What changed in this filing

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Item 1. Financial Statements

2023-11-02 compared with 2023-08-03 · 399 added, 303 removed, 1330 unchanged (35% of the section changed)

4 unchanged sentences

(in thousands, except shares and par value data)

September 30,

Fixed maturity securities available for sale, at fair value (amortized cost:

8 unchanged sentences

38,576  

Equity method investment

Total investments

55 unchanged sentences

Stockholders' equity:

Preferred stock, $ 0.0001 par value, 5,000,000 shares authorized, 0 shares issued and outstanding as of June 30, 2023 and December 31, 2022

Common stock, $ 0.0001 par value, 500,000,000 shares authorized, 24,794,269 and 25,027,467 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

Preferred stock, $ 0.0001 par value, 5,000,000 shares authorized, 0 shares issued and outstanding as of September 30, 2023 and December 31, 2022

Common stock, $ 0.0001 par value, 500,000,000 shares authorized, 24,730,885 and 25,027,467 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

Additional paid-in capital

18 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Gross written premiums

$ 274,296  

$ 218,689  

$ 524,407  

$ 389,623  

Ceded written premiums

( 169,109 )  

( 122,627 )  

( 339,453 )  

Net written premiums

105,187  

96,062  

184,954  

177,444  

Change in unearned premiums

( 22,080 )  

( 15,797 )  

( 18,607 )  

Net earned premiums

83,107  

80,265  

166,347  

156,297  

Net investment income

10,661  

Net realized and unrealized gains (losses) on investments

( 4,735 )  

Net realized and unrealized losses on investments

Commission and other income

Total revenues

90,396  

79,660  

179,597  

157,769  

Losses and loss adjustment expenses

17,905  

14,398  

38,557  

29,351  

Acquisition expenses, net of ceding commissions and fronting fees

26,057  

28,663  

51,736  

56,718  

Other underwriting expenses

22,350  

18,195  

41,572  

34,119  

Interest expense

Total expenses

67,376  

61,367  

133,949  

120,392  

Income before income taxes

23,020  

18,293  

45,648  

37,377  

Income tax expense

10,774  

17,562  

14,589  

34,874  

29,126  

Other comprehensive income (loss), net:

Net unrealized gains (losses) on securities available for sale

( 3,685 )  

( 14,065 )  

Net unrealized losses on securities available for sale

Net comprehensive income (loss)

$ 13,877  

$ 36,663  

Per Share Data:

Basic earnings per share

$ 0.71  

$ 0.58  

$ 1.40  

$ 1.15  

Diluted earnings per share

$ 0.69  

$ 0.57  

$ 1.37  

$ 1.13  

Weighted-average common shares outstanding:

24,833,852  

25,211,924  

24,901,403  

25,283,222  

25,309,526  

25,746,780  

25,384,409  

25,817,442  

See accompanying notes.

8 unchanged sentences

Balance at December 31, 2021

25,428,929  

$ 318,902  

$ 5,312  

$ 69,952  

$ 394,169  

Other comprehensive loss, net of tax

( 32,528 )  

Stock-based compensation

1 unchanged sentence

Issuance of common stock via equity incentive plan

132,137  

Repurchases of common stock

( 347,013 )  

( 20,273 )  

29,126  

Balance at June 30, 2022

25,220,131  

$ 326,473  

$ ( 27,216 )  

$ 78,805  

$ 378,065  

Balance at September 30, 2022

Balance at December 31, 2022

25,027,467  

$ 333,558  

$ ( 36,515 )  

$ 87,708  

$ 384,754  

Other comprehensive income, net of tax

Other comprehensive loss, net of tax

Stock-based compensation

1 unchanged sentence

Issuance of common stock via equity incentive plan

60,240  

Repurchases of common stock

( 301,162 )  

( 15,564 )  

34,874  

Balance at June 30, 2023

24,794,269  

$ 341,413  

$ ( 34,726 )  

$ 107,018  

$ 413,708  

Balance at September 30, 2023

See accompanying notes.

3 unchanged sentences

(in thousands)

Six Months Ended

Nine Months Ended

September 30,

Operating activities

5 unchanged sentences

Purchases of equity securities

Purchase of equity method investment

Sales and maturities of fixed maturity securities

Sales of equity securities

Change in securities receivable or payable, net

2 unchanged sentences

Financing activities

Proceeds from line of credit

Proceeds from line of credit, net of repayments

Proceeds from common stock issued via employee stock purchase plan

1 unchanged sentence

Repurchases of common stock

Net cash provided by financing activities

Net increase (decrease) in cash, cash equivalents and restricted cash

Net cash (used in) provided by financing activities

Net decrease in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of period

4 unchanged sentences

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

September 30,

Cash and cash equivalents

10 unchanged sentences

The Company has several wholly owned subsidiaries including an Oregon domiciled insurance company, Palomar Specialty Insurance Company (“PSIC”), a Bermuda based reinsurance company, Palomar Specialty Reinsurance Company Bermuda Ltd.

(“PSRE”), an Arizona domiciled surplus lines insurance company, Palomar Excess and Surplus Insurance Company (“PESIC”), and a California domiciled property and casualty insurance agency, Palomar Insurance Agency, DBA Palomar General Insurance Agency (“PGIA”).

(“PSRE”), an Arizona domiciled surplus lines insurance company, Palomar Excess and Surplus Insurance Company (“PESIC”), a California domiciled property and casualty insurance agency, Palomar Insurance Agency, DBA Palomar General Insurance Agency (“PGIA”), and a Delaware incorporated management company, Palomar Underwriters Exchange Organization, Inc.

("PUEO"), that provides services to Laulima Exchange (“Laulima”), a Hawaii domiciled reciprocal exchange, as its attorney-in-fact.

Basis of Presentation

1 unchanged sentence

generally accepted accounting principles (“GAAP”) for interim financial information and include the accounts of the Company and its wholly‑owned subsidiaries.

The condensed consolidated financial statements also include the accounts of Laulima, as Laulima is a variable interest entity ("VIE") for which the Company is the primary beneficiary. 

Currently Laulima does not hold a material amount of assets or liabilities.

These condensed consolidated financial statements do not contain all information and footnotes required by U.S.

12 unchanged sentences

Recently adopted accounting pronouncements

The Company has not adopted any new accounting guidance during the six  months ended June 30, 2023 .

The Company has not adopted any new accounting guidance during the nine  months ended September 30, 2023 .

Recently issued accounting pronouncements not yet adopted

1 unchanged sentence

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

June 30, 2023

September 30, 2023

Credit Losses

56 unchanged sentences

Security holdings in an unrealized loss position

As of June 30, 2023 , the Company held 551  fixed maturity securities in an unrealized loss position with a total estimated fair value of $ 508.5  million and total gross unrealized losses of $ 44.8  million.

As of September 30, 2023 , the Company held 578  fixed maturity securities in an unrealized loss position with a total estimated fair value of $ 549.4  million and total gross unrealized losses of $ 55.3  million.

As of December 31, 2022 , the Company held 543  fixed maturity securities in an unrealized loss position with a total estimated fair value of $ 484.7  million and total gross unrealized losses of $ 46.9  million.

The aggregate fair value and gross unrealized losses of the Company’s investments aggregated by investment category and the length of time these individual securities have been in a continuous unrealized loss position as of June 30, 2023 and December 31, 2022 , are as follows:

The aggregate fair value and gross unrealized losses of the Company’s investments aggregated by investment category and the length of time these individual securities have been in a continuous unrealized loss position as of September 30, 2023 and December 31, 2022 , are as follows:

Less Than 12 Months

More Than 12 Months

June 30, 2023

September 30, 2023

(in thousands)

27 unchanged sentences

205,861  

Total available-for-sale investments

$ 162,375  

34 unchanged sentences

151,263  

Total available-for-sale investments

$ 384,693  

6 unchanged sentences

The Company has recorded an allowance for credit losses for two investment securities.

Based on the Company’s review as of June 30, 2023 , for the remainder of securities, the Company determined that the fixed maturity securities’

Based on the Company’s review as of September 30, 2023 , for the remainder of securities, the Company determined that the fixed maturity securities’

unrealized losses were primarily the result of the interest rate environment and not the credit quality of the issuers.

2 unchanged sentences

sale fixed maturity securities

The amortized cost and fair value of fixed maturity securities at June 30, 2023 , by contractual maturity, are shown below.

The amortized cost and fair value of fixed maturity securities at September 30, 2023 , by contractual maturity, are shown below.

(in thousands)

20 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

18 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

8 unchanged sentences

( 32 )  

Losses on sales of equity securities

2 unchanged sentences

( 32 )  

Net realized investment gains

2 unchanged sentences

( 667 )  

Net unrealized gains (losses) on equity securities

Net unrealized (losses) gains on equity securities

( 1,299 )  

( 2,163 )  

Net unrealized losses on equity method investment

( 77 )  

Net realized and unrealized gains (losses) on investments

3 unchanged sentences

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

Proceeds from the sale of fixed maturity securities were $ 1.9  million and $ 1.0  million for the three months ended June 30, 2023 and 2022 , respectively.

Proceeds from the sale of fixed maturity securities were $ 7.1  million and $ 5.8  million for the six  months ended June 30, 2023 and 2022 , respectively.

Proceeds from the sale of fixed maturity securities were insignificant for the three months ended September 30, 2023 and 2022 , respectively.

Proceeds from the sale of fixed maturity securities were $ 9.8  million and $ 5.8  million for the nine  months ended September 30, 2023 and 2022 , respectively.

The Company places securities on statutory deposit with certain state agencies to retain the right to do business in those states.

These securities are included in available‑for‑sale investments on the balance sheet.

As of June 30, 2023 and December 31, 2022 , the carrying value of securities on deposit with state regulatory authorities was $ 8.6  million and $ 8.5  million, respectively.

As of September 30, 2023 and December 31, 2022 , the carrying value of securities on deposit with state regulatory authorities was $ 8.6  million and $ 8.5  million, respectively.

Fair Value Measurements

16 unchanged sentences

2 of the hierarchy.

The following tables present the hierarchy for financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2023 and December 31, 2022 .

June 30, 2023

The following tables present the hierarchy for financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022 .

September 30, 2023

(in thousands)

51 unchanged sentences

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 June 30, 2023 and December 31, 2022 , the Company had no fixed income securities classified as Level 3.

As of September 30, 2023 and December 31, 2022 , the Company had no fixed income securities classified as Level 3.

Reserve for Losses and Loss Adjustment Expenses

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

10 unchanged sentences

58,703  

( 634 )  

Total incurred

7 unchanged sentences

( 1,385 )  

Total payments

25,823  

17,660  

Total payments

12,421  

40,038  

31,422  

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

15 unchanged sentences

Although management believes the liability recorded for losses and LAE is adequate, the variability inherent in this estimate could result in changes to the ultimate liability, which may be material to stockholders’

The Company experienced favorable prior year development of $ 0.6  million and insignificant adverse prior year development during the three months June 30, 2023 and 2022 , respectively.

The Company experienced adverse prior year development of $ 2.7  million and adverse prior year development of $ 1.6  million during the six  months June 30, 2023 and 2022 , respectively.

Favorable prior year development during the three months ended June 30, 2023 was primarily due to lower than anticipated severity of catastrophe losses, offset by higher than anticipated severity of attritional losses. Adverse prior year development during the three months ended June 30, 2022 was primarily due to higher than anticipated severity of catastrophe losses from prior years offset by favorable development on attritional losses.

Adverse prior year development during the six  months ended June 30, 2023 was primarily due to higher than anticipated severity of attritional losses, offset by lower than anticipated severity of catastrophe losses. Adverse prior year development during the three months ended June 30, 2022 was primarily due to higher than anticipated severity of attritional and catastrophe losses from prior years.

The Company experienced adverse prior year development of $ 1.0  million and insignificant prior year development during the three months ended 

September 30, 2023 and 2022 , respectively.

The Company experienced adverse prior year development of $ 3.7  million and adverse prior year development of $ 1.5  million during the nine  months ended 

September 30, 2023 and 2022 , respectively.

Adverse prior year development during the three months ended September 30, 2023 was primarily due to higher than anticipated severity of attritional losses, offset by lower than anticipated severity of catastrophe losses.

Adverse prior year development during the nine  months ended September 30, 2023 was primarily due to higher than anticipated severity of attritional losses, offset by lower than anticipated severity of catastrophe losses. Adverse prior year development during the nine months ended September 30, 2022 was primarily due to higher than anticipated severity of attritional and catastrophe losses.

Stockholders ’

Common stock reserved for future issuance

Common stock reserved for future issuance consists of the following as of June 30, 2023 :

Common stock reserved for future issuance consists of the following as of September 30, 2023 :

Stock options outstanding under 2019 Equity Incentive Plan

11 unchanged sentences

The below table summarizes the Company’s stock-based compensation expense for each period presented:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

20 unchanged sentences

Stock options expire ten years after the grant date.

The following table summarizes stock option transactions for the six months ended June 30, 2023 :

The following table summarizes stock option transactions for the nine  months ended September 30, 2023 :

Number of shares

10 unchanged sentences

( 11,304 )  

Outstanding at June 30, 2023

Outstanding at September 30, 2023

838,706  

1 unchanged sentence

$ 19,368  

Vested and Exercisable at June 30, 2023

Vested and Exercisable at September 30, 2023

753,678  

1 unchanged sentence

$ 19,308  

As of June 30, 2023 , the Company had approximately $ 2.3  million of total unrecognized stock-based compensation expense related to stock options expected to be recognized over a weighted-average period of 1.4  years.

As of September 30, 2023 , the Company had approximately $ 1.8  million of total unrecognized stock-based compensation expense related to stock options expected to be recognized over a weighted-average period of 1.2  years.

Restricted Stock Units

2 unchanged sentences

All vesting is subject to continued service.

The following table summarizes RSU transactions for the six months ended June 30, 2023 :

The following table summarizes RSU transactions for the nine  months ended September 30, 2023 :

Number of shares

6 unchanged sentences

( 18,061 )  

Non-vested outstanding at June 30, 2023

Non-vested outstanding at September 30, 2023

339,505  

$ 62.15  

As of June 30, 2023 , the Company had approximately $ 18.5  million of total unrecognized stock-based compensation expense related to RSUs expected to be recognized over a weighted-average period of 2.6  years.

As of September 30, 2023 , the Company had approximately $ 16.8  million of total unrecognized stock-based compensation expense related to RSUs expected to be recognized over a weighted-average period of 2.3  years.

Performance Stock Units

3 unchanged sentences

If the Company’s stock price reaches and remains at certain milestones for 30 days, the PSUs shall become earned units and will vest upon completion of a requisite service period of approximately five years from the date of grant.

As of June 30, 2023 , none of the stock price milestones have been achieved.

As of September 30, 2023 , none of the stock price milestones have been achieved.

For other PSUs outstanding, vesting of PSUs requires a period of future service and the number of shares that vest depends on performance relative to predetermined targets of the Company’s Gross Written Premiums and Adjusted Return on Equity as set by the Compensation Committee.

3 unchanged sentences

The earned PSUs are then subject to a required service period of approximately three years from the grant date before vesting and being issued as common stock.

The following table summarizes PSU transactions for the three months ended June 30, 2023 :

The following table summarizes PSU transactions for the three months ended September 30, 2023 :

Number of shares

5 unchanged sentences

( 4,739 )  

Non-vested outstanding at June 30, 2023

Non-vested outstanding at September 30, 2023

424,393  

2 unchanged sentences

The actual number of PSUs which will vest is subject to adjustment based on the Company’s actual stock price performance and financial performance relative to the predetermined targets.

As of June 30, 2023 , the Company had approximately $ 11.4 million of total unrecognized stock-based compensation expense related to PSUs expected to be recognized over a weighted-average period of 3.0  years.

As of September 30, 2023 , the Company had approximately $ 10.2 million of total unrecognized stock-based compensation expense related to PSUs expected to be recognized over a weighted-average period of 2.7  years.

2019 Employee Stock Purchase Plan

On April 16, 2019, the Company's 2019 Employee Stock Purchase Plan “the “2019 ESPP”) became effective.

On April 16, 2019, the Company's 2019 Employee Stock Purchase Plan (the “2019 ESPP”) became effective.

A total of 240,000 shares of common stock are initially authorized and reserved for issuance under the 2019 ESPP.

3 unchanged sentences

During each discrete offering period employee funds are withheld, and the stock purchase occurs upon the conclusion of the offering period.

The Company issued 7,724  shares pursuant to the ESPP during the six  months ended June 30, 2023 .

The Company issued 17,080 shares pursuant to the ESPP during the nine  months ended September 30, 2023 .

Share repurchases

In January 2022, the Board of Directors approved a share repurchase program which replaced the existing program and authorized the repurchase of up to $ 100 million of outstanding shares of common stock over the period ending on March 31, 2024.

The Company purchased 301,162  shares for $ 15.6  million at an average price of $ 53.4  per share under this program during the six  months ended June 30, 2023 .

In January 2022, Company's the Board of Directors approved a share repurchase program which replaced the existing program and authorized the repurchase of up to $ 100 million of outstanding shares of common stock over the period ending on March 31, 2024.

The Company purchased 418,901  shares for $ 22.1  million at an average price of $ 54.4  per share under this program during the nine  months ended September 30, 2023 .

Approximately $ 43.5  million remains available for future repurchases.

3 unchanged sentences

Changes in accumulated other comprehensive income (loss) (“AOCI”) are as follows:

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

Beginning Balance

Other comprehensive income (loss) before reclassification

Federal income tax expense (benefit)

Other comprehensive income (loss) before reclassification, net of tax

$ ( 36,515 )  

$ 5,312  

Other comprehensive (loss) before reclassification

( 8,453 )  

Federal income tax (benefit) expense

12,806  

Other comprehensive (loss) before reclassification, net of tax

( 6,678 )  

Amounts reclassified from AOCI

( 36 )  

Federal income tax expense (benefit)

Amounts reclassified from AOCI, net of tax

Other comprehensive income (loss)

( 28 )  

Other comprehensive (loss)

( 6,706 )  

Balance at end of period

$ ( 43,221 )  

Underwriting Information

2 unchanged sentences

Gross written premiums (“GWP”) by product are presented below:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

($ in thousands)

1 unchanged sentence

Fronting Premiums

$ 106,581  

33.9 %  

$ 82,232  

32.5 %  

$ 278,548  

33.2 %  

$ 154,232  

Residential Earthquake

69,220  

22.0 %  

59,569  

23.5 %  

190,048  

22.7 %  

159,995  

Commercial Earthquake

44,166  

14.1 %  

32,647  

12.9 %  

124,763  

14.9 %  

90,894  

Inland Marine

Commercial All Risk

37,252  

11.9 %  

30,842  

12.2 %  

103,841  

12.4 %  

72,214  

20,165  

12,888  

50,144  

25,697  

Hawaii Hurricane

11,051  

28,718  

24,579  

Commercial All Risk

26,769  

41,647  

Residential Flood

14,964  

10,448  

Specialty Homeowners

( 0.0 )%  

( 94 )  

( 0.0 )%  

( 99 )  

( 0.0 )%  

30,082  

13,682  

12,524  

20,710  

32,963  

Total Gross Written Premiums

$ 313,998  

100.0 %  

$ 253,128  

100.0 %  

$ 838,406  

100.0 %  

$ 642,751  

Gross written premiums by state are as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

($ in thousands)

$ 163,806  

52.2 %  

$ 131,016  

51.8 %  

$ 450,752  

53.8 %  

$ 292,865  

24,336  

26,234  

10.4 %  

72,777  

71,499  

17,792  

13,573  

43,409  

29,391  

13,490  

10,998  

35,824  

29,729  

11,549  

36,309  

27,216  

21,223  

16,483  

15,675  

13,153  

62,425  

19.8 %  

50,110  

19.8 %  

153,204  

18.2 %  

158,168  

Total Gross Written Premiums

$ 313,998  

100.0 %  

$ 253,128  

100.0 %  

$ 838,406  

100.0 %  

$ 642,751  

Gross written premiums by insurance subsidiary are as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

($ in thousands)

$ 186,693  

59.5 %  

$ 136,814  

54.0 %  

$ 497,216  

59.3 %  

$ 357,156  

127,305  

40.5 %  

116,314  

46.0 %  

341,190  

40.7 %  

285,595  

Total Gross Written Premiums

$ 313,998  

100.0 %  

$ 253,128  

100.0 %  

$ 838,406  

100.0 %  

$ 642,751  

The Company calculates its tax provision in interim periods using its best estimate of the effective tax rate expected for the full year.

During the three months ended June 30, 2023 , the Company’s income tax rate of 23.7 % was higher than the statutory rate of 21 % due primarily to non-deductible executive compensation expense.

During the three months ended June 30, 2022 , the Company’s income tax rate of 

During the three months ended September 30, 2023 , the Company’s income tax rate of 24.9 % was higher than the statutory rate of 21 % due primarily to non-deductible executive compensation expense.

During the three months ended September 30, 2022 , the Company’s income tax rate of 

17.5 % was lower than the statutory rate of 21 % due primarily to the tax impact of the permanent component of employee stock option exercises.

For the six months ended June 30, 2023 , the Company’s tax rate of 

For the nine  months ended September 30, 2023 , the Company’s tax rate of 

24.0 % was higher than the statutory rate due primarily to non-deductible executive compensation expense.

For the six months ended June 30, 2022 , the Company’s tax rate of 

For the nine  months ended September 30, 2022 , the Company’s tax rate of 

21.5 % was higher than the statutory rate also due primarily to non-deductible executive compensation expense.

1 unchanged sentence

The following table sets out earnings per share of common stock:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands, except shares and per share data)

$ 18,432  

$ 4,286  

$ 53,305  

$ 33,411  

Weighted average common shares outstanding:

24,740,455  

25,209,368  

24,847,164  

25,258,333  

Common Share equivalents

504,373  

578,257  

493,438  

550,054  

25,244,828  

25,787,625  

25,340,602  

25,808,387  

Earnings per share:

$ 0.75  

$ 0.17  

$ 2.15  

$ 1.32  

$ 0.73  

$ 0.17  

$ 2.10  

$ 1.29  

Common share equivalents relate primarily to outstanding stock options, RSUs and PSUs under the 2019 Plan and unpurchased shares under the 2019 ESPP and are calculated using the treasury stock method.

1 unchanged sentence

The Company utilizes both excess of loss (XOL) and quota share reinsurance.

As of June 30, 2023 , the Company’s catastrophe event retention is $ 17.5 million for all perils and the Company’s XOL reinsurance structure provides protection up to $ 2.66  billion for earthquake events, $ 900 million for Hawaii hurricane events, and $ 100 million for continental U.S.

As of September 30, 2023 , the Company’s catastrophe event retention is $ 17.5 million for all perils and the Company’s XOL reinsurance structure provides protection up to $ 2.68 billion for earthquake events, $ 900 million for Hawaii hurricane events, and $ 100 million for continental U.S.

hurricane events.

22 unchanged sentences

If an event of default occurs, any debt may be declared immediately due and payable.

As of June 30, 2023 , the Company was in compliance with all debt covenants.

As of June 30, 2023 , the Company had no  borrowings outstanding on the Credit Agreement.

As of September 30, 2023 , the Company was in compliance with all debt covenants.

As of September 30, 2023  and 

December 31, 2022 , the Company had no  borrowings outstanding on the Credit Agreement.

FHLB Line of Credit

3 unchanged sentences

All advances have a predetermined term and the interest rate varies based on the term of the advance.

As of June 30, 2023 , the Company had $ 71.4 million of borrowings outstanding through the FHLB at the overnight rate of 5.28 %.

Interest expense on the FHLB line of credit was $ 0.8 million and $ 1.3 million for the three and six months ended June 30, 2023 , respectively. 

As of September 30, 2023 , the Company had $ 52.6 million of borrowings outstanding through the FHLB at the overnight rate of 5.69 %.

Interest expense on the FHLB line of credit was $ 0.8 million and $ 2.1  million for the three and 

nine  months ended September 30, 2023 , respectively. 

As of December 31, 2022 , the Company had $ 36.4  million of borrowings outstanding through the FHLB at the overnight rate of 

Interest expense on the FHLB Line of Credit was $ 0.2  million for the three and nine months ended September 30, 2022.

Management ’

2 unchanged sentences

Our actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors.

The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the full year ended December 31, 2023, or for any other future period.

The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the full year ended December 31, 2023, or for any other future period.

The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in Part I, Item 1 of this Quarterly Report, and in conjunction with our audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K as filed with the SEC on March 1, 2023.

84 unchanged sentences

Net Realized and Unrealized Gains and Losses on Investments

Net realized and unrealized gains and losses on investments are a function of the difference between the amount received by us on the sale of a security and the security’s cost-basis, mark-to-market adjustments, credit losses recognized in earnings, and unrealized gains and losses on 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.

46 unchanged sentences

Results of Operations

months ended June 30, 2023 compared to three  

months ended June 30, 2022

The following table summarizes our results for the three months ended June 30, 2023 and 2022:

months ended September 30, 2023 compared to three  

months ended September 30, 2022

The following table summarizes our results for the three months ended September 30, 2023 and 2022:

Three Months Ended

September 30,

($ in thousands, except per share data)

11 unchanged sentences

Net investment income

Net realized and unrealized gains (losses) on investments

Net realized and unrealized losses on investments

Income before income taxes

Income tax expense

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

Net realized and unrealized losses on investments (2)

Expenses associated with transactions

Stock-based compensation expense

Amortization of intangibles

Expenses associated with catastrophe bond

Adjusted net income (1)(2)

11 unchanged sentences

Adjusted underwriting income (1)

NM - not meaningful

Indicates non-GAAP financial measure;

4 unchanged sentences

Gross Written Premiums

Gross written premiums increased $55.6 million, or 25.4% to $274.3 million for the three months ended June 30, 2023 compared to $218.7 million for the three months ended June 30, 2022.

Gross written premiums increased $60.9 million, or 24.0% to $314.0 million for the three months ended September 30, 2023 compared to $253.1 million for the three months ended September 30, 2022.

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 June 30,

Three Months Ended September 30,

($ in thousands)

3 unchanged sentences

Inland Marine

Commercial All Risk

Hawaii Hurricane

Commercial All Risk

Residential Flood

Specialty Homeowners

Total Gross Written Premiums

During the fourth quarter of 2021, we launched our fronting business, known as PLMR-FRONT.

In a fronting agreement, we write the premium and then cede the majority of the premium and risk in exchange for a fronting fee, which is our primary source of profit in the arrangement.

We have subsequently entered several fronting partnerships which drove the above increase in 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.

During the second quarter of 2022, we ceased writing Specialty Homeowners business outside of Texas and converted our Texas Specialty Homeowners business to a fronting arrangement beginning June 1, 2022.

These underwriting changes caused the decline in Specialty Homeowners premiums and contributed to the increase in Fronting premiums shown above. 

In addition, we have recently made underwriting changes to reduce our exposure to continental U.S.

We have recently made underwriting changes to reduce our exposure to continental U.S.

hurricane events. 

1 unchanged sentence

The following table summarizes our gross written premiums by insurance subsidiary:

Three Months Ended June 30,

Three Months Ended September 30,

($ in thousands)

1 unchanged sentence

Ceded Written Premiums

Ceded written premiums increased $46.5 million, or 37.9%, to $169.1 million for the three months ended June 30, 2023 from $122.6 million for the three months ended June 30, 2022.

Ceded written premiums increased $41.4 million, or 25.6%, to $203.3 million for the three months ended September 30, 2023 from $161.9 million for the three months ended September 30, 2022.

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 excess of loss (“XOL”) reinsurance expense primarily due to growth in exposure, in addition to higher rates on XOL reinsurance.

Ceded written premiums as a percentage of gross written premiums increased to 61.7% for the three months ended June 30, 2023 from 56.1% for the three months ended June 30, 2022.

In addition, we incurred increased XOL reinsurance expense due to growth in exposure and higher rates on XOL reinsurance. 

Ceded written premiums as a percentage of gross written premiums increased to 64.8% for the three months ended September 30, 2023 from 64.0% for the three months ended September 30, 2022.

This increase was primarily due to increased fronting and quota share cessions as previously described.

Net Written Premiums

Net written premiums increased $9.1 million, or 9.5%, to $105.2 million for the three months ended June 30, 2023 from $96.1 million for the three months ended June 30, 2022.

The increase was primarily due to an increase in gross written premiums, primarily in our Residential Earthquake and Inland Marine lines partially offset by increased ceded written premiums.

Net written premiums increased $19.5 million, or 21.3%, to $110.7 million for the three months ended September 30, 2023 from $91.2 million for the three months ended September 30, 2022.

The increase was primarily due to an increase in gross written premiums, primarily in our Residential and Commercial Earthquake lines partially offset by increased ceded written premiums.

Net Earned Premiums

Net earned premiums increased $2.8 million, or 3.5%, to $83.1 million for the three months ended June 30, 2023 from $80.3 million for the three months ended June 30, 2022 due primarily to the earning of increased gross written premiums offset by the earning of ceded written premiums under reinsurance agreements.

Net earned premiums increased $7.9 million, or 10.1%, to $85.8 million for the three months ended September 30, 2023 from $77.9 million for the three months ended September 30, 2022 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,

($ in thousands)

5 unchanged sentences

Commission and Other Income

Commission and other income decreased $0.4 million to $0.6 million for the three months ended June 30, 2023 from $1.0 million for the three months ended June 30, 2022.

Commission and other income decreased $0.9 million to $0.5 million for the three months ended September 30, 2023 from $1.3 million for the three months ended September 30, 2022.

The balance decreased due to a decrease in commissions from a lower volume of policies written through our internal managing general agency, Palomar Insurance Agency.

Losses and Loss Adjustment Expenses

Losses and loss adjustment expenses increased $3.5 million, or 24.4% to $17.9 million for the three months ended June 30, 2023 from $14.4 million for the three months ended June 30, 2022.

Losses and loss adjustment expenses decreased $14.8 million, or 47.8% to $16.1 million for the three months ended September 30, 2023 from $30.9 million for the three months ended September 30, 2022.

Losses and loss adjustment expenses consisted of the following elements during the respective periods:

Three Months Ended

September 30,

($ in thousands)

2 unchanged sentences

Total losses and loss adjustment expenses

Our catastrophe loss ratio was 2.6% during the three months ended June 30, 2023.

Catastrophe losses for the quarter were primarily related to severe convective storms, offset by favorable development on prior year catastrophe events.

Our catastrophe loss ratio was 0.7% during the three months ended June 30, 2022.

Catastrophe losses were related to unfavorable development on prior year catastrophe events.

Our non-catastrophe loss ratio was 18.9% for the three months ended June 30, 2023 compared to 17.2% during the three months ended June 30, 2022.

Non-catastrophe losses increased due mainly to higher attritional losses on lines of business subject to attritional losses such as Commercial All Risk, Casualty, and Inland Marine.

Our catastrophe loss ratio was -0.6% during the three months ended September 30, 2023.

Catastrophe loss activity for the quarter 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.

Our catastrophe loss ratio was 16.0% during the three months ended September 30, 2022.

Catastrophe losses for the quarter were related to Hurricane Ian which primarily impacted our Commercial All Risk line of business.

Our non-catastrophe loss ratio was 19.4% for the three months ended September 30, 2023 compared to 23.6% during the three months ended September 30, 2022.

Non-catastrophe losses decreased due mainly to lower attritional losses on lines of business subject to attritional losses such as Commercial All Risk, Casualty, and Inland Marine.

Acquisition Expenses

Acquisition expenses decreased $2.6 million, or 9.1%, to $26.1 million for the three months ended June 30, 2023 from $28.7 million for the three months ended June 30, 2022.

Acquisition expenses decreased $0.2 million, or 0.8%, to $27.0 million for the three months ended September 30, 2023 from $27.2 million for the three months ended September 30, 2022.

The decrease was primarily due to higher earned ceding commissions and fronting fees due to an increase in premiums subject to a quota share or fronting agreement.

This was partially offset by higher commissions and premium-related taxes resulting from higher gross earned premiums.

Acquisition expenses as a percentage of gross earned premiums were 10.8% for the three months ended June 30, 2023 compared to 18.1% for the three months ended June 30, 2022.

Acquisition expenses as a percentage of gross earned premiums were 9.9% for the three months ended September 30, 2023 compared to 14.6% for the three months ended September 30, 2022.

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 resulting from changes in mix of business produced.

Other Underwriting Expenses

Other underwriting expenses increased $4.2 million, or 22.8%, to $22.4 million for the three months ended June 30, 2023 from $18.2 million for the three months ended June 30, 2022.

Other underwriting expenses increased $5.3 million, or 30.8%, to $22.4 million for the three months ended September 30, 2023 from $17.1 million for the three months ended September 30, 2022.

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 9.2% for the three months ended June 30, 2023 compared to 11.5% for the three months ended June 30, 2022.

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 6.9% for the three months ended June 30, 2023 compared to 8.5% for the three months ended June 30, 2022.

Other underwriting expenses as a percentage of gross earned premiums were 8.2% for the three months ended September 30, 2023 compared to 9.2% for the three months ended September 30, 2022.

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 6.7% for the three months ended September 30, 2023 compared to 7.3% for the three months ended September 30, 2022.

This percentage decreased due to an increase in earned premiums without a corresponding increase in operating expenses.

1 unchanged sentence

Net Investment Income and Net Realized and Unrealized Gains (Losses) on Investments

Net investment income increased $2.4 million, or 76.5%, to $5.5 million for the three months ended June 30, 2023 from $3.1 million for the three months ended June 30, 2022.

The increase was primarily due to a higher average balance of investments during the three months ended June 30, 2023 and higher yields on invested assets.

The Company incurred $1.1 million of net realized and unrealized gains on investments for the three months ended June 30, 2023 compared to $4.7 million of net realized and unrealized losses for the three months ended June 30, 2022 due primarily to gains on our equity securities during the period ended June 30, 2023 versus losses during the period ended June 30, 2022.

Unrealized gains and losses on fixed maturity securities are recognized as a component of other comprehensive income and do not impact our net income.

Net investment income increased $2.3 million, or 61.0%, to $6.0 million for the three months ended September 30, 2023 from $3.7 million for the three months ended September 30, 2022.

The increase was primarily due to a higher average balance of investments during the three months ended September 30, 2023 and higher yields on invested assets.

The Company incurred $1.4 million of net realized and unrealized losses on investments for the three months ended September 30, 2023 compared to $2.4 million of net realized and unrealized losses for the three months ended September 30, 2022 In both periods, the balance was primarily driven by unrealized 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,

($ in thousands)

3 unchanged sentences

Net investment income

Net realized and unrealized gains (losses) on investments

NM- not meaningful

Net realized and unrealized losses on investments

Income Tax Expense

Income tax expense increased $1.8 million, or 47.4% to $5.5 million for the three months ended June 30, 2023 from $3.7 million for the three months ended June 30, 2022 due to higher pre-tax income and a higher tax rate for the period ended June 30, 2023.

During the three months ended June 30, 2023, our income tax rate of 23.7% was higher than the statutory rate of 21% due primarily to non-deductible executive compensation expense.

During the three months ended June 30, 2022, our income tax rate of 20.2% was lower than the statutory rate of 21% due primarily to the permanent component of employee stock option exercises.

Income tax expense increased $5.2 million to $6.1 million for the three months ended September 30, 2023 from $0.9 million for the three months ended September 30, 2022 due to higher pre-tax income and a higher tax rate for the period ended September 30, 2023.

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.

During the three months ended September 30, 2022, our income tax rate of 17.5% was lower than the statutory rate of 21% due primarily to the permanent component of employee stock option exercises.

Results of Operations

Six months ended June 30, 2023 compared to six months ended June 30, 2022

The following table summarizes our results for the six months ended June 30, 2023 and 2022:

Six Months Ended

Nine months ended September 30, 2023 compared to nine months ended September 30, 2022

The following table summarizes our results for the nine months ended September 30, 2023 and 2022:

Nine Months Ended

September 30,

($ in thousands, except per share data)

11 unchanged sentences

Net investment income

Net realized and unrealized gains (losses) on investments

Net realized and unrealized losses on investments

Income before income taxes

Income tax expense

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

Net realized and unrealized losses on investments (2)

Expenses associated with transactions

15 unchanged sentences

Adjusted underwriting income (1)

NM- not meaningful

Indicates non-GAAP financial measure;

4 unchanged sentences

Gross Written Premiums

Gross written premiums increased $134.8 million, or 34.6% to $524.4 million for the six months ended June 30, 2023 compared to $389.6 million for the six months ended June 30, 2022.

Gross written premiums increased $195.7 million, or 30.4% to $838.4 million for the nine months ended September 30, 2023 compared to $642.8 million for the nine months ended September 30, 2022.

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:

Six Months Ended June 30,

Nine Months Ended September 30,

($ in thousands)

3 unchanged sentences

Inland Marine

Commercial All Risk

Hawaii Hurricane

Commercial All Risk

Residential Flood

1 unchanged sentence

Total Gross Written Premiums

During the fourth quarter of 2021, we launched our fronting business, known as PLMR-FRONT.

In a fronting agreement, we write the premium and then cede the majority of the premium and risk in exchange for a fronting fee, which is our primary source of profit in the arrangement.

We expect to continue to write fronting premiums for the foreseeable future.

The volume of fronting premiums written each period may vary due to the timing of entering new fronting partnerships and terminations of fronting partnerships.

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.

3 unchanged sentences

The following table summarizes our gross written premiums by insurance subsidiary:

Six Months Ended June 30,

Nine Months Ended September 30,

($ in thousands)

1 unchanged sentence

Ceded Written Premiums

Ceded written premiums increased $127.3 million, or 60.0%, to $339.5 million for the six months ended June 30, 2023 from $212.2 million for the six months ended June 30, 2022.

The increase was primarily due to increased premium ceded under 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. 

Ceded written premiums as a percentage of gross written premiums increased to 64.7% for the six months ended June 30, 2023 from 54.5% for the six months ended June 30, 2022.

Ceded written premiums increased $168.7 million, or 45.1%, to $542.8 million for the nine months ended September 30, 2023 from $374.1 million for the nine months ended September 30, 2022.

The increase was primarily due to increased premiums ceded under 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 and higher rates on XOL reinsurance. 

Ceded written premiums as a percentage of gross written premiums increased to 64.7% for the nine months ended September 30, 2023 from 58.2% for the nine months ended September 30, 2022.

This increase was primarily due to increased quota share and fronting cessions as previously described.

Net Written Premiums

Net written premiums increased $7.5 million, or 4.2%, to $185.0 million for the six months ended June 30, 2023 from $177.4 million for the six months ended June 30, 2022.

Net written premiums increased $27.0 million, or 10.0%, to $295.6 million for the nine months ended September 30, 2023 from $268.6 million for the nine months ended September 30, 2022.

The increase was primarily due to an increase in gross written premiums, primarily in our Commercial Earthquake and Inland Marine lines, partially offset by increased ceded written premiums.

Net Earned Premiums

Net earned premiums increased $10.1 million, or 6.4%, to $166.3 million for the six months ended June 30, 2023 from $156.3 million for the six months ended June 30, 2022 due primarily to the earning of increased gross written premiums offset by the earning of ceded written premiums under reinsurance agreements.

Net earned premiums increased $17.9 million, or 7.7%, to $252.2 million for the nine months ended September 30, 2023 from $234.2 million for the nine months ended September 30, 2022 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.

Six Months Ended

Nine Months Ended

September 30,

($ in thousands)

5 unchanged sentences

Commission and Other Income

Commission and other income decreased by $0.5 million, or 25.5%, to $1.3 million for the six months ended June 30, 2023, from $1.8 million for the six months ended June 30, 2022.

Commission and other income decreased by $1.3 million, or 43.1%, to $1.8 million for the nine months ended September 30, 2023, from $3.1 million for the nine months ended September 30, 2022.

The balance decreased due to a decrease in commissions from a lower volume of policies written through our internal managing general agency, Palomar Insurance Agency.

Losses and Loss Adjustment Expenses

Losses and loss adjustment expenses increased $9.2 million to $38.6 million for the six months ended June 30, 2023 from $29.4 million for the six months ended June 30, 2022.

Losses and loss adjustment expenses decreased $5.6 million to $54.7 million for the nine months ended September 30, 2023 from $60.3 million for the nine months ended September 30, 2022.

Losses and loss adjustment expenses consisted of the following elements during the respective periods:

Six Months Ended

Nine Months Ended

September 30,

($ in thousands)

2 unchanged sentences

Total losses and loss adjustment expenses

Our catastrophe loss ratio was 2.4% during the six months ended June 30, 2023.

Our catastrophe loss ratio was 1.4% during the nine months ended September 30, 2023.

Catastrophe losses were related to floods occurring during the first quarter and severe convective storms occurring during the second quarter.

Our catastrophe loss ratio was 0.7% during the six months ended June 30, 2022.

Catastrophe losses were related to unfavorable development on prior year catastrophe events.

Our non-catastrophe loss ratio was 20.8% for the six months ended June 30, 2023 compared to 18.1% during the six months ended June 30, 2022.

Our catastrophe loss ratio was 5.8% during the nine months ended September 30, 2022.

Catastrophe losses were primarily related to Hurricane Ian which primarily impacted our Commercial All Risk line of business.

Our non-catastrophe loss ratio was 20.3% for the nine months ended September 30, 2023 compared to 19.9% during the nine months ended September 30, 2022.

Non-catastrophe losses increased due mainly to higher attritional losses on lines of business subject to attritional losses such as Commercial All Risk, Casualty, and Inland Marine.

Acquisition Expenses

Acquisition expenses decreased $5.0 million, or 8.8%, to $51.7 million for the six months ended June 30, 2023 from $56.7 million for the six months ended June 30, 2022.

Acquisition expenses decreased $5.2 million, or 6.2%, to $78.7 million for the nine months ended September 30, 2023 from $83.9 million for the nine months ended September 30, 2022.

The decrease was primarily due to higher earned ceding commissions and fronting fees due to an increase in premiums subject to a quota share or fronting agreement.

This was partially offset by higher commissions and premium-related taxes resulting from higher gross earned premiums.

Acquisition expenses as a percentage of gross earned premiums were 11.1% for the six months ended June 30, 2023 compared to 19.1% for the six months ended June 30, 2022.

Acquisition expenses as a percentage of gross earned premiums were 10.7% for the nine months ended September 30, 2023 compared to 17.3% for the nine months ended September 30, 2022.

Other Underwriting Expenses

Other underwriting expenses increased $7.5 million, or 21.8%, to $41.6 million for the six months ended June 30, 2023 from $34.1 million for the six months ended June 30, 2022.

Other underwriting expenses increased $12.7 million, or 24.8%, to $64.0 million for the nine months ended September 30, 2023 from $51.2 million for the nine months ended September 30, 2022.

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 8.9% for the six months ended June 30, 2023 compared to 11.5% for the six months ended June 30, 2022.

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 6.9% for the six months ended June 30, 2023 compared to 8.7% for the six months ended June 30, 2022.

Other underwriting expenses as a percentage of gross earned premiums were 8.7% for the nine months ended September 30, 2023 compared to 10.6% for the nine months ended September 30, 2022.

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 6.8% for the nine months ended September 30, 2023 compared to 8.2% for the nine months ended September 30, 2022.

This percentage decreased due to an increase in earned premiums without a corresponding increase in operating expenses.

1 unchanged sentence

Net Investment Income and Net Realized and Unrealized Gains (Losses) on Investments

Net investment income increased $4.9 million, or 86.4%, to $10.7 million for the six months ended June 30, 2023 from $5.7 million for the six months ended June 30, 2022.

The increase was primarily due to a higher average balance of investments during the six months ended June 30, 2023 and higher yields on invested assets.

The Company incurred $1.3 million of net realized and unrealized gains on investments for the six months ended June 30, 2023 compared to $6.0 million of net realized and unrealized losses for the six months ended June 30, 2022 due primarily to gains on our equity securities during the period ended June 30, 2023 compared to losses during the period ended June 30, 2022.

Net investment income increased $7.2 million, or 76.4%, to $16.7 million for the nine months ended September 30, 2023 from $9.5 million for the nine months ended September 30, 2022.

The increase was primarily due to a higher average balance of investments during the nine months ended September 30, 2023 and higher yields on invested assets.

The Company incurred $0.1 million of net realized and unrealized losses on investments for the nine months ended September 30, 2023 compared to $8.4 million of net realized and unrealized losses for the nine months ended September 30, 2022.

In both periods, the balance was primarily driven by unrealized 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:

Six Months Ended

Nine Months Ended

September 30,

($ in thousands)

3 unchanged sentences

Net investment income

Net realized and unrealized gains (losses) on investments

Net realized and unrealized losses on investments

Income Tax Expense

Income tax expense increased $2.5 million or 30.6% to $10.8 million for the six months ended June 30, 2023 from $8.3 million for the six months ended June 30, 2022 due to higher pre-tax income and a higher effective tax rate during the six months ended June 30, 2023.

During the six months ended June 30, 2023, our income tax rate of 23.6% was higher than the statutory rate of 21% due primarily to non-deductible executive compensation expense.

For the six months ended June 30, 2022 our income tax rate of 22.1% was higher than the statutory rate also due primarily to non-deductible executive compensation expense.

Income tax expense increased $7.7 million or 84.2% to $16.9 million for the nine months ended September 30, 2023 from $9.2 million for the nine months ended September 30, 2022 due to higher pre-tax income and a higher effective tax rate during the nine months ended September 30, 2023.

During the nine months ended September 30, 2023, our income tax rate of 24.0% was higher than the statutory rate of 21% due primarily to non-deductible executive compensation expense.

For the nine months ended September 30, 2022 our income tax rate of 21.5% was higher than the statutory rate also due primarily to non-deductible executive compensation expense.

Reconciliation of Non ‑

7 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

2 unchanged sentences

Net investment income

Net realized and unrealized (gains) losses on investments

Net realized and unrealized losses on investments

Underwriting revenue

10 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

2 unchanged sentences

Net investment income

Net realized and unrealized (gains) losses on investments

Net realized and unrealized losses on investments

Interest expense

13 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

Net realized and unrealized (gains) losses on investments

Net realized and unrealized losses on investments

Expenses associated with transactions

10 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

9 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

15 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands, except per share data)

10 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

12 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

22 unchanged sentences

equity as follows:

September 30,

(in thousands)

41 unchanged sentences

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 six months ended June 30, 2023 and 2022:

Six Months Ended

The following table summarizes our cash flows for the nine months ended September 30, 2023 and 2022:

Nine Months Ended

September 30,

($ in thousands)

4 unchanged sentences

Change in cash, cash equivalents, and restricted cash

Our cash flow from operating activities was positive during the six months ended June 30, 2023 and 2022 due to net income and a decrease in net operating assets in each period.

Our cash flow from operating activities was positive during the nine months ended September 30, 2023 and 2022 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 three months ended June 30, 2023 and 2022 related primarily to purchases of fixed maturity securities in excess of sales and maturities in each period.

Cash provided by financing activities for three months ended June 30, 2023 was related to $35.0 million in borrowings from our lines of credit, the receipt of $0.3 million in proceeds from stock option exercises and the receipt of $0.4 million in proceeds from our employee stock purchase plan, offset by the repurchase of $15.6 million of our common stock.

Cash provided by financing activities for three months ended June 30, 2022 was related to $23.0 million in borrowings from our FHLB line of credit, the receipt of $1.8 million in proceeds from stock option exercises and the receipt of $0.3 million in proceeds from our employee stock purchase plan, offset by the repurchase of $20.3 million of our common stock.

Cash used in investing activities for the nine months ended September 30, 2023 and 2022 related primarily to purchases of fixed maturity securities in excess of sales and maturities in each period.

Cash used in financing activities for nine months ended September 30, 2023 was related to $16.2 million in borrowings from our lines 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, offset by the repurchase of $22.1 million of our common stock.

Cash provided by financing activities for nine months ended September 30, 2022 was related to $26.4 million in borrowings from our FHLB line of credit, the receipt of $0.8 million in proceeds from stock option exercises and the receipt of $2.2 million in proceeds from our employee stock purchase plan, offset by the repurchase of $23.3 million of our common stock.

We do not have any current plans for material capital expenditures other than current operating requirements.

1 unchanged sentence

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 $660.2 million in cash and investment securities available at June 30, 2023.

To the extent our future operating cash flows are insufficient to cover our net losses from catastrophic events, we had $688.0 million in cash and investment securities available at September 30, 2023.

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.

2 unchanged sentences

Under our current share repurchase program, shares may be 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.

We purchased 301,162 shares for $15.6 million under this program during the six months ended June 30, 2023 and $50.0 million remains available for future repurchases.

We purchased 418,901 shares for $22.1 million under this program during the nine months ended September 30, 2023 and $43.5 million remains available for future repurchases.

Credit Agreements

5 unchanged sentences

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.

As of June 30, 2023, we had no borrowings outstanding through the Credit Agreement.

As of September 30, 2023, 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”).

2 unchanged sentences

All advances have predetermined term and the interest rate varies based on the term of the advance.

As of June 30, 2023, we had $71.4 million of borrowings outstanding through the FHLB line of credit.

As of September 30, 2023, we had $52.6 million of borrowings outstanding through the FHLB line of credit.

Stockholders ’

At June 30, 2023 total stockholders’

At September 30, 2023 total stockholders’

equity was $421.3 million and tangible stockholders’

14 unchanged sentences

Our cash and invested assets consist of cash and cash equivalents, fixed maturity securities, and equity securities.

As of June 30, 2023, the majority of our investment portfolio, or $560.1 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 $41.4 million of equity securities.

In addition, we maintained a non‑restricted cash and cash equivalent balance of $58.3 million at June 30, 2023.

Our fixed maturity securities, including cash equivalents, had a weighted average effective duration of 3.86 and 3.81 years and an average rating of “A1/A+”

As of September 30, 2023, the majority of our investment portfolio, or $591.9 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 $39.8 million of equity securities and $2.9 million of equity method investments.

In addition, we maintained a non‑restricted cash and cash equivalent balance of $53.0 million at September 30, 2023.

Our fixed maturity securities, including cash equivalents, had a weighted average effective duration of 3.61 and 3.81 years and an average rating of “Aa3/A+”

and “A1/A+”

at June 30, 2023 and December 31, 2022, respectively.

Our fixed income investment portfolio had a book yield of 3.60% as of June 30, 2023, compared to 3.30% as of December 31, 2022.

At June 30, 2023 and December 31, 2022 the amortized cost and fair value on available‑for‑sale securities were as follows:

June 30, 2023

at September 30, 2023 and December 31, 2022, respectively.

Our fixed income investment portfolio had a book yield of 3.90% as of September 30, 2023, compared to 3.30% as of December 31, 2022.

At September 30, 2023 and December 31, 2022 the amortized cost and fair value on available‑for‑sale securities were as follows:

September 30, 2023

($ in thousands)

15 unchanged sentences

Total available-for-sale investments

The following tables provide the credit quality of investment securities as of June 30, 2023 and December 31, 2022:

June 30, 2023

The following tables provide the credit quality of investment securities as of September 30, 2023 and December 31, 2022:

September 30, 2023

($ in thousands)

1 unchanged sentence

($ in thousands)

The amortized cost and fair value of our available‑for‑sale investments in fixed maturity securities summarized by contractual maturity as of June 30, 2023 were as follows:

June 30, 2023

The amortized cost and fair value of our available‑for‑sale investments in fixed maturity securities summarized by contractual maturity as of September 30, 2023 were as follows:

September 30, 2023

($ in thousands)

59 unchanged sentences

with approximately 79.7% rated “A−”

At June 30, 2023, 1.6% of our fixed maturity portfolio was unrated or rated below investment grade.

At September 30, 2023, 1.7% of our fixed maturity portfolio was unrated or rated below investment grade.

Our fixed maturity portfolio includes some securities issued with financial guaranty insurance.

6 unchanged sentences

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 June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control 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, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

6 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements