效期間主要爲一個 三-年期間，從授予日期開始。績效期結束時，實際結果將與預定目標進行比較，以判斷可以獲得的PSU數量作爲補償。獲得的PSU還需遵循約 年的服務期，從授予日期起才能解鎖並作爲普通股發行。
下表總結了 PSU 交易的情況 九個月期間 截至月份 2024年9月30日:
| 股份數量 | 加權平均授予日期公允價值 | |||||||
| 截至2024年1月1日的未到期數量 | $ | |||||||
| 授予 | ||||||||
| Vested | ( | ) | ||||||
| 被註銷 | ( | ) | ||||||
| 截至2024年9月30日尚未歸屬的未決數額 | $ | |||||||
上面的PSU補助金代表根據實現所有股價里程碑而將歸屬的股票數量 2021 高管股票補助金和
2019 員工股票購買計劃
在 2019年4月16日， 公司的 2019 員工股票購買計劃（以下簡稱「ESPP」）正式生效。 “2019 初步授權和保留總共
根據這些 2019 員工可以通過工資扣留以折扣價購買公司股票。 2019 ESPP通過員工參與特定的發行期進行管理。在每個特定的發行期內，員工的資金會被扣留，股票購買在發行期結束時進行。
股票回購
在 2022年1月， 公司的董事會批准了一項股票回購計劃，取代了現有計劃，並授權回購最多$
6. 累計其他綜合收益
累計其他綜合收益（損失）("AOCI"）的變化如下：
| 截至9月30日的九個月 |
||||||||
| 2024 |
2023 |
|||||||
| (以千爲單位) |
||||||||
| 期初餘額 |
$ | ( |
) | $ | ( |
) | ||
| 其他綜合（損失）收入在重分類之前 |
( |
) | ||||||
| 聯邦所得稅費用（收益） |
( |
) | ||||||
| 其他綜合（損失）收入在重分類之前，稅後 |
( |
) | ||||||
| 從其他綜合收益中再分類的金額 |
( |
) | ||||||
| 聯邦所得稅費用（收益） |
( |
) | ||||||
| 從其他綜合收益重分類的金額，稅後 |
( |
) | ||||||
| 其他綜合（損失）收益 |
( |
) | ||||||
| 期末餘額 |
$ | ( |
) | $ | ( |
) | ||
7. 承銷信息
公司只有一個可報告的業務部門，提供專業保險產品。每種產品的總書面保費（「GWP」）如下所示：
| 截至9月30日的三個月 |
截至9月30日的九個月 |
|||||||||||||||||||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||||||||||||||||||
| (以千美元計) |
(以千美元計) |
|||||||||||||||||||||||||||||||
| % 的 |
% 的 |
% 的 |
% 的 |
|||||||||||||||||||||||||||||
| 金額 |
GWP |
金額 |
GWP |
金額 |
GWP |
金額 |
GWP |
|||||||||||||||||||||||||
| 產品 (1) |
||||||||||||||||||||||||||||||||
| 地震 |
$ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||
| 前端 |
% | % | % | % | ||||||||||||||||||||||||||||
| 內陸海洋及其他財產 |
% | % | % | % | ||||||||||||||||||||||||||||
| 作物 |
% | % | % | % | ||||||||||||||||||||||||||||
| 意外傷害 |
% | % | % | % | ||||||||||||||||||||||||||||
| 總毛書面保費 |
$ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||
(1) - 開始於 2024, 公司已更新產品分類，以符合管理層當前的策略和業務觀點。爲了可比性，去年金額已被重新分類。此重新分類僅用於展示目的，並不 不 影響整體毛承保保費。
各州的毛保費如下：
| 截至9月30日的三個月 |
截至9月30日的九個月 |
|||||||||||||||||||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||||||||||||||||||
| (以千美元計) |
(以千美元計) |
|||||||||||||||||||||||||||||||
| % 的 |
% 的 |
% 的 |
% 的 |
|||||||||||||||||||||||||||||
| 金額 |
GWP |
金額 |
GWP |
金額 |
GWP |
金額 |
GWP |
|||||||||||||||||||||||||
| 州 |
||||||||||||||||||||||||||||||||
| 加利福尼亞 |
$ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||
| 德克薩斯州 |
% | % | % | % | ||||||||||||||||||||||||||||
| 夏威夷 |
% | % | % | % | ||||||||||||||||||||||||||||
| 北達科他州 |
% | % | % | % | ||||||||||||||||||||||||||||
| 華盛頓 |
% | % | % | % | ||||||||||||||||||||||||||||
| 威斯康星州 |
% | % | % | % | ||||||||||||||||||||||||||||
| 佛羅里達 |
% | % | % | % | ||||||||||||||||||||||||||||
| 俄勒岡州 |
% | % | % | % | ||||||||||||||||||||||||||||
| 其他 |
% | % | % | % | ||||||||||||||||||||||||||||
| 總毛書面保費 |
$ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||
保險子公司的總書面保費如下：
| 截至9月30日的三個月 |
截至9月30日的九個月 |
|||||||||||||||||||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||||||||||||||||||
| (以千美元計) |
(以千美元計) |
|||||||||||||||||||||||||||||||
| % 的 |
% 的 |
% 的 |
% 的 |
|||||||||||||||||||||||||||||
| 金額 |
GWP |
金額 |
GWP |
金額 |
GWP |
金額 |
GWP |
|||||||||||||||||||||||||
| 子公司 |
||||||||||||||||||||||||||||||||
| PSIC |
$ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||
| PESIC |
% | % | % | % | ||||||||||||||||||||||||||||
| Laulima |
% | % | % | % | ||||||||||||||||||||||||||||
| 總毛書面保費 |
$ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||
8. 所得稅
公司在中期計算稅收準備時，使用其對全年有效稅率的最佳估計。 三 截至月份 2024年9月30日在這一期間，公司所得稅率爲
對於九個月期間 月結束 2024年9月30日公司稅率爲
9. 每股收益
下表列出了普通股的每股收益：
| 截至9月30日的三個月 |
截至9月30日的九個月 |
|||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||
| (以千爲單位，除股份及每股數據外) |
(以千爲單位，除股份及每股數據外) |
|||||||||||||||
| 凈利潤 |
$ | $ | $ | $ | ||||||||||||
| 加權平均普通股流通股數： |
||||||||||||||||
| 基本 |
||||||||||||||||
| 普通股等價物 |
||||||||||||||||
| 稀釋 |
||||||||||||||||
| 每股收益： |
||||||||||||||||
| 基本 |
$ | $ | $ | $ | ||||||||||||
| 稀釋 |
$ | $ | $ | $ | ||||||||||||
普通股等值主要與未行使的期權、限制性股票單位（RSU）和績效股票單位（PSU）有關， 2019 計劃下和未購買的股票相關， 2019 員工股票購買計劃（ESPP）下，使用國庫股票法進行計算。
10. 再保險
公司利用再保險來限制其損失風險，並使其能夠承保足夠額度的保單以滿足保單持有人的需求。公司同時採用超額損失（XOL）和份額再保險。
截至 2024年9月30日, 公司的災難事件保留爲 $
除了從傳統再保險公司購買的再保險外，公司還歷史性地通過災難債券從與保險相關的證券市場引入了抵押保護。在 第二， 在滿足12月 Tranche A 支付之後，向 Tranche b 票據的持有者支付一個
等同於並滿足攤銷贖回價格（如 Tranche b 票據中定義）在2025年1月2日到期的總金額（“ 的季度 2022, 公司完成了一筆價值 $
11. 信用協議
美國銀行信用協議
在 2021年12月， 公司與美國銀行國家協會簽訂了一份信貸協議，提供的循環信貸額度高達$
信貸協議包含慣例陳述和擔保以及慣常的肯定和否定契約，除其他外，包括財務契約、債務限制、留置權、投資、合併、處置、預付其他債務和股息以及其他分配。財務契約包括要求維持允許的債務資本比率、最低合併淨資產、最低風險資本比率和最低A.M. 最佳財務實力評級。信貸協議還包含慣常的違約事件，例如不遵守財務契約。如果發生違約事件，則任何債務 可能 立即申報到期並付款。截至 2024 年 9 月 30 日，該公司遵守了所有債務契約。
截至 2024年9月30日 和 2023年12月31日的合併基本報表及附註中，公司擁有 在信貸協議下的未償借款餘額。信貸協議的利息費用爲$
FHLB 信用額度
公司的PSIC子公司是舊金山聯邦住房貸款銀行（"FHLB"）的成員。成爲FHLB的成員使PSIC能夠獲得抵押貸款，可以用於一般企業用途並增強流動性管理。所有借款均由PSIC特定投資證券的質押完全擔保，借款能力等於
截至 2024年9月30日，公司擁有
以下討論和分析包含某些前瞻性聲明，這些聲明受到風險、不確定性和本季度報告第二部分第1A項中描述的其他因素的影響。由於許多因素，我們實際結果可能與這些前瞻性聲明中預期的結果有重大不同。
截至2024年9月30日的九個月經營結果並不一定反映2024年12月31日全年預計的結果或任何其他未來期間的結果。以下討論應與本季度報告第一部分第一項中包含的未經審計的簡明合併基本報表及相關附註一併閱讀，並且應與我們在2024年2月23日向美國證券交易委員會提交的10-K表格年報中包含的經過審計的合併基本報表及相關附註一併閱讀。
"公司"、"Palomar"、"我們"、"我們公司"和"我們的"指的是Palomar Holdings， 除非上下文另有要求，否則指的是Inc.及其子公司。
概述
我們是一家專業的保險公司，爲個人和企業提供財產與意外險產品。我們利用我們的承保和分析專業知識，在五個產品類別中提供創新解決方案：地震險、內陸海洋和其他財產險、意外險、前端險和農作物保險。我們使用專有的數據分析技術和現代科技平台，爲客戶提供靈活的產品，具有定製和細緻的定價，適用於認可和超額剩餘險（「E&S」）市場。
我們通過位於俄勒岡州的保險公司Palomar Specialty Insurance Company（"PSIC"）提供承保的保險產品，通過位於亞利桑那州的盈餘保險公司Palomar Excess and Surplus Insurance Company（"PESIC"）提供E&S保險產品。我們的每家保險子公司均獲得了A.M. Best Company（"A.M. Best"）的「A」評級，A.M. Best是保險行業領先的評級機構。
我們通過多個渠道分銷我們的產品，包括零售代理、項目管理者、批發經紀人，以及與其他保險公司的合作伙伴關係。我們的業務策略得到全面風險轉移計劃的支持，該計劃具有再保險覆蓋，我們認爲這可以降低收益波動性，並提供對災難事件的適當保護水平。我們的管理團隊結合了幾十年保險行業的經驗，涉及專業承保、再保險、項目管理、分銷和分析。
我們成立於2014年，業務顯著增長，產生了可觀的回報。我們有機地將書面保費從運營的第一年1660萬美元增加到截至2023年12月31日的11億美元，這反映出大約60%的年複合增長率。自2016年以來，我們一直保持盈利，自2016年以來我們的凈利潤增長反映出43%的年複合增長率。
我們尋求通過開發針對業務線的產品，以利用我們的核心競爭力，並在我們相信可以產生有吸引力的風險調整後的回報的領域，持續增長我們的收入。近年來，我們推出了幾種新產品，包括前端保險、超額財產險和農作物險，以及針對房地產代理錯誤與遺漏、超額責任險和環保母基責任險等細分市場的產品。這些新產品使我們的業務書籍多樣化，並拓寬了我們的產品組合。我們相信，我們的市場機會、獨特的產品和差異化的業務模式使我們能夠盈利地發展我們的業務。
最近的進展
在2024年6月，公司簽署了一份正式購買協議，以收購美國第一保險公司（「FIA」），這是一家位於新澤西州的保險公司，專注於爲主要在美國東北部的小到中型承包商承保擔保債券。FIA在16個州擁有執照，並且被A.M. Best評級爲「A-」。該交易已獲得兩家公司各自董事會的批准，並預計在2024年底或2025年初完成，前提是滿足慣常的交割條件以及獲得新澤西州銀行和保險局的監管批准。
在2024年8月，我們完成了一項註冊銷售（2024年8月的二次發行），共計1,380,000股普通股，公開發行價格爲每股88.00美元，其中包括根據承銷商的額外購股選擇權出售的180,000股。經過扣除承銷折扣和佣金以及發行費用後，我們從2024年8月的二次發行中獲得的淨收益大約爲1.157億美元。
我們經營成果的元件
總書面保費
總保費是我們在特定時間內爲承保或假設的保險單而收到或將要收到的金額，不包括保單獲取成本、再保險成本或其他扣除項的減免。在任何特定時期內，我們的總保費成交量通常受以下因素的影響：
| ● |
現有產品或合作伙伴中新業務提交的成交量； |
| ● |
將新業務提交綁定到現有產品或合作伙伴的政策中； |
| ● |
進入新的合作伙伴關係或提供新類型的保險產品； |
| ● |
退出現有合作關係或減少或停止提供現有保險產品； |
| ● |
現有保單的續保率；以及 |
| ● |
保單的平均大小和保費率。 |
當我們因新的合作關係或其他業務原因承擔未賺取的在保費時，我們的毛保費也會受到影響。在我們承擔大量未賺取保費的時期，我們的毛保費可能會與之前的時期相比顯著增加，而這種增加可能無法代表未來的趨勢。
轉讓書面保費
轉讓的已寫保費是指轉讓給再保險公司的毛寫保費總額。我們簽訂再保險合同以限制我們面臨的潛在損失風險，並提供額外的增長能力。我們通過超額損失（「XOL」）協議、配額共享協議和代理協議轉讓保費。轉讓的已寫保費按照所覆蓋的風險期按比例賺取。轉讓的已寫保費的成交量受到我們毛寫保費的數額以及我們在XOL協議中增加或減少限額或自留水平，以及在配額共享協議中的共同參與水平的決策的影響。轉讓的已寫保費的成交量還受到我們在代理協議下所寫保費數量的影響。
我們的轉讓書面保費在某些時期可能會受到配額分享協議變更的顯著影響。在我們修改配額分享協議的時期，轉讓書面保費與之前的時期相比可能會大幅增加或減少，而這些波動可能並不代表未來的趨勢。我們的超額損失成本作爲毛保費的百分比也可能因合同期間之間超額損失成本的變化、超額損失合同期間現有保費的變化，或因加速超額損失費用或需要因損失購買額外超額損失再保險而有所不同。此外，前端協議中每個時期轉讓的保費量可能會因進入新的前端合作伙伴關係和終止前端合作伙伴關係的時機而有所不同。
淨賺保費
淨賺保費代表我們毛寫保費的已賺部分，減去根據再保險協議轉讓給第三方再保人的已賺部分。我們大多數的保險政策期限爲一年，保費在保單的期限內按比例賺取。
佣金和其他收入
佣金和其他收入包括代表第三方保險公司簽署的保單所賺取的佣金，這些保單我們對被保險風險沒有承擔責任，以及與承保保單相關的某些費用。佣金和其他收入在基礎保單的生效日期賺取。
損失和損失調整費用
損失和損失調整費用代表因損失而產生的成本，扣除轉給再保險公司的任何損失。這些費用取決於我們承保的保險單的規模和期限以及與基礎保障相關的損失經驗。我們承保的某些保單使我們面臨逐步損失，例如建築火災。此外，我們承保的許多保單使我們面臨災害損失。災害損失是由涉及多個索賠和保單持有人的事件引起的特定損失，包括地震、颶風、洪水、對流暴風雨、恐怖襲擊或其他聚集事件。我們的損失和損失調整費用通常受到以下因素的影響：
| ● |
我們承保與這些風險相關的保險的地區，災難事件的發生、頻率和嚴重程度； |
| ● |
非災難性 attritional 損失的發生頻率和嚴重性； |
| ● |
由我們撰寫的業務混合； |
| ● |
在損失發生時，我們已經簽訂的再保險協議； |
| ● |
我們承保的政策的地理位置和特點； |
| ● |
與我們所從事的業務相關的法律或監管環境的變化; |
| ● |
法律軍工股成本的趨勢; |
| ● |
住房和施工成本的通貨膨脹；以及 |
| ● |
法院和陪審團裁決的賠償金額增加。 |
損失和損失調整費用是基於對估計損失的精算分析，包括在期間內發生的損失和來自前期的估計變更。損失和損失調整費用可能會在多個年度內支付。
收購費用
收購費用主要包括我們支付給零售代理、項目管理員和批發經紀人的佣金，扣除我們在配額分保和前端再保險協議中獲得的分保佣金和前端費用。此外，收購費用還包括與保費相關的稅費和其他費用。與我們簽發的每份保單相關的收購費用被遞延，並在保單期限內按比例攤銷。我們賺取的前端費用與我們在基礎保險保單上賺取的保費一致，按保單期限進行比例分攤。
其他承銷費用
其他承保費用代表我們保險業務的管理和行政費用，包括員工薪水和福利、軟體和科技費用、辦公室租金、股票薪酬、執照和費用，以及專業服務費用，如法律、會計和精算服務。
利息支出
利息支出包括根據我們與美國銀行的信貸協議和聯邦住房貸款銀行的信用額度借款所產生的利息，以及未使用額度的費用和我們與美國銀行信貸協議的承諾費用的攤銷。
淨投資收益
我們通過投資資產組合獲得投資收益。我們主要投資於投資級固定到期證券，包括美國政府發行的證券、州政府發行的證券、抵押貸款和資產支持證券，以及公司的債券，其中小部分投資於股票和現金及現金等價物。影響淨投資收益的主要因素包括我們的投資組合規模、該投資組合的收益率以及投資管理費用。根據攤餘成本進行衡量，該成本不包括利率或其他因素的變動導致的公允價值波動，我們的投資組合規模主要取決於我們的投資資本，以及我們從被保險人那裏獲得的保費，減去對保單持有人的索賠支付和其他營業費用。
投資的已實現和未實現的收益和損失
投資的已實現和未實現的收益和損失取決於我們銷售安防所收到的金額與安防的成本基礎之間的差額、市場價值調整、在收益中確認的信用損失，以及對股票證券和權益法投資的未實現收益和損失。對固定到期證券的未實現收益和損失作爲其他綜合收益的一部分確認，不會影響我們的凈利潤。
所得稅費用
目前我們的所得稅費用主要由對我們運營徵收的聯邦所得稅組成。我們的有效稅率取決於稅前收益的元件及相關的稅務影響。
關鍵財務和運營指標
我們討論了一些關鍵的財務和運營指標，如下所述，這些指標爲我們業務和財務表現背後的運營因素提供了有用的信息。
承保營業收入 是指在計算總營業收入時，不包括淨投資收益及投資的已 realized 和未 realized 盈虧的非GAAP財務指標。有關根據GAAP計算的總營業收入與承保收入的對賬，請參閱「非GAAP財務指標的對賬」。
承保收入 是一項非GAAP財務度量，定義爲稅前收入，排除淨投資收入、投資的已實現和未實現的收益和損失以及利息費用。請參閱《非GAAP財務度量的對賬》以了解根據GAAP計算的稅前收入與承保收入的對賬。
調整後的凈利潤 是一種非GAAP財務指標，定義爲凈利潤排除某些可能不是基礎業務趨勢、經營成果或未來展望的影響，其稅務影響已被扣除。我們僅對調整後的項目計算稅務影響，這些調整將在計算我們的所得稅費用時使用公司獲得這些調整的估算稅率進行扣除。有關按照GAAP計算的凈利潤與調整後凈利潤的調節，請參見「非GAAP財務指標的調節」。
年化股本回報率 是以年化基準表示的凈利潤，作爲該期間內平均期初和期末股東權益的百分比。
年化調整後的股本回報率 是一項非公認會計原則的財務指標，定義爲調整後的凈利潤，以期間內平均期初和期末股東權益的百分比按年化計算。請參閱「非GAAP財務指標的調整」以獲取使用未調整GAAP數字計算的權益回報率與調整後的權益回報率的對比。
損失比率以百分比表示，損失及損失調整費用與淨賺保費的比率。
費用比率， 以百分比表示的是收購和其他承銷費用（扣除佣金和其他收入）與淨賺保費的比例。
綜合比率 被定義爲損失比率和費用比率的總和。合併比率低於100%通常表示承保盈利。合併比率超過100%通常表示承保虧損。
調整後的綜合比率 是一個非GAAP財務指標，定義爲損失比率和費用比率的總和，計算時未考慮某些可能不反映基礎業務趨勢、經營結果或未來展望的項目的影響。有關使用未經調整的GAAP數字計算的合併比率與調整後合併比率的對賬，請參見「非GAAP財務指標的對賬」。
稀釋後調整後的每股收益是一個非公認會計原則的財務指標，定義爲調整後的凈利潤除以期間已發行加權平均普通股，反映瞭如果股權獎勵轉換爲普通股等價物可能發生的稀釋，計算方法使用的是庫存股法。請參見「非公認會計原則財務指標的調整」以了解根據公認會計原則計算的攤薄每股收益與攤薄調整後每股收益的對賬。
災難損失比率 非GAAP財務指標定義爲災難損失與淨賺保費之比。有關使用未經調整的GAAP數字計算的損失比率與災難損失比率的對賬，請參見「非GAAP財務指標的對賬」。
調整後的綜合比率（不包括災難損失） 是一種非公認會計原則（non-GAAP）財務指標，定義爲調整後的組合比率，不包括災難損失的影響。有關使用未調整的GAAP數字計算的組合比率與不包括災難損失的調整後組合比率的調節，請參見「非GAAP財務指標的調節」。
調整後的承保收入是一種非公認會計原則的財務衡量指標，定義爲承保收入（不包括可能不反映基礎業務趨勢、經營成果或未來前景的某些項目影響）。請參見「非公認會計原則財務衡量指標的調整」以獲取根據GAAP計算的稅前收入與調整後承保收入的調和。
有形股東’ 權益 是一種非公認會計原則（非GAAP）財務指標，定義爲股東權益減去無形資產。有關按照公認會計原則（GAAP）計算的股東權益與有形股東權益的調和，請參見「非GAAP財務指標的調和」。
營業結果
三 截至2024年9月30日的月份與三個月相比 截至2023年9月30日的月份
下表總結了截至2024年和2023年9月30日的三個月的結果：
| 截至三個月 |
||||||||||||||||
| 九月三十日 |
||||||||||||||||
| 2024 |
2023 |
變更 |
% 變動 |
|||||||||||||
| (以千美元計，除每股數據外) |
||||||||||||||||
| 總承保保費 |
$ | 414,977 | $ | 313,998 | $ | 100,979 | 32.2 | % | ||||||||
| 轉出書面保費 |
(255,267 | ) | (203,336 | ) | (51,931 | ) | 25.5 | % | ||||||||
| 淨承保保費 |
159,710 | 110,662 | 49,048 | 44.3 | % | |||||||||||
| 淨賺取保費 |
135,646 | 85,817 | 49,829 | 58.1 | % | |||||||||||
| 佣金及其他收入 |
715 | 465 | 250 | 53.8 | % | |||||||||||
| 總承銷營業收入 (1) |
136,361 | 86,282 | 50,079 | 58.0 | % | |||||||||||
| 損失和損失調整費用 |
40,315 | 16,139 | 24,176 | 149.8 | % | |||||||||||
| 收購費用，扣除分出佣金和前期費用後 |
41,469 | 27,004 | 14,465 | 53.6 | % | |||||||||||
| 其他承保費用 |
28,129 | 22,390 | 5,739 | 25.6 | % | |||||||||||
| 承保收入 (1) |
26,448 | 20,749 | 5,699 | 27.5 | % | |||||||||||
| 利息支出 |
(87 | ) | (867 | ) | 780 | (90.0 | )% | |||||||||
| 淨投資收入 |
9,408 | 6,029 | 3,379 | 56.0 | % | |||||||||||
| 投資的淨實現和未實現收益（損失） |
2,734 | (1,376 | ) | 4,110 | (298.7 | )% | ||||||||||
| 稅前收入 |
38,503 | 24,535 | 13,968 | 56.9 | % | |||||||||||
| 所得稅費用 |
8,006 | 6,103 | 1,903 | 31.2 | % | |||||||||||
| 凈利潤 |
$ | 30,497 | $ | 18,432 | $ | 12,065 | 65.5 | % | ||||||||
| 調整： |
||||||||||||||||
| 淨實現和未實現（收益）損失在投資上 |
(2,734 | ) | 1,376 | (4,110 | ) | (298.7 | )% | |||||||||
| 與交易相關的費用 |
84 | 229 | (145 | ) | (63.3 | )% | ||||||||||
| 基於股票的補償費用 |
4,117 | 3,589 | 528 | 14.7 | % | |||||||||||
| 無形資產攤銷 |
389 | 390 | (1 | ) | (0.3 | )% | ||||||||||
| 稅務影響 |
91 | (725 | ) | 816 | (112.6 | )% | ||||||||||
| 調整後的凈利潤 (1) |
$ | 32,444 | $ | 23,291 | $ | 9,153 | 39.3 | % | ||||||||
| 關鍵財務和運營指標 |
||||||||||||||||
| 年化股本回報率 |
19.7 | % | 17.7 | % | ||||||||||||
| 年化調整後股本回報率 (1) |
21.0 | % | 22.3 | % | ||||||||||||
| 損失比率 |
29.7 | % | 18.8 | % | ||||||||||||
| 費用比率 |
50.8 | % | 57.0 | % | ||||||||||||
| 綜合比率 |
80.5 | % | 75.8 | % | ||||||||||||
| 調整後的綜合比率 (1) |
77.1 | % | 70.9 | % | ||||||||||||
| 攤薄後每股收益 |
$ | 1.15 | $ | 0.73 | ||||||||||||
| 攤薄調整後的每股收益 (1) |
$ | 1.23 | $ | 0.92 | ||||||||||||
| 災害損失 |
$ | 12,924 | $ | (533 | ) | |||||||||||
| 災難損失比例 (1) |
9.5 | % | (0.6 | )% | ||||||||||||
| 調整後的綜合比率（不包括災難損失） (1) |
67.6 | % | 71.5 | % | ||||||||||||
| 調整後的承保收入 (1) |
$ | 31,038 | $ | 24,957 | $ | 6,081 | 24.4 | % | ||||||||
| (1) |
Indicates non-GAAP financial measure; see “Reconciliation of Non‑GAAP Financial Measures” for a reconciliation of the non‑GAAP financial measures to their most directly comparable financial measures prepared in accordance with GAAP. |
Gross Written Premiums
Gross written premiums increased $101.0 million, or 32.2% to $415.0 million for the three months ended September 30, 2024 compared to $314.0 million for the three months ended September 30, 2023. Premium growth was primarily due to an increased volume of policies written across our lines of business which was driven by new business generated with existing partners, strong premium retention rates for existing business, expansion of our distribution footprint, and new partnerships. The following table summarizes our gross written premiums by line of business and shows each line’s percentage of total gross written premiums for each period:
| Three Months Ended September 30, |
||||||||||||||||||||||||
| 2024 |
2023 |
|||||||||||||||||||||||
| ($ in thousands) |
||||||||||||||||||||||||
| % of |
% of |
% |
||||||||||||||||||||||
| Amount |
GWP |
Amount |
GWP |
Change |
Change |
|||||||||||||||||||
| Product (1) |
||||||||||||||||||||||||
| Earthquake |
$ | 135,329 | 32.6 | % | $ | 113,386 | 36.1 | % | $ | 21,943 | 19.4 | % | ||||||||||||
| Fronting |
84,945 | 20.5 | % | 94,954 | 30.2 | % | (10,009 | ) | (10.5 | )% | ||||||||||||||
| Inland Marine and Other Property |
78,734 | 19.0 | % | 64,499 | 20.5 | % | 14,235 | 22.1 | % | |||||||||||||||
| Crop |
59,662 | 14.4 | % | 11,627 | 3.7 | % | 48,035 | NM | ||||||||||||||||
| Casualty |
56,307 | 13.6 | % | 29,532 | 9.4 | % | 26,775 | 90.7 | % | |||||||||||||||
| Total Gross Written Premiums |
$ | 414,977 | 100.0 | % | $ | 313,998 | 100.0 | % | $ | 100,979 | 32.2 | % | ||||||||||||
| NM - not meaningful |
||||||||||||||||||||||||
(1) - Beginning in 2024, the Company has updated the categorization of its products to align with management's current strategy and view of the business. Prior year amounts have been reclassified for comparability purposes. The recategorization is for presentation purposes only and does not impact overall gross written premiums.
Fronting premiums represent premium where we subsequently cede the majority of the premium and risk in exchange for a fronting fee, which is our primary source of profit in the arrangement. The volume of fronting premiums written each period may vary due to the timing of entering new fronting partnerships and terminations of existing fronting partnerships.
The following table summarizes our gross written premiums by insurance subsidiary:
| Three Months Ended September 30, |
||||||||||||||||||||||||
| 2024 |
2023 |
|||||||||||||||||||||||
| ($ in thousands) |
||||||||||||||||||||||||
| % of |
% of |
% |
||||||||||||||||||||||
| Amount |
GWP |
Amount |
GWP |
Change |
Change |
|||||||||||||||||||
| Subsidiary |
||||||||||||||||||||||||
| PSIC |
$ | 236,624 | 57.0 | % | $ | 186,693 | 59.5 | % | $ | 49,931 | 26.7 | % | ||||||||||||
| PESIC |
159,305 | 38.4 | % | 127,305 | 40.5 | % | 32,000 | 25.1 | % | |||||||||||||||
| Laulima |
19,048 | 4.6 | % | — | — | % | 19,048 | — | % | |||||||||||||||
| Total Gross Written Premiums |
$ | 414,977 | 100.0 | % | $ | 313,998 | 100.0 | % | $ | 100,979 | 32.2 | % | ||||||||||||
Ceded Written Premiums
Ceded written premiums increased $51.9 million, or 25.5%, to $255.3 million for the three months ended September 30, 2024 from $203.3 million for the three months ended September 30, 2023. The increase was primarily due to increased premiums ceded under quota share and fronting agreements due to growth in the volume of written premiums subject to quota share or fronting agreements. In addition, we incurred increased XOL reinsurance expense due to growth in exposure
Although our volume of ceded written premiums increased, ceded written premiums as a percentage of gross written premiums decreased to 61.5% for the three months ended September 30, 2024 from 64.8% for the three months ended September 30, 2023. This percentage decrease was driven by changes in our composition of business whereby premiums written in the current period were subject to lower quota share or XOL cession percentages compared to premiums written in the prior period.
Net Written Premiums
Net written premiums increased $49.0 million, or 44.3%, to $159.7 million for the three months ended September 30, 2024 from $110.7 million for the three months ended September 30, 2023. The increase was primarily due to an increase in gross written premiums, primarily in our Casualty and Earthquake lines, partially offset by increased ceded written premiums.
Net Earned Premiums
Net earned premiums increased $49.8 million, or 58.1%, to $135.6 million for the three months ended September 30, 2024 from $85.8 million for the three months ended September 30, 2023 due primarily to the earning of increased gross written premiums offset by the earning of ceded written premiums under reinsurance agreements. The table below shows the amount of premiums we earned on a gross and net basis and net earned premiums as a percentage of gross earned premiums in each period presented:
| Three Months Ended |
||||||||||||||||
| September 30, |
||||||||||||||||
| 2024 |
2023 |
Change |
% Change |
|||||||||||||
| ($ in thousands) |
||||||||||||||||
| Gross earned premiums |
$ | 395,881 | $ | 271,786 | $ | 124,095 | 45.7 | % | ||||||||
| Ceded earned premiums |
(260,235 | ) | (185,969 | ) | (74,266 | ) | 39.9 | % | ||||||||
| Net earned premiums |
$ | 135,646 | $ | 85,817 | $ | 49,829 | 58.1 | % | ||||||||
| Net earned premium ratio |
34.3 | % | 31.6 | % | ||||||||||||
Our net earned premium ratio increased due to changes in our composition of business whereby premiums earned in the current period were subject to lower quota share or XOL cession percentages compared to premiums earned in the prior period.
Commission and Other Income
Commission and other income increased $0.2 million to $0.7 million for the three months ended September 30, 2024 from $0.5 million for the three months ended September 30, 2023. The balance increased due to an increase in commissions and policy related fees driven by increased premiums written.
Losses and Loss Adjustment Expenses
Losses and loss adjustment expenses increased $24.2 million, or 149.8% to $40.3 million for the three months ended September 30, 2024 from $16.1 million for the three months ended September 30, 2023. Losses and loss adjustment expenses consisted of the following elements during the respective periods:
| Three Months Ended |
||||||||||||||||
| September 30, |
||||||||||||||||
| 2024 |
2023 |
Change |
% Change |
|||||||||||||
| ($ in thousands) |
||||||||||||||||
| Catastrophe losses |
$ | 12,924 | $ | (533 | ) | $ | 13,457 | NM | ||||||||
| Non-catastrophe losses |
27,391 | 16,672 | 10,719 | 64.3 | % | |||||||||||
| Total losses and loss adjustment expenses |
$ | 40,315 | $ | 16,139 | $ | 24,176 | 149.8 | % | ||||||||
| Catastrophe loss ratio |
9.5 | % | (0.6 | )% | ||||||||||||
| Non-catastrophe loss ratio |
20.2 | % | 19.4 | % | ||||||||||||
| Total loss ratio |
29.7 | % | 18.8 | % | ||||||||||||
| NM - not meaningful |
||||||||||||||||
Catastrophe losses for the quarter ended September 30, 2024 were related to Hurricanes Beryl, Debby, and Helene.
Catastrophe loss activity for the quarter ended September 30, 2023 was primarily related to favorable development on severe convective storms that occurred during the second quarter of 2023 and favorable development on prior year hurricanes.
Non-catastrophe losses increased for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 due mainly to higher attritional losses on lines of business subject to attritional losses such as Casualty and Inland Marine and Other Property due to premium growth in these lines of business.
Acquisition Expenses
Acquisition expenses increased $14.5 million, or 53.6%, to $41.5 million for the three months ended September 30, 2024 from $27.0 million for the three months ended September 30, 2023. The increase was primarily due to higher commissions and premium-related taxes resulting from higher gross earned premiums. This was partially offset by higher earned ceding commissions and fronting fees due to an increase in premiums subject to a quota share or fronting agreement. Acquisition expenses as a percentage of gross earned premiums were 10.5% for the three months ended September 30, 2024 compared to 9.9% for the three months ended September 30, 2023. Acquisition expenses as a percentage of gross earned premiums increased due to higher commissions and premium-related taxes as a percentage of gross earned premiums and lower ceded commissions and fronting fees as a percentage of gross earned premiums due to changes in the composition of our business.
Other Underwriting Expenses
Other underwriting expenses increased $5.7 million, or 25.6%, to $28.1 million for the three months ended September 30, 2024 from $22.4 million for the three months ended September 30, 2023. The increase was primarily due to the Company incurring higher payroll, technology, and stock-based compensation expenses associated with growth of the Company.
Other underwriting expenses as a percentage of gross earned premiums were 7.1% for the three months ended September 30, 2024 compared to 8.2% for the three months ended September 30, 2023. Excluding the impact of expenses relating to transactions, stock-based compensation, and amortization of intangibles, other underwriting expenses as a percentage of gross earned premiums were 5.9% for the three months ended September 30, 2024 compared to 6.7% for the three months ended September 30, 2023. Other underwriting expenses as a percentage of gross earned premiums may fluctuate period over period based on timing of certain expenses relative to premium growth.
Net Investment Income and Net Realized and Unrealized Gains (Losses) on Investments
Net investment income increased $3.4 million, or 56.0%, to $9.4 million for the three months ended September 30, 2024 from $6.0 million for the three months ended September 30, 2023. The increase was primarily due to a higher average balance of investments during the three months ended September 30, 2024 due primarily to the use of proceeds from our August 2024 secondary offering and also due to higher yields on invested assets versus the prior year.
The Company incurred $2.7 million of net realized and unrealized gains on investments for the three months ended September 30, 2024 compared to $1.4 million of net realized and unrealized losses for the three months ended September 30, 2023 In both periods, the balance was primarily driven by unrealized gains and losses on our equity securities. Unrealized gains and losses on fixed maturity securities are recognized as a component of other comprehensive income and do not impact our net income. The following table summarizes the components of our investment income for each period presented:
| Three Months Ended |
||||||||||||||||
| September 30, |
||||||||||||||||
| 2024 |
2023 |
Change |
% Change |
|||||||||||||
| ($ in thousands) |
||||||||||||||||
| Interest income |
$ | 9,365 | $ | 5,952 | $ | 3,413 | 57.3 | % | ||||||||
| Dividend income |
220 | 211 | 9 | 4.3 | % | |||||||||||
| Investment management fees and expenses |
(177 | ) | (134 | ) | (43 | ) | 32.1 | % | ||||||||
| Net investment income |
9,408 | 6,029 | 3,379 | 56.0 | % | |||||||||||
| Net realized and unrealized gains (losses) on investments |
2,734 | (1,376 | ) | 4,110 | (298.7 | )% | ||||||||||
| Total |
$ | 12,142 | $ | 4,653 | $ | 7,489 | 160.9 | % | ||||||||
Income Tax Expense
Income tax expense increased $1.9 million to $8.0 million for the three months ended September 30, 2024 from $6.1 million for the three months ended September 30, 2023 due to higher pre-tax income for the period ended September 30, 2024. During the three months ended September 30, 2024, our income tax rate of 20.8% was lower than the statutory rate of 21% due primarily to permanent component of employee stock option exercises. During the three months ended September 30, 2023, our income tax rate of 24.9% was higher than the statutory rate of 21% due primarily to non-deductible executive compensation expense.
Results of Operations
Nine months ended September 30, 2024 compared to nine months ended September 30, 2023
The following table summarizes our results for the nine months ended September 30, 2024 and 2023:
| Nine Months Ended |
||||||||||||||||
| September 30, |
||||||||||||||||
| 2024 |
2023 |
Change |
% Change |
|||||||||||||
| ($ in thousands, except per share data) |
||||||||||||||||
| Gross written premiums |
$ | 1,168,239 | $ | 838,406 | $ | 329,833 | 39.3 | % | ||||||||
| Ceded written premiums |
(692,620 | ) | (542,789 | ) | (149,831 | ) | 27.6 | % | ||||||||
| Net written premiums |
475,619 | 295,617 | 180,002 | 60.9 | % | |||||||||||
| Net earned premiums |
365,796 | 252,164 | 113,632 | 45.1 | % | |||||||||||
| Commission and other income |
2,035 | 1,781 | 254 | 14.3 | % | |||||||||||
| Total underwriting revenue (1) |
367,831 | 253,945 | 113,886 | 44.8 | % | |||||||||||
| Losses and loss adjustment expenses |
97,583 | 54,696 | 42,887 | 78.4 | % | |||||||||||
| Acquisition expenses, net of ceding commissions and fronting fees |
109,072 | 78,740 | 30,332 | 38.5 | % | |||||||||||
| Other underwriting expenses |
84,165 | 63,962 | 20,203 | 31.6 | % | |||||||||||
| Underwriting income (1) |
77,011 | 56,547 | 20,464 | 36.2 | % | |||||||||||
| Interest expense |
(1,052 | ) | (2,952 | ) | 1,900 | (64.4 | )% | |||||||||
| Net investment income |
24,506 | 16,690 | 7,816 | 46.8 | % | |||||||||||
| Net realized and unrealized gains (losses) on investments |
5,768 | (103 | ) | 5,871 | NM | |||||||||||
| Income before income taxes |
106,233 | 70,182 | 36,051 | 51.4 | % | |||||||||||
| Income tax expense |
23,625 | 16,877 | 6,748 | 40.0 | % | |||||||||||
| Net income |
$ | 82,608 | $ | 53,305 | $ | 29,303 | 55.0 | % | ||||||||
| Adjustments: |
||||||||||||||||
| Net realized and unrealized (gains) losses on investments |
(5,768 | ) | 103 | (5,871 | ) | NM | ||||||||||
| Expenses associated with transactions |
557 | 229 | 328 | 143.2 | % | |||||||||||
| Stock-based compensation expense |
11,905 | 10,737 | 1,168 | 10.9 | % | |||||||||||
| Amortization of intangibles |
1,168 | 1,092 | 76 | 7.0 | % | |||||||||||
| Expenses associated with catastrophe bond |
2,483 | 1,640 | 843 | 51.4 | % | |||||||||||
| Tax impact |
(734 | ) | (1,582 | ) | 848 | (53.6 | )% | |||||||||
| Adjusted net income (1) |
$ | 92,219 | $ | 65,524 | $ | 26,695 | 40.7 | % | ||||||||
| Key Financial and Operating Metrics |
||||||||||||||||
| Annualized return on equity |
18.8 | % | 17.6 | % | ||||||||||||
| Annualized adjusted return on equity (1) |
20.9 | % | 21.7 | % | ||||||||||||
| Loss ratio |
26.7 | % | 21.7 | % | ||||||||||||
| Expense ratio |
52.3 | % | 55.9 | % | ||||||||||||
| Combined ratio |
78.9 | % | 77.6 | % | ||||||||||||
| Adjusted combined ratio (1) |
74.5 | % | 72.1 | % | ||||||||||||
| Diluted earnings per share |
$ | 3.19 | $ | 2.10 | ||||||||||||
| Diluted adjusted earnings per share (1) |
$ | 3.56 | $ | 2.59 | ||||||||||||
| Catastrophe losses |
$ | 19,724 | $ | 3,432 | ||||||||||||
| Catastrophe loss ratio (1) |
5.4 | % | 1.4 | % | ||||||||||||
| Adjusted combined ratio excluding catastrophe losses (1) |
69.2 | % | 70.8 | % | ||||||||||||
| Adjusted underwriting income (1) |
$ | 93,124 | $ | 70,245 | $ | 22,879 | 32.6 | % | ||||||||
| NM - not meaningful |
||||||||||||||||
| (1) |
Indicates non-GAAP financial measure; see “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of the non-GAAP financial measures to their most directly comparable financial measures prepared in accordance with GAAP. |
Gross Written Premiums
Gross written premiums increased $329.8 million, or 39.3% to $1,168.2 million for the nine months ended September 30, 2024 compared to $838.4 million for the nine months ended September 30, 2023. Premium growth was primarily due to an increased volume of policies written across our lines of business which was driven by new business generated with existing partners, strong premium retention rates for existing business, expansion of our distribution footprint, and new partnerships. The following table summarizes our gross written premiums by line of business and shows each line’s percentage of total gross written premiums for each period:
| Nine Months Ended September 30, |
||||||||||||||||||||||||
| 2024 |
2023 |
|||||||||||||||||||||||
| ($ in thousands) |
||||||||||||||||||||||||
| % of | % of | % | ||||||||||||||||||||||
| Amount |
GWP |
Amount |
GWP |
Change |
Change |
|||||||||||||||||||
| Product (1) |
||||||||||||||||||||||||
| Earthquake |
$ | 376,088 | 32.2 | % | $ | 314,810 | 37.5 | % | $ | 61,278 | 19.5 | % | ||||||||||||
| Fronting |
275,671 | 23.6 | % | 266,433 | 31.8 | % | 9,238 | 3.5 | % | |||||||||||||||
| Inland Marine and Other Property |
249,147 | 21.3 | % | 186,983 | 22.3 | % | 62,164 | 33.2 | % | |||||||||||||||
| Casualty |
166,762 | 14.3 | % | 58,065 | 6.9 | % | 108,697 | 187.2 | % | |||||||||||||||
| Crop |
100,571 | 8.6 | % | 12,115 | 1.4 | % | 88,456 | NM | ||||||||||||||||
| Total Gross Written Premiums |
$ | 1,168,239 | 100.0 | % | $ | 838,406 | 100.0 | % | $ | 329,833 | 39.3 | % | ||||||||||||
| NM - not meaningful |
||||||||||||||||||||||||
(1) - Beginning in 2024, the Company has updated the categorization of its products to align with management's current strategy and view of the business. Prior year amounts have been reclassified for comparability purposes. The recategorization is for presentation purposes only and does not impact overall gross written premiums.
Fronting premiums represent premium where we subsequently cede the majority of the premium and risk in exchange for a fronting fee, which is our primary source of profit in the arrangement. The volume of fronting premiums written each period may vary due to the timing of entering new fronting partnerships and terminations of existing fronting partnerships.
The following table summarizes our gross written premiums by insurance subsidiary:
| Nine Months Ended September 30, |
||||||||||||||||||||||||
| 2024 |
2023 |
|||||||||||||||||||||||
| ($ in thousands) |
||||||||||||||||||||||||
| % of |
% of |
% | ||||||||||||||||||||||
| Amount |
GWP |
Amount |
GWP |
Change |
Change |
|||||||||||||||||||
| Subsidiary |
||||||||||||||||||||||||
| PSIC |
$ | 652,988 | 55.9 | % | $ | 497,216 | 59.3 | % | $ | 155,772 | 31.3 | % | ||||||||||||
| PESIC |
472,909 | 40.5 | % | 341,190 | 40.7 | % | 131,719 | 38.6 | % | |||||||||||||||
| Laulima |
42,342 | 3.6 | % | — | — | % | 42,342 | — | % | |||||||||||||||
| Total Gross Written Premiums |
$ | 1,168,239 | 100.0 | % | $ | 838,406 | 100.0 | % | $ | 329,833 | 39.3 | % | ||||||||||||
Ceded Written Premiums
Ceded written premiums increased $149.8 million, or 27.6%, to $692.6 million for the nine months ended September 30, 2024 from $542.8 million for the nine months ended September 30, 2023. The increase was primarily due to increased premium ceded under quota share and fronting agreements due to growth in fronting premiums written and growth in the volume of written premiums subject to quota shares. In addition, we incurred increased XOL reinsurance expense due to growth in exposure, in addition to higher rates on XOL reinsurance.
Although our volume of ceded written premiums increased, ceded written premiums as a percentage of gross written premiums decreased to 59.3% for the nine months ended September 30, 2024 from 64.7% for the nine months ended September 30, 2023. This percentage decrease was driven by changes in our composition of business whereby premiums written in the current period were subject to lower quota share or XOL cession percentages compared to premiums written in the prior period.
Net Written Premiums
Net written premiums increased $180.0 million, or 60.9%, to $475.6 million for the nine months ended September 30, 2024 from $295.6 million for the nine months ended September 30, 2023. The increase was primarily due to an increase in gross written premiums, primarily in our Casualty and Inland Marine and Other Property lines, partially offset by increased ceded written premiums.
Net Earned Premiums
Net earned premiums increased $113.6 million, or 45.1%, to $365.8 million for the nine months ended September 30, 2024 from $252.2 million for the nine months ended September 30, 2023 due primarily to the earning of increased gross written premiums offset by the earning of ceded written premiums under reinsurance agreements. The table below shows the amount of premiums we earned on a gross and net basis and net earned premiums as a percentage of gross earned premiums in each period presented.
| Nine Months Ended |
||||||||||||||||
| September 30, |
||||||||||||||||
| 2024 |
2023 |
Change |
% Change |
|||||||||||||
| ($ in thousands) |
||||||||||||||||
| Gross earned premiums |
$ | 1,025,716 | $ | 739,219 | $ | 286,497 | 38.8 | % | ||||||||
| Ceded earned premiums |
(659,920 | ) | (487,055 | ) | (172,865 | ) | 35.5 | % | ||||||||
| Net earned premiums |
$ | 365,796 | $ | 252,164 | $ | 113,632 | 45.1 | % | ||||||||
| Net earned premium ratio |
35.7 | % | 34.1 | % | ||||||||||||
Our net earned premium ratio increased due to changes in our composition of business whereby premiums earned in the current period were subject to lower quota share or XOL cessions compared to premiums earned in the prior period.
Commission and Other Income
Commission and other income increased $0.3 million, or 14.3%, to $2.0 for the nine months ended September 30, 2024 from $1.8 for the nine months ended September 30, 2023. The balance increased due to an increase in commissions and policy related fees driven by increased premiums written.
.
Losses and Loss Adjustment Expenses
Losses and loss adjustment expenses increased $42.9 million to $97.6 million for the nine months ended September 30, 2024 from $54.7 million for the nine months ended September 30, 2023. Losses and loss adjustment expenses consisted of the following elements during the respective periods:
| Nine Months Ended |
|||||||||||||
| September 30, |
|||||||||||||
| 2024 |
2023 |
Change |
% Change |
||||||||||
| ($ in thousands) |
|||||||||||||
| Catastrophe losses |
$ | 19,724 | $ | 3,432 | $ | 16,292 | NM | ||||||
| Non-catastrophe losses |
77,859 | 51,264 | 26,595 | 51.9 | % | ||||||||
| Total losses and loss adjustment expenses |
$ | 97,583 | $ | 54,696 | $ | 42,887 | 78.4 | % | |||||
| Catastrophe loss ratio |
5.4 | % | 1.4 | % | |||||||||
| Non-catastrophe loss ratio |
21.3 | % | 20.3 | % | |||||||||
| Total loss ratio |
26.7 | % | 21.7 | % | |||||||||
| NM - not meaningful |
|||||||||||||
Catastrophe losses for the nine months ended September 30, 2024 were related to floods occurring during the first quarter, severe convective storms occurring during the second quarter, and Hurricanes Beryl, Debby, and Helene which occurred during the third quarter.
Catastrophe losses for the nine months ended September 30, 2023 were related to floods occurring during the first quarter and severe convective storms occurring during the second quarter.
Non-catastrophe losses increased for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 due mainly to higher attritional losses on lines of business subject to attritional losses such as Casualty and Inland Marine and Other Property due to premium growth in these lines of business.
Acquisition Expenses
Acquisition expenses increased $30.3 million, or 38.5%, to $109.1 million for the nine months ended September 30, 2024 from $78.7 million for the nine months ended September 30, 2023. The increase was primarily due to higher commissions and premium-related taxes resulting from higher gross earned premiums. This was partially offset by higher earned ceding commissions and fronting fees due to an increase in premiums subject to a quota share or fronting agreement. Acquisition expenses as a percentage of gross earned premiums were 10.6% for the nine months ended September 30, 2024 compared to 10.7% for the nine months ended September 30, 2023. Acquisition expenses as a percentage of gross earned premiums decreased due to the recognition of higher ceding commission and fronting fee income as a percentage of gross earned premiums due to changes in mix of business produced.
Other Underwriting Expenses
Other underwriting expenses increased $20.2 million, or 31.6%, to $84.2 million for the nine months ended September 30, 2024 from $64.0 million for the nine months ended September 30, 2023. The increase was primarily due to the Company incurring higher payroll, technology, stock-based compensation, and professional fees expenses associated with growth of the Company.
Other underwriting expenses as a percentage of gross earned premiums were 8.2% for the nine months ended September 30, 2024 compared to 8.7% for the nine months ended September 30, 2023. Excluding the impact of expenses relating to transactions, stock-based compensation, amortization of intangibles, and catastrophe bonds, other underwriting expenses as a percentage of gross earned premiums were 6.6% for the nine months ended September 30, 2024 compared to 6.8% for the nine months ended September 30, 2023. Other underwriting expenses as a percentage of gross earned premiums may fluctuate period over period based on timing of certain expenses relative to premium growth.
Net Investment Income and Net Realized and Unrealized Gains (Losses) on Investments
Net investment income increased $7.8 million, or 46.8%, to $24.5 million for the nine months ended September 30, 2024 from $16.7 million for the nine months ended September 30, 2023. The increase was primarily due to a higher average balance of investments during the nine months ended September 30, 2024 and also due to higher yields on invested assets versus the prior year.
The Company incurred $5.8 million of net realized and unrealized gains on investments for the nine months ended September 30, 2024 compared to $0.1 million of net realized and unrealized losses for the nine months ended September 30, 2023 due primarily to higher gains on our equity securities during the period ended September 30, 2024 compared to the period ended September 30, 2023. Unrealized gains and losses on fixed maturity securities are recognized as a component of other comprehensive income and do not impact our net income. The following table summarizes the components of our investment income for each period presented:
| Nine Months Ended |
||||||||||||||||
| September 30, |
||||||||||||||||
| 2024 |
2023 |
Change |
% Change |
|||||||||||||
| ($ in thousands) |
||||||||||||||||
| Interest income |
$ | 24,317 | $ | 16,468 | $ | 7,849 | 47.7 | % | ||||||||
| Dividend income |
675 | 602 | 73 | 12.1 | % | |||||||||||
| Investment management fees and expenses |
(486 | ) | (380 | ) | (106 | ) | 27.9 | % | ||||||||
| Net investment income |
24,506 | 16,690 | 7,816 | 46.8 | % | |||||||||||
| Net realized and unrealized gains (losses) on investments |
5,768 | (103 | ) | 5,871 | NM | |||||||||||
| Total |
$ | 30,274 | $ | 16,587 | $ | 13,687 | 82.5 | % | ||||||||
| NM- not meaningful |
||||||||||||||||
Income Tax Expense
Income tax expense increased $6.7 million or 40.0% to $23.6 million for the nine months ended September 30, 2024 from $16.9 million for the nine months ended September 30, 2023 due to higher pre-tax income and a higher effective tax rate during the nine months ended September 30, 2024. During the nine months ended September 30, 2024, our income tax rate of 22.2% was higher than the statutory rate of 21% due primarily to non-deductible executive compensation expense. For the nine months ended September 30, 2023 our income tax rate of 24.0% was higher than the statutory rate also due primarily to non-deductible executive compensation expense.
Reconciliation of Non‑GAAP Financial Measures
Underwriting Revenue
We define underwriting revenue as total revenue excluding net investment income and net realized and unrealized gains and losses on investments. Underwriting revenue represents revenue generated by our underwriting operations and allows us to evaluate our underwriting performance without regard to investment results. We use this metric as we believe it gives our management and other users of our financial information useful insight into our underlying business performance. Underwriting revenue should not be viewed as a substitute for total revenue calculated in accordance with GAAP, and other companies may define underwriting revenue differently.
Total revenue calculated in accordance with GAAP reconciles to underwriting revenue as follows:
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||
| (in thousands) |
(in thousands) |
|||||||||||||||
| Total revenue |
$ | 148,503 | $ | 90,935 | $ | 398,105 | $ | 270,532 | ||||||||
| Net investment income |
(9,408 | ) | (6,029 | ) | (24,506 | ) | (16,690 | ) | ||||||||
| Net realized and unrealized (gains) losses on investments |
(2,734 | ) | 1,376 | (5,768 | ) | 103 | ||||||||||
| Underwriting revenue |
$ | 136,361 | $ | 86,282 | $ | 367,831 | $ | 253,945 | ||||||||
Underwriting Income and Adjusted Underwriting Income
We define underwriting income as income before income taxes excluding net investment income, net realized and unrealized gains and losses on investments, and interest expense. Underwriting income represents the pre‑tax profitability of our underwriting operations and allows us to evaluate our underwriting performance without regard to investment results. We use this metric as we believe it gives our management and other users of our financial information useful insight into our underlying business performance. Underwriting income should not be viewed as a substitute for pre‑tax income calculated in accordance with GAAP, and other companies may define underwriting income differently.
We define adjusted underwriting income as underwriting income excluding the impact of certain items that may not be indicative of underlying business trends, operating results, or future outlook. We use this metric as we believe it gives our management and other users of our financial information useful insight into our underlying business performance. Adjusted underwriting income should not be viewed as a substitute for pre‑tax income calculated in accordance with GAAP. Other companies may define adjusted underwriting income differently.
Income before income taxes calculated in accordance with GAAP reconciles to underwriting income and adjusted underwriting income as follows:
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||
| (in thousands) |
(in thousands) |
|||||||||||||||
| Income before income taxes |
$ | 38,503 | $ | 24,535 | $ | 106,233 | $ | 70,182 | ||||||||
| Net investment income |
(9,408 | ) | (6,029 | ) | (24,506 | ) | (16,690 | ) | ||||||||
| Net realized and unrealized (gains) losses on investments |
(2,734 | ) | 1,376 | (5,768 | ) | 103 | ||||||||||
| Interest expense |
87 | 867 | 1,052 | 2,952 | ||||||||||||
| Underwriting income |
$ | 26,448 | $ | 20,749 | $ | 77,011 | $ | 56,547 | ||||||||
| Expenses associated with transactions |
84 | 229 | 557 | 229 | ||||||||||||
| Stock-based compensation expense |
4,117 | 3,589 | 11,905 | 10,737 | ||||||||||||
| Amortization of intangibles |
389 | 390 | 1,168 | 1,092 | ||||||||||||
| Expenses associated with catastrophe bond |
— | — | 2,483 | 1,640 | ||||||||||||
| Adjusted underwriting income |
$ | 31,038 | $ | 24,957 | $ | 93,124 | $ | 70,245 | ||||||||
Adjusted Net Income
We define adjusted net income 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. We calculate the tax impact only on adjustments which would be included in calculating our income tax expense using the estimated tax rate at which the company received a deduction for these adjustments. We use adjusted net income as an internal performance measure in the management of our operations because we believe it gives our management and financial statement users useful insight into our results of operations and our underlying business performance. Adjusted net income does not reflect the overall profitably of our business and should not be viewed as a substitute for net income calculated in accordance with GAAP. Other companies may define adjusted net income differently.
Net income calculated in accordance with GAAP reconciles to adjusted net income as follows:
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||
| (in thousands) |
(in thousands) |
|||||||||||||||
| Net income |
$ | 30,497 | $ | 18,432 | $ | 82,608 | $ | 53,305 | ||||||||
| Adjustments: |
||||||||||||||||
| Net realized and unrealized (gains) losses on investments |
(2,734 | ) | 1,376 | (5,768 | ) | 103 | ||||||||||
| Expenses associated with transactions |
84 | 229 | 557 | 229 | ||||||||||||
| Stock-based compensation expense |
4,117 | 3,589 | 11,905 | 10,737 | ||||||||||||
| Amortization of intangibles |
389 | 390 | 1,168 | 1,092 | ||||||||||||
| Expenses associated with catastrophe bond |
— | — | 2,483 | 1,640 | ||||||||||||
| Tax impact |
91 | (725 | ) | (734 | ) | (1,582 | ) | |||||||||
| Adjusted net income |
$ | 32,444 | $ | 23,291 | $ | 92,219 | $ | 65,524 | ||||||||
Annualized Adjusted Return on Equity
We define annualized adjusted return on equity as adjusted net income expressed on an annualized basis as a percentage of average beginning and ending stockholders’ equity during the period. We use annualized adjusted return on equity as an internal performance measure in the management of our operations because we believe it gives our management and financial statement users useful insight into our results of operations and our underlying business performance. Annualized adjusted return on equity should not be viewed as a substitute for return on equity calculated using unadjusted GAAP numbers, and other companies may define adjusted return on equity differently.
Annualized adjusted return on equity is calculated as follows:
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||
| (in thousands) |
(in thousands) |
|||||||||||||||
| Annualized adjusted net income |
$ | 129,776 | $ | 93,164 | $ | 122,959 | $ | 87,365 | ||||||||
| Average stockholders' equity |
$ | 617,959 | $ | 417,521 | $ | 587,282 | $ | 403,044 | ||||||||
| Annualized adjusted return on equity |
21.0 | % | 22.3 | % | 20.9 | % | 21.7 | % | ||||||||
Adjusted Combined Ratio
We define adjusted combined ratio 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. We use adjusted combined ratio as an internal performance measure in the management of our operations because we believe it gives our management and financial statement users useful insight into our results of operations and our underlying business performance. Adjusted combined ratio should not be viewed as a substitute for combined ratio calculated using unadjusted GAAP numbers, and other companies may define adjusted combined ratio differently.
Adjusted combined ratio is calculated as follows:
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||
| (in thousands) |
(in thousands) |
|||||||||||||||
| Numerator: Sum of losses and loss adjustment expenses, acquisition expenses, and other underwriting expenses, net of commission and other income |
$ | 109,198 | $ | 65,068 | $ | 288,785 | $ | 195,617 | ||||||||
| Denominator: Net earned premiums |
$ | 135,646 | $ | 85,817 | $ | 365,796 | $ | 252,164 | ||||||||
| Combined ratio |
80.5 | % | 75.8 | % | 78.9 | % | 77.6 | % | ||||||||
| Adjustments to numerator: |
||||||||||||||||
| Expenses associated with transactions |
$ | (84 | ) | $ | (229 | ) | $ | (557 | ) | $ | (229 | ) | ||||
| Stock-based compensation expense |
(4,117 | ) | (3,589 | ) | (11,905 | ) | (10,737 | ) | ||||||||
| Amortization of intangibles |
(389 | ) | (390 | ) | (1,168 | ) | (1,092 | ) | ||||||||
| Expenses associated with catastrophe bond |
— | — | (2,483 | ) | (1,640 | ) | ||||||||||
| Adjusted combined ratio |
77.1 | % | 70.9 | % | 74.5 | % | 72.1 | % | ||||||||
Diluted Adjusted Earnings Per Share
We define diluted adjusted earnings per share 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. We use diluted adjusted earnings per share as an internal performance measure in the management of our operations because we believe it gives our management and financial statement users useful insight into our results of operations and our underlying business performance. Diluted adjusted earnings per share should not be viewed as a substitute for diluted earnings per share calculated in accordance with GAAP, and other companies may define diluted adjusted earnings per share differently.
Diluted adjusted earnings per share is calculated as follows:
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||
| (in thousands, except per share data) |
(in thousands, except per share data) |
|||||||||||||||
| Adjusted net income |
$ | 32,444 | $ | 23,291 | $ | 92,219 | $ | 65,524 | ||||||||
| Weighted-average common shares outstanding, diluted |
26,479,566 | 25,244,828 | 25,877,257 | 25,340,602 | ||||||||||||
| Diluted adjusted earnings per share |
$ | 1.23 | $ | 0.92 | $ | 3.56 | $ | 2.59 | ||||||||
Catastrophe Loss Ratio
Catastrophe loss ratio is defined as the ratio of catastrophe losses to net earned premiums. Although we are inherently subject to catastrophe losses, the frequency and severity of catastrophe losses is unpredictable and their impact on our operating results may vary significantly between periods and obscure other trends in our business. Therefore, we are providing this metric because we believe it gives our management and other financial statement users useful insight into our results of operations and trends in our financial performance without the volatility caused by catastrophe losses. Catastrophe loss ratio should not be viewed as a substitute for loss ratio calculated using unadjusted GAAP numbers, and other companies may define catastrophe loss ratio differently.
Loss ratio and catastrophe loss ratio are calculated as follows:
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||
| (in thousands) |
(in thousands) |
|||||||||||||||
| Numerator: Losses and loss adjustment expenses |
$ | 40,315 | $ | 16,139 | $ | 97,583 | $ | 54,696 | ||||||||
| Denominator: Net earned premiums |
$ | 135,646 | $ | 85,817 | $ | 365,796 | $ | 252,164 | ||||||||
| Loss ratio |
29.7 | % | 18.8 | % | 26.7 | % | 21.7 | % | ||||||||
| Numerator: Catastrophe losses |
$ | 12,924 | $ | (533 | ) | $ | 19,724 | $ | 3,432 | |||||||
| Denominator: Net earned premiums |
$ | 135,646 | $ | 85,817 | $ | 365,796 | $ | 252,164 | ||||||||
| Catastrophe loss ratio |
9.5 | % | (0.6 | )% | 5.4 | % | 1.4 | % | ||||||||
Adjusted Combined Ratio Excluding Catastrophe Losses
Adjusted combined ratio excluding catastrophe losses is defined as adjusted combined ratio excluding the impact of catastrophe losses. Although we are inherently subject to catastrophe losses, the frequency and severity of catastrophe losses is unpredictable and their impact on our operating results may vary significantly between periods and obscure other trends in our business. Therefore, we are providing this metric because we believe it gives our management and other financial statement users useful insight into our results of operations and trends in our financial performance without the volatility caused by catastrophe losses. Adjusted combined ratio excluding catastrophe losses should not be viewed as a substitute for combined ratio calculated using unadjusted GAAP numbers, and other companies may define adjusted combined ratio excluding catastrophe losses differently.
Adjusted combined ratio excluding catastrophe losses is calculated as follows:
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||
| (in thousands) |
(in thousands) |
|||||||||||||||
| Numerator: Sum of losses and loss adjustment expenses, acquisition expenses, and other underwriting expenses, net of commission and other income |
$ | 109,198 | $ | 65,068 | $ | 288,785 | $ | 195,617 | ||||||||
| Denominator: Net earned premiums |
$ | 135,646 | $ | 85,817 | $ | 365,796 | $ | 252,164 | ||||||||
| Combined ratio |
80.5 | % | 75.8 | % | 78.9 | % | 77.6 | % | ||||||||
| Adjustments to numerator: |
||||||||||||||||
| Expenses associated with transactions |
$ | (84 | ) | $ | (229 | ) | $ | (557 | ) | $ | (229 | ) | ||||
| Stock-based compensation expense |
(4,117 | ) | (3,589 | ) | (11,905 | ) | (10,737 | ) | ||||||||
| Amortization of intangibles |
(389 | ) | (390 | ) | (1,168 | ) | (1,092 | ) | ||||||||
| Expenses associated with catastrophe bond |
— | — | (2,483 | ) | (1,640 | ) | ||||||||||
| Catastrophe losses |
(12,924 | ) | 533 | (19,724 | ) | (3,432 | ) | |||||||||
| Adjusted combined ratio excluding catastrophe losses |
67.6 | % | 71.5 | % | 69.2 | % | 70.8 | % | ||||||||
Tangible Stockholders’ Equity
We define tangible stockholders’ equity as stockholders’ equity less intangible assets. Our definition of tangible stockholders’ equity may not be comparable to that of other companies, and it should not be viewed as a substitute for stockholders’ equity calculated in accordance with GAAP. We use tangible stockholders’ equity internally to evaluate the strength of our balance sheet and to compare returns relative to this measure.
Stockholders’ equity calculated in accordance with GAAP reconciles to tangible stockholders’ equity as follows:
| September 30, |
December 31, |
|||||||
| 2024 |
2023 |
|||||||
| (in thousands) |
||||||||
| Stockholders' equity |
$ | 703,313 | $ | 471,252 | ||||
| Goodwill and intangible assets |
(11,147 | ) | (12,315 | ) | ||||
| Tangible stockholders' equity |
$ | 692,166 | $ | 458,937 | ||||
Liquidity and Capital Resources
Sources and Uses of Funds
We operate as a holding company with no business operations of our own. Consequently, our ability to pay dividends to stockholders and pay taxes and administrative expenses is largely dependent on dividends or other distributions from our subsidiaries and affiliates, whose ability to pay us is highly regulated.
The Company’s U.S. insurance company subsidiaries, PSIC and PESIC, are restricted by the statutes as to the amount of dividends that they may pay without prior approval by state insurance commissioners.
Under California and Oregon statute which govern PSIC, dividends paid in a consecutive twelve month period cannot exceed the greater of (i) 10% of an insurance company’s statutory policyholders’ surplus as of December 31 of the preceding year or (ii) 100% of its statutory net income for the preceding calendar year. Any dividends or distributions in excess of these amounts would require regulatory approval. In addition, under Oregon statute PSIC may only declare a dividend from earned surplus, which does not include contributed capital. Surplus arising from unrealized capital gains or revaluation of assets is not considered part of earned surplus. Based on the above restrictions, PSIC may pay a dividend or distribution of no greater than $96.0 million in 2024 without approval by the California and Oregon Insurance Commissioners. During October 2024, PSIC elected to pay a dividend of $95.0 million to its parent company.
Under Arizona statute which governs PESIC, dividends paid in a consecutive twelve month period cannot exceed the lesser of (i) 10% of an insurance company’s statutory policyholders’ surplus as of December 31 of the preceding year or (ii) 100% of its statutory net income for the preceding calendar year. Based on the above restrictions, PESIC may pay a dividend or distribution of no greater than $1.5 million in 2024 without approval of the Arizona Insurance Commissioner.
State insurance regulators have broad powers to prevent the reduction of statutory surplus to inadequate levels, and there is no assurance that dividends up to the maximum amounts calculated under any applicable formula would be permitted. In addition, state insurance regulators may adopt statutory provisions and dividend limitations more restrictive than those currently in effect in the future.
Bermuda regulations limit the amount of dividends and return of capital paid by a regulated entity. A Class 3A insurer is prohibited from declaring or paying a dividend if it is in breach of its minimum solvency margin, its enhanced capital requirement, or its minimum liquidity ratio, or if the declaration or payment of such dividend would cause such a breach. If a Class 3A insurer has failed to meet its minimum solvency margin on the last day of any financial year, it will also be prohibited, without the approval of the BMA, from declaring or paying any dividends during the next financial year. Furthermore, the Insurance Act limits the ability of PSRE to pay dividends or make capital distributions by stipulating certain margin and solvency requirements and by requiring approval from the BMA prior to a reduction of 15% or more of a Class 3A insurer’s total statutory capital as reported on its prior year statutory balance sheet. Moreover, an insurer must submit an affidavit to the BMA, sworn by at least two directors and the principal representative in Bermuda of the Class 3A insurer, at least seven days prior to payment of any dividend which would exceed 25% of that insurer’s total statutory capital and surplus as reported on its prior year statutory balance sheet. The affidavit must state that in the opinion of those swearing the declaration of such dividend has not caused the insurer to fail to meet its relevant margins.
Further, under the Companies Act, PSRE may only declare or pay a dividend, or make a distribution out of contributed surplus, if it has no reasonable grounds for believing that: (1) it is, or would after the payment be, unable to pay its liabilities as they become due or (2) the realizable value of its assets would be less than its liabilities.
Pursuant to Bermuda regulations, the maximum amount of dividends and return of capital available to be paid by a reinsurer is determined pursuant to a formula. Under this formula, the maximum amount of dividends and return of capital available from PSRE during 2024 is calculated to be approximately $4.1 million. However, this dividend amount is subject to annual enhanced solvency requirement calculations.
One of our insurance company subsidiaries, PSIC, is a member of the Federal Home Loan Bank of San Francisco (FHLB). Membership allows PSIC access to collateralized advances, which may be used to support and enhance liquidity management. The amount of advances that may be taken is dependent on statutory admitted assets.
Cash Flows
Our primary sources of cash flow are written premiums, investment income, reinsurance recoveries, sales and redemptions of investments, and proceeds from borrowings on our lines of credit. We use our cash flows primarily to pay reinsurance premiums, operating expenses, losses and loss adjustment expenses, and income taxes.
Our cash flows from operations may differ substantially from our net income due to non‑cash charges or due to changes in balance sheet accounts.
The timing of our cash flows from operating activities can also vary among periods due to the timing by which payments are made or received. Some of our payments and receipts, including loss settlements and subsequent reinsurance receipts, can be significant. Therefore, their timing can influence cash flows from operating activities in any given period. The potential for a large claim under an insurance or reinsurance contract means that our insurance subsidiaries may need to make substantial payments within relatively short periods of time, which would have a negative impact on our operating cash flows.
Management believes that our current liquidity and cash receipts from written premiums, investment income, proceeds from investment sales and redemptions, and reinsurance recoveries, if necessary, are sufficient to cover cash outflows for each of the Company’s insurance subsidiaries in the foreseeable future.
The following table summarizes our cash flows for the nine months ended September 30, 2024 and 2023:
| Nine Months Ended |
||||||||
| September 30, |
||||||||
| 2024 |
2023 |
|||||||
| ($ in thousands) |
||||||||
| Cash provided by (used in): |
||||||||
| Operating activities |
$ | 188,520 | $ | 93,836 | ||||
| Investing activities |
(224,884 | ) | (104,156 | ) | ||||
| Financing activities |
71,096 | (4,556 | ) | |||||
| Change in cash, cash equivalents, and restricted cash |
$ | 34,732 | $ | (14,876 | ) | |||
Our cash flow from operating activities was positive during the nine months ended September 30, 2024 and 2023 due to net income and a decrease in net operating assets in each period.
Variations in operating cash flow between periods are primarily driven by variations in our gross and ceded written premiums and the volume and timing of premium receipts, claim payments, reinsurance payments, and reinsurance recoveries on paid losses. In addition, fluctuations in losses and loss adjustment expenses and other insurance operating expenses impact operating cash flows.
Cash used in investing activities for the nine months ended September 30, 2024 and 2023 related primarily to purchases of fixed maturity securities in excess of sales and maturities in each period.
Cash provided by financing activities for nine months ended September 30, 2024 was related to the receipt of $115.7 million in net proceeds from the August 2024 Secondary Offering, the receipt of $5.0 million in proceeds from stock option exercises, the receipt of $0.9 million in proceeds from our employee stock purchase plan and the receipt of $2.0 million in proceeds from policy holder contributions of surplus, offset by $52.6 million in payments on our lines of credit. Cash used in financing activities for nine months ended September 30, 2023 was related to the repurchase of $22.1 million of our common stock, offset by $16.2 million in borrowings from our FHLB line of credit, the receipt of $0.6 million in proceeds from stock option exercises and the receipt of $0.8 million in proceeds from our employee stock purchase plan.
We do not have any current plans for material capital expenditures other than current operating requirements. We believe that we will generate sufficient cash flows from operations to satisfy our liquidity requirements for at least the next 12 months and beyond. The key factor that will affect our future operating cash flows is the frequency and severity of catastrophe losses. To the extent our future operating cash flows are insufficient to cover our net losses from catastrophic events, we had $1,017.5 million in cash and investment securities available at September 30, 2024. We also have the ability to access additional capital through pursuing third‑party borrowings, sales of our equity or debt securities or entrance into a reinsurance arrangement.
Share Repurchases
We have previously administered a share repurchase plan and have used and may use our cash in the future to purchase outstanding shares of our common stock. Under our previous share repurchase program, shares were repurchased from time to time in the open market or negotiated transactions at prevailing market rates, or by other means in accordance with federal securities laws.
Our previous share repurchase program ended on March 31, 2024 and no shares have been repurchased in 2024. The Company accounts for share repurchases by charging the excess of repurchase price over the common stock’s par value entirely to retained earnings. All repurchased shares are retired and become authorized but unissued shares.
Credit Agreements
We have the ability to access additional capital through multiple credit agreements.
In December 2021, we entered into a Credit Agreement (the “Credit Agreement”) with U.S. Bank National Association which provides a revolving credit facility of up to $100 million through December 8, 2026. Interest on the credit facility accrues on each SOFR rate loan at the applicable SOFR (as defined in the Credit Agreement) plus 1.75% and on each base rate loan at the applicable Alternate Base Rate (as defined in the Credit Agreement) plus 0.75%. A loan may be either a SOFR rate loan or a base rate loan, at our discretion. Outstanding amounts under the Credit Agreement may be prepaid in full or in part at any time with no prepayment premium and may be reduced in full or in part at any time upon prior notice. Currently, $15 million of the borrowing capacity of the Credit Agreement is pledged as collateral and not able to be utilized.
As of September 30, 2024, we had no borrowings outstanding through the Credit Agreement.
Our PSIC subsidiary is a member of the Federal Home Loan Bank of San Francisco (“FHLB”). Membership in the FHLB provides PSIC access to collateralized advances, which can be drawn for general corporate purposes and used to enhance liquidity management. All borrowings are fully secured by a pledge of specific investment securities of PSIC and the borrowing capacity is equal to 10% of PSIC’s statutory admitted assets. All advances have predetermined term and the interest rate varies based on the term of the advance.
As of September 30, 2024, we had no borrowings outstanding through the FHLB line of credit.
Stockholders’ Equity
At September 30, 2024 total stockholders’ equity was $703.3 million and tangible stockholders’ equity was $692.2 million, compared to total stockholders’ equity of $471.3 million and tangible stockholders’ equity of $458.9 million as of December 31, 2023. Stockholder’s equity increased primarily due to the receipt of $115.7 million in net proceeds from our August 2024 Secondary Offering. In addition, stockholders' equity increased due to net income earned for the period, activity related to stock-based compensation, and unrealized gains on fixed maturity securities.
Tangible stockholders’ equity is a non‑GAAP financial measure. See “Reconciliation of Non‑GAAP Financial Measures” for a reconciliation of stockholders’ equity in accordance with GAAP to tangible stockholders’ equity.
Investment Portfolio
Our primary investment objectives are to maintain liquidity, preserve capital and generate a stable level of investment income. We purchase securities that we believe are attractive on a relative value basis and seek to generate returns in excess of predetermined benchmarks. Our Board of Directors approves our investment guidelines in compliance with applicable regulatory restrictions on asset type, quality and concentration. Our current investment guidelines allow us to invest in taxable and tax‑exempt fixed maturities, as well as publicly traded mutual funds and common stock of individual companies. Our cash and invested assets consist of cash and cash equivalents, fixed maturity securities, and equity securities. As of September 30, 2024, the majority of our investment portfolio, or $883.0 million, was comprised of fixed maturity securities that are classified as available‑for‑sale and carried at fair value with unrealized gains and losses on these securities, net of applicable taxes, reported as a separate component of accumulated other comprehensive income. Also included in our investment portfolio were $40.2 million of equity securities, $2.5 million of equity method investments and $5.2 million of investments in limited partnerships. In addition, we maintained a non‑restricted cash and cash equivalent balance of $86.5 million at September 30, 2024. Our fixed maturity securities, including cash equivalents, had a weighted average effective duration of 3.86 and 3.48 years and an average rating of “A1/A+” and “Aa3/A+” at September 30, 2024 and December 31, 2023, respectively. Our fixed income investment portfolio had a book yield of 4.58% as of September 30, 2024, compared to 4.07% as of December 31, 2023.
At September 30, 2024 and December 31, 2023 the amortized cost and fair value on available‑for‑sale securities were as follows:
| Amortized |
Fair |
% of Total |
||||||||||
| September 30, 2024 |
Cost or Cost |
Value |
Fair Value |
|||||||||
| ($ in thousands) |
||||||||||||
| Fixed maturities: |
||||||||||||
| U.S. Governments |
$ | 32,839 | $ | 32,195 | 3.6 | % | ||||||
| U.S. States, Territories, and Political Subdivisions |
10,615 | 10,042 | 1.1 | % | ||||||||
| Special revenue excluding mortgage/asset-backed securities |
30,755 | 28,060 | 3.2 | % | ||||||||
| Corporate and other |
467,290 | 462,082 | 52.3 | % | ||||||||
| Mortgage/asset-backed securities |
355,276 | 350,601 | 39.7 | % | ||||||||
| Total available-for-sale investments |
$ | 896,775 | $ | 882,980 | 100.0 | % | ||||||
| Amortized |
Fair |
% of Total |
||||||||||
| December 31, 2023 |
Cost or Cost |
Value |
Fair Value |
|||||||||
| ($ in thousands) |
||||||||||||
| Fixed maturities: |
||||||||||||
| U.S. Governments |
$ | 40,836 | $ | 39,420 | 6.1 | % | ||||||
| U.S. States, Territories, and Political Subdivisions |
10,641 | 9,902 | 1.5 | % | ||||||||
| Special revenue excluding mortgage/asset-backed securities |
32,513 | 29,511 | 4.6 | % | ||||||||
| Corporate and other |
316,590 | 300,239 | 46.6 | % | ||||||||
| Mortgage/asset-backed securities |
274,550 | 264,727 | 41.1 | % | ||||||||
| Total available-for-sale investments |
$ | 675,130 | $ | 643,799 | 100.0 | % | ||||||
The following tables provide the credit quality of investment securities as of September 30, 2024 and December 31, 2023:
| Estimated |
% of |
|||||||
| September 30, 2024 |
Fair Value |
Total |
||||||
| ($ in thousands) |
||||||||
| Rating |
||||||||
| AAA |
$ | 109,474 | 12.4 | % | ||||
| AA |
281,576 | 31.9 | % | |||||
| A |
249,446 | 28.3 | % | |||||
| BBB |
229,792 | 26.0 | % | |||||
| BB |
9,948 | 1.1 | % | |||||
| B |
1,291 | 0.1 | % | |||||
| CCC & Below |
1,453 | 0.2 | % | |||||
| $ | 882,980 | 100.0 | % | |||||
| Estimated |
% of |
|||||||
| December 31, 2023 |
Fair Value |
Total |
||||||
| ($ in thousands) |
||||||||
| Rating |
||||||||
| AAA |
$ | 98,823 | 15.4 | % | ||||
| AA |
211,354 | 32.8 | % | |||||
| A |
205,162 | 31.9 | % | |||||
| BBB |
119,016 | 18.5 | % | |||||
| BB |
5,869 | 0.9 | % | |||||
| B |
735 | 0.1 | % | |||||
| CCC & Below |
2,840 | 0.4 | % | |||||
| $ | 643,799 | 100.0 | % | |||||
The amortized cost and fair value of our available‑for‑sale investments in fixed maturity securities summarized by contractual maturity as of September 30, 2024 were as follows:
| Amortized |
Fair |
% of Total |
||||||||||
| September 30, 2024 |
Cost |
Value |
Fair Value |
|||||||||
| ($ in thousands) |
||||||||||||
| Due within one year |
$ | 80,152 | $ | 78,731 | 8.9 | % | ||||||
| Due after one year through five years |
183,202 | 180,227 | 20.4 | % | ||||||||
| Due after five years through ten years |
176,607 | 172,654 | 19.6 | % | ||||||||
| Due after ten years |
101,538 | 100,767 | 11.4 | % | ||||||||
| Mortgage and asset-backed securities |
355,276 | 350,601 | 39.7 | % | ||||||||
| $ | 896,775 | $ | 882,980 | 100.0 | % | |||||||
Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations.
Reinsurance
We purchase a significant amount of reinsurance from third parties that we believe enhances our business by reducing our exposure to potential catastrophe losses, limiting volatility in our underwriting performance, and providing us with greater visibility into our future earnings. Reinsurance involves transferring, or ceding, a portion of our risk exposure on policies that we write to another insurer, the reinsurer, in exchange for a premium. To the extent that our reinsurers are unable to meet the obligations they assume under our reinsurance agreements, we remain liable for the entire insured loss; see “Risk Factors—Risks Related to Our Business and Industry—We may be unable to purchase third-party reinsurance or otherwise expand our catastrophe coverage in amounts we desire on commercially acceptable terms or on terms that adequately protect us, and this inability may materially adversely affect our business, financial condition and results of operations.”
We use treaty reinsurance and, on a limited basis, facultative reinsurance coverage. Treaty coverage refers to a reinsurance contract that is applied to a group or class of business where all the risks written meet the criteria for that class. Our treaty reinsurance program primarily consists of catastrophe XOL coverage, in which the reinsurer(s) agree to assume all or a portion of the ceding company’s losses relating to a group of policies occurring in relation to specified events, subject to customary exclusions, in excess of a specified amount. Additionally, we buy program specific reinsurance coverage for specific lines of business on a quota share, property per risk or a facultative basis. In quota share reinsurance, the reinsurer agrees to assume a specified percentage of the ceding company’s losses arising out of a defined class of business in exchange for a corresponding percentage of premiums, net of a ceding commission. Property per risk coverage is similar to catastrophe XOL coverage except that the treaty applies in individual property losses rather than in the aggregate for all claims associated with a single catastrophic loss occurrence. Facultative coverage refers to a reinsurance contract on individual risks as opposed to a group or class of business. We use facultative reinsurance selectively to supplement limits or to cover risks or perils excluded from other reinsurance contracts.
We have a robust program utilizing a mix of traditional reinsurers and insurance linked securities. We currently purchase reinsurance from over 100 reinsurers, who either have an “A−” (Excellent) (Outlook Stable) or better financial strength rating by A.M. Best or post collateral. Our reinsurance contracts include special termination provisions that allow us to cancel and replace any participating reinsurer that is downgraded below a rating of “A−” (Excellent) (Outlook Stable) from A.M. Best, or whose surplus drops by more than 20%.
In addition to reinsurance purchased from traditional reinsurers, we have historically incorporated collateralized protection from the insurance linked securities market via catastrophe bonds. During the second quarter of 2022, we closed a $275 million 144A catastrophe bond which became effective June 1, 2022. This catastrophe bond was completed through Torrey Pines Re Ltd., a Bermuda-domiciled special purpose insurer that provides indemnity-based reinsurance covering earthquake events through June 1, 2025. During the second quarter of 2023, we closed a $200 million 144A catastrophe bond which became effective June 1, 2023. This catastrophe bond was also completed through Torrey Pines Re Ltd and provides indemnity-based reinsurance covering earthquake events through June 1, 2026. During the second quarter of 2024, we closed a $420 million 144A catastrophe bond which became effective June 1, 2024. This catastrophe bond was also completed through Torrey Pines Re Ltd and provides indemnity-based reinsurance covering earthquake events through June 1, 2027.
Our catastrophe event retention is $20 million for earthquake events and $15.5 million for hurricane events and all other perils. Our reinsurance coverage exhausts at $3.06 billion for earthquake events, $735 million for Hawaii hurricane events, and $117.5 million for continental U.S. hurricane events, providing coverage in excess of our 1 in 250-year peak zone PML and in excess of our A.M. Best requirement. In addition, we maintain reinsurance coverage equivalent to or better than the 1 in 250-year PML for our other lines.
In the event that multiple catastrophe events occur in a period, many of our contracts include the right to reinstate reinsurance limits for potential future recoveries during the same contract year and preserve our limit for subsequent events. This feature for subsequent event coverage is known as a “reinstatement.”
Critical Accounting Estimates
We identified the accounting estimates which are critical to the understanding of our financial position and results of operations. Critical accounting estimates are defined as those estimates that are both important to the portrayal of our financial condition and results of operations and require us to exercise significant judgment. We use significant judgment concerning future results and developments in applying these critical accounting estimates and in preparing our condensed consolidated financial statements. These judgments and estimates affect our reported amounts of assets, liabilities, revenues and expenses and the disclosure of our material contingent assets and liabilities. Actual results may differ materially from the estimates and assumptions used in preparing the condensed consolidated financial statements. We evaluate our estimates regularly using information that we believe to be relevant. Our critical accounting policies and estimates are described in our annual consolidated financial statements and the related notes in our 2023 Annual Report on Form 10-K.
There have been no significant changes in our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in Management’s Discussion and Analysis of Financial Condition and Operations included in our 2023 Annual Report on Form 10-K
Item 3: Quantitative and Qualitative Disclosures About Market Risk
Market risk is a general term describing the potential economic loss associated with adverse changes in the fair value of financial instruments. Our condensed consolidated balance sheets include assets and liabilities with estimated fair values that are subject to market risk. Our primary market risks have been equity price risk associated with investments in equity securities and interest rate risk associated with investments in fixed maturities.
Credit risk is the potential loss resulting from adverse changes in an issuer’s ability to repay its debt obligations. In general, we manage the exposure to credit risk in our investment portfolio by investing in high quality securities and by diversifying our holdings.
We monitor our investment portfolio to ensure that credit risk does not exceed prudent levels. The majority of our investment portfolio is invested in high credit quality, investment grade fixed maturity securities. We also invest in higher yielding fixed maturities and equity securities. Our fixed maturity portfolio has an average rating by at least one nationally recognized rating organization of “AA−,” with approximately 72.6% rated “A−” or better. At September 30, 2024, 1.4% of our fixed maturity portfolio was unrated or rated below investment grade. Our fixed maturity portfolio includes some securities issued with financial guaranty insurance. We purchase fixed maturities based on our assessment of the credit quality of the underlying assets without regard to insurance.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports we file under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required financial disclosure.
As of the end of the period covered by this Quarterly Report on Form 10‑Q, we carried out an evaluation, under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures defined under Rules 13a‑15(e) and 15d‑15(e) under the Exchange Act. Based upon this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective.
Changes in Internal Controls over Financial Reporting
No changes in our internal control over financial reporting (as defined in Rules 13a‑15(f) and 15d‑15(f) under the Exchange Act) occurred during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
The effectiveness of any system of controls and procedures is subject to certain limitations, and, as a result, there can be no assurance that our controls and procedures will detect all errors or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be attained.
We are party to legal proceedings which arise in the ordinary course of business. We believe that the outcome of such matters, individually and in the aggregate, will not have a material adverse effect on our condensed consolidated financial position.
Summary Risk Factors
Our business is subject to numerous risks and uncertainties, these risks include, but are not limited to, the following:
Risks Related to Our Business and Industry:
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Claims arising from unpredictable and severe catastrophe events, including those caused by global climate change, could reduce or eliminate our earnings and stockholders' equity, and limit our ability to underwrite new insurance policies; |
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Our reinsurers may not pay claims on a timely basis, or at all, which may materially adversely affect our business, financial condition, and results of operations; |
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Our loss reserves are established based on estimates and may be inadequate to cover actual incurred losses which could have a material adverse impact on our results of operations and financial condition; |
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We may be unable to purchase third-party reinsurance or otherwise expand our catastrophe coverage in amounts we desire on commercially acceptable terms or on terms that adequately protect us, and this inability may materially adversely affect our business, financial condition and results of operations. |
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Our risk management and loss limitation methods, including estimates and models, may fail to adequately manage our exposure to losses from catastrophe events and our losses could be materially higher than our expectations; |
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Our business is concentrated in California and we are exposed more significantly to California loss activity and regulatory environments; |
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We rely on a select group of brokers and program administrators, and such relationships may not continue; |
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There is intense competition for business in our industry; |
Risks Related to the Economic Environment:
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Adverse economic factors, including recession, inflation, periods of high unemployment or lower economic activity could affect our growth and profitability; |
Risks Related to Technology:
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The failure of our information technology and telecommunications systems could adversely affect our business; |
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Security breaches or cyber-attacks could expose us to liability and damage our reputation and business; |
Risks Related to Laws and Regulations:
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We are subject to extensive regulation, which may adversely affect our ability to achieve our business objectives; |
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Unexpected changes in the interpretation of our coverage or provisions, including loss limitations and exclusions, in our policies could have a material adverse effect on our financial condition or results of operations; |
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We incur significant costs as a result of operating as a public company, and our management is required to devote substantial time to complying with public company regulations; and |
Risks Related to Ownership of our Common Stock:
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Our operating results and stock price may be volatile, or may decline regardless of our operating performance, and holders of our common stock could lose all or part of their investment. |
Risks Related to Our Business and Industry
Claims arising from unpredictable and severe catastrophe events, including those caused by global climate change, could reduce or eliminate our earnings and stockholders’ equity and limit our ability to underwrite new insurance policies.
Our insurance operations expose us to claims arising from unpredictable catastrophe events, such as earthquakes, hurricanes, windstorms, floods and other severe events. We have incurred significant losses from catastrophe events multiple times in our history and we may incur significant losses from future catastrophe events. The actual occurrence, frequency and magnitude of such events are uncertain. While there can be no certainty surrounding the timing and magnitude of earthquakes, some observers believe that significant shifts in the tectonic plates, including the San Andreas Fault, may occur in the future. Over the past several years, changing weather patterns and climatic conditions, such as global warming, have added to the unpredictability and frequency of natural disasters in certain parts of the world, including the markets in which we operate. Climate change may increase the frequency and severity of extreme weather events. This effect has led to conditions in the ocean and atmosphere, including warmer-than-average sea-surface temperatures and low wind shear that increase hurricane activity. Hurricane activity typically increases between June and November of each year, though the actual occurrence and magnitude of such events is uncertain. The occurrence of a natural disaster or other catastrophe loss could materially adversely affect our business, financial condition, and results of operations. Additionally, any increased frequency and severity of such weather events, including hurricanes, could have a material adverse effect on our ability to predict, quantify, reinsure and manage catastrophe risk and may materially increase our losses resulting from such catastrophe events.
The extent of losses from catastrophes is a function of both the frequency and severity of the insured events and the total amount of insured exposure in the areas affected. The frequency and severity of catastrophes are inherently unpredictable and the occurrence of one catastrophe does not make the occurrence of another catastrophe more or less likely. Increases in the replacement cost of insured property due to higher material and labor costs, increases in concentrations of insured property, the effects of inflation, and changes in cyclical weather patterns may increase the severity of claims from catastrophe events in the future. Claims from catastrophe events could reduce our earnings and cause substantial volatility in our results of operations for any fiscal quarter or year, which could materially adversely affect our financial condition, possibly to the extent of eliminating our total stockholders’ equity. Our ability to underwrite new insurance policies could also be materially adversely impacted as a result of corresponding reductions in our capital. In addition, a natural disaster could materially impact the financial condition of our policyholders, resulting in loss of premiums.
Our reinsurance coverage currently exhausts at $3.06 billion for earthquake events, $735 million for Hawaii hurricane events, and $117.5 million for continental U.S. hurricane events, with coverage in excess of our estimated peak zone 1 in 250-year PML event and in excess of our A.M. Best threshold. Our catastrophe event retention is $20 million for earthquake events and $15.5 million for hurricane events and all other perils. In addition to our event retention, we may also incur additional reinsurance expenses upon a catastrophe event. While we only select reinsurers whom we believe to have acceptable credit, if our reinsurers are unable to pay the claims for which they are responsible, we retain primary liability. Our earthquake policies do not provide coverage for fire damage arising from an earthquake. Catastrophe events which cause our reinsurers to incur losses may increase the cost of reinsurance in future periods or make it more difficult to obtain reinsurance on commercially acceptable terms. While we believe our risk transfer program reduces exposure to catastrophe losses and earnings volatility, one or more severe catastrophe events could result in claims that exceed the limits of our reinsurance coverage.
Our reinsurers may not pay claims on a timely basis, or at all, which may materially adversely affect our business, financial condition, and results of operations.
Our ability to grow our business is dependent in part in our ability to secure reinsurance for a substantial portion of the risk associated with our policies. Although reinsurance makes the reinsurer liable to us to the extent the risk is transferred or ceded to the reinsurer, it does not relieve us (the ceding insurer) of our primary liability to our policyholders. While our current reinsurance program is designed to limit our risk retention, in the event of a major catastrophe, our reinsurers may not pay claims made by us on a timely basis, or they may not pay some or all these claims.
In addition, reinsurers may default in their financial obligations to us as the result of insolvency, lack of liquidity, operational failure, fraud, asserted defenses based on agreement wordings or the principle of utmost good faith, asserted deficiencies in the documentation of agreements, or other reasons. Any disputes with reinsurers regarding coverage under reinsurance contracts could be time consuming, costly, and uncertain of success. If a catastrophe event were to occur and our reinsurers were unable to satisfy their commitments to us, we may be unable to satisfy our policyholder liabilities which would adversely impact our results of operations and financial condition. We evaluate each reinsurance claim based on the facts of the case, historical experience with the reinsurer on similar claims and existing case law and consider including any amounts deemed uncollectible from the reinsurer in a reserve for uncollectible reinsurance. As of September 30, 2024, we had $419.1 million of aggregate reinsurance recoverables.
Our loss reserves are established based on estimates which may be inadequate to cover actual incurred losses and could have a material adverse impact on our results of operations and financial condition.
The reserve for losses and loss adjustment expenses represents our estimated ultimate cost of all reported and unreported losses and loss adjustment expenses incurred and unpaid at the balance sheet date. We seek to establish adequate reserves; however, our ultimate liability may be greater than our estimate.
The process of estimating the reserves for losses and loss adjustment expenses requires a high degree of judgment and is subject to several variables. Multiple actuarial methods are used to estimate the reserve for losses and loss adjustment expenses. These methods utilize, to varying degrees, the initial expected loss ratio, detailed statistical analysis of past claims reporting and payment patterns, claims frequency and severity, paid loss experience, industry loss experience, and changes in market conditions, policy forms, exclusions, and exposures.
We are subject to uncertainties which impact the adequacy of our reserves. For example, when we write “occurrence” policies, we are obligated to pay covered claims, up to the contractually agreed amount, for any covered loss that occurs while the policy is in force. Accordingly, claims may arise in years after a policy has lapsed. In addition, catastrophe events often involve a significant number of claims and ultimate cost of settling all claims is inherently difficult to predict upon the event’s occurrence.
Our reserves are driven by several important factors, including litigation and regulatory trends, legislative activity, climate change, social and economic patterns, and claims inflation assumptions. Our reserve estimates reflect current inflation in legal claims’ settlements and assume we will not be subject to losses from significant new legal liability theories. Our reserve estimates assume that there will not be significant changes in the regulatory and legislative environment. The impact of potential changes in the regulatory or legislative environment is difficult to quantify in the absence of specific, significant new regulation or legislation. In the event of significant new regulation or legislation, we will attempt to quantify its impact on our business, but no assurance can be given that our attempt to quantify such inputs will be accurate or successful.
If our loss reserves should prove to be inadequate, we will be required to increase our reserves resulting in a reduction in our net income and stockholders’ equity in the period where the inadequacy is identified. Material increases to our reserves may impact our liquidity, our financial rating, and our ability to comply with debt covenants.
For further information on our loss reserving methodology, see “Management’s Discussion and Analysis-Critical Accounting Policies and Estimates- Reserve for Losses and Loss Adjustment Expenses” in our 2023 Annual Report on Form 10-K.
We may be unable to purchase third-party reinsurance or otherwise expand our catastrophe coverage in amounts we desire on commercially acceptable terms or on terms that adequately protect us, and this inability may materially adversely affect our business, financial condition and results of operations.
We purchase a significant amount of reinsurance from third parties that we believe enhances our business by reducing our exposure to potential catastrophe losses and reducing volatility in our underwriting performance, providing us with greater visibility into our future earnings. Reinsurance involves transferring, or ceding, a portion of our risk exposure on policies that we write to another insurer, the reinsurer, in exchange for a premium.
We buy multiple types of reinsurance including treaty excess of loss (“XOL”) coverage and program specific reinsurance coverage on a quota share, property per risk or a facultative basis. Treaty coverage refers to a reinsurance contract that is applied to a group or class of business where all the risks written meet the criteria for that class. Facultative coverage refers to a reinsurance contract on individual risks as opposed to a group or class of business. Our catastrophe XOL treaties are divided into multiple layers.
The reinsurance market historically has been a cyclical market characterized by periods of sufficient or excess capital (soft market cycle) as well as shortages of capital (hard market cycle). Market conditions have limited, and in some cases prevented, insurers from obtaining the types and amounts of reinsurance they consider adequate for their business needs. As a result, we may not be able to purchase reinsurance in the areas and for the amounts we desire or on terms we deem acceptable or at all. Hard market cycles may increase our cost of reinsurance, force us to increase our loss retention, or limit the amount of reinsurance we are able to purchase, all of which would have an adverse impact on our business and results of operations.
In addition to reinsurance purchased from traditional reinsurers, we have historically incorporated collateralized protection from the insurance linked securities market via catastrophe bonds. During the second quarter of 2022, we closed a $275 million 144A catastrophe bond which became effective June 1, 2022. This catastrophe bond was completed through Torrey Pines Re Ltd., a Bermuda-domiciled special purpose insurer that provides indemnity-based reinsurance covering earthquake events through June 1, 2025. During the second quarter of 2023, we closed a $200 million 144A catastrophe bond which became effective June 1, 2023. This catastrophe bond was also completed through Torrey Pines Re Ltd and provides indemnity-based reinsurance covering earthquake events through June 1, 2026. During the second quarter of 2024, we closed a $420 million 144A catastrophe bond which became effective June 1, 2024. This catastrophe bond was also completed through Torrey Pines Re Ltd and provides indemnity-based reinsurance covering earthquake events through June 1, 2027.
We may seek similar catastrophe bond offerings in the future. However, there can be no assurance that we will be able to complete such offerings on acceptable terms, if at all.
If we are unable to renew our expiring reinsurance contracts on acceptable terms or expand our reinsurance coverage through traditional reinsurers, catastrophe bonds, or otherwise, our loss exposure may increase, which would increase our potential losses related to catastrophe or non-catastrophe events. If we are unwilling to bear an increase in loss exposure, we may have to reduce our written premiums. These outcomes could adversely affect our business, financial condition, and results of operations.
In addition, as we grow our written premiums and enter new lines of business, we will seek new types of reinsurance and will need to purchase reinsurance on commercially acceptable terms in order to reduce the risk associated with entering new lines of business. The inability to purchase appropriate reinsurance for new lines of business could negatively impact our ability to grow our written premiums and maintain our desired level of profitability.
Many reinsurance companies have begun to exclude certain coverages from, or alter terms in, our reinsurance contracts with them. As a result, we, like other insurance companies, write insurance policies which to some extent do not have the benefit of reinsurance protection. These gaps in reinsurance protection expose us to greater risk and greater potential losses.
We utilize several risk management and loss limitation methods, including relying on estimates and models. If these methods fail to adequately manage our exposure to losses from catastrophe events, our losses could be materially higher than our expectations, and our business, financial condition, and results of operations could be materially adversely affected.
Our approach to risk management relies on subjective variables that entail significant uncertainties. We manage our exposure to catastrophe losses by analyzing the probability of the occurrence of catastrophe events and their severity and impact on our underwriting and investment portfolio. We monitor and mitigate our exposure through a number of methods designed to minimize risk, including underwriting specialization, modeling and data systems, data quality control, strategic use of policy deductibles, regular review of aggregate exposure and probable maximum loss reports, which report the maximum amount of expected losses based on computer or actuarial modeling techniques. These estimates, models, data, and scenarios may not produce accurate predictions; consequently, we could incur losses both in the risks we underwrite and to the value of our investment portfolio due to the overall impact on financial markets from the occurrence of catastrophe events.
In addition, output from our risk modeling software is based on third-party data that we believe to be accurate and reliable. The estimates and assumptions we use are dependent on many variables, such as loss adjustment expenses, insurance to value, storm or earthquake intensity, building code compliance and demand surge, which is the temporary inflation of costs for building materials such as lumber and labor resulting from increased demand for rebuilding services in the aftermath of a catastrophe. Accordingly, if the estimates and assumptions used in our risk models are incorrect or if our risk models prove to be an inaccurate forecasting tool, the losses we incur from an actual catastrophe could be materially higher than our expectation of losses generated from modeled catastrophe scenarios, and our business, financial condition, and results of operations could be materially adversely affected. In addition, our third-party data providers may change the estimates or assumptions that we use in our risk models and/or their data may be inaccurate. Changes in these estimates or assumptions or the use of inaccurate third-party data could cause our actual losses to be materially higher than our current expectation of losses generated by modeled catastrophe scenarios, which in turn could materially adversely affect our business, financial condition, and results of operations.
We run many model simulations to understand the impact of these assumptions on a catastrophe’s loss potential. Furthermore, there are risks associated with catastrophe events, which are either poorly represented or not represented at all by catastrophe models. Each modeling assumption or un-modeled risk introduces uncertainty into probable maximum loss estimates that management must consider. These uncertainties can include, but are not limited to, the following:
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The models do not address all the possible hazard characteristics of a catastrophe peril (e.g., the precise path and wind speed of a hurricane); |
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The models may not accurately reflect the true frequency or severity of events; |
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The models may not accurately reflect a risk’s vulnerability or susceptibility to damage for a given event characteristic; |
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The models may not account for unusual or unprecedented catastrophe events; |
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The models may not adequately consider the impact of inflation on the magnitude of modeled losses; |
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The models may not accurately represent loss potential to insurance or reinsurance contract coverage limits, terms and conditions; and |
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The models may not accurately reflect the impact on the economy of the area affected or the financial, judicial, political, or regulatory impacts on insurance claim payments during or following a catastrophe event. |
As a result of these factors and contingencies, our reliance on assumptions and data used to evaluate our entire risk portfolio and specifically to estimate a probable maximum loss is subject to a high degree of uncertainty that could result in actual losses that are materially different from our probable maximum loss estimates and could adversely impact our financial results.
A decline in our financial strength rating may adversely affect the amount of business we write and impact compliance with our debt covenants.
Participants in the insurance industry use ratings from independent ratings agencies, such as A.M. Best, as an important means of assessing the financial strength and quality of insurers. In setting its ratings, A.M. Best performs quantitative and qualitative analysis of a company’s balance sheet strength, operating performance and business profile. A.M. Best financial strength ratings range from “A++” (Superior) to “F” for insurance companies that have been publicly placed in liquidation. As of September 30, 2024, A.M. Best has assigned a financial strength rating of “A” (Excellent) (Outlook Positive) to our insurance company subsidiaries, Palomar Specialty Insurance Company (“PSIC”) and Palomar Excess and Surplus Insurance Company (“PESIC”). A.M. Best assigns ratings that are intended to provide an independent opinion of an insurance company’s ability to meet its obligations to policyholders and such ratings are not evaluations directed to investors and are not a recommendation to buy, sell or hold our common stock or any other securities we may issue. A.M. Best’s analysis includes comparisons to peers and industry standards as well as assessments of operating plans, philosophy and management. A.M. Best periodically reviews our financial strength rating and may revise it downward or revoke it at A.M. Best’s discretion based primarily on its analyses of our balance sheet strength (including capital adequacy and loss adjustment expense reserve adequacy), operating performance and business profile. Factors that could affect such analyses include, but are not limited to:
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If we change our business practices from our organizational business plan in a manner that no longer supports A.M. Best’s rating; |
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If unfavorable financial, regulatory or market trends affect us, including excess market capacity; |
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If our losses exceed our loss reserves; |
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If we have unresolved issues with government regulators; |
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If we are unable to retain our senior management or other key personnel; |
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If our investment portfolio incurs significant losses; or |
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If A.M. Best alters its capital adequacy assessment methodology in a manner that would adversely affect our rating. |
These and other factors could result in a downgrade of our financial strength rating. A downgrade or withdrawal of our rating could result in any of the following consequences, among others:
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Causing our current and future distribution partners and insureds to choose other, more highly rated competitors; |
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Increasing the cost or reducing the availability of reinsurance to us; |
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Severely limiting or preventing us from writing new and renewal insurance contracts; or |
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Causing us to be out of compliance with the financial covenants in our credit agreement. |
In addition, in view of the earnings and capital pressures experienced by many financial institutions, including insurance companies, it is possible that rating organizations will heighten the level of scrutiny that they apply to such institutions, will increase the frequency and scope of their credit reviews, will request additional information from the companies that they rate or will increase the capital and other requirements employed in the rating organizations’ models for maintenance of certain ratings levels. If our credit rating were to be downgraded, or general market conditions were to ascribe higher risk to our rating levels, our access to capital markets and the cost of any equity or debt financing will be negatively impacted. We can offer no assurance that our rating will remain at its current level. It is possible that such reviews of us may result in adverse ratings consequences, which could have a material adverse effect on our financial condition and results of operations.
We and our customers could be negatively and adversely impacted by pandemics, disease outbreaks and other public health crises, such as the COVID-19 pandemic.
The extent of the impact of a pandemic, disease outbreak or other public health crisis on our operational and financial performance depends on several factors, including the ultimate duration and severity of the event, the emergence and severity of variant strains, actions taken and restrictions imposed by the government and health officials in response, the effectiveness and adoption of vaccines and therapeutics, the ability for our customers to continue to pay premiums, contraction of the insurance and reinsurance markets, and the ability for reinsurers to satisfy claims, all of which are uncertain and cannot be predicted. While policy terms and conditions in the lines of business written by us would be expected to preclude coverage for virus-related claims, court decisions and governmental actions may challenge the validity of any exclusions or our interpretation of how such terms and conditions operate.
Global health crises have historically contributed to financial market volatility, supply chain disruptions, price inflation, and material and labor shortages, all of which may have a negative impact on our business. Furthermore, since our results of operations are partially dependent on the performance of our investment portfolio, a global health crisis' impact on the economy and financial markets could reduce our net investment income and result in realized investment losses in future periods. The macroeconomic effects of a global health crisis may persist for an indefinite period, even after it has subsided. We cannot anticipate all the ways in which global health crises could adversely impact our business in the future.
Our business is concentrated in California and, as a result, we are exposed more significantly to California loss activity and regulatory environments.
Our policyholders and insurance risks are currently concentrated in California, which generated 53% of our gross written premiums for the year ended December 31, 2023 and 44% for the nine months ended September 30, 2024. We are exposed to business, economic, political, judicial and regulatory risks due to this concentration that are greater than the risks faced by insurance companies with a lower concentration of their premiums in California. Any single, major catastrophe event, series of events or other condition causing significant losses in California could materially adversely affect our business, financial condition and results of operations. Additionally, unfavorable business, economic or regulatory conditions in California may result in a significant reduction of our premiums or increase our loss exposure. Changes to insurance-related laws or regulations in California could also have a negative impact on our business.
We could be adversely affected by the loss of one or more key executives or by an inability to attract and retain qualified personnel.
We depend on our ability to attract and retain experienced personnel and seasoned key executives who are knowledgeable about our business. The pool of talent from which we recruit is limited and may fluctuate based on market dynamics specific to our industry and independent of overall economic conditions. As such, higher demand for employees having the desired skills and expertise could lead to increased compensation expectations for existing and prospective personnel, making it difficult for us to retain and recruit key personnel and maintain labor costs at desired levels. Recently, companies have had issues with employee turnover and finding, hiring, and retaining qualified employees. These challenges may continue for the foreseeable future.
In particular, our future success is substantially dependent on the continued service of our Founder, Chief Executive Officer and Chairman, Mac Armstrong, and our Chief Financial Officer, Christopher Uchida. Should any of our key executives terminate their employment with us, or if we are unable to retain and attract talented personnel, we may be unable to maintain our current competitive position in the specialized markets in which we operate, which could adversely affect our results of operations.
We rely on a select group of brokers and program administrators, and such relationships may not continue.
The distribution networks of our products are multi-faceted and distinct to each line of business. Our relationship with our brokers or program administrators may be discontinued at any time. Even if the relationships do continue, they may not be on terms that are profitable for us. We distribute a significant portion of our Residential Earthquake, Commercial Earthquake, Hawaii Hurricane, and Fronting products through relationships with certain program administrators. Each of the products managed by the program administrators operates as a separate program that is governed by an independent, separately negotiated agreement with unique terms and conditions, including geographic scope, key person provisions, economics and exclusivity. These programs also feature separate managerial oversight and leadership, policy administration systems and retail agents originating policies.
For the year ended December 31, 2023, our largest program administrator distributed $394.1 million or 34.5% of our gross written premiums and our second largest program administrator distributed $152.4 million, or 13.3% of our gross written premiums. There were no other program administrators which distributed greater than 10% of our gross written premiums for the year ended December 31, 2023.
For the nine months ended September 30, 2024, our largest program administrator distributed $298.7 million or 25.6% of our gross written premiums and our second largest program administrator distributed $123.0 million, or 10.5% of our gross written premiums. There were no other program administrators which distributed greater than 10% of our gross written premiums for the nine months ended September 30, 2024.
Our largest program administrator, Arrowhead General Insurance Agency, distributes our Value Select Residential Earthquake program, which represents the majority of our Residential Earthquake premium and is administered through a mutually exclusive agreement for the states of California, Oregon and Washington. The agreement remains in effect until terminated by either party upon 180 days’ prior written notice to the other party for cause. The termination of a relationship with one or more significant brokers or program administrators could result in lower gross written premiums and could have a material adverse effect on our results of operations or business prospects.
Because we provide our program administrators with specific quoting and binding authority, if any of them fail to comply with pre‑established guidelines, our results of operations could be adversely affected.
We market and distribute certain of our insurance products through program administrators that have limited quoting and binding authority and that in turn sell our insurance products to insureds through retail agents and wholesale brokers. These program administrators can bind certain risks without our expressed approval. If any of these program administrators fail to comply with our underwriting guidelines and the terms of their appointments, we could be bound on a particular risk or number of risks that were not anticipated when we developed the insurance products or estimated losses and loss adjustment expenses. Such actions could adversely affect our results of operations.
Because our business depends on insurance brokers and program administrators, we are exposed to certain risks arising out of our reliance on these distribution channels that could adversely affect our results.
Certain premiums from policyholders, where the business is produced by brokers, are collected directly by the brokers and forwarded to our insurance subsidiaries. In certain jurisdictions, when the insured pays its policy premium to its broker for payment to us, the premium might be considered to have been paid under applicable insurance laws and regulations. Accordingly, the insured would no longer be liable to us for those amounts, whether or not we have actually received the premium from the broker. Consequently, we assume a degree of credit risk associated with the brokers with which we work. We review the financial condition of potential new brokers before we agree to transact business with them. Although the failure by any of our brokers to remit premiums to us has not been material to date, there may be instances where our brokers collect premiums but do not remit them to us and we may be required under applicable law to provide the coverage set forth in the policy despite the related premiums not being paid to us. Additionally, the loss or disruption of business from our agents and brokers or the failure or inability of these agents and brokers to successfully market our insurance products could have a material adverse effect on our business, financial condition, and results of operations.
Because the possibility of these events occurring depends in large part upon the financial condition and internal operations of our brokers, we regularly meet and communicate with our brokers, monitor broker behavior, and review broker financial information on an as‑needed basis. If we are unable to collect premiums from our brokers in the future, our underwriting profits may decline, and our financial condition and results of operations could be materially and adversely affected.
Competition for business in our industry is intense.
We face competition from other specialty insurance companies, standard insurance companies and underwriting agencies that are larger than we are and that have greater financial, marketing, and other resources than we do. Some of these competitors also have longer operating history and more market recognition than we do in certain lines of business. In addition, we compete against state or other publicly managed enterprises including the California Earthquake Authority (“CEA”), the National Flood Insurance Program, and the Texas Wind Insurance Association. If the CEA decided to provide coverage to non-CEA member carriers or lessened the capital requirements for membership, we would face additional competition in our markets, and our operating results could be adversely affected. Furthermore, it may be difficult or prohibitively expensive for us to implement technology systems and processes that are competitive with the systems and processes of these larger companies.
Competition in the insurance industry is based on many factors, including price of coverage, the general reputation and perceived financial strength of the company, relationships with brokers, terms and conditions of products offered, ratings assigned by independent rating agencies, speed of claims payment, and the experience and reputation of the members of our underwriting team in the particular lines of insurance and reinsurance we seek to underwrite. In recent years, the insurance industry has undergone increasing consolidation, which may further increase competition.
Certain new, proposed or potential industry or legislative developments could further increase competition in our industry. For example, an increase in capital-raising by companies with whom we compete could result in new entrants to our markets and an excess of capital in the industry. Additionally, the possibility of federal regulatory reform of the insurance industry could increase competition from standard carriers.
We may not be able to continue to compete successfully in the insurance markets. Increased competition in these markets could result in a change in the supply and demand for insurance, affect our ability to price our products at risk-adequate rates and retain existing business, or underwrite new business on favorable terms. If this increased competition so limits our ability to transact business, our operating results could be adversely affected.
If actual renewals of our existing policies do not meet expectations, our written premium in future years and our future results of operations could be materially adversely affected.
Most of our insurance policies are written for a one‑year term. In our financial forecasting process, we make assumptions about the rates of renewal of our prior year’s policies. The insurance and reinsurance industries have historically been cyclical businesses with intense competition, often based on price. If actual renewals do not meet expectations or if we choose not to write a renewal because of pricing conditions, our written premium in future years and our future operations would be materially adversely affected. In addition, the volume of fronting premiums written may vary significantly in future periods due to the timing of entering large fronting partnerships and terminations of large fronting partnerships.
Our failure to accurately and timely evaluate and pay claims could materially and adversely affect our business, financial condition, results of operations, and prospects.
We must accurately and timely evaluate and pay claims that are made under our policies. Many factors affect our ability to pay claims accurately and timely, including the training and experience of our claims representatives, including our third-party claims administrators (“TPAs”), the effectiveness of our management, our ability to develop or select and implement appropriate procedures and systems to support our claims functions, and other factors. Our failure to evaluate and pay claims accurately and timely could lead to regulatory and administrative actions or material litigation, undermine our reputation in the marketplace, and materially and adversely affect our business, financial condition, results of operations, and prospects.
In addition, if we do not manage our TPAs effectively, or if our TPAs are unable to effectively manage our volume of claims, our ability to manage our claims workload could be adversely affected. In addition to potentially requiring that growth be slowed in the affected markets, our business could suffer from decreased quality of claims work which, in turn, could adversely affect our results of operations.
We may act based on inaccurate or incomplete information regarding the accounts we underwrite.
We rely on information provided by insureds or their representatives when underwriting insurance policies. While we may make inquiries and take other steps to validate or supplement the information provided, we may make underwriting decisions based on incorrect or incomplete information. It is possible that we will misunderstand the nature or extent of the activities or facilities and the corresponding extent of the risks that we insure because of our reliance on inadequate or inaccurate information.
We may change our underwriting guidelines or our strategy without stockholder approval.
Our management has the authority to change our underwriting guidelines or our strategy without notice to our stockholders and without stockholder approval. As a result, we may make fundamental changes to our operations without stockholder approval, which could result in our pursuing a strategy or implementing underwriting guidelines that may be materially different from the strategy or underwriting guidelines described in our public filings.
Our employees could take excessive risks, which could negatively affect our financial condition and business.
As an insurance enterprise, we are in the business of binding certain risks. The employees who conduct our business, including executive officers and other members of management, underwriters, product managers and other employees, do so in part by making decisions and choices that involve exposing us to risk. These include decisions such as setting underwriting guidelines and standards, product design and pricing, determining which business opportunities to pursue, and other decisions. We endeavor, in the design and implementation of our compensation programs and practices, to avoid giving our employees incentives to take excessive risks. Employees may, however, take such risks regardless of the structure of our compensation programs and practices. Similarly, although we employ controls and procedures designed to monitor employees’ business decisions and prevent them from taking excessive risks, these controls and procedures may not be effective. If our employees take excessive risks, the impact of those risks could have a material adverse effect on our financial condition and business operations.
We may require additional capital in the future, which may not be available or may only be available on unfavorable terms.
Our future capital requirements depend on many factors, including our ability to write new business successfully and to establish premium rates and reserves at levels sufficient to cover losses. Many factors will affect the amount and timing of our capital needs, including our growth rate and profitability, our claims experience, the availability of reinsurance, market disruptions, and other unforeseeable developments. If we need to raise additional capital, equity or debt financing may not be available at all or only available on unfavorable terms. Equity financings would result in dilution to our stockholders. Debt financings could subject us to covenants that restrict our ability to freely operate our business. If we cannot obtain adequate capital on favorable terms or at all, we may not have sufficient funds to implement our operating plans and our business, financial condition or results of operations could be materially adversely affected.
We may not be able to manage our growth effectively.
We intend to grow our business in the future, which could require additional capital, technology development, and skilled personnel. To grow effectively, we must be able to meet our capital needs and expand our systems, technology, and internal controls effectively. We also must allocate our human resources optimally, including identifying, hiring, and retaining qualified employees, and effectively incorporating the components of any businesses we may acquire in our effort to achieve growth. The failure to manage our growth effectively could have a material adverse effect on our business, financial condition and results of operations.
We face risks associated with the evaluation of potential acquisitions, the integration of acquired businesses, and the introduction of new products, lines of business, and markets.
As part of our business strategy, we may make acquisitions, including acquisitions in lines of business that are natural adjacencies. The success of our acquisition strategy is dependent upon our ability to identify appropriate acquisition targets, negotiate transactions on favorable terms, complete transactions, have adequate access to financing and the ability to finance acquisitions on acceptable terms, and successfully integrate them into our existing businesses.
If acquisitions are made, we may not realize the anticipated benefits of such acquisitions, including, but not limited to, revenue growth, operational efficiencies, or expected synergies. Many of the businesses and assets that we have acquired or may acquire have unaudited historical financial statements or records that have been, or will be, prepared by the management of such companies and have not been, or will not be, independently reviewed or audited. We cannot be certain that the financial statements or records of companies or assets we have acquired or may acquire would not, or will not, be materially different if such statements were independently reviewed or audited. If such statements were to be materially different, the tangible and intangible assets we acquire may be more susceptible to impairment charges, which could have a material adverse effect on us.
In addition, many of the businesses that we acquire and develop will likely have smaller scales of operations prior to the implementation of our growth strategy. If we are not able to manage the growing complexity of these businesses, including improving, refining, or revising our systems and operational practices, enlarging the scale and scope of the businesses, and integrating the new business into our culture and operations, our business may be adversely affected.
From time to time, either through acquisitions or internal development, we enter new distribution channels or lines of business or offer new products and services within existing lines of business. These new distribution channels, lines of business, or new products and services present additional risks, particularly in instances where the markets are not fully developed. Such risks include the investment of significant time and resources to recruit, hire, and retain personnel and develop the products, the risks involved with the management of the integration process and development of new processes and systems to accommodate complex programs, and the risk of financial guarantees and additional liabilities associated with these efforts.
Failure to manage these risks arising from acquisitions or development of new businesses could materially and adversely affect our business, results of operations, and financial condition.
Our operating results have in the past varied from quarter to quarter and may not be indicative of our long‑term prospects.
Our operating results are subject to fluctuation and have historically varied from quarter to quarter. We expect our quarterly results to continue to fluctuate in the future due to a number of factors, including the general economic conditions in the markets where we operate, the frequency of occurrence and severity of catastrophe or other insured events, fluctuating interest rates, claims exceeding our loss reserves, competition in our industry, deviations from expected premium retention rates of our existing policies, volatility in investment performance, including gains and losses on our equity securities, and the cost of reinsurance coverage.
In addition, the insurance and reinsurance business historically has been a cyclical industry characterized by periods of intense price competition due to excess underwriting capacity (soft market cycle) as well as periods when shortages of capacity increase premium levels (hard market cycle). We expect our business and results of operations to be continuously impacted by these market cycles.
We seek to underwrite products and make investments to achieve favorable returns on tangible stockholders’ equity over the long term. Our opportunistic nature and focus on long‑term growth in tangible equity may result in fluctuations in gross written premiums, reinsurance expenses, loss expenses, and other underwriting expenses from period to period as we concentrate on underwriting contracts that we believe will generate better long‑term, rather than short‑term, results. Accordingly, our short‑term results of operations may not be indicative of our long‑term prospects.
Our Credit Agreement contains restrictions and covenants that limit our flexibility in operating our business and any debt borrowed under our Credit Agreement exposes us to additional risk and may adversely affect our financial condition and future financial results.
In December 2021, we entered into a Credit Agreement (the “Credit Agreement”) with certain lenders which provides a revolving credit facility of up to $100.0 million. Borrowings under the Credit Agreement may impact our business and financial condition by:
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Requiring the dedication of a portion of our expected cash flows from operations to service our debt, thereby reducing the amount of expected cash flows available for other purposes, including investing, and paying claims and operating expenses and; |
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Exposing us to interest rate risk since the interest rate in the credit agreement is a variable rate. |
In addition, the Credit Agreement contains financial covenants, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of other indebtedness and dividends and other distributions. The financial covenants in the Credit agreement require the Company not to exceed a maximum leverage ratio and maintain a minimum net worth at the end of each quarter. The Company’s insurance subsidiaries are also required to maintain a minimum Risk-Based Capital Ratio at the end of each year and must always maintain a minimum AM Best Financial Strength rating. All of these covenants and restrictions impact how we operate our business and may limit our flexibility in planning for, or reacting to, changes in our business and industry. Our ability to comply with these covenants may be affected by events beyond our control. If we breach any of the covenants and do not obtain a waiver from the noteholders or lenders, then, subject to applicable cure periods, any outstanding debt may be declared immediately due and payable.
Risks Related to the Economic Environment
Adverse economic factors, including recession, inflation, periods of high unemployment or lower economic activity could result in the sale of fewer policies than expected or an increase in the frequency of claims and premium defaults, and even the falsification of claims, or a combination of these effects, which, in turn, could affect our growth and profitability.
Factors, such as general economic conditions, the volatility and strength of the capital markets, and inflation can affect the business and economic environment. These same factors affect our ability to generate revenue and profits. In an economic downturn that is characterized by higher unemployment, declining spending, and reduced corporate revenue, the demand for insurance products could be adversely affected, which directly affects our premium levels and profitability. Negative economic factors may also affect our ability to receive the appropriate rate for the risk we insure with our policyholders and may adversely affect the number of policies we can write, and our opportunities to underwrite profitable business. In an economic downturn, our customers may have less need for insurance coverage, cancel or cease payment on existing insurance policies, modify their coverage, or not renew the policies they hold with us. Existing policyholders may exaggerate or even falsify claims to obtain higher claims payments. These outcomes would reduce our underwriting profit to the extent these factors are not reflected in the rates we charge.
We underwrite a significant portion of our insurance in California. An economic downturn which particularly impacts California could have an adverse effect on our financial condition and results of operations.
Performance of our investment portfolio is subject to a variety of investment risks that may adversely affect our financial results.
Our results of operations depend, in part, on the performance of our investment portfolio. We seek to hold a diversified portfolio of investments that is managed by a professional investment advisory management firm in accordance with our investment policy and routinely reviewed by our Board of Directors. Our investments are subject to general economic conditions and market risks as well as risks inherent to particular securities.
Our primary market risk exposures relate to changes in interest rates and credit quality considerations. Future increases in interest rates could cause the values of our fixed maturity securities portfolios to decline, with the magnitude of the decline depending on the duration of securities included in our portfolio and the amount by which interest rates increase. Interest rate fluctuations can also impact the business and results of operations of the companies that issue fixed maturity securities and may cause a decline in fair value of their securities. Some fixed maturity securities have call or prepayment options, which create reinvestment risk in declining rate environments. Other fixed maturity securities, such as mortgage‑backed and asset‑backed securities, carry prepayment risk or, in a rising interest rate environment, may not prepay as quickly as expected.
The value of our investment portfolio is subject to the risk that certain investments may default or become impaired due to deterioration in the financial condition of one or more issuers of the securities we hold, or due to deterioration in the financial condition of an insurer that guarantees an issuer’s payments on such investments. Such deteriorations may be caused or magnified by interest rate fluctuations. Downgrades in the credit ratings of fixed maturities also have a significant negative effect on the market valuation of such securities.
Such factors could reduce our net investment income and result in realized investment losses. Our investment portfolio is subject to increased valuation uncertainties when investment markets are illiquid. The valuation of investments is more subjective when markets are illiquid, thereby increasing the risk that the estimated fair value (i.e., the carrying amount) of the securities we hold in our portfolio does not reflect prices at which actual transactions would occur.
We also invest in marketable equity securities. These securities are carried on the balance sheet at fair market value and are subject to potential losses and declines in market value based on the performance of equity markets. Our equity invested assets totaled $40.2 million as of September 30, 2024.
Risks for all types of securities are managed through the application of our investment policy, which establishes investment parameters that include but are not limited to, maximum percentages of investment in certain types of securities and minimum levels of credit quality, which we believe are within applicable guidelines established by the National Association of Insurance Commissioners (“NAIC”), the Oregon Division of Financial Regulation and the California and Arizona Departments of Insurance.
Although we seek to preserve our capital, we cannot be certain that our investment objectives will be achieved, and results may vary substantially over time. In addition, although we seek to employ investment strategies that are not correlated with our insurance and reinsurance exposures, losses in our investment portfolio may occur at the same time as underwriting losses and, therefore, exacerbate the adverse effect of the losses on us.
Our investment portfolio could also be adversely impacted by ratings downgrades, increased bankruptcies and credit spread widenings caused by economic downturns or other events. Severe economic downturns could cause impairments in our fixed income portfolio. In addition, declines in fixed income yields would result in decreases in net investment income from future investment activity, including re-investments.
We may, in certain circumstances, invest in private companies or limited partnerships which we believe provide strategic opportunities. We do not intend to devote a significant portion of our investment portfolio to these types of investments. These types of investments are typically illiquid, and we have limited ability to take actions that protect or increase the value of this type of investment. Net losses from these investments or impairment of these investments may negatively impact our operating results.
We could be forced to sell investments to meet our liquidity requirements.
We invest the premiums we receive from our insureds until they are needed to pay policyholder claims. Consequently, we seek to manage the duration of our investment portfolio based on the duration of our losses and loss adjustment expense reserves to provide sufficient liquidity and avoid having to liquidate investments to fund claims. Risks such as inadequate losses and loss adjustment reserves, a significant catastrophe event, or unfavorable trends in litigation could potentially result in the need to sell investments to fund these liabilities. We may not be able to sell our investments at favorable prices or at all. Sales could result in significant realized losses depending on the conditions of the general market, interest rates, and credit issues with individual securities.
Risks Related to Technology
The failure of our information technology and telecommunications systems could adversely affect our business.
Our business is highly dependent upon our information technology and telecommunications systems, including our underwriting system. We rely on these systems to interact with brokers and insureds, to underwrite business, to prepare policies and process premiums, to perform actuarial and other modeling functions, to process claims and make claims payments, and to prepare internal and external financial statements and information. Some of these systems may include or rely on third‑party systems not located on our premises or under our control. Events such as natural catastrophes, pandemics, cyber-attacks, terrorist attacks, industrial accidents or computer viruses may cause our systems to fail or be inaccessible for extended periods of time. While we have implemented business contingency plans and other reasonable plans to protect our systems, sustained or repeated system failures or service denials could severely limit our ability to write and process new and renewal business, provide customer service, pay claims in a timely manner or otherwise operate in the ordinary course of business.
Security breaches or cyber-attacks could expose us to liability and damage our reputation and business.
Our operations depend on the reliable and secure processing, storage, and transmission of confidential and other data and information in our computer systems and networks. Computer viruses, hackers, employee misconduct, and other external hazards could expose our systems to security breaches, cyber‑attacks or other disruptions.
Cyberthreats are constantly evolving and becoming increasingly sophisticated and complex, making it increasingly difficult to detect and successfully defend against them. In addition, cyber-attackers (which may include individuals or groups, as well as sophisticated groups such as nation-state and state-sponsored attackers, which can deploy significant resources to plan and carry out exploits) also develop and deploy viruses, worms, credential stuffing attack tools and other malicious software programs, some of which may be specifically designed to attack our products, information systems or networks. Outside parties have in the past and may in the future attempt to fraudulently induce our employees or users of our products or services to disclose sensitive, personal or confidential information via illegal electronic spamming, phishing or other tactics.
While we have implemented security measures and employee training designed to protect against breaches of security and other interference with our systems and networks, our systems and networks may be, and at times are, subject to breaches or interference. Any such event may result in operational disruptions as well as unauthorized access to or the disclosure or loss of our proprietary information or our customers’ data and information, which in turn may result in legal claims, regulatory scrutiny and liability, reputational damage, the incurrence of costs to eliminate or mitigate further exposure, the loss of customers or affiliated advisors, reputational harm or other damage to our business. While we maintain insurance coverage that may, subject to policy terms and conditions, cover certain aspects of cyber risks, such insurance coverage may be insufficient to cover all losses.
In addition, the trend toward general public notification of such incidents could exacerbate the harm to our business, financial condition and results of operations. Even if we successfully protect our technology infrastructure and the confidentiality of sensitive data, we could suffer harm to our business and reputation if attempted security breaches are publicized. We cannot be certain that advances in criminal capabilities, discovery of new vulnerabilities, attempts to exploit vulnerabilities in our systems, data thefts, physical system or network break‑ins or inappropriate access, or other developments will not compromise or breach the technology or other security measures protecting the networks and systems used in connection with our business.
We employ third‑party licensed software for use in our business, and the inability to maintain these licenses, problems with the software we license, or increases to the cost of software licenses could adversely affect our business.
Multiple areas of our business rely on certain third‑party software obtained under licenses from other companies. We anticipate that we will continue to rely on such third‑party software in the future. Unforeseen issues may arise in third-party software platforms which may have an adverse impact on our operations. Integration of new third‑party software or modifications to our existing third-party software may require substantial investment of our time and resources. The inability to integrate or operate third-party software successfully or the inadequacy of third-party software may have a material adverse impact on our operations. In addition, the cost of third-party software is significant and we expect it to increase in the future. If we have issues with the functionality or expense of third-party software, we may not be able to find acceptable alternatives in a timely manner or at all. Many of the risks associated with the use of third‑party software cannot be eliminated, and these risks could negatively affect our business.
Additionally, the software powering our technology systems incorporates software covered by open-source licenses. The terms of many open-source licenses have not been interpreted by U.S. courts, and there is a risk that the licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to operate our systems. In the event that portions of our proprietary software are determined to be subject to an open-source license, we could be required to publicly release the affected portions of our source code or re‑engineer all or a portion of our technology systems, each of which could reduce or eliminate the value of our technology systems. Such risk could be difficult or impossible to eliminate and could adversely affect our business, financial condition, and results of operations.
Any control weakness or failure in cloud-based software could adversely affect our business.
We use cloud-based third-party software to host applications and for key financial and operational systems and we expect to expand their use in the future. We will increasingly rely on third-party software providers to maintain appropriate controls and safeguards to protect the integrity of our data and any information we transmit, including personal, personally identifiable, sensitive, confidential or proprietary information. While we conduct due diligence on these cloud providers with respect to their security and business controls, we may not have the visibility to effectively monitor the implementation and efficacy of these controls. If these controls do not operate effectively, we may not be able to rely on their software and cyber attackers may be able to exploit vulnerabilities, resulting in operational disruption, data loss, defects or a cybersecurity event. Migrating our software to the cloud increases the risk of operational disruption should internet service be interrupted. While we have implemented business contingency and other plans to facilitate continuous internet access, sustained or concurrent service denials or similar failures could limit our ability to write and process new and renewal business, provide customer service, pay claims in a timely manner, maintain our accounting function, or otherwise operate our business. Any such event or failure could have a material adverse effect on our business, financial condition and results of operations.
The growth and evolution of artificial intelligence may impact our business and operations
In the future, we may seek to deploy and/or further rely on technologies such as artificial intelligence or machine learning in operating our business. If we are unable to deploy this technology effectively or if our competitors are better able to deploy this technology our business may be adversely impacted. Our third-party software vendors and service providers are increasing incorporating artificial intelligence into their processes and this may expose us to additional risks should they not be able to incorporate the technology effectively. The evolution and increased reliance on artificial intelligence may exacerbate our information technology and cybersecurity risks. Furthermore, regulations around artificial intelligence continue to evolve and we may be subject to increased regulation around artificial intelligence in the future.
Risks Related to Laws and Regulations
We are subject to extensive regulation, which may adversely affect our ability to achieve our business objectives. In addition, if we fail to comply with these regulations, we may be subject to penalties, including fines and suspensions, which may adversely affect our financial condition and results of operations.
PSIC is subject to extensive regulation in Oregon, its state of domicile, California, where it is commercially domiciled, and to a lesser degree, the other states in which it operates. PESIC is subject to extensive regulation in Arizona, its state of domicile, and to a lesser degree, the other states in which it writes business. Our Bermuda based reinsurance subsidiary, Palomar Specialty Reinsurance Company Bermuda Ltd. (“PSRE”), is subject to regulation in Bermuda.
Most insurance regulations are designed to protect the interests of insurance policyholders, as opposed to the interests of investors or stockholders. These regulations generally are administered by a department of insurance in each state and relate to, among other things, capital and surplus requirements, investment and underwriting limitations, affiliate transactions, dividend limitations, changes in control, solvency and a variety of other financial and non-financial aspects of our business. Significant changes in these laws and regulations could further limit our discretion or make it more expensive to conduct our business. State insurance regulators and the Bermuda Monetary Authority (the “BMA”), also conduct periodic examinations of the affairs of insurance and reinsurance companies and require the filing of annual and other reports relating to financial condition, holding company issues and other matters. These regulatory requirements may impose timing and expense constraints that could adversely affect our ability to achieve some or all our business objectives.
Our U.S. insurance subsidiaries are part of an “insurance holding company system” within the meaning of applicable California, Oregon and Arizona statutes and regulations. As a result of such status, certain transactions between our U.S. insurance subsidiaries and one or more of their affiliates, such as a tax sharing agreement or cost sharing arrangement, may not be effected unless the insurer has provided notice of that transaction to the California Department of Insurance, the Oregon Division of Financial Regulation, or the Arizona Department of Insurance, as applicable, at least 30 days prior to engaging in the transaction and the California Department of Insurance, the Oregon Division of Financial Regulation, or the Arizona Department of Insurance, as applicable, has not disapproved such transaction within the 30-day time period. These prior notification requirements may result in business delays and additional business expenses. If any of our U.S. insurance subsidiaries fail to file a required notification or fail to comply with other applicable insurance regulations in California, Oregon or Arizona, as applicable, we may be subject to significant fines and penalties and our working relationship with the California Department of Insurance, the Oregon Division of Financial Regulation, or the Arizona Department of Insurance, as applicable, may be impaired.
In addition, state insurance regulators have broad discretion to deny, suspend, or revoke licenses for various reasons, including the violation of regulations. In some instances, where there is uncertainty as to applicability, we follow practices based on our interpretations of regulations or practices that we believe generally to be followed by the industry. These practices may turn out to be different from the interpretations of regulatory authorities. If we do not have the requisite licenses and approvals or do not comply with applicable regulatory requirements, state insurance regulators could preclude or temporarily suspend us from carrying on some or all of our activities or could otherwise penalize us. This could adversely affect our ability to operate our business. Further, changes in the level of regulation of the insurance industry or changes in laws or regulations themselves or interpretations by regulatory authorities could interfere with our operations and require us to bear additional costs of compliance, which could adversely affect our ability to operate our business.
Our U.S. insurance subsidiaries are subject to risk‑based capital requirements, based upon the “risk-based capital model” adopted by the NAIC, and other minimum capital and surplus restrictions imposed under Arizona, Oregon and California law. These requirements establish the minimum amount of risk-based capital necessary for a company to support its overall business operations. It identifies property and casualty insurers that may be inadequately capitalized by looking at certain inherent risks of each insurer’s assets and liabilities and its mix of net written premium. Insurers falling below a calculated threshold may be subject to varying degrees of regulatory action, including supervision, rehabilitation or liquidation. Failure by any of our U.S. subsidiaries to maintain risk-based capital at the required levels could adversely affect their ability to maintain regulatory authority to conduct business.
PSRE is subject to regulation from the European Union. The European Union adopted the Economic Substance Act 2018 and the Economic Substance Regulations 2018 (together, the “ES Requirements”). As an insurance company, our Bermuda subsidiary conducts a relevant activity and is subject to the ES Requirements. As a result, our Bermuda subsidiary may be required to change or increase our business operations in Bermuda to meet these requirements.
Laulima is subject to regulation from the Hawaii Department of Commerce and Consumer Affairs, Hawaii Insurance Division which requires that Laulima comply with Hawaii Statutes and Insurance Code. If Laulima is unable to comply with the applicable insurance regulations in Hawaii, it may be subject to significant fines and penalties and its working relationship with the Hawaii Department of Commerce and Consumer Affairs, Hawaii Insurance Division may be impaired.
Unexpected changes in the interpretation of our coverage or provisions, including loss limitations and exclusions, in our policies could have a material adverse effect on our financial condition and results of operations.
There can be no assurances that specifically negotiated loss limitations or exclusions in our policies will be enforceable in the manner we intend. As industry practices and legal, judicial, social, and other conditions change, unexpected and unintended issues related to claims and coverage may emerge. For example, many of our policies limit the period during which a policyholder may bring a claim, which may be shorter than the statutory period under which such claims can be brought against our policyholders. While these limitations and exclusions help us assess and mitigate our loss exposure, it is possible that a court or regulatory authority or an executive action could nullify or void a limitation or exclusion, such as limitations on business interruption claims caused by pandemics or other crises, or legislation could be enacted modifying or barring the use of such limitations or exclusions. These types of governmental actions could result in higher than anticipated losses and loss adjustment expenses, which could have a material adverse effect on our financial condition or results of operations. In addition, court decisions, such as the 1995 Montrose decision in California could read policy exclusions narrowly so as to expand coverage, thereby requiring insurers to create and write new exclusions.
These issues may adversely affect our business by either broadening coverage beyond our underwriting intent or by increasing the frequency or severity of claims. In some instances, these changes may not become apparent until sometime after we have issued insurance contracts that are affected by the changes. As a result, the full extent of liability under our insurance contracts may not be known for many years after a contract is issued.
We may become subject to additional government or market regulation, including additional regulation around cybersecurity, which may have a material adverse impact on our business.
Our business could be adversely affected by changes in state laws, including those relating to asset and reserve valuation requirements, surplus requirements, limitations on investments and dividends, enterprise risk and risk‑based capital requirements, and, at the federal level, by laws and regulations that may affect certain aspects of the insurance industry, including proposals for preemptive federal regulation. The U.S. federal government generally has not directly regulated the insurance industry except for certain areas of the market, such as insurance for flood, nuclear and terrorism risks. However, the federal government has undertaken initiatives or considered legislation in several areas that may affect the insurance industry, including tort reform, corporate governance and the taxation of reinsurance companies. In addition, the Bermuda reinsurance regulatory framework has become subject to increased scrutiny in many jurisdictions. As a result, the BMA has implemented and imposed additional requirements on the companies it regulates, which requirements could adversely impact the operations of PSRE.
Any government mandates and/or legislative changes related to mandated premium refunds or credits and extended premium grace periods, could have a material adverse effect on our results of operations and financial condition. Premium grace periods could significantly increase our expenses while decreasing our short-term revenues which would adversely impact our liquidity.
Additionally, in response to the growing threat of cyber-attacks in the insurance industry, cybersecurity regulations have been adopted, which, among other things, require insurance companies to establish and maintain a cybersecurity program and implement and maintain cybersecurity policies and procedures. On October 24, 2017, the NAIC adopted its Insurance Data Security Model Law, intended to serve as model legislation for states to enact in order to govern cybersecurity and data protection practices of insurers, insurance agents, and other licensed entities registered under state insurance laws. We are required to abide by the provisions of and file compliance certifications pertaining to this legislation.
We routinely transmit and receive personal, confidential and proprietary data and information by electronic means and are subject to numerous data privacy laws and regulations enacted in the jurisdictions in which we do business, including recent laws in California whose impact on our business are difficult to predict.
While we have implemented cybersecurity policies and procedures, there is no guarantee our policies and procedures will protect our systems against all attacks or comply with all provisions of these evolving regulations.
Changes in tax laws as a result of the enactment of tax legislation could impact our operations and profitability.
Any future tax legislation or changes to tax laws such as changing the corporate or personal tax rate or changes to allowed tax deductions could have a negative impact on our results of operations and profitability by causing us to incur additional tax expense or by having a financial impact on our policyholders.
If states increase the assessments that we are required to pay, our business, financial condition and results of operations would suffer.
Certain jurisdictions in which PSIC is admitted to transact business require property and casualty insurers doing business within that jurisdiction to participate in insurance guaranty associations. These organizations pay contractual benefits owed pursuant to insurance policies issued by impaired, insolvent or failed insurers. They levy assessments, up to prescribed limits, on all member insurers in a particular state based on the proportionate share of the premiums written by member insurers in the lines of business in which the impaired, insolvent or failed insurer is engaged. States may also assess admitted companies to fund their respective department of insurance operations. Some states permit member insurers to recover assessments paid through full or partial premium tax offset or in limited circumstances by surcharging policyholders.
PSIC is licensed to conduct insurance operations on an admitted basis in 42 states. As PSIC grows, its share of any assessments in each state in which it underwrites business on an admitted basis may increase. PSIC paid assessments of $0.2 million in 2023 and paid $5.0 million of assessments for the nine months ended September 30, 2024. We cannot predict with certainty the amount of future assessments because they depend on factors outside our control, such as insolvencies of other insurance companies as well as the occurrence of significant catastrophes. Assessments may be covered by our catastrophe XOL treaties and, to the extent we have experienced a net loss from an event in excess of our net retention, assessments would be recovered from our reinsurers with no additional expense to us. Although reinsurance makes the reinsurer liable to us to the extent the risk is transferred or ceded to the reinsurer, it does not relieve us (the ceding insurer) of our primary liability to our policyholders. Significant assessments could result in higher operating expenses and have a material adverse effect on our business, financial condition, or results of operations. In addition, while some states permit member insurers to recover assessments paid through full or partial premium tax offset or, in limited circumstances, by surcharging policyholders, there is no certainty that offsets or surcharges will be permitted in connection with any future assessments.
Because we are a holding company and substantially all our operations are conducted by our insurance subsidiaries, our ability to pay dividends depends on our ability to obtain cash dividends or other permitted payments from our insurance subsidiaries.
The continued operation and growth of our business will require substantial capital. We do not intend to declare and pay cash dividends on shares of our common stock in the foreseeable future. Because we are a holding company with no business operations of our own, our ability to pay dividends to stockholders largely depends on dividends and other distributions from our insurance subsidiaries, PSIC, PESIC and PSRE. State insurance laws, including the laws of Oregon, California, Arizona, and the laws of Bermuda restrict the ability of our subsidiaries to declare stockholder dividends. State insurance regulators require insurance companies to maintain specified levels of statutory capital and surplus. The maximum dividend distribution absent the approval or non‑disapproval of the insurance regulatory authority in Oregon, California and Arizona is limited by Oregon law at ORS 732.576, California law at Cal. Ins. Code 1215.5(g) and Arizona Revised Statute 20-481. Under Oregon statute, dividend payments from PSIC are further limited to that part of available policyholder surplus that is derived from net profits on our business. State insurance regulators have broad powers to prevent the reduction of statutory surplus to inadequate levels, and there is no assurance that dividends up to the maximum amounts calculated under any applicable formula would be permitted. Moreover, state insurance regulators that have jurisdiction over the payment of dividends by PSIC and PESIC may in the future adopt statutory provisions more restrictive than those currently in effect.
PSRE is highly regulated and is required to comply with various conditions before it is able to pay dividends or make distributions to us. Bermuda law, including the Insurance Act 1978, as amended (“Insurance Act”) and the Companies Act 1981, as amended (“Companies Act”) impose restrictions on PSRE’s ability to pay dividends to us based on solvency margins and surplus and capital requirements. These restrictions, and any other future restrictions adopted by the BMA, could have the effect, under certain circumstances, of significantly reducing dividends or other amounts payable to us by PSRE without affirmative approval of the BMA.
Any determination to pay dividends in the future will be at the discretion of our Board of Directors and will depend upon results of operations, financial condition, restrictions imposed by applicable law and other factors our Board of Directors deems relevant. Consequently, investors may need to sell all or part of their holdings of our common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Investors seeking immediate cash dividends should not purchase our common stock.
The effects of litigation on our business are uncertain and could have an adverse effect on our business.
As is typical in our industry, we continually face risks associated with litigation of various types, including disputes relating to insurance claims under our policies as well as other general commercial and corporate litigation. Although we are not currently involved in any material litigation with our customers, other members of the insurance industry are the target of class action lawsuits and other types of litigation, some of which involve claims for substantial or indeterminate amounts, and the outcomes of which are unpredictable. This litigation is based on a variety of issues, including insurance and claim settlement practices. We cannot predict with any certainty whether we will be involved in such litigation in the future or what impact such litigation would have on our business.
We rely on the use of credit scoring in pricing and underwriting certain of our insurance policies and any legal or regulatory requirements that restrict our ability to access credit score information could decrease the accuracy of our pricing and underwriting process and thus decrease our ability to be profitable.
We use credit scoring as a factor in pricing and underwriting decisions where allowed by state law. Consumer groups and regulators have questioned whether the use of credit scoring unfairly discriminates against some groups of people and are calling for laws and regulations to prohibit or restrict the use of credit scoring in underwriting and pricing. Laws or regulations that significantly curtail or regulate the use of credit scoring, if enacted in states in which we operate, could impact the integrity of our pricing and underwriting processes, which could, in turn, materially and adversely affect our business, financial condition, results of operations and prospects, and make it harder for us to be profitable over time.
Any failure to protect our intellectual property rights could impair our ability to protect our intellectual property, proprietary technology platform and brand, or we may be sued by third parties for alleged infringement of their proprietary rights.
Our success and ability to compete depend in part on our intellectual property, which includes our rights in our proprietary technology platform and our brand. We primarily rely on copyright, trade secret and trademark laws, and confidentiality agreements with our employees, customers, service providers, partners and others to protect our intellectual property rights. However, the steps we take to protect our intellectual property may be inadequate. Litigation brought to protect and enforce our intellectual property rights could be costly, time‑consuming and distracting to management and could result in the impairment or loss of portions of our intellectual property. Additionally, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability and scope of our intellectual property rights. Our failure to secure, protect and enforce our intellectual property rights could adversely affect our brand and adversely impact our business.
Our success also depends in part on us not infringing on the intellectual property rights of others. Our competitors, as well as a number of other entities and individuals, may own or claim to own intellectual property relating to our industry. In the future, third parties may claim that we are infringing on their intellectual property rights, and we may be found to be infringing on such rights. Any claims or litigation could cause us to incur significant expenses and, if successfully asserted against us, could require that we pay substantial damages or ongoing royalty payments, prevent us from offering our services, or require that we comply with other unfavorable terms. Even if we were to prevail in such a dispute, any litigation could be costly and time‑consuming and divert the attention of our management and key personnel from our business operations.
Changes in accounting practices and future pronouncements may materially affect our reported financial results.
Developments in accounting practices may require us to incur considerable additional expenses to comply, particularly if we are required to prepare information relating to prior periods for comparative purposes or to apply the new requirements retroactively. Our consolidated financial statements are prepared in accordance with Generally Accepted Accounting Principles (“GAAP”). The impact of changes in GAAP cannot be predicted but may affect the calculation of net income, stockholders’ equity, and other relevant financial statement line items.
In addition to compliance with GAAP on a consolidated basis, PSIC, PESIC, PSRE and Laulima are required to comply with statutory accounting principles (“SAP”). SAP and various components of SAP are subject to constant review by the NAIC and its task forces and committees, as well as state insurance departments to address emerging issues and otherwise improve financial reporting. Various proposals are pending before committees and task forces of the NAIC, some of which, if enacted, could have negative effects on insurance industry participants. The NAIC continuously examines existing laws and regulations. We cannot predict whether or in what form such reforms will be enacted and, if so, whether the enacted reforms will positively or negatively affect us.
We incur significant costs as a public company, and our management is required to devote substantial time to complying with public company regulations.
As a public company, we incur certain legal, accounting, and other expenses that we would not incur as a private company. We are subject to the reporting requirements of the Exchange Act, which require, among other things, that we file with the SEC annual, quarterly, and current reports with respect to our business and financial condition and therefore we need to have the ability to prepare financial statements that comply with all SEC reporting requirements on a timely basis. In addition, we are subject to other reporting and corporate governance requirements, including certain requirements of and certain provisions of the Sarbanes‑Oxley Act and the regulations promulgated thereunder, which impose significant compliance obligations upon us. In particular, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes‑Oxley Act. Our compliance with Section 404 requires that we incur substantial accounting expense and expend significant management efforts. We must maintain accounting and finance staff and consultants with appropriate public company reporting, technical accounting, and internal control knowledge to satisfy the ongoing requirements of Section 404 and provide internal audit services.
The Sarbanes‑Oxley Act and the Dodd‑Frank Act, as well as new rules subsequently implemented by the SEC and Nasdaq, have increased regulation of, and imposed enhanced disclosure and corporate governance requirements on, public companies. We expect disclosure requirements to increase in the future and expand to areas such as climate change and greenhouse gas emissions. Our efforts to comply with these evolving laws, regulations and standards increases our operating costs and divert management’s time and attention from revenue‑generating activities.
These requirements also place significant additional demands on our finance and accounting staff and on our financial accounting and information systems. We must retain accounting and financial staff with appropriate public company reporting experience and technical accounting knowledge. Other expenses associated with being a public company include increased auditing, accounting and legal fees and expenses, investor relations expenses, increased directors’ fees and director and officer liability insurance costs, registrar and transfer agent fees and listing fees, as well as other expenses. As a public company, we are required, among other things, to:
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prepare and file periodic reports and distribute other stockholder communications, in compliance with the federal securities laws and requirements of Nasdaq; |
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define and expand the roles and the duties of our Board of Directors and its committees; |
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institute comprehensive compliance and investor relations functions; and |
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evaluate and maintain our system of internal control over financial reporting, and report on management’s assessment thereof, in compliance with rules and regulations of the SEC and the Public Company Accounting Oversight Board. |
We may not be successful in complying with these requirements, and compliance with them could materially adversely affect our business. These requirements increase our costs and may cause us to reduce costs in other areas of our business or increase the prices of our products or services. For example, these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance. We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our Board of Directors, our Board committees or as executive officers.
In addition, if we fail to implement and maintain the required controls with respect to our internal accounting and audit functions, our ability to report our results of operations on a timely and accurate basis could be impaired. If we do not implement the required controls in a timely manner or with adequate compliance, we may be subject to sanctions or investigation by regulatory authorities, such as the SEC or Nasdaq. Any such action could harm our reputation and the confidence of our investors and customers and could negatively affect our business and cause the price of our shares of common stock to decline.
We are required by Section 404 of the Sarbanes‑Oxley Act to evaluate the effectiveness of our internal control over financial reporting. If we are unable to achieve and maintain effective internal controls, our operating results and financial condition could be harmed and the market price of our common stock may be negatively affected.
As a public company with SEC reporting obligations, we are required to document and test our internal control procedures to satisfy the requirements of Section 404(b) of the Sarbanes‑Oxley Act, which requires annual assessments by management of the effectiveness of our internal control over financial reporting. We must implement and maintain substantial internal control systems and procedures to satisfy the reporting requirements under the Exchange Act.
During our assessments, we may identify deficiencies that we are unable to remediate in a timely manner. Testing and maintaining our internal control over financial reporting may also divert management’s attention from other matters that are important to the operation of our business. We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404(b) of Sarbanes‑Oxley. If we conclude that our internal control over financial reporting is not effective, the cost and scope of remediation actions and their effect on our operations may be significant. Moreover, any material weaknesses or other deficiencies in our internal control over financial reporting may impede our ability to file timely and accurate reports with the SEC. Any of the above could cause investors to lose confidence in our reported financial information or our common stock listing on Nasdaq to be suspended or terminated, which could have a negative effect on the trading price of our common stock.
Applicable insurance laws may make it difficult to effect a change of control.
Under applicable Oregon, California and Arizona insurance laws and regulations, no person may acquire control of a domestic insurer until written approval is obtained from the state insurance commissioner following a public hearing on the proposed acquisition. Such approval would be contingent upon the state insurance commissioner’s consideration of a number of factors including, among others, the financial strength of the proposed acquiror, the acquiror’s plans for the future operations of the domestic insurer and any anti‑competitive results that may arise from the consummation of the acquisition of control. Oregon, California and Arizona insurance laws and regulations pertaining to changes of control apply to both the direct and indirect acquisition of ten percent or more of the voting stock of an insurer domiciled in that state. Accordingly, the acquisition of ten percent or more of our common stock would be considered an indirect change of control of Palomar Holdings, Inc. and would trigger the applicable change of control filing requirements under Oregon, California and Arizona insurance laws and regulations, absent a disclaimer of control filing and its acceptance by the Oregon, California and Arizona Insurance Departments. These requirements may discourage potential acquisition proposals and may delay, deter or prevent a change of control of Palomar Holdings, Inc., including through transactions that some or all of the stockholders of Palomar Holdings, Inc. might consider to be desirable.
Risks Related to Ownership of Our Common Stock
Future transactions where we raise capital may negatively affect our stock price.
We are currently a “Well-Known Seasoned Issuer” and may file automatic shelf registration statements at any time with the SEC. Sales of substantial amounts of shares of our common stock or other securities under our current or future shelf registration statements could lower the market price of our common stock and impair our ability to raise capital through the sale of equity securities.
Our operating results and stock price may be volatile, or may decline regardless of our operating performance, and holders of our common stock could lose all or part of their investment.
Our quarterly operating results are likely to fluctuate in the future as a publicly traded company. In addition, securities markets worldwide have experienced, and are likely to continue to experience, significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, could subject the market price of our shares to wide price fluctuations regardless of our operating performance. Although we believe we have adequate sources of liquidity over the short- and long-term, the success of our operations, the global economic outlook, and the pace of sustainable growth in our markets, among other factors, could impact our business and liquidity. You should consider an investment in our common stock to be risky, and you should invest in our common stock only if you can withstand a significant loss and wide fluctuation in the market value of your investment. The market price of our common stock is likely to continue to be subject to significant fluctuations in response to the factors described in this “Risk Factors” section and other factors, many of which are beyond our control. Among the factors that could affect our stock price are:
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market conditions in the broader stock market; |
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actual or anticipated fluctuations in our quarterly financial and operating results; |
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introduction of new products or services by us or our competitors; |
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issuance of new or changed securities analysts’ reports or recommendations; |
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results of operations that vary from expectations of securities analysis and investors; |
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short sales, hedging and other derivative transactions in our common stock; |
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guidance, if any, that we provide to the public, any changes in this guidance or our failure to meet this guidance; |
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strategic actions by us or our competitors; |
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announcement by us, our competitors or our acquisition targets; |
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sales, or anticipated sales, of large blocks of our stock, including by our directors, executive officers and principal stockholders; |
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additions or departures in our Board or Directors, senior management or other key personnel; |
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regulatory, legal or political developments; |
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public response to press releases or other public announcements by us or third parties, including our filings with the SEC; |
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litigation and governmental investigations; |
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changing economic conditions; |
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changes in accounting principles; |
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any indebtedness we may incur or securities we may issue in the future; |
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default under agreements governing our indebtedness; |
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exposure to capital and credit market risks that adversely affect our investment portfolio or our capital resources; |
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changes in our credit ratings; |
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changes in corporate tax rates; |
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interest or exchange rate fluctuations; and |
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other events or factors, including those from natural disasters, war, pandemics, acts of terrorism, cyber-attacks or responses to these events. |
The securities markets have from time to time experienced extreme price and volume fluctuations that often have been unrelated or disproportionate to the operating performance of particular companies. As a result of these factors, investors in our common stock may not be able to resell their shares at or above the price at which they purchased their shares. These broad market fluctuations, as well as general market, economic and political conditions, such as recessions, loss of investor confidence or interest rate changes, may negatively affect the market price of our common stock.
In addition, the stock markets, including Nasdaq, have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. If any of the foregoing occurs, it could cause our stock price to fall and may expose us to securities class action litigation that, even if unsuccessful, could be costly to defend, divert management’s attention and resources or harm our business.
Anti‑takeover provisions in our organizational documents could delay a change in management and limit our share price.
Provisions of our certificate of incorporation and bylaws could make it more difficult for a third party to acquire control of us even if such a change in control would increase the value of our common stock and prevent attempts by our stockholders to replace or remove our current Board of Directors or management.
Our charter documents contain anti‑takeover provisions that will hinder takeover attempts and could reduce the market value of our common stock or prevent sale at a premium. Our anti‑takeover provisions:
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permit the Board of Directors to establish the number of directors and fill any vacancies and newly created directorships; |
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provide, through 2027, that our Board of Directors are classified into three classes with staggered, three year terms and that directors may only be removed for cause; |
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require super‑majority voting to amend provisions in our certificate of incorporation and bylaws; |
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include blank‑check preferred stock, the preference, rights and other terms of which may be set by the Board of Directors and could delay or prevent a transaction or a change in control that might involve a premium price for our common stock or otherwise benefit our stockholders; |
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eliminate the ability of our stockholders to call special meetings of stockholders; |
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specify that special meetings of our stockholders can be called only by our Board of Directors, the chairman of our Board of Directors, or our chief executive officer; |
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prohibit stockholder action by other than unanimous written consent; |
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provide that vacancies on our Board of Directors may be filled only by a majority of directors then in office, even though less than a quorum; |
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prohibit cumulative voting in the election of directors; and |
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establish advance notice requirements for nominations for election to our Board of Directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings. |
In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law. These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a period of time.
Our certificate of incorporation and bylaws provide that the Court of Chancery of the State of Delaware is the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our certificate of incorporation and bylaws provide that the Court of Chancery of the State of Delaware is the exclusive forum for the following civil actions:
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any derivative action or proceeding brought on our behalf; |
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any action asserting a claim of breach of a fiduciary duty by any of our directors, officers, employees or agents or our stockholders; |
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any action asserting a claim arising pursuant to any provision of the DGCL or our certificate of incorporation or bylaws or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware; |
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any action to interpret, apply, enforce or determine the validity of our certificate of incorporation or our bylaws; or |
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any action asserting a claim governed by the internal affairs doctrine. |
However, this provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act. Furthermore, this provision applies to Securities Act claims and Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Accordingly, there is uncertainty as to whether a court would enforce such provision, and our stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder. This choice of forum provision, if enforced, may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees, although our stockholders will not be deemed to have waived our compliance with federal securities laws and the rules and regulations thereunder. Alternatively, if a court were to find the choice of forum provision contained in our certificate of incorporation and bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could have a material adverse effect on our business, financial condition or results of operations.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.
The trading market for our common stock depends, in part, on the research and reports that securities or industry analysts publish about us or our business and our industry. If one or more of the analysts who cover us downgrades our common stock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our common stock could decrease, which could cause our stock price and trading volume to decline.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Rule 10b5-1 Trading Plans
During the quarter ended September 30, 2024, of our directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934) adopted, terminated or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K).
| Exhibit |
Description |
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| 31.1 |
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| 31.2 |
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| 32.1 |
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
| 101.INS |
Inline XBRL Instance Document |
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| 101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
|
| 101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
| 101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
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| 101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
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| 101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
| 104 |
Cover Page Interactive Date File (formatted as Inline XBRL and contained in Exhibit 101) |
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, thereunto duly authorized.
| Palomar Holdings, Inc. |
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| Date: November 5, 2024 |
By: |
/s/ Mac Armstrong |
| Mac Armstrong |
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| Chairman of the Board and Chief Executive Officer (Principal Executive Officer) |
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| Date: November 5, 2024 |
By: |
/s/ T. Christopher Uchida |
| T. Christopher Uchida |
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| Chief Financial Officer (Principal Financial and Accounting Officer) |
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