What changed in this filing

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Item 1. Business

2024-02-23 compared with 2023-03-01 · 136 added, 123 removed, 440 unchanged (37% of the section changed)

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Founded in 2014, we have significantly grown our business and have generated attractive returns.

We have organically increased gross written premiums from $16.6 million in our first year of operations to $881.9 million for the year ended December 31, 2022, which reflects a compound annual growth rate of approximately 64%.

We have organically increased gross written premiums from $16.6 million in our first year of operations to $1.1 billion for the year ended December 31, 2023, which reflects a compound annual growth rate of approximately 60%.

We have also been profitable since 2016 and our net income growth since 2016 reflects a compound annual growth rate of 43%.

We seek to continuously grow our income by developing product offerings for lines of business that harness our core competencies and where we believe we can generate attractive risk adjusted returns.

Since 2021, we have introduced several new products including General Casualty, Fronting, Excess Liability, and Excess Property to diversify our book of business and broaden our product portfolio.

We seek to continuously grow our income by developing products in lines of business that harness our core competencies and where we believe we can generate attractive risk adjusted returns.

In recent years, we have introduced several new products including Fronting, Excess Property, and Crop, as well as products targeting niche Casualty segments such as Real Estate Agent Errors and Omissions, Excess Liability, and Environmental Liability.

These new products diversify our book of business and broaden our product portfolio.

We believe that our market opportunity, distinctive products, and differentiated business model position us to grow our business profitably.

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As the E&S market does not involve the same level of regulation and required approvals as the admitted market, our surplus lines products enable us to react quickly to changing market conditions.

We believe that we can generate superior risk-adjusted returns through underwriting which better reflects our customers’ underlying risk by applying a more granular approach to pricing than what is typically offered by standard carriers.

We believe this market acceptance and return potential is evidenced by the fact that we have quickly and profitably grown to be the 4 th largest earthquake insurer in the state of California and the 5 th largest earthquake insurer in the United States.

We continue to experience growth and profitability across our other lines of business.

We believe that we can generate superior risk-adjusted returns through the use of underwriting methods that apply a more granular approach to pricing than what is typically offered by standard carriers and that better reflect our customers' underlying risk.

We believe this market acceptance and return potential is evidenced by the fact that we have quickly and profitably grown to become the 2nd largest earthquake insurer in the state of California and the 3rd largest earthquake insurer in the United States.

We also continue to experience growth and profitability across our other lines of business.

Our primary lines of business include:

Residential and Commercial Earthquake, Fronting, and Inland Marine.

We seek to write a diverse mix of business by loss exposure, customer type and geography to capitalize on market opportunities, mitigate the potential impact of any single catastrophe event, and reduce our cost of reinsurance.

Residential and Commercial Earthquake, Fronting, Inland Marine, and Casualty.

We continue to develop product offerings for lines of business that harness our core competencies and where we believe we can generate attractive risk-adjusted returns.

Notable recent examples of our commitment to developing new products include the expansion of our Casualty and Fronting operations during 2022.

We believe these markets complement our existing product offerings and offer significant growth opportunity across both the admitted and E&S markets.

Notable recent examples of our commitment to developing new products include the expansion of our Casualty and Fronting operations and the launch of our Crop insurance program.

We believe these markets complement our existing product offerings and offer significant growth opportunities across both the admitted and E&S markets.

We seek to have a diversified business mix, anchored by our core earthquake offerings and we have made substantial progress diversifying our business by product, market, and geography.

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California represents our largest current exposure with 53% of our gross written premiums for the year ended December 31, 2023.

Our business strategy involves continuing to grow our core earthquake insurance business while also diversifying our book of business into uncorrelated products such as Casualty and Fronting and extending the reach of heritage lines of business such as Inland Marine.

Our business strategy involves continuing to grow our core earthquake insurance business, diversifying our book of business into uncorrelated products such as Casualty and Fronting, and extending the reach of lines of business such as Inland Marine.

The following charts illustrate our business mix by product, residential versus commercial markets, state, and entity for the year ended December 31, 2023:

We employ a highly granular and analytical underwriting process to assess each insurance policy that we write, and we ensure that the risk characteristics of business assumed through our channel partnerships or written by program administrator partners are consistent with our underwriting of direct business.

Our systems enable us to underwrite all of our personal lines business automatically within minutes by leveraging our proprietary modeling techniques to analyze data at the geocode or ZIP code level.

Our systems enable us to underwrite our personal lines business automatically within minutes by leveraging our proprietary modeling techniques to analyze data at the geocode or ZIP code level.

With our commercial products, we balance automation with human expertise and controls to underwrite more complex risks.

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In our target markets, there are few direct competitors who focus exclusively on specialty risks.

With our specialized knowledge of these risks and our customized products, pricing and risk management, we believe we can better serve these markets than our competitors.

With our specialized knowledge of these risks and our customized products, pricing and risk management, we believe we can serve these markets better than our competitors.

Furthermore, we can expand our markets by creating products that attract insureds who previously had not obtained coverage.

Our focus and expertise have enabled us to rapidly increase our market share;

for example, we have grown to become the 4 th largest earthquake insurer in California and the 5 th largest earthquake insurer in the United States.

for example, we have grown to become the 2nd largest earthquake insurer in California and the 3rd largest earthquake insurer in the United States.

In markets with similar characteristics, we are experiencing growth and profitability across our other lines of business.

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By offering our customers the ability to manage pricing, coverage options, and deductibles, we believe we have created products that are attractive both to those who have existing coverages with our competitors, and to those who have not historically bought insurance in our target markets.

Furthermore, since our admitted products have been approved by individual state regulators and have been supported by proprietary pricing models since inception, we believe that these products are not easily replicable, particularly by existing carriers who would face the burden of gathering data, building new models, and revising existing rates and policy forms with regulators.

Furthermore, since our admitted products have been approved by individual state regulators and are supported by proprietary pricing models, we believe that these products are not easily replicable, particularly by existing carriers who would face the burden of gathering data, building new models, and revising existing rates and policy forms with regulators.

Product offerings in both the admitted and E&S markets.

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We work with a wide variety of retail agents, program administrators, and wholesale brokers.

We serve over 25 insurance companies as a specialty partner either by issuing companion policies or providing reinsurance for their in-force risks that fit our strict underwriting parameters.

We serve over 25 insurance companies as a specialty partner either by issuing companion policies or providing reinsurance for in-force risks that fit our strict underwriting parameters.

The breadth and flexibility of our distribution model allows us to generate premium from many different parts of the insurance ecosystem and to rapidly take advantage of changing market conditions.

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At each reinsurance treaty renewal, we consider any plans to change the underlying insurance coverage we offer, our current capital, our risk appetite, and the cost and availability of reinsurance coverage, which may vary from time to time.

In addition to the magnitude of coverage, we believe our reinsurance program provides us with significant protection and stability during potential periods of multiple severe catastrophes or market volatility due to our use of aggregate reinsurance protection as well as features such as prepaid reinstatements and expanded coverage windows for catastrophe events and our diverse panel of more than 100 highly rated reinsurers and capital markets investors.

Further, we buy program specific quota share reinsurance coverage for certain lines of business to mitigate the impact of attritional losses on underwriting results.

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PASS serves as the conduit to our policy administration system that integrates policy issuance, underwriting, billing and portfolio analytics.

Our platform enables us to rapidly quote and bind policies via automated processing, and also to run detailed risk-management analytics for internal and external constituents including distribution partners, carrier partners and reinsurers.

Our platform enables us to rapidly quote and bind policies via automated processing, and to run detailed risk-management analytics for internal and external constituents including distribution partners, carrier partners and reinsurers.

We believe that this real-time access to data and analytics provides us with an advantage in distributing our products, managing our risk, and purchasing reinsurance.

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Expand our presence in existing markets.

We compete in the United States property and casualty market that represented nearly $800 billion in total written premiums during 2021.

By comparison, we generated $881.9 million of gross written premiums for the year ended December 31, 2022.

We compete in the United States property and casualty market that represented over $850 billion in total written premiums during 2023.

By comparison, we generated $1.1 billion of gross written premiums for the year ended December 31, 2023.

We believe that our differentiated product offerings will enable us to continue growing in our existing markets by (i) gaining market share from competitors who have less flexible product offerings;

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Our analytically informed risk selection and disciplined underwriting guidelines enable us to identify segments of the market that are both underserved and mispriced.

As a result, we are able to generate an attractive underwriting profit through expanding the addressable market and winning market share with our distinctive products.

As a result, we are able to generate an attractive underwriting profit by expanding the addressable market and winning market share with our distinctive products.

For the years ended December 31, 2023 and 2022, our return on equity (“ROE”) was 18.5% and 13.4%, and our adjusted ROE was 21.9% and 18.3%, respectively.

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Leverage our underwriting, analytics, and risk transfer acumen to generate fee income.

We generate fee income by underwriting on behalf of other insurance companies and through the use of quota share reinsurance treaties whereby third-party reinsurers pay us a ceding commission in order to access attractive pools of risk.

Our fronting business offers an additional source of fee income that we earn from program administrators and reinsurers seeking to access our licensed insurance companies.

We generate fee income through the use of quota share reinsurance treaties whereby third-party reinsurers pay us a ceding commission in order to access attractive pools of risk.

Our Fronting and Crop businesses offers an additional source of fee income that we earn from program administrators and reinsurers seeking to access our licensed insurance companies.

Our multi-channel distribution model produces attractive business that we aim to translate into a balanced mix of underwriting and fee income.

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We believe that protecting our earnings and balance sheet through the use of reinsurance is critical to our business and supports our ability to meet obligations to our policyholders and other constituents, and generate strong returns for our stockholders.

We plan to maintain a conservative, robust reinsurance program to provide protection against severe or frequent catastrophe losses.

We plan to maintain a conservative, robust reinsurance program to provide protection against severe or frequent losses.

Our goal is to protect our earnings by constructing a reinsurance program that mitigates losses and ensures profitability in spite of potential shock losses or catastrophic activity.

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PSIC was formed in February 2014.

August 2014, we incorporated Palomar Specialty Reinsurance Company Bermuda Ltd.(“PSRE”), a Bermuda-based reinsurance subsidiary that provides reinsurance support exclusively to PSIC and PESIC.

In August 2014, we incorporated Palomar Specialty Reinsurance Company Bermuda Ltd.(“PSRE”), a Bermuda-based reinsurance subsidiary that provides reinsurance support exclusively to PSIC and PESIC.

In August 2015, we incorporated Prospect General Insurance Agency, Inc., now known as Palomar Insurance Agency, Inc., (“PIA”), to underwrite specialty insurance products on behalf of third-party insurance companies.

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PESIC is domiciled in the State of Arizona and licensed in Arizona to write surplus lines business on a nationwide basis across all our existing lines of business.

During 2023, we formed Palomar Underwriters Exchange Organization, Inc.

("PUEO"), a Delaware incorporated management company that provides services by serving as the attorney-in-fact to Laulima Exchange (“Laulima”), a Hawaii domiciled reciprocal exchange.

We provide personal and commercial specialty insurance products in our target markets.

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(i) have loss characteristics, including limited attritional losses, similar to our initial earthquake product, (ii) can benefit from our technology platform, data analytics and customer centric products, and/or (iii) allow us to leverage our existing underwriting talent, reinsurance expertise and/or distribution relationships.

Our primary insurance products include Residential and Commercial Earthquake, Fronting, and Inland Marine.

Our primary insurance products include Residential and Commercial Earthquake, Fronting, Inland Marine, and Casualty.

We aim to develop a diversified portfolio with exposure spread across geographic regions with limited correlation.

Although our largest exposure remains in the state of California, we have expanded across the United States.

Although our largest exposure is in the state of California, we write business across the United States.

We tailor our risk participation to optimize our returns depending on the conditions of specific markets.

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($ in thousands)

North Carolina

Total Gross Written Premiums

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Inland Marine

Commercial All Risk

Hawaii Hurricane

Specialty Homeowners

Commercial All Risk

Residential Flood

Specialty Homeowners

Total Gross Written Premiums

NM-Not Meaningful

Residential Earthquake

We offer Residential Earthquake products in 37 states on an admitted basis and nationwide on an E&S basis.

We offer Residential Earthquake products on an admitted and E&S basis.

Our products insure against damage to the home, contents and any appurtenant structures, and reimburse for temporary housing costs in the event of an earthquake.

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Commercial Earthquake

We offer Commercial Earthquake products, commonly known as “Difference in Conditions” policies, on an admitted basis in 15 states and nationwide on an E&S basis.

We offer Commercial Earthquake products on an admitted and E&S basis.

Our Commercial Earthquake products focus on providing coverage for benign commercial risks where the business interruption exposure is typically less than 15% of the total insured value (“TIV”).

We attempt to avoid risks where the contents are hard to value or represent a disproportionate

percentage of the value.

We write policy limits up to $25 million with the ability to serve larger accounts using facultative reinsurance.

Our Fronting business offers both admitted and E&S products to reinsurers, insurance carriers and managing general agents to enable the design and operation of customized insurance programs.

We issue insurance policies for other insurance companies which may not have the licensure, product suite or rating to serve their desired markets, or for programs supported by reinsurance or alternative capital providers.

In addition, we enter fronting arrangements with program administrators that require a broadly licensed, highly rated carrier to conduct their business in certain states.

We attempt to avoid risks where the contents are hard to value or represent a disproportionate percentage of the value.

Our Fronting business offers reinsurers, insurance carriers and managing general agents the ability to utilize our licensed admitted and E&S insurance companies to design and operate customized insurance programs.

We issue insurance policies for other insurance companies that may not have the licensure, product suite or rating to serve their desired markets, or for programs supported by reinsurance or alternative capital providers.

In addition, we enter fronting arrangements with program administrators that require a broadly licensed, highly rated carrier to conduct business in certain states.

Inland Marine

Our Inland Marine products include Builder’s Risk, Contractor’s Equipment, Mobile Equipment, Motor Truck Cargo, Miscellaneous Floaters, Installation Floaters, and Special Property Floaters.

We write our Inland Marine products on an admitted and on an E&S basis directly and through program administrators.

Policy limits vary by product, however, our E&S offerings are designed to target larger limit business and does not directly compete with our admitted offerings.

Our Inland Marine products are written on an admitted and on an E&S basis directly and through program administrators.

Policy limits vary by product, however, our E&S offerings are designed to target larger limit business and do not directly compete with our admitted offerings.

We believe the flexibility of our Inland Marine products enables us to compete in select market segments and price risk appropriately.

Commercial All Risk

We offer Commercial All Risk insurance on a E&S basis nationwide through the underwriting division of a national wholesaler.

Our products currently compete in the national layered and shared commercial property market, an area where we believe there is currently a high-level of market dislocation.

The Commercial All Risk policy covers the perils of fire and wind, with wind including hurricane, tornado, and hailstorm.

For additional premium, the policy can include the peril of earthquake.

We target occupancy types including government entities, homeowner’s associations, retail stores, hotels, motels, and office buildings.

Previously, we wrote this business on a direct admitted basis in select states in the Southeastern United States.

During 2020, we ceased writing this business on an admitted basis and as of December 31, 2021, all admitted Commercial All Risk business has been run off.

We provide Casualty products on an admitted and E&S basis.

We primarily focus on niche segments of the Casualty market including Real Estate Agent Errors and Omissions, Excess Liability, and Environmental Liability coverages written directly and through program administrators.

We utilize experienced underwriters and thorough actuarial review to optimize our pricing, terms and conditions, limits, and attachment points.

In addition to our existing Casualty product offerings, we announced the launch of our Environmental Liability product at the end of 2023.

The new product further demonstrates our commitment to providing comprehensive insurance solutions that address evolving market needs.

Hawaii Hurricane

We offer admitted residential property coverage for named hurricanes in the state of Hawaii.

The state requires this coverage for homeowners that carry a mortgage on their properties.

We offer admitted residential property coverage for named hurricanes in the state of Hawaii, which is required for homeowners that carry a mortgage on their properties.

Similar to our residential earthquake product, insureds have the ability to tailor limits to their preferences.

The policies we write only trigger coverage if wind damage occurs while the insured risk is in a county that is under a hurricane watch or warning as deemed by the Pacific division of the National Weather Service.

The policies we write only trigger coverage if an insured risk incurs wind damage while directly under a hurricane watch or warning as deemed by the Pacific division of the National Weather Service.

Coverage only remains in effect for a period of 72 hours after the hurricane watch or warning expires.

Therefore, there is no exposure to attritional losses with this product.

We believe our products are preferred by local retail agents due to our “A−” (Excellent) (Outlook Stable) rating by A.M.

We write policy limits up to $15 million;

all policies involve automated underwriting and policies under $5 million in limit are issued via automated processing.

Specialty Homeowners

Our Specialty Homeowners product previously provided admitted insurance coverage to homeowners in wind-exposed coastal regions.

During the year ended December 31, 2022, we ceased writing Specialty Homeowners policies outside the state of Texas and converted our Texas Specialty Homeowners business to a fronting arrangement.

We do not plan to write Specialty Homeowners business in the future.

We write this coverage through PSIC and Laulima, a reciprocal exchange comprised of an unincorporated association of Hawaii homeowners ("subscribers") that agree to insure one another.

Our management company, PUEO, acts as the attorney-in-fact for Laulima in exchange for a management fee.

Commercial All Risk

We offer Commercial All Risk insurance on a E&S basis nationwide through the underwriting division of a national wholesaler and through our internally underwritten Excess Property products.

Our products currently compete in the national layered and shared commercial property market, an area where we believe there is a high-level of market dislocation.

The Commercial All Risk policy covers the perils of fire and wind, with wind including hurricane, tornado, and hailstorm.

For additional premium, the policy can include the peril of earthquake.

We target occupancy types including government entities, homeowner’s associations, retail stores, hotels, motels, and office buildings.

Residential Flood

We provide residential flood products on an admitted basis in 14 states and on an E&S basis in 16 states across the United States.

We provide Residential Flood products on an admitted and E&S basis.

Our products primarily compete against those of the NFIP, which caps dwelling coverage at $250,000 and prices risk using less granular regional zones.

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We write policy limits up to $5 million, all of which involve automated underwriting and are issued via automated processing.

We provide casualty products on an admitted and non-admitted basis.

We write primarily general casualty and professional liability coverages directly and through program administrators.

We utilize experienced underwriters and thorough actuarial review to optimize our pricing, terms and conditions, limits, and attachment points.

Examples of our other product offerings include assumed reinsurance contracts where the exposure is uncorrelated to our existing product offerings.

During 2023, we received regulatory approval and launched our Crop insurance business.

Our Crop insurance business is comprised primarily of multi-peril crop insurance offered in connection with the U.S.

Department of Agriculture's Risk Management Agency and designed to cover revenue shortfalls or production losses due to natural causes such as drought, hail, and wind.

We currently write Crop insurance through a strategic partnership with the goal of minimizing exposure to a single region.

We currently cede the majority of Crop premium and risk to reinsurers in exchange for a fronting fee and Crop premiums are currently included as a component of our Fronting premiums.

In the future, we intend to classify Crop as a separate product.

We continuously seek to develop product offerings and write business in areas that harness our core competencies and where we believe we can generate attractive risk adjusted returns.

Examples include our assumed reinsurance treaties where the exposure is uncorrelated to our existing product offerings.

Marketing and Distribution

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We distribute our commercial lines products primarily through wholesale brokers.

Wholesale brokers are an important channel for commercial property insurance products as they control much of the premium in these segments.

We select wholesale brokers based on our management’s review of their experience, knowledge, and business plan.

We target brokers with the experience to serve our target markets and with business plans consistent with our strategy and underwriting objectives.

Wholesale brokers are an important channel for commercial insurance products as they control much of the premium in these segments.

We target brokers with experience serving our target markets and with business plans consistent with our strategy and underwriting objectives.

Brokers must demonstrate an ability to produce both the quality and quantity of business that we seek.

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Within select lines of business, we partner with program administrators to harness the efficiency and scale of their existing marketing and distribution infrastructures.

Generally, all policies bound by our program administrators are pre-underwritten using our pricing models which have been programmed into the policy administration system of each partner.

In some cases, policies bound by our program administrators are pre-underwritten using pricing models that we have developed and are programmed into the policy administration system of those partners.

For business that is not automatically underwritten, we set strict underwriting guidelines to which our partners must adhere.

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Under this agreement, which accounted for $208.1 million of written premiums for the year ended December 31, 2023, we conduct product development and underwriting while our program administrator manages a base of over 1,000 retail agents who individually bind policies through PASS or an internal system which automatically applies our pricing and underwriting guidelines to new policies, and is subjected to our disciplined risk management.

We have also partnered with several program administrators that focus on specific areas of the E&S market as we pursue the growth of PESIC.

Carrier Partnerships:

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With all partnerships, we review pricing at the policy level to ensure that the risk characteristics of both new and assumed business are consistent with our underwriting of direct business.

We intend to pursue additional carrier partnerships in the future including those that involve PESIC.

Our underwriting team combines comprehensive data analysis with experienced underwriting techniques to build a profitable, stable and diversified book of business.

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We believe that automated underwriting of personal lines policies improves efficiency, reduces errors, and enhances the customer experience.

Since property and casualty commercial lines risks involve additional complexity and do not lend themselves to highly automated underwriting, we combine robust risk analysis and data collection with underwriter expertise to evaluate individual risk and to quote business efficiently.

Since commercial lines risks involve additional complexity and do not lend themselves to highly automated underwriting, we combine robust risk analysis and data collection with underwriter expertise to evaluate individual risks and to quote business efficiently.

We regularly audit data gathered during our underwriting process to determine the accuracy of rating information and risk pricing.

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In addition, we continue to pursue the use of technology to streamline inspections and other components of the underwriting process.

We apply the same principles and discipline to underwriting when selecting program administrator partners.

We apply disciplined underwriting principles when selecting program administrator partners.

We proactively engage with our program managers to create specific underwriting guidelines and techniques.

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We currently contract with multiple TPAs to reduce our reliance on any single TPA, as well as to benefit from expertise of individual vendors in specific lines of business.

Our management team is responsible for overseeing our TPAs, including the management of loss reserves, event preparation, settlement, arbitration, and mediation.

Our management team is responsible for overseeing our TPAs, including the management of catastrophe event preparation, loss reserves, claim evaluation, arbitration, mediation, and settlement.

Claims are reported directly to us and the applicable TPA, which adheres to agreed upon service level standards.

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We review all claims received from our TPAs to validate coverage, limits, and deductibles prior to making payment.

In addition, we have certain managerial requirements of our TPAs around notification, reserve approval, payment management, correspondence with insureds, and reports for all claims in excess of the claims analyst’s authority.

In addition, we have certain managerial requirements of our TPAs around notification, reserve approval, payment management, correspondence with insureds, timeliness, regulatory compliance, and reports for all claims in excess of the claims analyst’s authority.

We also monitor possible litigation and litigation trends associated with our claims.

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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 first quarter of 2021, the Company closed a $400 million 144A catastrophe bond which became effective June 1, 2021.

During the first quarter of 2021, we closed a $400 million 144A catastrophe bond that became effective June 1, 2021.

The catastrophe bond was completed through Torrey Pines Re Pte.

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is a special purpose reinsurance vehicle incorporated in Singapore that provides Palomar with indemnity-based reinsurance covering earthquake events through June 1, 2024.

During the second quarter of 2022, the Company also closed a $275 million 144A catastrophe bond which became effective June 1, 2022.

During the second quarter of 2022, we closed a $275 million 144A catastrophe bond that 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 also closed a $200 million 144A catastrophe bond that 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.

Our largest single XOL reinsurer, excluding Torrey Pines Re, comprises 5.82% of the total catastrophe XOL reinsurance limit we have in effect.

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Reinsurer Ratings

Torrey Pines Re 144A Cat Bond 2022

Torrey Pines Re 144A Cat Bond 2021

Torrey Pines, LTD.

(Cat Bond - 2021 Issuance)

Collateralized

Torrey Pines, LTD.

(Cat Bond - 2022 Issuance)

Collateralized

Torrey Pines, LTD.

(Cat Bond - 2023 Issuance)

Collateralized

Shelf Opco Bermuda Limited obo Fidelis Insurance Bermuda Limited

Ariel Re Bda Limited obo Synd 1910 (Bermuda)

Houston Casualty Company (UK Branch)

Leadenhall Capital Partners obo MS Amlin AG Bermuda Branch

Lancashire Insurance Company, Ltd.

Ariel Re Bda Limited obo Synd 1910 (Bermuda)

Lloyd's # 1947 - GIC Re

Swiss Reinsurance America Corporation

MS Amlin AG Bermuda Branch

Elementum Re Ltd.

obo Allianz Risk Transfer AG (Bermuda Branch)

Lloyd's # 1301 - Inigo Insurance

Arch Reinsurance, Ltd.

Quantedge Capital USA Inc.

obo Arch Reinsurance, Ltd.

Catastrophe XOL Reinsurance Coverage

Our catastrophe event retention before any tax effect is currently $17.5 million for all perils.

Our reinsurance coverage exhausts at $2.11 billion for earthquake events, $1.01 billion for Hawaii hurricane events, and $250 million for continental U.S.

Our reinsurance coverage exhausts at $2.71 billion for earthquake events, $900 million for Hawaii hurricane events, and $100 million for continental U.S.

hurricane events, providing coverage in excess of our 1:250 year peak zone PML and in excess of our A.M.

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As of December 31, 2023, our first event retention represented approximately 3.7% of our stockholders’ equity.

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.” In addition, to provide further coverage against the potential for frequent catastrophe events we have $25 million of aggregate XOL reinsurance limit, which is effective through April 1, 2023.

This coverage, applying within our per occurrence retention, has an attachment point of $30 million and applies across all perils including but not limited to earthquakes, hurricanes, convective storms, and floods above a qualifying level of $2.0 million in ultimate gross loss.

We believe subsequent event coverage and the aggregate reinsurance cover reduces the volatility of our business and we will always consider the need to protect against subsequent or multiple events in our reinsurance strategy.

In the event that multiple catastrophe events occur during a treaty 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.”

To assess the sufficiency of our catastrophe XOL reinsurance coverage, we continuously quantify our exposure to catastrophes including earthquakes, hurricanes, tornadoes, and hailstorms.

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Best and includes “demand surge,” and loss amplification.

To protect against model bias, we perform probabilistic modeling as well as deterministic modeling using a variety of industry models including AIR Touchstone for all perils and regions and RMS RiskLink for all perils and regions.

To protect against model bias, we perform probabilistic modeling as well as deterministic modeling using a variety of industry models including AIR Touchstone and RMS RiskLink for all perils and regions.

We believe our current reinsurance program provides coverage well in excess of our theoretical losses from any recorded historical event.

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CA 1933 Long Beach M6.4

While we only select reinsurers whom we believe to have acceptable credit and a minimum A.M.

While we only select reinsurers whom we believe to have acceptable credit or a minimum A.M.

Best rating of “A−”, if our reinsurers are unable to pay the claims for which they are responsible, we ultimately retain primary liability to our policyholders.

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Our integrated technology systems form the backbone of our business as they enable us to offer quality and timely service to our policyholders and producers, communicate seamlessly with reinsurers and partner carriers, and run our business more efficiently and cost effectively.

As a recently formed insurance company, we have the benefit of having built a proprietary operating platform that employs the best practices of our management team’s extensive prior experience and that is not burdened by outdated legacy technology and processes.

Our systems offer greater ease of use to distribution partners and provide seamless integration between our pricing models, quoting tools, policy administration systems and portfolio analytics databases.

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We have invested significantly in customizing, building on top of and extending these applications to increase automation and enhance efficiency.

We have dedicated in-house software developers as well as external resources, all of whom report to our Chief Technology Officer.

We have dedicated in-house software developers as well as external resources.

Our internally developed PASS provides producers direct access to our retail and wholesale distributed products including Residential Earthquake, Commercial Earthquake, Hawaii Hurricane, Inland Marine and Residential Flood.

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We invest these reserves, primarily in fixed maturity investments.

Our fixed maturity investment portfolio is managed by Conning, Inc., an investment advisory firm that is an experienced manager of insurance company assets, and operates under guidelines approved by our Board of Directors.

Our fixed maturity investment portfolio is primarily managed by an external investment advisory firm that is an experienced manager of insurance company assets, and operates under guidelines approved by our Board of Directors.

We believe our investment strategy allows us to eliminate the expense of a treasury department while allowing our management to maintain oversight over the investment portfolio.

In the years that we make an underwriting profit, we are able to retain all investment income.

Underwriting losses may require us to dedicate a portion of our investment income or capital to cover insurance claims and expenses.

Our cash and invested assets consist of fixed maturity securities, short-term investments, cash and cash equivalents, mutual funds, exchange traded funds and equity securities.

Our cash and invested assets consist of fixed maturity securities, equity method investments, short-term investments, cash and cash equivalents, mutual funds, exchange traded funds and equity securities.

Our fixed maturity securities are classified as “available-for-sale” and are carried at fair value with unrealized gains and losses on these securities reported, net of tax, as a separate component of accumulated other comprehensive income (loss).

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Fair value generally represents quoted market value prices for securities traded in the public market or prices analytically determined using bid or closing prices for securities not traded in the public marketplace.

Our equity method investment is measured following the consolidation model, by increasing or decreasing the carrying amount of the investment to reflect our share of contributions, distributions, earnings, or losses.

Short-term investments are reported at cost and include investments that are both readily convertible to known amounts of cash and have maturities of 12 months or less upon acquisition by us.

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Fixed maturities:

States, territories, and possessions

Political subdivisions

States, Territories, and Political Subdivisions

Special revenue excluding mortgage/asset‑backed securities

Industrial and miscellaneous

Corporate and other

Mortgage/asset‑backed securities

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Equity securities

Equity method investment

Total investments

1 unchanged sentence

Fixed maturities:

States, territories, and possessions

Political subdivisions

States, Territories, and Political Subdivisions

Special revenue excluding mortgage/asset‑backed securities

Industrial and miscellaneous

Corporate and other

Mortgage/asset‑backed securities

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We continue to enhance our ERM framework, which is guided by the Own Risk and Solvency Assessment (“ORSA”) model developed by the National Association of Insurance Commissioners (“NAIC”) and the National Institute of Standards and Technology (“NIST”) cybersecurity framework.

These ongoing enhancements include the creation of an ERM Sub Committee of the Audit Committee of the

Board of Directors which is comprised of executive management and select board members, creation and maintenance of a risk register, and regular reporting on risk management.

These ongoing enhancements include the creation of an ERM Committee of the Board of Directors which is comprised select board members and select members of executive management, creation and maintenance of a risk register, and regular reporting on risk management.

An additional important part of our ERM is business continuity, including in the circumstances of a catastrophe event.

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From an underwriting standpoint, we carefully consider the development and deployment of insurance products in coastal areas that may be impacted by rising sea levels, and we incorporate scenarios into our catastrophe modeling that involve elevated sea surface temperatures and other relevant data.

We are undertaking a third-party audit of the company’s carbon footprint, as well as options to mitigate that footprint.

Evidence of the Company’s commitment to the environment and combating climate change can be found in the Sustainability and Citizenship report available on our corporate website.

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Competition is based on many factors, including the reputation and experience of the insurer, coverages offered, pricing and other terms and conditions, customer service, relationships with brokers and agents (including ease of doing business, service provided and commission rates paid), size and financial strength ratings, among other considerations.

Each of our insurance company subsidiaries, PSIC and PESIC has a rating of “A−” (Excellent) (Outlook Stable) from A.M.

Each of our insurance company subsidiaries, PSIC and PESIC has a rating of “A−” (Excellent) (Outlook Positive) from A.M.

Best, which rates insurance companies based on factors of concern to policyholders.

Best currently assigns 16 ratings to insurance companies, which currently range from “A++” (Superior) to “S” (Rating Suspended).

“A−” (Excellent) (Outlook Stable) is the fourth highest rating.

Best currently assigns 16 ratings to insurance companies, which currently range from “A++” (Superior) to “F” for insurance companies that have been publicly placed in liquidation.

“A−” (Excellent) (Outlook Positive) is the fourth highest rating.

In evaluating a company’s financial and operating performance, A.M.

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These evaluations are not directed to purchasers of an insurance company’s securities.

Laulima has a rating of "A" (Exceptional) from Demotech, which rates insurance companies on their financial stability.

Intellectual Property

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We will pursue additional trademark registrations and other intellectual property protection to the extent we believe it would be beneficial and cost effective.

Insurance Regulation

We are regulated by insurance regulatory authorities in the states in which we operate.

State insurance laws and regulations generally are designed to protect the interests of policyholders, consumers and claimants rather than stockholders or other investors.

The nature and extent of state regulation varies by jurisdiction, and state insurance regulators generally have broad administrative power relating to, among other matters, setting capital and surplus requirements, licensing of insurers and insurance producers, review and approval of product forms and rates, establishing standards for reserve adequacy, prescribing statutory accounting methods and the form and content of statutory financial reports, regulating certain transactions with affiliates and prescribing types and amounts of investments.

Regulation of insurance companies constantly changes as governmental agencies and legislatures react to real or perceived issues.

In recent years, the state insurance regulatory framework has come under increased federal scrutiny, and some state legislatures have considered or enacted laws that alter and, in many cases, increase, state authority to regulate insurance companies and insurance holding company systems.

Further, the NAIC and some state insurance regulators are re-examining existing laws and regulations specifically focusing on issues relating to the solvency of insurance companies, interpretations of existing laws and the development of new laws.

Although the federal government does not directly regulate the business of insurance, federal initiatives often affect the insurance industry in a variety of ways.

In addition, the Federal Insurance Office (the "FIO") was established within the U.S.

Department of the Treasury by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") in July 2010 to monitor all aspects of the insurance industry, although FIO has no express regulatory authority over insurance companies or other insurance industry participants.

Insurance Holding Company Regulation

We operate as an insurance holding company system and are subject to the insurance holding company laws of the State of Oregon, the state in which Palomar Specialty Insurance Company is domiciled.

Palomar Specialty Insurance Company is also commercially domiciled in California and, as a result, we are subject to the insurance holding company laws of California, as well.

These statutes require that each insurance company in the system register with the insurance department of its state of domicile and furnish information concerning the operations of companies within the holding company system that may materially affect the operations, management or financial condition of the insurers within the system and domiciled in that state.

These statutes also provide that all transactions among members of a holding company system must be fair and reasonable.

Transactions between insurance subsidiaries and their parents and affiliates generally must be disclosed to the state regulators, and notice to or prior approval of the applicable state insurance regulator generally is required for any material or extraordinary transaction.

Human Capital

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We are committed to increasing diversity within our Company.

We believe that diversity yields greater creativity and productivity, helps us serve our customers and partners more effectively, and ultimately returns greater value to our shareholders and to the communities in which we do business.

We believe that diversity leads to greater creativity and productivity, helps us serve our customers and partners more effectively, and ultimately benefits our shareholders and the communities in which we do business.

We set diversity goals in our annual Sustainability & Citizenship report.

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We regularly benchmark programs to ensure our team has access to industry-leading benefits to address all aspects of well-being — physical and mental health, family care, financial support, and community engagement.

In our initial response to the COVID-19 pandemic, we allowed many of our team members to work from home since March 2020.

As the pandemic began to ease, we began allowing all employees to return to our offices on a voluntary basis, with established protocols to ensure operational reliability and employee safety.

As a result of the continued progress made against the COVID-19 pandemic, beginning the first quarter of 2023, we have established a return-to-office policy under which employees located near Palomar offices have a goal to work onsite a minimum of ten days per month.

We have established a policy under which employees located near Palomar offices have a goal to work onsite a minimum of ten days per month.

We continue to provide team members a reimbursement to help manage incremental costs associated with remote work.

We also regularly check-in with team members to assess their mental health.

Team members receive 24/7 access to behavioral health tools and resources and a company paid subscription to Headspace, a meditation and wellness application.

Effective January 1, 2023, the state of California will implement pay transparency legislation.

To comply with this legislation, we intend to include base pay ranges in all our job listings.

Additionally, we will voluntarily disclose our base pay ranges to all our internal employees for the roles they hold in alignment with our philosophy of pay transparency.

Team members receive 24/7 access to behavioral health tools and resources.

Effective January 1, 2023, the state of California implemented pay transparency legislation.

To comply with this legislation, we include base pay ranges in all our job listings.

Additionally, we voluntarily disclose our base pay ranges to all our internal employees for the roles they hold in alignment with our philosophy of pay transparency.

Talent Development

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We encourage all team members to take advantage of company supported learning opportunities that help broaden industry and functional knowledge to help them excel in their current roles as well as advance their overall career objectives.

In 2022, our team members completed approximately 2,903 hours of training.

We believe in the dynamic allocation of talent, and therefore we encourage interested team members to explore functions outside their current role.

To support this belief, we provide a $3,000 tuition and/or certification reimbursement for ongoing development.

Lastly, we have a methodical approach to talent development, offering organizational advancement and

mentoring services to all team members regardless of position or title.

Lastly, we have a methodical approach to talent development, offering organizational advancement and mentoring services to all team members regardless of position or title.

In 2023, 31% of our workforce was promoted or moved into new positions.

During the third quarter of 2022, our team members completed an engagement survey, and we received a 75% response rate, and a 73% overall engagement rating.

W e are using the responses and learnings from this survey to inform our future talent management strategies.

During the third quarter of 2023, our team members completed an engagement survey, and we received a 80% response rate, and a 77% overall engagement score.

Consistent with historical practice, we use the responses and learnings from this survey to inform our future talent management strategies.

Additionally, the Company was voted one of the top places to work by the San Diego Union-Tribune.

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-K

Item 1. Business