What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-23 compared with 2023-03-01 · 464 added, 171 removed, 983 unchanged (39% of the section changed)

17 unchanged sentences

To the Stockholders and the Board of Directors of Palomar Holdings, Inc.

and Subsidiaries

Opinion on Internal Control Over Financial Reporting

3 unchanged sentences

and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of income and comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and financial statement schedules listed in the Index at Item 15(a) and our report dated March 1, 2023 expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2023 and 2022, the related consolidated statements of income and comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and financial statement schedules listed in the Index at Item 15(a) and our report dated February 23, 2024 expressed an unqualified opinion thereon.

Basis for Opinion

16 unchanged sentences

San Francisco, California

March 1, 2023

February 23, 2024

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Palomar Holdings, Inc.

and Subsidiaries

Opinion on the Financial Statements

3 unchanged sentences

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 1, 2023 expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 23, 2024 expressed an unqualified opinion thereon.

Basis for Opinion

30 unchanged sentences

We compared the Company’s recorded reserves to a range of reasonable reserve estimates developed by our actuarial specialists based on independently selected methods and assumptions.

We also compared the results of the reserve study prepared by a third-party actuarial firm to management’s recorded reserve.

We also compared the results of the reserve study prepared by the Company’s actuarial specialists to management’s recorded reserve.

Additionally, we performed a hindsight analysis of the prior period estimates using subsequent claims development.

2 unchanged sentences

San Francisco, California

March 1, 2023

February 23, 2024

Palomar Holdings, Inc.

2 unchanged sentences

(in thousands, except shares and par value data)

December 31, 2023

December 31, 2022

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

1 unchanged sentence

$ 561,580 in 2022)

$ 643,799 $ 515,064

Equity securities, at fair value (cost:

1 unchanged sentence

$ 42,352 in 2022)

43,160 38,576

Equity method investment

Total investments

689,576 553,640

Cash and cash equivalents

51,546 68,108

Restricted cash

1 unchanged sentence

Premium receivable

Deferred policy acquisition costs

261,972 162,858

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

60,990 56,740

Reinsurance recoverable on paid losses and loss adjustment expenses

32,172 39,718

Reinsurance recoverable on unpaid losses and loss adjustment expenses

244,622 153,895

Ceded unearned premiums

265,808 204,084

Prepaid expenses and other assets

72,941 44,088

Deferred tax assets, net

10,119 10,622

Property and equipment, net

Intangible assets, net

Goodwill and intangible assets, net

$ 1,708,022 $ 1,306,450

Liabilities and stockholders' equity

Accounts payable and other accrued liabilities

$ 42,376 $ 25,760

Reserve for losses and loss adjustment expenses

342,275 231,415

Unearned premiums

597,103 471,314

Ceded premium payable

181,742 146,127

Funds held under reinsurance treaty

Deferred tax liabilities, net

13,419 10,680

Income taxes payable

Borrowings from credit agreements

52,600 36,400

Total liabilities

1,236,770 921,696

Stockholders' equity:

2 unchanged sentences

Additional paid-in capital

Accumulated other comprehensive income (loss)

350,597 333,558

Accumulated other comprehensive loss

( 23,991 ) ( 36,515 )

Retained earnings

144,643 87,708

Total stockholders' equity

471,252 384,754

Total liabilities and stockholders' equity

$ 1,708,022 $ 1,306,450

See accompanying notes.

10 unchanged sentences

Net investment income

Net realized and unrealized (losses) gains on investments

Net realized and unrealized gains (losses) on investments

Commission and other income

1 unchanged sentence

Losses and loss adjustment expenses

Acquisition expenses

Acquisition expenses, net of ceding commissions and fronting fees

Other underwriting expenses

2 unchanged sentences

Income before income taxes

Income tax expense (benefit)

Income tax expense

Other comprehensive income, net:

Net unrealized (losses) gains on securities available for sale

Net unrealized gains (losses) on securities available for sale

Total comprehensive income

10 unchanged sentences

Stockholders'

Income (Loss)

Balance at December 31, 2019

Cumulative effect of adopting ASU 2016-13

Other comprehensive income, net of tax

Balance at January 1, 2021

Other comprehensive loss, net of tax

Stock-based compensation

Issuance of common stock in January 2020 stock offering, net of offering costs

Issuance of common stock in June 2020 stock offering, net of offering costs

Issuance of common stock via employee stock purchase plan

Issuance of common stock via equity incentive plan

Repurchases of common stock

Balance at December 31, 2021

5 unchanged sentences

Balance at December 31, 2022

Other comprehensive loss, net of tax

Other comprehensive income, net of tax

Stock-based compensation

1 unchanged sentence

Issuance of common stock via equity incentive plan

Policyholder contribution to surplus

Repurchases of common stock

33 unchanged sentences

Purchases of equity securities

Purchase of equity method investment

Sales and maturities of fixed maturity securities

Sales of equity securities

Securities receivable or payable, net

Purchase of policy renewal rights

Change in securities receivable or payable, net

Acquisitions, net of cash acquired

Net cash used in investing activities

Financing activities

Proceeds from Line of Credit

Proceeds from January 2020 stock offering, net of offering costs

Proceeds from June 2020 stock offering, net of offering costs

Proceeds from line of credit, net of repayments

Proceeds from common stock issued via employee stock purchase plan

Proceeds from common stock issued via stock option exercises

Policy holder contribution to surplus

Repurchase of common stock

Net cash provided by (used in) financing activities

Net increase in cash, cash equivalents and restricted cash

Net cash (used in) provided by financing activities

Net (decrease) increase 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 within the consolidated balance sheets (in thousands):

December 31, 2023

December 31, 2022

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.

PSIC is a property and casualty insurance company domiciled in the state of Oregon.

The Company’s core focus is on the residential and commercial earthquake markets in earthquake-exposed states such as California, Oregon, Washington, and states with exposure to the New Madrid Seismic Zone.

The Company also offers products tailored to broader geographic regions and perils, including Fronting Products, Inland Marine, Hawaii residential hurricane, Specialty Homeowners, Casualty, and Flood products.

The Company also offers products tailored to broader geographic regions and perils, including Fronting, Inland Marine, Hawaii Hurricane, Casualty, and Flood products.

PSIC is licensed to underwrite insurance on an admitted basis in 42 states in the United States, as of December 31, 2023 , mainly through managing general insurance agencies, wholesale brokers, and independent agents.

6 unchanged sentences

PGIA also earns fee income from policyholder transactions.

PUEO is a Delaware corporation that was formed in 2023 and provides management services to Laulima Exchange ("Laulima"), a Hawaii domiciled reciprocal exchange, as its attorney-in-fact.

Laulima was formed in 2023 and is comprised of an unincorporated association of Hawaii homeowners ("subscribers") that agree to insure one another.

The Company operates as an insurance holding company system and is subject to the insurance holding company laws of the States of Oregon and Arizona, the states in which PSIC and PESIC are domiciled.

2 unchanged sentences

The Company has a single operating segment, the property and casualty insurance business.

While the Company’s chief operating decision-maker reviews the revenue streams attributable to individual products, operations are managed, resources are allocated, and financial performance is evaluated on a consolidated basis.

The Company's chief operating decision maker ("CODM") is the Chief Executive Officer.

While the Company’s CODM reviews the revenue streams attributable to individual products, operations are managed, resources are allocated, and financial performance is evaluated on a consolidated basis.

Basis of Presentation

1 unchanged sentence

generally accepted accounting principles (“GAAP”) and include the accounts of the Company and its wholly-owned subsidiaries.

The 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.

All intercompany balances and transactions have been eliminated in consolidation.

21 unchanged sentences

The Company uses the specific-identification method to determine the cost of fixed maturity securities sold and the first -in, first -out method for lots of equity securities sold.

The Company has one investment in a limited liability company which is accounted for under the equity method of accounting whereby the investment carrying amount is adjusted in subsequent periods to reflect the Company's share of earnings or losses.

Gains or losses from this equity method investment are recognized as a component of realized and unrealized gains or losses on investments in the Company's Statement of Income and Comprehensive Income.

The Company reviews all securities with unrealized losses on a quarterly basis to assess whether the decline in the securities fair value necessitates the recognition of an allowance for credit losses.

2 unchanged sentences

The Company also considers whether it intends to sell the security or if it is more likely than not that it will be required to sell the security before recovery of its amortized cost.

portfolio, potential sales of investments to meet cash flow needs, and potential sales of investments to capitalize on favorable pricing.

When assessing whether it intends to sell a fixed-maturity security or if it is likely to be required to sell a fixed-maturity security before recovery of its amortized cost, the Company evaluates facts and circumstances including, but not limited to, decisions to reposition the investment portfolio, potential sales of investments to meet cash flow needs, and potential sales of investments to capitalize on favorable pricing.

For fixed-maturity securities where a decline in fair value is below the amortized cost basis and the Company intends to sell the security, or it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost, a credit-loss charge is recognized in net income based on the fair value of the security at the time of assessment.

22 unchanged sentences

The fair value of the Company’s investments in equity securities is based on quoted prices available in active markets and classified and disclosed in Level 1 of the hierarchy.

Variable Interest Entities ("VIE")

A VIE is a legal entity that does not have sufficient equity at risk to finance its activities without additional financial support or is structured such that equity investors lack the ability to make significant decisions relating to the entity’s operations through voting rights or do not participate in the gains and losses of the entity.

The Company consolidates VIEs in which the Company is deemed the primary beneficiary.

The primary beneficiary is the entity that has both ( 1 ) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE and ( 2 ) the power to direct the activities of the VIE that most significantly affect that entity’s economic performance.

Concentration of Credit Risk

8 unchanged sentences

Premiums receivable are short-term in nature and due within a year.

The Company has established an allowance for uncollectable premiums related to its credit risk, which it reviews on a quarterly basis and adjusts as appropriate.

The company considers the current economic environment, specific regulatory developments, and historic payment and cancelation trends by line of business and location when determining whether to record an allowance for uncollectable premiums.

The Company recorded an allowance for uncollectable premiums of $ 0.1 million and $ 0.3 million as of December 31, 2022 and December 31, 2021, respectively, and believes that all other amounts are collectable.

The Company has established an allowance for uncollectible premiums related to its credit risk, which it reviews on a quarterly basis and adjusts as appropriate.

The Company recorded an immaterial allowance for uncollectible premiums as of December 31, 2023 and $ 0.1 million as of December 31, 2022 , respectively, and believes that all other amounts are collectable.

Earned Premiums

16 unchanged sentences

Leasehold improvements and other fixed assets are capitalized and depreciated over the useful lives of the properties and equipment.

for maintenance and repairs are charged to operations as incurred.

Expenditure for maintenance and repairs are charged to operations as incurred.

Upon disposition, the asset cost and related depreciation are removed from the accounts and the resulting gain or loss is included in the Company’s results of operations.

3 unchanged sentences

The implementation costs relate to systems built on software which the Company purchases under a cloud computing arrangement and accounts for as a service contract.

As such, capitalized costs are amortized over the term of the service contract, which currently ends in December 2028.

Intangible Assets

As such, capitalized costs are amortized over the term of the service contract.

Intangible Assets and Goodwill

Intangible assets consist of both finite and indefinite lived assets.

Finite lived intangible assets consist of customer relationships acquired from another insurer during 2020 which the Company is amortizing over a period of 8 years.

Indefinite lived intangible assets consist of state licenses acquired upon formation of the Company.

Intangible assets are initially recognized and measured at fair value and are subsequently evaluated for impairment annually or more frequently if circumstances warrant.

No impairments of intangible assets were recognized for the years ended December 31, 2022, 2021 or 2020.

Indefinite lived intangible assets consist primarily of state licenses acquired upon formation of the Company.

Goodwill was recognized as a result of a business acquisition during 2023.

Intangible assets and goodwill are initially recognized and measured at fair value and are subsequently evaluated for impairment annually or more frequently if circumstances warrant.

No impairments of intangible assets or goodwill were recognized for the years ended December 31, 2023 , 2022 or 2021 .

Impairment of Long-Lived Assets

14 unchanged sentences

Reserves for IBNR are established in accordance with industry practice to provide for (i) the estimated amount of future loss payments on incurred claims not yet reported, and (ii) potential development on reported claims.

reserves are estimated based on generally accepted actuarial reserving techniques that consider quantitative loss experience data and, where appropriate, qualitative factors.

IBNR reserves are estimated based on generally accepted actuarial reserving techniques that consider quantitative loss experience data and, where appropriate, qualitative factors.

Ultimate losses and loss adjustment expenses may vary materially from the amounts provided in the consolidated financial statements.

2 unchanged sentences

The Company does not discount its liability for unpaid losses and loss adjustment expenses.

The Company does not write insurance policies covering toxic clean-up, asbestos-related illness or other environmental remediation exposures.

The Company purchases excess of loss and quota share reinsurance to protect it against the impact of losses.

7 unchanged sentences

The Company is exposed to credit losses from reinsurers being unable to meet their obligations.

The Company evaluates the financial condition of potential reinsurers and reinsures its business only with highly rated reinsurers with a rating of “A-“ (Excellent) (Outlook Stable) or better from A.M.

The Company evaluates the financial condition of potential reinsurers and reinsures its business with highly rated reinsurers with a rating of “A-“ (Excellent) (Outlook Stable) or better from A.M.

Reinsurers who do not meet the Company’s rating criteria are required to post collateral.

2 unchanged sentences

Best, or whose surplus drops by more than 20%.

Historically, the Company has not experienced any credit losses from reinsurance recoverables and did not have an allowance for uncollectable reinsurance recoverables as of December 31, 2022 or December 31, 2021.

Historically, the Company has not experienced any credit losses from reinsurance recoverables and did not have an allowance for uncollectible reinsurance recoverables as of December 31, 2023 or December 31, 2022 .

Stock Based Compensation Expense

8 unchanged sentences

Deferred income tax assets and liabilities are determined based on the difference between the financial statement and the tax bases of assets and liabilities, using enacted tax rates expected to be in effect during the year in which the basis differences reverse.

effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.

The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.

Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

10 unchanged sentences

Recently issued accounting pronouncements not yet adopted

To date, there have been no recent accounting pronouncements not yet effective that have significance, or potential significance, to the Company’s consolidated financial statements.

Segment Reporting

In November 2023, the FASB issued ASU No.

2023 - 07, Segment Reporting (Topic 280 ):

Improvements to Reportable Segment Disclosures, which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses, allowing financial statement users to better understand the components of a segment's profit or loss to assess potential future cash flows for each reportable segment and the entity as a whole.

The amendments expand a public entity's segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker ("CODM"), clarifying when an entity may report one or more additional measures to assess segment performance, requiring enhanced interim disclosures, providing new disclosure requirements for entities with a single reportable segment, and requiring other new disclosures.

ASU 2023 - 07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.

In December 2023, the FASB issued ASU No.

2023 - 09, Income Taxes (Topic 740 ):

Improvements to Income Tax Disclosures.

ASU 2023 - 09 requires public business entities to disclose additional information with respect to the reconciliation of the effective tax rate to the statutory rate.

Additionally, public business entities will need to disaggregate federal, state and foreign taxes paid in their financial statements.

ASU 2023 - 09 is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2024.

The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.

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

December 31, 2023

Amortized Cost or Cost

Gross Unrealized Gains

Gross Unrealized Losses

Allowance for Credit Losses

(in thousands)

Fixed maturities:

States, territories, and possessions

Political subdivisions

$ 40,836 $ — $ ( 1,416 ) $ — $ 39,420

States, Territories, and Political Subdivisions

10,641 100 ( 839 ) — 9,902

Special revenue excluding mortgage/asset-backed securities

Industrial and miscellaneous

32,513 147 ( 3,149 ) — 29,511

Corporate and other

316,590 1,750 ( 17,197 ) ( 904 ) 300,239

Mortgage/asset-backed securities

274,550 1,879 ( 11,702 ) — 264,727

Total available-for-sale investments

$ 675,130 $ 3,876 $ ( 34,303 ) $ ( 904 ) $ 643,799

December 31, 2022

Amortized Cost or Cost

Gross Unrealized Gains

Gross Unrealized Losses

Allowance for Credit Losses

(in thousands)

Fixed maturities:

States, territories, and possessions

Political subdivisions

$ 50,802 $ 2 $ ( 2,253 ) $ — $ 48,551

States, Territories, and Political Subdivisions

10,776 49 ( 1,173 ) — 9,652

Special revenue excluding mortgage/asset-backed securities

Industrial and miscellaneous

37,260 26 ( 4,487 ) — 32,799

Corporate and other

278,164 79 ( 23,912 ) ( 236 ) 254,095

Mortgage/asset-backed securities

184,578 251 ( 14,862 ) — 169,967

Total available-for-sale investments

$ 561,580 $ 407 $ ( 46,687 ) $ ( 236 ) $ 515,064

Security holdings in an unrealized loss position

As of December 31, 2023 , the Company held 483 fixed maturity securities in an unrealized loss position with a total estimated fair value of $ 451.0 million and total gross unrealized losses of $ 34.3 million.

None of the fixed maturity securities with unrealized losses has ever missed, or been delinquent on, a scheduled principal or interest payment.

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.

None of the fixed maturity securities with unrealized losses has ever missed, or been delinquent on, a scheduled principal or interest payment.

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 December 31, 2023 and 2022 , are as follows:

4 unchanged sentences

Fixed maturity securities:

States, territories, and possessions

Political subdivisions

$ 738 $ ( 1 ) $ 38,063 $ ( 1,415 ) $ 38,801 $ ( 1,416 )

States, Territories, and Political Subdivisions

— — 6,196 ( 839 ) 6,196 ( 839 )

Special revenue excluding mortgage/asset-backed securities

Industrial and miscellaneous

— — 26,736 ( 3,149 ) 26,736 ( 3,149 )

Corporate and other

28,872 ( 480 ) 204,034 ( 16,717 ) 232,906 ( 17,197 )

Mortgage/asset-backed securities

29,334 ( 245 ) 117,016 ( 11,457 ) 146,350 ( 11,702 )

$ 58,944 $ ( 726 ) $ 392,045 $ ( 33,577 ) $ 450,989 $ ( 34,303 )

Less Than 12 Months

3 unchanged sentences

Fixed maturity securities:

States, territories, and possessions

Political subdivisions

$ 41,077 $ ( 1,523 ) $ 6,853 $ ( 730 ) $ 47,930 $ ( 2,253 )

States, Territories, and Political Subdivisions

7,525 ( 1,173 ) — — 7,525 ( 1,173 )

Special revenue excluding mortgage/asset-backed securities

Industrial and miscellaneous

25,091 ( 3,287 ) 5,080 ( 1,200 ) 30,171 ( 4,487 )

Corporate and other

192,185 ( 15,667 ) 55,605 ( 8,481 ) 247,790 ( 24,148 )

Mortgage/asset-backed securities

118,815 ( 9,908 ) 32,448 ( 4,954 ) 151,263 ( 14,862 )

$ 384,693 $ ( 31,558 ) $ 99,986 $ ( 15,365 ) $ 484,679 $ ( 46,923 )

The Company reviewed the above securities at each balance sheet date to consider whether it was necessary to recognize a credit loss related to any of these securities.

An immaterial allowance for credit losses was recorded pertaining to one investment security as of December 31, 2022 and 2021.

An allowance for credit losses of $ 0.9 million and $ 0.2 million was recorded pertaining to one investment security as of December 31, 2023 and 2022 , respectively.

For the remaining 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.

4 unchanged sentences

Due within one year

$ 46,366 $ 45,221

Due after one year through five years

188,698 180,645

Due after five years through ten years

127,925 118,748

Due after ten years

37,591 34,458

Mortgage and asset-backed securities

274,550 264,727

$ 675,130 $ 643,799

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

5 unchanged sentences

Fixed maturities

$ 15,185 $ ( 53,076 ) $ ( 10,148 )

Net increase (decrease)

$ 15,185 $ ( 53,076 ) $ ( 10,148 )

Net investment income summary

3 unchanged sentences

Interest income

$ 23,349 $ 13,631 $ 9,119

Dividend income

Investment management fees and expenses

Investment expense

( 515 ) ( 493 ) ( 500 )

Net investment income

$ 23,705 $ 13,877 $ 9,080

Net realized and unrealized investment gains and losses

3 unchanged sentences

Gains on sales of fixed maturity securities

$ 89 $ 14 $ 466

Gains on sales of equity securities

2 unchanged sentences

Losses on sales of fixed maturity securities

( 32 ) ( 2,340 ) ( 1 )

Losses on sales of equity securities

Total realized losses

( 32 ) ( 2,340 ) ( 1 )

Net realized investment gains (losses)

57 ( 2,326 ) 1,881

Change in allowance for credit losses

Net unrealized gains (losses) on equity securities

3,933 ( 5,203 ) ( 604 )

Net unrealized losses on equity method investment

Net realized and unrealized gains (losses) on investments

$ 2,941 $ ( 7,529 ) $ 1,277

Proceeds from the sale of fixed maturity securities were $ 10.1 million, $ 19.7 million and $ 17.4 million for the years ended December 31, 2023 , 2022 and 2021 , respectively.

7 unchanged sentences

Fixed maturity securities

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

4 unchanged sentences

Fixed maturity securities

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

3 unchanged sentences

The carrying amount of the Company’s borrowings under the Federal Home Loan Bank (“FHLB”) line of credit approximates fair value as the Company is currently borrowing at the overnight rate, which is adjusted daily.

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

As of December 31, 2021, the Company had $ 1.5 million of fixed income securities classified as Level 3 due to the lack of availability of observable market inputs for recently purchased securities.

Policy Acquisition Costs

14 unchanged sentences

Total Acquisition expenses

Intangible Assets

Intangible Assets and Goodwill

Intangible assets consist of the following:

4 unchanged sentences

Customer relationships

11,803 10,023

Accumulated amortization on finite-lived intangibles

( 3,987 ) ( 2,506 )

Total intangible assets

$ 12,315 $ 8,261

State insurance licenses consist of licenses acquired at the inception of PSIC.

1 unchanged sentence

The Company began amortizing this intangible asset on a straight line basis in 2021 and is amortizing it over a period of 8 years.

Amortization expense for the years ended December 31, 2022 and 2021 was $ 1.3 million during each year.

Amortization expense was $ 1.5 million for the years ended December 31, 2023 and $ 1.3 million for the year ended December 31, 2022 .

Capitalized Assets

4 unchanged sentences

Capitalized Software

$ 25,356 $ ( 9,079 ) $ 16,277

December 31, 2022

1 unchanged sentence

Capitalized Software

$ 18,622 $ ( 6,303 ) $ 12,319

Amortization expense relating to capitalized software for the years ended December 31, 2023 , 2022 and 2021 was $ 2.8 million, $ 2.6 million, and $ 2.1 million, respectively.

3 unchanged sentences

Leasehold improvements

$ 879 $ ( 811 ) $ 68

Computer hardware

418 ( 272 ) 146

Office equipment and furniture

724 ( 565 ) 159

$ 2,021 $ ( 1,648 ) $ 373

December 31, 2022

1 unchanged sentence

Leasehold improvements

$ 879 $ ( 694 ) $ 185

Computer hardware

402 ( 205 ) 197

Office equipment and furniture

724 ( 503 ) 221

$ 2,005 $ ( 1,402 ) $ 603

Depreciation expense for the years ended December 31, 2023 , 2022 and 2021 was $ 0.2 million, $ 0.2 million, and $ 0.2 million respectively.

18 unchanged sentences

Operating lease liabilities

Weighted-average remaining lease term on operating leases

Weighted-average remaining lease term on operating leases (years)

Weighted-average discount rate on operating leases

27 unchanged sentences

(in thousands)

Reserve for losses and loss adjustment expenses net of reinsurance recoverables at beginning of period

Reserve for losses and loss adjustment expense, net of reinsurance recoverables at beginning of period

$ 77,520 $ 45,419 $ 34,470

Incurred losses and loss adjustment expenses, net of reinsurance, related to:

70,363 76,289 45,042

2,229 2,383 ( 3,585 )

Total incurred

72,592 78,672 41,457

Loss and loss adjustment expense payments, net of reinsurance, related to:

19,631 21,802 12,063

32,828 24,769 18,445

Total payments

52,459 46,571 30,508

Reserve for losses and loss adjustment expense net of reinsurance recoverables at end of period

97,653 77,520 45,419

Reinsurance recoverables on unpaid losses and loss adjustment expenses at end of period

244,622 153,895 127,947

Reserve for losses and loss adjustment expenses gross of reinsurance recoverables on unpaid losses and loss adjustment expenses at end of period

The foregoing reconciliation shows a loss and loss adjustment expense deficiency of $ 2.4 million developed in 2022 and loss and loss adjustment expense reserve redundancies of $ 3.6 million and $ 0.1 million developed in 2021 and 2020, respectively.

$ 342,275 $ 231,415 $ 173,366

The foregoing reconciliation shows a loss and loss adjustment expense deficiency of $ 2.2 million and $ 2.4 million developed in 2023 and 2022 respectively, and a loss and loss adjustment expense reserve redundancy of $ 3.6 million developed in 2021 .

During 2023 , the net unfavorable reserve development was primarily due to the effect of ceding gross favorable development under our catastrophe XOL reinsurance program and due to unfavorable development on lines of business subject to lower amounts of ceding.

During 2022, the net unfavorable reserve development was primarily attributable to prior year catastrophe events including certain 2020 Hurricanes, offset by favorable development related to 2021 attritional and catastrophe losses.

During 2021, this net favorable reserve development was primarily due to the effect of ceding gross unfavorable development under our reinsurance program and lower than anticipated severity of catastrophe losses associated with certain hurricanes that occurred during the second half of 2020.

During 2020, this favorable reserve development related to lower than anticipated frequency and severity of claims in our homeowners and special property lines of business offset by higher than anticipated frequency and severity of claims in our assumed reinsurance line.

During 2021, the net favorable reserve development was primarily due to the effect of ceding gross unfavorable development under our reinsurance program and lower than anticipated severity of catastrophe losses associated with certain hurricanes that occurred during the second half of 2020.

The Company compiles and aggregates its claims data by grouping the claims according to the year in which the claim occurred (“Accident Year”) when analyzing claim payment and emergence patterns and trends over time.

For the purpose of defining claims frequency, the number of reported claims is by loss occurrence and includes claims that do not result in a liability or payment associated with them.

The Company analyzed the usefulness of disaggregation of its results and determined the characteristics associated with the policies and the related unpaid loss reserves, incurred losses, and payment patterns are similar in nature.

The Company separates its special property and other claim experience from its homeowner claim experience when analyzing losses and allocated loss adjustment expenses incurred and paid development and claim count triangles, as there are distinct differences in the development and claim count emergence patterns as well as methods of IBNR projection.

The Special Property classification includes fire, allied lines, inland marine, and earthquake claims.

As such, the following tables show the Company’s historical homeowner and special property incurred and cumulative paid losses and LAE development, net of reinsurance, as well as IBNR loss reserves and the number of reported claims on an aggregate basis as of December 31, 2022 and for previous accident years.

The following tables show information about the Company’s incurred and paid loss development as of December 31, 2023, net of reinsurance, as well as cumulative claim frequency, the total of IBNR liabilities included within the net incurred loss amounts and the average historical claims duration as of December 31, 2023.

The loss information has been disaggregated so that losses that are expected to develop in a similar manner are grouped together.

The information provided herein about incurred and paid accident year claims development for the years ended December 31, 2023 and prior is presented as unaudited supplementary information.

Incurred Losses and Allocated Loss Adjustment Expenses,

Net of Reinsurance Homeowners’ Insurance (in thousands)

Net of Reinsurance Property Insurance (in thousands) ( 1 )

As of December 31, 2023

Year Ended December 31,

Incurred but Not Reported

Cumulative Number of

Accident Year

$ 2,678 $ 2,504 $ 2,329 $ 2,307 $ 2,320 $ 2,313 $ 2,316 $ 2,304 $ 2,324 $ - $ 566

7,450 7,127 6,972 7,090 7,075 7,062 7,125 5,730 - $ 1,376

12,425 10,893 10,644 10,652 10,561 10,668 12,339 - 3,607

8,163 8,103 7,939 7,950 7,941 8,010 7 1,176

4,575 4,223 3,947 4,293 4,350 3 1,666

61,434 57,248 59,565 56,008 213 4,983

29,836 25,158 25,733 868 5,191

42,887 44,943 6,109 4,062

40,921 17,407 4,130

$ 200,358 $ 24,607 $ 26,757

Cumulative Paid Losses and Allocated Loss Adjustment Expenses,

Net of Reinsurance Homeowners’ Insurance (in thousands)

Net of Reinsurance Property Insurance (in thousands) ( 1 )

Year Ended December 31,

Accident Year

2020 2021 2022 2023

$ 1,125 $ 1,817 $ 2,109 $ 2,241 $ 2,300 $ 2,309 $ 2,316 $ 2,304 $ 2,324

4,823 6,420 6,801 7,051 7,072 7,062 7,125 5,729

9,102 10,719 10,639 10,640 10,560 10,636 12,339

4,409 7,889 7,931 7,943 7,943 7,999

2,179 3,510 3,757 4,170 4,345

31,862 49,222 55,504 55,619

11,355 22,500 24,408

12,647 30,042

Reserve for losses and loss adjustment expense, net of reinsurance

1 unchanged sentence

Average Annual Percentage Payout of Incurred Claims by Age,

Net of Reinsurance Homeowners’ Insurance (unaudited)

Net of Reinsurance Property Insurance (unaudited)

Payout percentage

52.82 % 32.23 % 6.20 % 3.32 % 1.25 % 0.38 % 5.07 % ( 12.44 )% 0.88 %

( 2 ) Negative payout percentages are due to timing of reinsurance payments, allocations of reinsurance between different lines of business based on actual results, and allocation of reinsurance to different periods for reinsurance treaties in effect for multiple periods.

1 unchanged sentence

Incurred Losses and Allocated Loss Adjustment Expenses,

Net of Reinsurance Special Property Insurance (in thousands)

Net of Reinsurance Other Liability Occurrence (in thousands) ( 1 )

As of December 31, 2023

Year Ended December 31,

Incurred but Not Reported Cumulative Number of

Accident Year

Liabilities Claims

$ 109 $ 35 $ 46 $ — 6

2,138 1,641 2,172 797 19

7,160 8,755 4,132 52

5,005 4,055 28

$ 15,978 $ 8,984 105

Cumulative Paid Losses and Allocated Loss Adjustment Expenses,

Net of Reinsurance Special Property Insurance (in thousands)

Net of Reinsurance Other Liability Occurrence (in thousands) ( 1 )

Accident Year

$ 109 $ 35 $ 46

Reserve for losses and loss adjustment expense, net of reinsurance

1 unchanged sentence

Average Annual Percentage Payout of Incurred Claims by Age,

Net of Reinsurance Special Property Insurance (unaudited)

Net of Reinsurance Other Liability Occurrence (unaudited)

Payout percentage

5.61 % 6.43 % 14.09 %

Incurred Losses and Allocated Loss Adjustment Expenses,

Net of Reinsurance Other Liability Claims Made (in thousands) ( 1 )

As of December 31, 2023

Incurred but Not Reported Cumulative Number of

Accident Year

2020 2021 2022 2023 Liabilities

$ 48 $ 26 $ 7 $ — $ — 7

3,429 3,299 2,928 2,073 106

8,871 8,873 6,033 424

12,580 9,226 922

$ 24,381 $ 17,332 1,459

Cumulative Paid Losses and Allocated Loss Adjustment Expenses,

Net of Reinsurance Other Liability Occurrence (in thousands) ( 1 )

Accident Year

2020 2021 2022 2023

$ — $ — $ — $ —

Reserve for losses and loss adjustment expense, net of reinsurance

Data presented for these calendar years is required supplementary information, which is unaudited.

Average Annual Percentage Payout of Incurred Claims by Age,

Net of Reinsurance Other Liability Claims Made (unaudited)

Payout percentage

4.63 % 5.95 % 7.78 %

The reconciliation of the net incurred and paid claims development tables to the liability for claims and claim adjustment expenses in the consolidated balance sheets is as follows:

(in thousands)

Net outstanding liabilities:

Homeowners’ insurance

Special property

Reserve for losses and loss adjustment expense, net of reinsurance recoverables:

Other liability occurrence

Other liability claims made

Reinsurance - Nonproportional assumed property (1)

Reserve for losses and loss adjustment expense, net of reinsurance

Total reserve for losses and loss adjustment expense, net of reinsurance recoverables

Reinsurance recoverable on unpaid claims:

Homeowners’ insurance

Special property

Other liability occurrence

Other liability claims made

Total reinsurance recoverable on unpaid claims

9 unchanged sentences

In an XOL treaty, the Company retains losses for any occurrence up to a specified amount (its “retention”) and reinsurers assume any losses above that amount.

Historically, the Company has had a retention of between $ 5 million and $ 15 million for hurricane and earthquake events.

As of December 31, 2023 , the Company’s catastrophe event retention is $ 17.5 million for all perils.

As of December 31, 2022, the Company’s XOL reinsurance structure provides protection up to $ 2.11 billion for earthquake events, $ 1.01 billion for Hawaii hurricane events, and $ 250 million for continental U.S.

As of December 31, 2023 , the Company’s reinsurance structure provides protection up to $ 2.71 billion for earthquake events, $ 900 million for Hawaii hurricane events, and $ 100 million for continental U.S.

hurricane events.

2 unchanged sentences

The following table shows ceded written premiums under fronting and quota share arrangements by line of business for the years ended December 31, 2023 , 2022 and 2021 :

The following table shows ceded written premiums under fronting and quota share arrangements by line of business for the years ended December 31, 2022, 2021 and 2020:

Year Ended December 31,

(in thousands)

$ 351,485 $ 237,285 $ 11,001

Inland Marine

Specialty Homeowners

88,213 63,627 28,389

36,677 23,398 5,138

Commercial Earthquake

29,708 20,467 14,447

Commercial All Risk

7,229 6,260 3,948

Specialty Homeowners

( 41 ) 4,946 27,394

13,009 9,210 5,684

$ 526,280 $ 365,193 $ 96,001

The Company recognizes ceded unearned premiums related to quota share agreements as an asset on its consolidated balance sheets.

1 unchanged sentence

The increase was driven primarily by premium growth in lines subject to fronting agreements or quota shares.

As part of its reinsurance program, in May 2017, the Company obtained catastrophe protection through a reinsurance agreement with Torrey Pines Re Ltd.

In connection with the reinsurance agreement, TPRe issued notes to unrelated investors in an amount equal to the full $ 166 million of coverage provided under the reinsurance agreement covering a three-year period, ending May 31, 2020.

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

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, we closed a $ 400 million 144A catastrophe bond that became effective June 1, 2021.

The catastrophe bond was completed through Torrey Pines Re Pte.

(“Torrey Pines Re”).

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

(“Torrey Pines Re Pte.”).

Torrey Pines Re Pte.

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, 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.

Written premiums ceded under these catastrophe bond agreements were $ 42.7 million, $ 28.3 million and $ 11.7 million for the years ended December 31, 2023 , 2022 and 2021 , respectively.

2 unchanged sentences

Premiums Written and Earned:

$ 1,083,804 $ 959,614 $ 816,387 $ 628,973 $ 467,424 $ 384,463

57,754 56,107 65,481 66,299 67,751 49,535

( 731,531 ) ( 669,808 ) ( 524,575 ) ( 378,806 ) ( 223,443 ) ( 200,172 )

$ 410,027 $ 345,913 $ 357,293 $ 316,466 $ 311,732 $ 233,826

(in thousands)

Losses and LAE Incurred:

$ 228,441 $ 60,834 $ 289,275

19,799 1,789 21,588

( 186,706 ) ( 51,565 ) ( 238,271 )

$ 61,534 $ 11,058 $ 72,592

(in thousands)

Losses and LAE Incurred:

$ 133,517 $ 38,004 $ 171,521

23,574 5,998 29,572

( 91,261 ) ( 31,159 ) ( 122,421 )

$ 65,829 $ 12,843 $ 78,672

(in thousands)

Losses and LAE Incurred:

$ 168,292 $ 13,295 $ 181,587

17,184 1,926 19,110

( 148,106 ) ( 11,134 ) ( 159,240 )

$ 37,370 $ 4,087 $ 41,457

The ceding of insurance does not legally discharge the Company from its primary liability for the full amount of the policy coverage, and therefore the Company will be required to pay the loss and bear collection risk if the reinsurer fails to meet its obligations under the reinsurance agreement.

To minimize exposure to significant losses from reinsurance insolvencies, the Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk.

To reduce credit exposure to reinsurance recoverable balances, the Company obtains letters of credit from certain reinsurers that are not authorized as reinsurers under U.S.

To reduce credit exposure to reinsurance recoverable balances, the Company obtains acceptable forms of collateral from certain reinsurers that are not authorized as reinsurers under U.S.

state insurance regulations.

8 unchanged sentences

At December 31, 2022 reinsurance recoverable on unpaid losses by the Company’s three largest reinsurers were $ 60.6 million, $ 53.9 million and $ 50.6 million representing 31.5 % of the total balance.

All of the Company’s reinsurers are required to have an A.M.

best rating of A− (excellent) or better or post collateral.

The Company seeks reinsurers that have an A.M.

best rating of A− (excellent) or better or requires them to post collateral.

Credit Agreements

7 unchanged sentences

The Company’s obligations under the Credit Agreement are unsecured with a negative pledge against all assets of Palomar and its subsidiaries as described in the Credit Agreement.

The Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants, including, among other things,

financial covenants, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of other indebtedness and dividends and other distributions.

The Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants, including, among other things, financial covenants, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of other indebtedness and dividends and other distributions.

The financial covenants in the Credit agreement require the Company not to exceed a maximum leverage ratio and maintain a minimum net worth at the end of each quarter.

4 unchanged sentences

As of December 31, 2023 and 2022 , there were no outstanding borrowings under this Credit Agreement.

For the year ended December 31, 2022, the Company incurred $ 0.4 million of interest related to amortization of the commitment fee and unused line fee paid on the Credit Agreement.

For the years ended December 31, 2023 and 2022 , the Company incurred $ 1.0 million and $ 0.4 million, respectively, of interest related to borrowings and amortization of fees associated with the credit agreement.

FHLB Line of Credit

5 unchanged sentences

Interest expense on the FHLB Line of Credit was $ 2.8 million for the year ended December 31, 2023 .

There were no borrowings outstanding at December 31, 2021.

As of December 31, 2022 , the Company had $ 36.4 million of borrowings outstanding through the FHLB line of credit.

Interest expense on the FHLB Line of Credit was $ 0.5 million for the year ended December 31, 2022 .

Stockholders ’ Equity

8 unchanged sentences

Shares authorized for future issuance under 2019 Employee Stock Purchase Plan

The Company does not maintain a treasury stock account and issues new shares to settle employee stock purchases, exercises of stock options, and vestings of other types of equity awards.

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

2 unchanged sentences

Stock-Based Compensation Expense

$ 14,913 $ 11,624 $ 5,584

Stock-based compensation expense is recognized on a straight-line basis over the vesting period of awards.

13 unchanged sentences

The following table summarizes stock option transactions for the year ended December 31, 2023 :

Weighted average

Weighted-average

contractual term

intrinsic value

exercise price

Weighted-average exercise Weighted average remaining contractual term Aggregate intrinsic value

(in thousands)

Outstanding at January 1, 2023

882,892 $ 33.85 — $ —

Options granted

Options exercised

( 61,258 ) 20.21

Options canceled

( 13,949 ) 67.08

Outstanding at December 31, 2023

807,685 $ 34.31 5.83 $ 21,635

Vested and Exercisable at December 31, 2023

747,105 $ 32.11 5.69 $ 21,414

The total intrinsic value of stock options exercised during the years ended December 31, 2023 and December 31, 2022 was $ 3.5 million and $ 7.1 million, respectively.

No options were exercised prior to 2020.

As of December 31, 2023 , the Company had approximately $ 1.3 million of total unrecognized stock-based compensation expense related to stock options expected to be recognized over a weighted-average period of 1.0 years.

4 unchanged sentences

— % 1.69 % - 4.23 % 0.57 % - 1.35 %

0.57 % - 1.35 %

0.32 % - 1.52 %

Expected share price volatility (3)

0.00 % 39.73 % - 43.03 % 26.06 % - 39.41 %

26.06 % - 39.41 %

18.13 % - 25.67 %

Expected life in years (4)

Dividend yield (5)

( 1 ) There were no stock options granted during the year ended December 31, 2023.

Determined based on the U.S.

8 unchanged sentences

The following table summarizes RSU transactions for the year ended December 31, 2023 :

Weighted-average

Number of shares Weighted-average grant date fair value

Non vested outstanding at January 1, 2023

271,951 $ 68.90

170,140 51.55

( 86,083 ) 69.43

( 22,292 ) 52.56

Non vested outstanding at December 31, 2023

333,716 $ 61.01

As of December 31, 2023 , the Company had approximately $ 15.3 million of total unrecognized stock-based compensation expense related to RSUs expected to be recognized over a weighted-average period of 2.0 years.

1 unchanged sentence

The Company issues PSUs to employees with a combination of service, performance, and market conditions.

The majority of PSUs were issued pursuant to the 2021 Executive Stock Grants, as described below.

For other PSU grants, 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.

The PSU’s performance period is the fiscal year of the grant.

At the end of the performance period, the actual results will be measured against the predetermined targets to determine the number of PSUs to be earned as compensation.

The majority of PSUs were issued via grants made to certain executives during 2021.

These PSUs are earned based on the achievement of stock price milestones.

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 December 31, 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.

For PSU grants issued in years prior to 2023, the PSU’s performance period was the fiscal year of the grant.

For PSU grants issued in 2023, the PSU’s performance period is primarily a three -year period beginning with the grant date.

At the end of the performance period, the actual results are measured against the predetermined targets to determine the number of PSUs to be earned as compensation.

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 year ended December 31, 2023 :

Weighted-average

Number of shares Weighted-average grant date fair value

Non vested outstanding at January 1, 2023

383,103 $ 37.62

( 5,511 ) 54.33

Non vested outstanding at December 31, 2023

423,621 $ 38.90

The PSU grants above represent the number of shares that would vest based on achievement of all stock price milestones in the executive stock grants and the 100 % achievement of the predetermined company performance conditions for the other PSU grants.

6 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.

The Company’s CEO must remain as an employee through December 31, 2025, or as an

employee and/or director through the fifth anniversary of the grant date the PSUs to vest.

The Company’s CEO must remain as an employee through December 31, 2025, or as an employee and/or director through the fifth anniversary of the grant date the PSUs to vest.

Other executives must remain as employees through December 31, 2026 for the PSUs to vest.

14 unchanged sentences

Share repurchases

During the year ended December 31, 2021, the Company’s Board of Directors authorized a $ 40 million share repurchase program and the Company repurchased $ 15.9 million of shares under this program in 2021.

On January 24, 2022, the Board of Directors approved a new share repurchase program, replacing the existing program and authorizing the repurchase by the Company of up to $ 100 million of its outstanding shares of common stock over the period ending on March 31, 2024.

The Company purchased 621,415 shares for $ 34.4 million under this program during the year ended December 31, 2022.

In January 2022, the Company's 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 $ 22.3 million at an average price of $ 54.4 under this program during the year ended December 31, 2023 .

Approximately $ 43.5 million remains available for future repurchases.

The Company accounts for share repurchases by charging the excess of repurchase price over the common stock’s par value entirely to retained earnings.

18 unchanged sentences

($ in thousands)

$ 364,250 31.9 % $ 223,249 25.3 % $ 11,459 2.2 %

Residential Earthquake

253,530 22.2 % 213,803 24.2 % 171,048 32.0 %

Commercial Earthquake

183,368 16.1 % 131,677 14.9 % 90,552 16.9 %

Inland Marine

Commercial All Risk

140,067 12.3 % 105,068 11.9 % 57,124 10.7 %

76,864 6.7 % 35,791 4.1 % 9,584 1.9 %

Hawaii Hurricane

Specialty Homeowners

38,188 3.3 % 32,967 3.7 % 30,298 5.6 %

Commercial All Risk

35,515 3.1 % 51,671 5.9 % 38,640 7.2 %

Residential Flood

20,087 1.8 % 14,539 1.7 % 11,652 2.2 %

Specialty Homeowners

( 101 ) ( 0.0 )% 29,959 3.4 % 67,894 12.7 %

29,790 2.6 % 43,144 4.9 % 46,924 8.6 %

Total Gross Written Premiums

NM-Not Meaningful

$ 1,141,558 100.0 % $ 881,868 100.0 % $ 535,175 100.0 %

Gross written premiums by state are as follows:

1 unchanged sentence

($ in thousands)

North Carolina

$ 600,791 52.6 % $ 418,809 47.5 % $ 244,416 45.7 %

95,517 8.4 % 90,459 10.3 % 62,893 11.8 %

49,494 4.3 % 41,827 4.7 % 23,608 4.4 %

47,388 4.2 % 40,157 4.5 % 34,993 6.5 %

47,595 4.2 % 38,715 4.4 % 27,386 5.1 %

23,220 2.0 % 24,108 2.7 % 13,677 2.6 %

22,340 2.0 % 17,368 2.0 % 12,133 2.3 %

18,424 1.6 % 12,510 1.5 % 3,077 0.6 %

236,789 20.7 % 197,915 22.4 % 112,992 21.1 %

Total Gross Written Premiums

$ 1,141,558 100.0 % $ 881,868 100.0 % $ 535,175 100.0 %

Gross written premiums by insurance subsidiary are as follows:

1 unchanged sentence

($ in thousands)

$ 653,809 57.3 % $ 489,720 55.5 % $ 383,064 71.6 %

487,749 42.7 % 392,148 44.5 % 152,111 28.4 %

Total Gross Written Premiums

The Company distributes a significant portion of its Fronting, Residential Earthquake, Commercial Earthquake, and Hawaii Hurricane products through two program administrators.

$ 1,141,558 100.0 % $ 881,868 100.0 % $ 535,175 100.0 %

The Company distributes a significant portion of its Fronting, Residential Earthquake, Commercial Earthquake, and Hawaii Hurricane products through select program administrators.

Each of the products managed by the program administrators operates as a separate program that is governed by an independent, separately negotiated agreement with unique terms and conditions, including geographic scope, key men provisions, economics and exclusivity.

These programs also feature separate managerial oversight and leadership, policy administration systems and retail agents originating policies.

In total, these products accounted for $ 417.5 million or 47.3 % of the Company’s gross written premiums for the year ended December 31, 2022, $ 255.8 million or 48.2 % of the Company’s gross written premiums for the year ended December 31, 2021, and $ 191.3 million or 54.0 % of the Company’s gross written premiums for the year ended December 31, 2020.

For the year ended December 31, 2023 , our largest program administrator distributed $ 394.1 million or 34.5% of our gross written premiums and our second largest program administrator distributed $ 152.4 million, or 13.3 % of our gross written premiums.

There were no other program administrators which distributed greater than 10 % of our gross written premiums for the year ended December 31, 2023 .

For the year ended December 31, 2022, our largest program administrator distributed $ 322.4 million or 36.6 % of our gross written premiums and our second largest program administrator distributed $ 95.1 million, or 10.8 % of our gross written premiums.

There were no other program administrators which distributed greater than 10 % of our gross written premiums for the year ended December 31, 2022.

For the year ended December 31, 2021, our largest program administrator distributed $ 215.3 million or 40.2 % of our gross written premiums.

There were no other program administrators which distributed greater than 10 % of our gross written premiums for the year ended December 31, 2021.

Retirement and Post-Employment Retirement Plans

4 unchanged sentences

(in thousands)

$ 27,267 $ 18,842 $ 10,650

( 2,826 ) ( 3,461 ) 641

Income tax expense (benefit)

$ 24,441 $ 15,381 $ 11,291

As of December 31, 2023 and 2022 , significant components of the Company’s deferred tax assets and liabilities were as follows:

2 unchanged sentences

Losses and LAE reserve discount

State tax net operating losses

Net operating losses

Deferred Intercompany

Unearned premiums

13,895 11,258

Capitalized organizational costs

2 unchanged sentences

Total deferred tax assets

$ 29,088 $ 28,868

Deferred tax liabilities:

Deferred acquisition costs

Unrealized gains on investments

$ ( 12,128 ) $ ( 11,922 )

Internally developed software

( 1,276 ) ( 1,520 )

State deferred liability

( 1,150 ) ( 1,076 )

( 929 ) ( 658 )

Total deferred tax liabilities

( 15,483 ) ( 15,176 )

Net deferred tax asset (liability) before valuation allowance

13,605 13,692

Valuation allowance

( 3,486 ) ( 3,070 )

Total net deferred tax assets (liabilities)

The valuation allowance shown above relates to deferred tax assets associated with state net operating loss carryforwards.

These carryforwards do not meet the “more likely than not” criteria under ASC 740, Income Taxes due to the limited carryforward period and the Company will continue to maintain a valuation allowance on the associated deferred tax assets as of December 31, 2022.

$ 10,119 $ 10,622

The above valuation allowance relates to state net operating losses ("NOL") carryforwards and federal net operating losses related to Laulima, which was formed in 2023.

Due to the limited carryforward period these do not meet the “more likely than not” criteria and it is necessary to maintain a valuation allowance on these items.

The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period change or if objective negative evidence in the form of cumulative losses is no longer present.

As of December 31, 2022, there are no federal net operating losses or tax credit carryforwards.

As of December 31, 2023 , there are $ 0.1 million of federal NOLs set to expire starting 2043 and $ 2.8 million of state NOLs set to expire beginning in 2023 over various periods.

The following is a reconciliation of the statutory federal income tax rate to the Company’s effective tax rate for the tax years ended December 31, 2023 , 2022 and 2021 :

2 unchanged sentences

Expense computed at federal tax rate

Stock-based compensation

$ 21,765 21.00 % $ 14,186 21.00 % $ 11,999 21.00 %

Stock-based compensation and Section 162(m)

1,523 1.47 % 153 0.23 % ( 1,067 ) ( 1.87 )%

Dividend received deduction and tax‑exempt interest

( 96 ) ( 0.09 )% ( 101 ) ( 0.15 )% ( 81 ) ( 0.14 )%

Meals & entertainment, penalties & parking

261 0.25 % 180 0.27 % 91 0.16 %

State tax expense (benefit)

303 0.29 % 773 1.14 % ( 1,750 ) ( 3.06 )%

Valuation allowance

416 0.40 % 191 0.28 % 2,199 3.85 %

269 0.26 % ( 1 ) — % ( 101 ) ( 0.18 )%

Income tax expense (benefit)

For the year ended December 31, 2022, the difference relates primarily to non-deductible executive compensation expense and state taxes.

For the year ended December 31, 2021, the difference relates primarily to a benefit from the permanent component of employee stock option exercises and state taxes.

For the year ended December 31, 2020, the difference relates primarily the permanent component of employee stock option exercises.

For the years ended December 31, 2021 and Decembers 31, 2020, the Company increased its valuation allowance relating to deferred tax assets associated with state net operating losses.

$ 24,441 23.58 % $ 15,381 22.77 % $ 11,290 19.76 %

For the year ended December 31, 2023 , the difference relates primarily to Section 162 (m) limitations on executive compensation deductions, offset by the permanent component of employees stock option exercises.

For the year ended December 31, 2022, the difference relates primarily to Section 162 (m) limitations on executive compensation deductions and state taxes.

For the year ended December 31, 202, the difference relates primarily to the permanent component of employee stock option exercises and state taxes.

For the years ended December 31, 2022 and December 31, 2021 , the Company increased its valuation allowance relating to deferred tax assets associated with state net operating losses.

As of December 31, 2023 and 2022 , the Company had no uncertain tax positions that required either recognition or disclosure in the consolidated financial statements.

1 unchanged sentence

The Company classifies interest and penalties, if any, related to the liability for unrecognized tax benefits as a component of the provision for income taxes.

The Company’s income tax returns for 2019 through 2021 remain subject to examination by the tax authorities.

The Company’s federal income tax returns for 2020 through 2022 and state income tax returns for 2019 through 2022 remain subject to examination by the tax authorities.

The 2023 income tax return is expected to be filed in 2024 and is subject to examination when filed.

The Company's PSRE entity may be subject to taxation in Bermuda in future years under the Bermuda Corporate Income Tax Act of 2023.

Earnings Per Share

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Statutory net income (loss)

$ 97,391 $ 76,222 $ 51,410

Statutory capital and surplus

Risk-Based Capital (“RBC”) requirements promulgated by the NAIC require property/casualty insurers to maintain minimum capitalization levels determined based on formulas incorporating various business risks of the

insurance subsidiaries.

439,264 314,508 271,977

As of December 31, 2023 and 2022 , the company’s capital and surplus exceeds its authorized control level.

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The principal difference between statutory capital and surplus and stockholders’ equity presented in accordance with GAAP are prepaid expenses, which are non-admitted assets for Bermuda statutory purposes.

In the third and fourth quarter of 2021, PSRE distributed $ 15.0 million and $ 10.0 million in dividends to the Company.

No dividends were paid in 2022.

No dividends were paid in 2023 and 2022 .

PSRE maintains a Class 3A license and thus must maintain a minimum liquidity ratio in which the value of its relevant assets is not less than 75.0 % of the amount of its relevant liabilities for general business.

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Under Arizona statute which governs PESIC, dividends paid in a consecutive twelve month period cannot exceed the lesser of (i) 10% of an insurance company’s statutory policyholders’ surplus as of December 31 of the preceding year or (ii) 100% of its statutory net income for the preceding calendar year.

Based on the above restrictions, PESIC may not pay a dividend or distribution in 2023 without approval of the Arizona Insurance Commissioner due to incurring a statutory net loss in 2022.

Based on the above restrictions, PESIC may pay a dividend or distribution of no greater than $1.5 million in 2024 without approval of the Arizona Insurance Commissioner.

In addition to the above limitations, any dividend or distribution declared is also subject to state regulatory approval prior to payment.

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In the opinion of management, any ultimate liability that may arise from these proceedings will not have a material effect on the Company’s financial position.

Letters of Credit

As of December 31, 2022, the Company has six irrevocable standby letters of credit for the benefit of ceding insurance companies to secure the unearned premium assumed by PSIC.

Letters of Credit and Trusts

As of December 31, 2023 , the Company has four irrevocable standby letters of credit for the benefit of ceding insurance companies to secure the unearned premium assumed by PSIC.

The bank letters of credit amount to a total of $ 3.9 million and may renew if the Company continues to assume premium from these insurance companies.

The letters of credit are collateralized by either the Company’s available-for-sale investments or the Credit Agreement.

In addition, the Company established a Regulation 114 Trust account for the benefit of ceding insurance companies to secure the unearned premium assumed by PSIC.

In addition, the Company established two Regulation 114 Trust accounts for the benefit of ceding insurance companies to secure the unearned premium assumed by PSIC.

As of December 31, 2023 the trust had a market value of $ 9.2 million.

Variable Interest Entities ("VIEs")

Laulima Insurance Exchange, a Hawaii domiciled reciprocal exchange (“Laulima”) is a consolidated VIE.

Laulima was formed in 2023 as an insurance carrier organized as an unincorporated association.

The Company's PUEO entity manages the business operations of Laulima and receives a management fee for the services provided to Laulima.

Upon formation of Laulima, PSIC provided capital of $ 15.0 million in the form of a contribution to the surplus note issued by Laulima, which remains outstanding as of December 31, 2023 .

The Company holds an interest in the form of this surplus note which is included in other liabilities on the Statement of Assets and Liabilities of Laulima.

In addition, the Company provides quota share reinsurance on the property business of Laulima.

The Company has determined that is has the ability to direct the activities that most significantly impact the economic performance of the Laulima and, as it has provided capital to Laulima, would absorb any expected losses which could be significant to Laulima.

As such, the Company is deemed the primary beneficiary and consolidates the results of Laulima.

The Company does not own the equity of Laulima, which is owned by the policyholders.

In the event of dissolution, policyholders would share any residual unassigned surplus but are not subject to assessment for any deficit in unassigned surplus of Laulima.

The assets of Laulima can be used only to settle the obligations of Laulima and general creditors have no recourse to the Company.

The results of operations of Laulima are included in the Company’s consolidated income statement and generated $ 0.1 million of earned premiums in 2023.

There were no claims or claims expenses in 2023.

As of December 31, 2023, Laulima's assets totaled $16.4 million, primarily comprised of $ 15.1 million of cash and investments, and are included in the Company's consolidated balance sheets.

Laulima's liabilities totaled $ 16.9 million and primarily include $ 15.0 million of surplus notes.

The surplus notes are payable to PSIC and eliminate in consolidation.

Laulima's remaining liabilities are included in the Company's consolidated balance sheets.

Subsequent Events

On February 9, 2024, the Company entered into a lease amendment to extend the lease term and expand the rentable square feet for its principal office in La Jolla, California.

The lease amendment is effective August 1, 2024 and expires on July 31, 2034, with monthly payments (in thousands) as follows:

Months 13-24:

Months 25-36:

Months 37-48:

Months 49-60:

Months 61-72:

Months 73-84:

Months 85-96:

Months 97-108:

Months 109-120:

The Company has evaluated all other subsequent events from the balance sheet date through the date the financial statements were issued and has determined there are no additional events required to be disclosed.

Palomar Holdings, Inc.

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(In Thousands, except shares and par value data)

December 31, 2023

December 31, 2022

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

$ 51,946 in 2023, $ 51,993 in 2022)

$ 48,626 $ 45,511

Equity securities, at fair value:

$ 1,725 in 2023, $ 1,725 in 2022)

Equity method investment

Total investments

53,078 47,137

Cash and cash equivalents

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Receivables from subsidiaries

Note receivable from subsidiary

Investment in subsidiaries

530,690 405,525

$ 655,174 $ 459,719

Liabilities and Stockholders' equity

Accounts payable and other liabilities

$ 10,120 $ 7,359

Payables to subsidiaries

157,404 57,324

Federal income tax payable

Deferred tax liabilities

16,398 10,282

Total liabilities

183,922 74,965

Stockholders' equity:

Preferred stock, $ 0.0001 par value, 5,000,000 shares authorized as of December 31, 2022 and December 31, 2021, 0 shares issued and outstanding as of December 31, 2022 and December 31, 2021

Common stock, $ 0.0001 par value, 500,000,000 shares authorized, 24,772,987 and 25,027,467 shares issued and outstanding as of December 31, 2023 and December 31, 2022, respectively

Additional paid‑in capital

350,597 333,557

Accumulated other comprehensive income (loss)

( 23,991 ) ( 36,514 )

Retained earnings

144,643 87,708

Total stockholders' equity

471,252 384,754

Total liabilities and stockholders' equity

$ 655,174 $ 459,719

See accompanying notes.

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Other operating expenses

Income (loss) before income taxes

Income tax expense (benefit)

Loss before income taxes

Income tax (benefit) expense

Loss before equity in net income of subsidiaries

1 unchanged sentence

Other comprehensive income:

Net unrealized gains (losses) on securities available for sale

Net unrealized (losses) gains on securities available for sale

Equity in other comprehensive income (loss) of subsidiaries, net of taxes

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Stock-based compensation expense

Net realized and unrealized losses on investments

Net realized and unrealized (losses) gains on investments

Amortization of premium on fixed maturity securities

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Cash received from subsidiaries

Net cash provided by (used in) investing activities

Net cash (used in) provided by investing activities

Financing activities

Proceeds from January 2020 stock offering, net of offering costs

Proceeds from June 2020 stock offering, net of offering costs

Proceeds from common stock issued via equity incentive plans

Policyholder contribution to surplus

Repurchase of common stock

Net cash provided by (used in) financing activities

Net (decrease) increase in cash and cash equivalents

Net cash used in financing activities

Net decrease in cash and cash equivalents

Cash and cash equivalents at beginning of period

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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 8. Financial Statements and Supplementary Data