What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-11-06 compared with 2024-08-06 · 365 added, 222 removed, 1070 unchanged (35% of the section changed)

4 unchanged sentences

(in thousands, except shares and par value data)

September 30,

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

47 unchanged sentences

Stockholders' equity:

Preferred stock, $ 0.0001 par value, 5,000,000 shares authorized, 0 shares issued and outstanding as of June 30, 2024 and December 31, 2023

Common stock, $ 0.0001 par value, 500,000,000 shares authorized, 24,984,638 and 24,772,987 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively

Preferred stock, $ 0.0001 par value, 5,000,000 shares authorized, 0 shares issued and outstanding as of September 30, 2024 and December 31, 2023

Common stock, $ 0.0001 par value, 500,000,000 shares authorized, 26,452,242 and 24,772,987 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively

Additional paid-in capital

14 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Gross written premiums

$ 385,184 $ 274,296 $ 753,262 $ 524,407

Ceded written premiums

( 209,181 ) ( 169,109 ) ( 437,352 ) ( 339,453 )

Net written premiums

176,003 105,187 315,910 184,954

Change in unearned premiums

( 53,718 ) ( 22,080 ) ( 85,759 ) ( 18,607 )

Net earned premiums

122,285 83,107 230,151 166,347

Net investment income

Net realized and unrealized gains (losses) on investments

Commission and other income

Total revenues

Losses and loss adjustment expenses

Acquisition expenses, net of ceding commissions and fronting fees

Other underwriting expenses

Interest expense

Total expenses

Income before income taxes

Income tax expense

Other comprehensive income, net:

Net unrealized gains (losses) on securities available for sale

Net comprehensive income

Per Share Data:

Basic earnings per share

Diluted earnings per share

Weighted-average common shares outstanding:

See accompanying notes.

Palomar Holdings, Inc.

and Subsidiaries

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

(in thousands, except share data)

Comprehensive

Stockholders'

Income (Loss)

Balance at December 31, 2023

24,772,987 $ 3 $ 350,597 $ ( 23,991 ) $ 144,643 $ 471,252

Net realized and unrealized gains on investments

Other comprehensive loss, net of tax

— — — ( 2,514 ) — ( 2,514 )

Commission and other income

Stock-based compensation

— — 3,820 — — 3,820

Total revenues

Issuance of common stock via employee stock purchase plan

9,806 — 434 — — 434

Losses and loss adjustment expenses

Issuance of common stock via equity incentive plan

138,267 — 1,857 — — 1,857

Acquisition expenses, net of ceding commissions and fronting fees

Policyholder contribution to surplus

— — 427 — — 427

Other underwriting expenses

— — — — 26,382 26,382

Interest expense

Balance at March 31, 2024

24,921,060 $ 3 $ 357,135 $ ( 26,505 ) $ 171,025 $ 501,658

Total expenses

Other comprehensive loss, net of tax

— — — ( 1,550 ) — ( 1,550 )

Income before income taxes

Stock-based compensation

— — 3,968 — — 3,968

Income tax expense

Issuance of common stock via employee stock purchase plan

Issuance of common stock via equity incentive plan

63,578 — 2,112 — — 2,112

Policyholder contribution to surplus

— — 689 — — 689

Other comprehensive income, net:

Net unrealized (losses) gains on securities available for sale

— — — — 25,729 25,729

Net comprehensive income

Balance at June 30, 2024

24,984,638 $ 3 $ 363,904 $ ( 28,055 ) $ 196,754 $ 532,606

Per Share Data:

Basic earnings per share

Other comprehensive income, net of tax

— — — 17,916 — 17,916

Diluted earnings per share

Stock-based compensation

— — 4,117 — — 4,117

Weighted-average common shares outstanding:

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

1,380,000 — 115,724 — — 115,724

Issuance of common stock via employee stock purchase plan

7,294 — 468 — — 468

Issuance of common stock via equity incentive plan

80,310 — 1,064 — — 1,064

Policyholder contribution to surplus

— — 921 — — 921

— — — — 30,497 30,497

Balance at September 30, 2024

26,452,242 $ 3 $ 486,198 $ ( 10,139 ) $ 227,251 $ 703,313

See accompanying notes.

19 unchanged sentences

— — — — 17,313 17,313

Balance at June 30, 2023

Balance at March 31, 2023

24,942,196 $ 3 $ 337,492 $ ( 31,041 ) $ 98,195 $ 404,649

Balance at December 31, 2023

Other comprehensive income, net of tax

— — — ( 3,685 ) — ( 3,685 )

Stock-based compensation

— — 3,697 — — 3,697

Issuance of common stock via employee stock purchase plan

Issuance of common stock via equity incentive plan

18,555 — 224 — — 224

Repurchases of common stock

( 166,482 ) — — — ( 8,739 ) ( 8,739 )

— — — — 17,562 17,562

Balance at June 30, 2023

24,794,269 $ 3 $ 341,413 $ ( 34,726 ) $ 107,018 $ 413,708

Other comprehensive loss, net of tax

6 unchanged sentences

44,999 — 265 — — 265

Policyholder contribution to surplus

Repurchases of common stock

( 117,739 ) — — — ( 6,571 ) ( 6,571 )

— — — — 18,432 18,432

Balance at June 30, 2024

Balance at September 30, 2023

24,730,885 $ 3 $ 345,673 $ ( 43,221 ) $ 118,879 $ 421,334

4 unchanged sentences

(in thousands)

Six Months Ended

Nine Months Ended

September 30,

Operating activities

Net cash provided by operating activities

$ 188,520 $ 93,836

Investing activities

Purchases of property and equipment

( 194 ) ( 15 )

Capitalized software costs

( 4,115 ) ( 5,324 )

Purchases of fixed maturity securities

( 448,968 ) ( 190,560 )

Purchases of equity securities

( 202 ) ( 945 )

Purchase of equity method investment

Sales and maturities of fixed maturity securities

227,748 104,505

Sales of equity securities

Change in securities receivable or payable, net

( 2,960 ) ( 3,576 )

Investments in limited partnerships

1 unchanged sentence

Net cash used in investing activities

( 224,884 ) ( 104,156 )

Financing activities

Net (payments on) proceeds from line of credit

( 52,600 ) 16,200

Proceeds from stock offering, net of offering costs

Proceeds from common stock issued via employee stock purchase plan

2 unchanged sentences

Repurchases of common stock

Net cash (used in) provided by financing activities

Net decrease in cash, cash equivalents and restricted cash

Net cash provided by (used in) financing activities

71,096 ( 4,556 )

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

34,732 ( 14,876 )

Cash, cash equivalents and restricted cash at beginning of period

51,852 68,164

Cash, cash equivalents and restricted cash at end of period

$ 86,584 $ 53,288

Supplementary cash flow information:

Cash paid for income taxes

$ 29,299 $ 21,093

Cash paid for interest

$ 968 $ 2,428

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

September 30,

Cash and cash equivalents

31 unchanged sentences

Recently adopted accounting pronouncements

The Company has not adopted any new accounting guidance during the six months ended June 30, 2024 .

The Company has not adopted any new accounting guidance during the nine months ended September 30, 2024 .

Recently issued accounting pronouncements not yet adopted

15 unchanged sentences

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

June 30, 2024

September 30, 2024

Credit Losses

1 unchanged sentence

Fixed maturities:

$ 32,839 $ 16 $ ( 660 ) $ — $ 32,195

States, Territories, and Political Subdivisions

10,615 105 ( 678 ) — 10,042

Special revenue excluding mortgage/asset-backed securities

30,755 189 ( 2,884 ) — 28,060

Corporate and other

467,290 6,776 ( 11,080 ) ( 904 ) 462,082

Mortgage/asset-backed securities

355,276 3,604 ( 8,279 ) — 350,601

Total available-for-sale investments

$ 896,775 $ 10,690 $ ( 23,581 ) $ ( 904 ) $ 882,980

December 31, 2023

2 unchanged sentences

Fixed maturities:

$ 40,836 $ — $ ( 1,416 ) $ — $ 39,420

States, Territories, and Political Subdivisions

10,641 100 ( 839 ) — 9,902

Special revenue excluding mortgage/asset-backed securities

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

Security holdings in an unrealized loss position

As of June 30, 2024 , the Company held 574 fixed maturity securities in an unrealized loss position with a total estimated fair value of $ 524.7 million and total gross unrealized losses of $ 37.9 million.

As of September 30, 2024 , the Company held 399 fixed maturity securities in an unrealized loss position with a total estimated fair value of $ 387.5 million and total gross unrealized losses of $ 23.6 million.

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.

The aggregate fair value and gross unrealized losses of the Company’s investments aggregated by investment category and the length of time these individual securities have been in a continuous unrealized loss position as of June 30, 2024 and December 31, 2023 , are as follows:

The aggregate fair value and gross unrealized losses of the Company’s investments aggregated by investment category and the length of time these individual securities have been in a continuous unrealized loss position as of September 30, 2024 and December 31, 2023 , are as follows:

Less Than 12 Months

More Than 12 Months

June 30, 2024

September 30, 2024

(in thousands)

Fixed maturity securities:

$ 16,037 $ ( 27 ) $ 15,122 $ ( 633 ) $ 31,159 $ ( 660 )

States, Territories, and Political Subdivisions

508 ( 8 ) 6,353 ( 670 ) 6,861 ( 678 )

Special revenue excluding mortgage/asset-backed securities

2,006 ( 282 ) 23,232 ( 2,602 ) 25,238 ( 2,884 )

Corporate and other

19,821 ( 243 ) 182,025 ( 10,837 ) 201,846 ( 11,080 )

Mortgage/asset-backed securities

24,195 ( 917 ) 98,170 ( 7,362 ) 122,365 ( 8,279 )

Total available-for-sale investments

$ 62,567 $ ( 1,477 ) $ 324,902 $ ( 22,104 ) $ 387,469 $ ( 23,581 )

Less Than 12 Months

3 unchanged sentences

Fixed maturity securities:

$ 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

— — 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 )

Total available-for-sale investments

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

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

The Company considers numerous factors in its review as described in Footnote 1 of the Notes to the Consolidated Financial Statements in the 2023 Annual Report on Form 10 -K.

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

Based on the Company’s review as of June 30, 2024 , for the remainder of securities, the Company determined that the fixed maturity securities’ unrealized losses were primarily the result of the interest rate environment and not the credit quality of the issuers.

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

Based on the Company’s review as of September 30, 2024 , for the remainder of securities, the Company determined that the fixed maturity securities’ unrealized losses were primarily the result of the interest rate environment and not the credit quality of the issuers.

The Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before the recovery of their amortized cost basis.

Contractual maturities of available ‑ for ‑ sale fixed maturity securities

The amortized cost and fair value of fixed maturity securities at June 30, 2024 , by contractual maturity, are shown below.

The amortized cost and fair value of fixed maturity securities at September 30, 2024 , by contractual maturity, are shown below.

(in thousands)

Due within one year

$ 80,152 $ 78,731

Due after one year through five years

183,202 180,227

Due after five years through ten years

176,607 172,654

Due after ten years

101,538 100,767

Mortgage and asset-backed securities

355,276 350,601

$ 896,775 $ 882,980

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

2 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

4 unchanged sentences

220 211 675 602

Investment income (expense)

Investment expense

( 177 ) ( 134 ) ( 486 ) ( 380 )

4 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

17 unchanged sentences

2,434 ( 1,299 ) 7,052 608

Net unrealized (losses) gains on equity method investment

Net unrealized gains (losses) on equity method investment

148 ( 77 ) ( 118 ) ( 77 )

Net unrealized (losses) gains on other investments

Net realized and unrealized gains on investments

Net unrealized gains on other investments

Net realized and unrealized gains (losses) on investments

$ 2,734 $ ( 1,376 ) $ 5,768 $ ( 103 )

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

Proceeds from the sale of fixed maturity securities were insignificant and $ 1.9 million for the three months ended June 30, 2024 and 2023 , respectively.

Proceeds from the sale of fixed maturity securities were $ 2.2 and $ 7.1 million for the six months ended June 30, 2024 and 2023 , respectively.

Proceeds from the sale of fixed maturity securities were $ 3.2 million and insignificant for the three months ended September 30, 2024 and 2023 , respectively.

Proceeds from the sale of fixed maturity securities were $ 5.4 and $ 9.8 million for the nine months ended September 30, 2024 and 2023 , respectively.

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

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

As of June 30, 2024 and December 31, 2023 , the carrying value of securities on deposit with state regulatory authorities was $ 7.8 million and $ 8.6 million, respectively.

As of September 30, 2024 and December 31, 2023 , the carrying value of securities on deposit with state regulatory authorities was $ 7.8 million and $ 8.6 million, respectively.

The Company has investments in limited partnerships, recorded in the Other Investments line of the Unaudited Condensed Consolidated Balance Sheets.

These investments are measured at estimated fair value utilizing a net asset value per share (or its equivalent) as a practical expedient.

As of June 30, 2024 , the Company had unfunded commitments to invest an additional $ 32.6 million in these limited partnerships.

As of September 30, 2024 , the Company had unfunded commitments to invest an additional $ 50.1 million in these limited partnerships.

Fair Value Measurements

15 unchanged sentences

Therefore, these investments are classified and disclosed in Level 2 of the hierarchy.

The following tables present the hierarchy for financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2024 and December 31, 2023 .

June 30, 2024

The following tables present the hierarchy for financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2024 and December 31, 2023 .

September 30, 2024

(in thousands)

33 unchanged sentences

The carrying amount of any borrowings under the Federal Home Loan Bank (“FHLB”) line of credit and U.S.

Bank credit agreement (the “Credit Agreement”) approximate fair value as the credit agreements have variable rates which frequently reprices at market rates.

Bank credit agreement (the “Credit Agreement”) approximate fair value as the credit agreements have variable rates which frequently reprice at market rates.

Transfers between Level 3 and Level 2 securities result from changes in the availability of observable market inputs and are recorded at the beginning of the reporting period.

As of June 30, 2024 and December 31, 2023 , the Company had no fixed income securities classified as Level 3.

As of September 30, 2024 and December 31, 2023 , the Company had no fixed income securities classified as Level 3.

Reserve for Losses and Loss Adjustment Expenses

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

1 unchanged sentence

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

$ 118,761 $ 81,300 $ 97,653 $ 77,520

Incurred losses and LAE, net of reinsurance, related to:

40,536 15,116 100,225 50,954

( 221 ) 1,023 ( 2,642 ) 3,742

Total incurred

40,315 16,139 97,583 54,696

Loss and LAE payments, net of reinsurance, related to:

16,153 6,646 27,909 14,215

5,649 ( 1,385 ) 30,053 25,823

Total payments

21,802 5,261 57,962 40,038

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

137,274 92,178 137,274 92,178

Reinsurance recoverables on unpaid losses and LAE at end of period

360,164 232,170 360,164 232,170

Reserve for losses and LAE gross of reinsurance recoverables on unpaid losses and LAE at end of period

$ 497,438 $ 324,348 $ 497,438 $ 324,348

Considerable variability is inherent in the estimate of the reserve for losses and LAE.

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

The Company experienced favorable prior year development of $ 2.9 million and $ 0.6 million during the three months ended June 30, 2024 and 2023 , respectively.

The Company experienced favorable prior year development of $ 2.4 million and adverse prior year development of $ 2.7 million during the six months ended June 30, 2024 and 2023 , respectively.

Favorable prior year development during the three months ended June 30, 2024 was primarily due to lower than anticipated severity of attritional losses.

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

Favorable prior year development during the six months ended June 30, 2024 was primarily due to lower than anticipated severity of attritional losses.

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

The Company experienced favorable prior year development of $ 0.2 million and adverse prior year development $ 1.0 million during the three months ended September 30, 2024 and 2023 , respectively.

The Company experienced favorable prior year development of $ 2.6 million and adverse prior year development of $ 3.7 million during the nine months ended September 30, 2024 and 2023 , respectively.

Favorable prior year development during the three months ended September 30, 2024 was primarily due to lower than anticipated severity of attritional losses.

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

Favorable prior year development during the nine months ended September 30, 2024 was primarily due to lower than anticipated severity of attritional losses.

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

Stockholders ’ Equity

As of September 30, 2024 and December 31, 2023 , the Company had 5,000,000 preferred shares authorized with a par value of $ 0.0001 and no preferred shares issued and outstanding.

As of September 30, 2024 and December 31, 2023 , the Company had 500,000,000 common shares authorized and 26,452,242 and 24,772,987 common shares issued and outstanding, respectively, with a par value of $ 0.0001 .

Additional paid in capital was $ 486.2 million as of September 30, 2024 and $ 350.6 million as of December 31, 2023 .

In August 2024, the Company completed a registered sale ( August 2024 Secondary Offering) of 1,380,000 shares of common stock at a public offering price of $ 88.00 per share, inclusive of 180,000 shares sold pursuant to the underwriter’s option to purchase additional shares.

Our net proceeds from the August 2024 Secondary Offering were approximately $ 115.7 million, after deducting underwriting discounts and commissions and offering costs.

Common stock reserved for future issuance

Common stock reserved for future issuance consists of the following as of June 30, 2024 :

Common stock reserved for future issuance consists of the following as of September 30, 2024 :

Stock options outstanding under 2019 Equity Incentive Plan

5 unchanged sentences

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

1 unchanged sentence

Stock-Based Compensation

$ 4,117 $ 3,589 $ 11,905 $ 10,737

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

13 unchanged sentences

Stock options expire ten years after the grant date.

The following table summarizes stock option transactions for the six months ended June 30, 2024 :

The following table summarizes stock option transactions for the nine months ended September 30, 2024 :

Number of shares

3 unchanged sentences

Outstanding at January 1, 2024

807,685 $ 34.31 — $ —

Options granted

Options exercised

( 155,078 ) 32.46

Options cancelled

Outstanding at June 30, 2024

Vested and Exercisable at June 30, 2024

As of June 30, 2024 , the Company had approximately $ 0.6 million of total unrecognized stock-based compensation expense related to stock options expected to be recognized over a weighted-average period of 0.6 years.

( 10,751 ) 78.61

Outstanding at September 30, 2024

641,856 $ 34.01 5.1 $ 31,660

Vested and Exercisable at September 30, 2024

627,982 $ 33.54 5.1 $ 31,298

As of September 30, 2024 , the Company had approximately $ 0.3 million of total unrecognized stock-based compensation expense related to stock options expected to be recognized over a weighted-average period of 0.4 years.

Restricted Stock Units

2 unchanged sentences

All vesting is subject to continued service.

The following table summarizes RSU transactions for the six months ended June 30, 2024 :

The following table summarizes RSU transactions for the nine months ended September 30, 2024 :

Number of shares

1 unchanged sentence

Outstanding at January 1, 2024

Non-vested outstanding at June 30, 2024

As of June 30, 2024 , the Company had approximately $ 18.0 million of total unrecognized stock-based compensation expense related to RSUs expected to be recognized over a weighted-average period of 2.1 years.

332,077 $ 61.07

136,556 68.13

( 114,432 ) 58.94

( 13,302 ) 53.85

Non-vested outstanding at September 30, 2024

340,899 $ 64.90

As of September 30, 2024 , the Company had approximately $ 16.8 million of total unrecognized stock-based compensation expense related to RSUs expected to be recognized over a weighted-average period of 1.9 years.

Performance Stock Units

3 unchanged sentences

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

As of June 30, 2024 , none of the stock price milestones have been achieved.

As of September 30, 2024 , none of the stock price milestones have been achieved.

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

3 unchanged sentences

The earned PSUs are also 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 six months ended June 30, 2024 :

The following table summarizes PSU transactions for the nine months ended September 30, 2024 :

Number of shares

1 unchanged sentence

Outstanding at January 1, 2024

Non-vested outstanding at June 30, 2024

423,621 $ 38.90

( 12,645 ) 96.74

( 6,468 ) 51.44

Non-vested outstanding at September 30, 2024

461,520 $ 40.46

The PSU grants above represent the number of shares that would vest based on achievement of all stock price milestones in the 2021 executive stock grants and the 100 % achievement of the predetermined performance conditions for the other PSU grants.

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

As of June 30, 2024 , the Company had approximately $ 10.5 million of total unrecognized stock-based compensation expense related to PSUs expected to be recognized over a weighted-average period of 2.1 years.

As of September 30, 2024 , the Company had approximately $ 9.1 million of total unrecognized stock-based compensation expense related to PSUs expected to be recognized over a weighted-average period of 1.9 years.

2019 Employee Stock Purchase Plan

5 unchanged sentences

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

The Company issued 9,806 shares pursuant to the ESPP during the six months ended June 30, 2024 .

The Company issued 17,100 shares pursuant to the ESPP during the nine months ended September 30, 2024 .

Share repurchases

5 unchanged sentences

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

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

4 unchanged sentences

Amounts reclassified from AOCI

Federal income tax expense

Federal income tax expense (benefit)

Amounts reclassified from AOCI, net of tax

4 unchanged sentences

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

($ in thousands)

6 unchanged sentences

Gross written premiums by state are as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

($ in thousands)

2 unchanged sentences

Gross written premiums by insurance subsidiary are as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

($ in thousands)

2 unchanged sentences

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

During the three months ended June 30, 2024 , the Company’s income tax rate of 22.9 % was higher than the statutory rate of 21 % due primarily to non-deductible executive compensation expense.

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

For the six months ended June 30, 2024 , the Company’s tax rate of 23.1 % was higher than the statutory rate due primarily to non-deductible executive compensation expense.

For the six months ended June 30, 2023 , the Company’s tax rate of 23.6 % was higher than the statutory rate also due primarily to non-deductible executive compensation expense.

During the three months ended September 30, 2024 , the Company’s income tax rate of 20.8 % was lower than the statutory rate of 21 % due primarily to the tax impact of the permanent component of employee stock option exercises.

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

For the nine months ended September 30, 2024 , the Company’s tax rate of 22.2 % was higher than the statutory rate due primarily to non-deductible executive compensation expense.

For the nine months ended September 30, 2023 , the Company’s tax rate of 24.0 % was higher than the statutory rate also due primarily to non-deductible executive compensation expense.

Earnings Per Share

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands, except shares and per share data)

$ 25,729 $ 17,562 $ 52,111 $ 34,874

Weighted average common shares outstanding:

24,946,987 24,833,852 24,904,677 24,901,403

Common Share equivalents

670,929 475,674 649,768 483,006

25,617,916 25,309,526 25,554,445 25,384,409

Earnings per share:

$ 1.03 $ 0.71 $ 2.09 $ 1.40

$ 1.00 $ 0.69 $ 2.04 $ 1.37

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

1 unchanged sentence

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

As of June 30, 2024 , the Company’s catastrophe event retention is $ 20 million for earthquake events and $ 15.5 million for hurricane events and all other perils, and the Company’s XOL reinsurance structure provides protection up to $ 3.06 billion for earthquake events, $ 735 million for Hawaii hurricane events, and $ 117.5 million for continental U.S.

As of September 30, 2024 , the Company’s catastrophe event retention is $ 20 million for earthquake events and $ 15.5 million for hurricane events and all other perils, and the Company’s XOL reinsurance structure provides protection up to $ 3.06 billion for earthquake events, $ 735 million for Hawaii hurricane events, and $ 117.5 million for continental U.S.

hurricane events.

In addition to reinsurance purchased from traditional reinsurers, the Company has 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.

The catastrophe bond was completed through Torrey Pines Re Pte.

(“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, the Company closed a $ 275 million 144A catastrophe bond which became effective June 1, 2022.

This catastrophe bond was completed through Torrey Pines Re Ltd., a Bermuda-domiciled special purpose insurer that provides indemnity-based reinsurance covering earthquake events through June 1, 2025.

During the second quarter of 2023, the Company also closed a $ 200 million 144A catastrophe bond which became effective June 1, 2023.

During the second quarter of 2023, the Company closed a $ 200 million 144A catastrophe bond which became effective June 1, 2023.

This catastrophe bond was also completed through Torrey Pines Re Ltd and provides indemnity-based reinsurance covering earthquake events through June 1, 2026.

During the second quarter of 2024, the Company also closed a $ 420 million 144A catastrophe bond which became effective June 1, 2024.

During the second quarter of 2024, the Company closed a $ 420 million 144A catastrophe bond which became effective June 1, 2024.

This catastrophe bond was also completed through Torrey Pines Re Ltd and provides indemnity-based reinsurance covering earthquake events through June 1, 2027.

12 unchanged sentences

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

As of June 30, 2024 , the Company was in compliance with all debt covenants.

As of June 30, 2024 and December 31, 2023 , the Company had no borrowings outstanding on the Credit Agreement.

Interest expense on the Credit Agreement was $ 0.1 million and $ 0.2 million for the three and six months ended June 30, 2024 , respectively.

Interest expense on the Credit Agreement was $ 0.2 million and $ 0.8 million for the three and six months ended June 30, 2023 , respectively.

As of September 30, 2024 , the Company was in compliance with all debt covenants.

As of September 30, 2024 and December 31, 2023 , the Company had no borrowings outstanding on the Credit Agreement.

Interest expense on the Credit Agreement was $ 0.1 million and $ 0.3 million for the three and nine months ended September 30, 2024 , respectively.

Interest expense on the Credit Agreement was $ 0.1 million and $ 0.9 million for the three and nine months ended September 30, 2023 , respectively.

FHLB Line of Credit

3 unchanged sentences

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

As of June 30, 2024 , the Company had no borrowings outstanding through the FHLB.

Interest expense on the FHLB line of credit was $ 0.1 million and $ 0.8 million for the three and six months ended June 30, 2024 , respectively.

As of September 30, 2024 , the Company had no borrowings outstanding through the FHLB.

Interest expense on the FHLB line of credit was immaterial and $ 0.8 million for the three and nine months ended September 30, 2024 , respectively.

As of December 31, 2023 , the Company had $ 52.6 million of borrowings outstanding through the FHLB at the overnight rate of 5.62 %.

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

Interest expense on the FHLB line of credit was $ 0.8 million and $ 2.1 million for the three and nine months ended September 30, 2023 , respectively.

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

1 unchanged sentence

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

The results of operations for the six months ended June 30, 2024 are not necessarily indicative of the results that may be expected for the full year ended December 31, 2024, or for any other future period.

The results of operations for the nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the full year ended December 31, 2024, or for any other future period.

The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in Part I, Item 1 of this Quarterly Report, and in conjunction with our audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K as filed with the SEC on February 23, 2024.

23 unchanged sentences

The transaction has been approved by the respective board of directors of both companies and is expected to close in late 2024 or early 2025 subject to the satisfaction of customary closing conditions and regulatory approval by the New Jersey Department of Banking and Insurance.

In August 2024, we completed a registered sale (August 2024 Secondary Offering) of 1,380,000 shares of common stock at a public offering price of $88.00 per share, inclusive of 180,000 shares sold pursuant to the underwriter’s option to purchase additional shares.

Our net proceeds from the August 2024 Secondary Offering were approximately $115.7 million, after deducting underwriting discounts and commissions and offering costs.

Components of Our Results of Operations

98 unchanged sentences

Results of Operations

Three months ended June 30, 2024 compared to three months ended June 30, 2023

The following table summarizes our results for the three months ended June 30, 2024 and 2023:

Three months ended September 30, 2024 compared to three months ended September 30, 2023

The following table summarizes our results for the three months ended September 30, 2024 and 2023:

Three Months Ended

September 30,

($ in thousands, except per share data)

11 unchanged sentences

Net investment income

Net realized and unrealized gains on investments

Net realized and unrealized gains (losses) on investments

Income before income taxes

Income tax expense

Net realized and unrealized gains on investments

Net realized and unrealized (gains) losses on investments

Expenses associated with transactions

1 unchanged sentence

Amortization of intangibles

Expenses associated with catastrophe bond

Adjusted net income (1)

11 unchanged sentences

Adjusted underwriting income (1)

NM - not meaningful

Indicates non-GAAP financial measure;

1 unchanged sentence

Gross Written Premiums

Gross written premiums increased $110.9 million, or 40.4% to $385.2 million for the three months ended June 30, 2024 compared to $274.3 million for the three months ended June 30, 2023.

Gross written premiums increased $101.0 million, or 32.2% to $415.0 million for the three months ended September 30, 2024 compared to $314.0 million for the three months ended September 30, 2023.

Premium growth was primarily due to an increased volume of policies written across our lines of business which was driven by new business generated with existing partners, strong premium retention rates for existing business, expansion of our distribution footprint, and new partnerships.

The following table summarizes our gross written premiums by line of business and shows each line’s percentage of total gross written premiums for each period:

Three Months Ended June 30,

Three Months Ended September 30,

($ in thousands)

8 unchanged sentences

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

Three Months Ended June 30,

Three Months Ended September 30,

($ in thousands)

1 unchanged sentence

Ceded Written Premiums

Ceded written premiums increased $40.1 million, or 23.7%, to $209.2 million for the three months ended June 30, 2024 from $169.1 million for the three months ended June 30, 2023.

Ceded written premiums increased $51.9 million, or 25.5%, to $255.3 million for the three months ended September 30, 2024 from $203.3 million for the three months ended September 30, 2023.

The increase was primarily due to increased premiums ceded under quota share and fronting agreements due to growth in the volume of written premiums subject to quota share or fronting agreements.

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

Although our volume of ceded written premiums increased, ceded written premiums as a percentage of gross written premiums decreased to 54.3% for the three months ended June 30, 2024 from 61.7% for the three months ended June 30, 2023.

In addition, we incurred increased XOL reinsurance expense due to growth in exposure

Although our volume of ceded written premiums increased, ceded written premiums as a percentage of gross written premiums decreased to 61.5% for the three months ended September 30, 2024 from 64.8% for the three months ended September 30, 2023.

This percentage decrease was driven by changes in our composition of business whereby premiums written in the current period were subject to lower quota share or XOL cession percentages compared to premiums written in the prior period.

Net Written Premiums

Net written premiums increased $70.8 million, or 67.3%, to $176.0 million for the three months ended June 30, 2024 from $105.2 million for the three months ended June 30, 2023.

Net written premiums increased $49.0 million, or 44.3%, to $159.7 million for the three months ended September 30, 2024 from $110.7 million for the three months ended September 30, 2023.

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

Net Earned Premiums

Net earned premiums increased $39.2 million, or 47.1%, to $122.3 million for the three months ended June 30, 2024 from $83.1 million for the three months ended June 30, 2023 due primarily to the earning of increased gross written premiums offset by the earning of ceded written premiums under reinsurance agreements.

Net earned premiums increased $49.8 million, or 58.1%, to $135.6 million for the three months ended September 30, 2024 from $85.8 million for the three months ended September 30, 2023 due primarily to the earning of increased gross written premiums offset by the earning of ceded written premiums under reinsurance agreements.

The table below shows the amount of premiums we earned on a gross and net basis and net earned premiums as a percentage of gross earned premiums in each period presented:

Three Months Ended

September 30,

($ in thousands)

5 unchanged sentences

Commission and Other Income

Commission and other income increased $0.2 million to $0.8 million for the three months ended June 30, 2024 from $0.6 million for the three months ended June 30, 2023.

Commission and other income increased $0.2 million to $0.7 million for the three months ended September 30, 2024 from $0.5 million for the three months ended September 30, 2023.

The balance increased due to an increase in commissions and policy related fees driven by increased premiums written.

Losses and Loss Adjustment Expenses

Losses and loss adjustment expenses increased $12.5 million, or 70.0% to $30.4 million for the three months ended June 30, 2024 from $17.9 million for the three months ended June 30, 2023.

Losses and loss adjustment expenses increased $24.2 million, or 149.8% to $40.3 million for the three months ended September 30, 2024 from $16.1 million for the three months ended September 30, 2023.

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

Three Months Ended

September 30,

($ in thousands)

2 unchanged sentences

Total losses and loss adjustment expenses

Our catastrophe loss ratio was 2.8% and 2.6% for the three months ended June 30, 2024 and June 30, 2023, respectively.

Catastrophe losses were primarily related to severe convective storms for both periods.

Our non-catastrophe loss ratio was 22.1% for the three months ended June 30, 2024 compared to 18.9% during the three months ended June 30, 2023.

Non-catastrophe losses increased due mainly to higher attritional losses on lines of business subject to attritional losses such as Casualty and Inland Marine and Other Property due to premium growth in these lines of business.

Catastrophe loss ratio

Non-catastrophe loss ratio

Total loss ratio

NM - not meaningful

Catastrophe losses for the quarter ended September 30, 2024 were related to Hurricanes Beryl, Debby, and Helene.

Catastrophe loss activity for the quarter ended September 30, 2023 was primarily related to favorable development on severe convective storms that occurred during the second quarter of 2023 and favorable development on prior year hurricanes.

Non-catastrophe losses increased for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 due mainly to higher attritional losses on lines of business subject to attritional losses such as Casualty and Inland Marine and Other Property due to premium growth in these lines of business.

Acquisition Expenses

Acquisition expenses increased $9.7 million, or 37.4%, to $35.8 million for the three months ended June 30, 2024 from $26.1 million for the three months ended June 30, 2023.

Acquisition expenses increased $14.5 million, or 53.6%, to $41.5 million for the three months ended September 30, 2024 from $27.0 million for the three months ended September 30, 2023.

The increase was primarily due to higher commissions and premium-related taxes resulting from higher gross earned premiums.

This was partially offset by higher earned ceding commissions and fronting fees due to an increase in premiums subject to a quota share or fronting agreement.

Acquisition expenses as a percentage of gross earned premiums were 11.0% for the three months ended June 30, 2024 compared to 10.8% for the three months ended June 30, 2023.

Acquisition expenses as a percentage of gross earned premiums were 10.5% for the three months ended September 30, 2024 compared to 9.9% for the three months ended September 30, 2023.

Acquisition expenses as a percentage of gross earned premiums increased due to higher commissions and premium-related taxes as a percentage of gross earned premiums and lower ceded commissions and fronting fees as a percentage of gross earned premiums due to changes in the composition of our business.

Other Underwriting Expenses

Other underwriting expenses increased $8.9 million, or 39.7%, to $31.2 million for the three months ended June 30, 2024 from $22.4 million for the three months ended June 30, 2023.

Other underwriting expenses increased $5.7 million, or 25.6%, to $28.1 million for the three months ended September 30, 2024 from $22.4 million for the three months ended September 30, 2023.

The increase was primarily due to the Company incurring higher payroll, technology, and stock-based compensation expenses associated with growth of the Company.

Other underwriting expenses as a percentage of gross earned premiums were 9.6% for the three months ended June 30, 2024 compared to 9.2% for the three months ended June 30, 2023.

Excluding the impact of expenses relating to transactions, stock-based compensation, catastrophe bonds, and amortization of intangibles, other underwriting expenses as a percentage of gross earned premiums were 7.3% for the three months ended June 30, 2024 compared to 6.9% for the three months ended June 30, 2023.

Other underwriting expenses as a percentage of gross earned premiums were 7.1% for the three months ended September 30, 2024 compared to 8.2% for the three months ended September 30, 2023.

Excluding the impact of expenses relating to transactions, stock-based compensation, and amortization of intangibles, other underwriting expenses as a percentage of gross earned premiums were 5.9% for the three months ended September 30, 2024 compared to 6.7% for the three months ended September 30, 2023.

Other underwriting expenses as a percentage of gross earned premiums may fluctuate period over period based on timing of certain expenses relative to premium growth.

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

Net investment income increased $2.4 million, or 43.7%, to $8.0 million for the three months ended June 30, 2024 from $5.5 million for the three months ended June 30, 2023.

The increase was primarily due to a higher average balance of investments during the three months ended June 30, 2024 and higher yields on invested assets.

The Company incurred insignificant net realized and unrealized gains on investments for the three months ended June 30, 2024 compared to $1.1 million of net realized and unrealized gains for the three months ended June 30, 2023 In both periods, the balance was primarily driven by unrealized gains on our equity securities.

Net investment income increased $3.4 million, or 56.0%, to $9.4 million for the three months ended September 30, 2024 from $6.0 million for the three months ended September 30, 2023.

The increase was primarily due to a higher average balance of investments during the three months ended September 30, 2024 due primarily to the use of proceeds from our August 2024 secondary offering and also due to higher yields on invested assets versus the prior year.

The Company incurred $2.7 million of net realized and unrealized gains on investments for the three months ended September 30, 2024 compared to $1.4 million of net realized and unrealized losses for the three months ended September 30, 2023 In both periods, the balance was primarily driven by unrealized gains and losses on our equity securities.

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

1 unchanged sentence

Three Months Ended

September 30,

($ in thousands)

3 unchanged sentences

Net investment income

Net realized and unrealized gains on investments

Net realized and unrealized gains (losses) on investments

Income Tax Expense

Income tax expense increased $2.2 million to $7.6 million for the three months ended June 30, 2024 from $5.5 million for the three months ended June 30, 2023 due to higher pre-tax income for the period ended June 30, 2024.

During the three months ended June 30, 2024, our income tax rate of 22.9% was higher than the statutory rate of 21% due primarily to non-deductible executive compensation expense.

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

Income tax expense increased $1.9 million to $8.0 million for the three months ended September 30, 2024 from $6.1 million for the three months ended September 30, 2023 due to higher pre-tax income for the period ended September 30, 2024.

During the three months ended September 30, 2024, our income tax rate of 20.8% was lower than the statutory rate of 21% due primarily to permanent component of employee stock option exercises.

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

Results of Operations

Six months ended June 30, 2024 compared to six months ended June 30, 2023

The following table summarizes our results for the six months ended June 30, 2024 and 2023:

Six Months Ended

Nine months ended September 30, 2024 compared to nine months ended September 30, 2023

The following table summarizes our results for the nine months ended September 30, 2024 and 2023:

Nine Months Ended

September 30,

($ in thousands, except per share data)

11 unchanged sentences

Net investment income

Net realized and unrealized gains on investments

Net realized and unrealized gains (losses) on investments

Income before income taxes

Income tax expense

Net realized and unrealized gains on investments

Net realized and unrealized (gains) losses on investments

Expenses associated with transactions

15 unchanged sentences

Adjusted underwriting income (1)

NM - not meaningful

Indicates non-GAAP financial measure;

1 unchanged sentence

Gross Written Premiums

Gross written premiums increased $228.9 million, or 43.6% to $753.3 million for the six months ended June 30, 2024 compared to $524.4 million for the six months ended June 30, 2023.

Gross written premiums increased $329.8 million, or 39.3% to $1,168.2 million for the nine months ended September 30, 2024 compared to $838.4 million for the nine months ended September 30, 2023.

The following table summarizes our gross written premiums by line of business and shows each line’s percentage of total gross written premiums for each period:

Six Months Ended June 30,

Nine Months Ended September 30,

($ in thousands)

8 unchanged sentences

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

Six Months Ended June 30,

Nine Months Ended September 30,

($ in thousands)

1 unchanged sentence

Ceded Written Premiums

Ceded written premiums increased $97.9 million, or 28.8%, to $437.4 million for the six months ended June 30, 2024 from $339.5 million for the six months ended June 30, 2023.

Ceded written premiums increased $149.8 million, or 27.6%, to $692.6 million for the nine months ended September 30, 2024 from $542.8 million for the nine months ended September 30, 2023.

The increase was primarily due to increased premium ceded under quota share and fronting agreements due to growth in fronting premiums written and growth in the volume of written premiums subject to quota shares.

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

Although our volume of ceded written premiums increased, ceded written premiums as a percentage of gross written premiums decreased to 58.1% for the six months ended June 30, 2024 from 64.7% for the six months ended June 30, 2023.

Although our volume of ceded written premiums increased, ceded written premiums as a percentage of gross written premiums decreased to 59.3% for the nine months ended September 30, 2024 from 64.7% for the nine months ended September 30, 2023.

Net Written Premiums

Net written premiums increased $131.0 million, or 70.8%, to $315.9 million for the six months ended June 30, 2024 from $185.0 million for the six months ended June 30, 2023.

Net written premiums increased $180.0 million, or 60.9%, to $475.6 million for the nine months ended September 30, 2024 from $295.6 million for the nine months ended September 30, 2023.

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

Net Earned Premiums

Net earned premiums increased $63.8 million, or 38.4%, to $230.2 million for the six months ended June 30, 2024 from $166.3 million for the six months ended June 30, 2023 due primarily to the earning of increased gross written premiums offset by the earning of ceded written premiums under reinsurance agreements.

Net earned premiums increased $113.6 million, or 45.1%, to $365.8 million for the nine months ended September 30, 2024 from $252.2 million for the nine months ended September 30, 2023 due primarily to the earning of increased gross written premiums offset by the earning of ceded written premiums under reinsurance agreements.

The table below shows the amount of premiums we earned on a gross and net basis and net earned premiums as a percentage of gross earned premiums in each period presented.

Six Months Ended

Nine Months Ended

September 30,

($ in thousands)

5 unchanged sentences

Commission and Other Income

Commission and other income was $1.3 million both for the six months ended June 30, 2024 and the six months ended June 30, 2023.

While increased premiums drove higher commissions and policy related fees, this was offset by changes in mix of business to lines with lower commissions and policy related fees.

Commission and other income increased $0.3 million, or 14.3%, to $2.0 for the nine months ended September 30, 2024 from $1.8 for the nine months ended September 30, 2023.

The balance increased due to an increase in commissions and policy related fees driven by increased premiums written.

Losses and Loss Adjustment Expenses

Losses and loss adjustment expenses increased $18.7 million to $57.3 million for the six months ended June 30, 2024 from $38.6 million for the six months ended June 30, 2023.

Losses and loss adjustment expenses increased $42.9 million to $97.6 million for the nine months ended September 30, 2024 from $54.7 million for the nine months ended September 30, 2023.

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

Six Months Ended

Nine Months Ended

September 30,

($ in thousands)

2 unchanged sentences

Total losses and loss adjustment expenses

Our catastrophe loss ratio was 3.0% and 2.4% for the six months ended June 30, 2024 and June 30, 2023, respectively.

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

Our non-catastrophe loss ratio was 21.9% for the six months ended June 30, 2024 compared to 20.8% during the six months ended June 30, 2023.

Catastrophe loss ratio

Non-catastrophe loss ratio

Total loss ratio

NM - not meaningful

Catastrophe losses for the nine months ended September 30, 2024 were related to floods occurring during the first quarter, severe convective storms occurring during the second quarter, and Hurricanes Beryl, Debby, and Helene which occurred during the third quarter.

Catastrophe losses for the nine months ended September 30, 2023 were related to floods occurring during the first quarter and severe convective storms occurring during the second quarter.

Non-catastrophe losses increased for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 due mainly to higher attritional losses on lines of business subject to attritional losses such as Casualty and Inland Marine and Other Property due to premium growth in these lines of business.

Acquisition Expenses

Acquisition expenses increased $15.9 million, or 30.7%, to $67.6 million for the six months ended June 30, 2024 from $51.7 million for the six months ended June 30, 2023.

Acquisition expenses increased $30.3 million, or 38.5%, to $109.1 million for the nine months ended September 30, 2024 from $78.7 million for the nine months ended September 30, 2023.

The increase was primarily due to higher commissions and premium-related taxes resulting from higher gross earned premiums.

This was partially offset by higher earned ceding commissions and fronting fees due to an increase in premiums subject to a quota share or fronting agreement.

Acquisition expenses as a percentage of gross earned premiums were 10.7% for the six months ended June 30, 2024 compared to 11.1% for the six months ended June 30, 2023.

Acquisition expenses as a percentage of gross earned premiums were 10.6% for the nine months ended September 30, 2024 compared to 10.7% for the nine months ended September 30, 2023.

Acquisition expenses as a percentage of gross earned premiums decreased due to the recognition of higher ceding commission and fronting fee income as a percentage of gross earned premiums due to changes in mix of business produced.

Other Underwriting Expenses

Other underwriting expenses increased $14.5 million, or 34.8%, to $56.0 million for the six months ended June 30, 2024 from $41.6 million for the six months ended June 30, 2023.

Other underwriting expenses increased $20.2 million, or 31.6%, to $84.2 million for the nine months ended September 30, 2024 from $64.0 million for the nine months ended September 30, 2023.

The increase was primarily due to the Company incurring higher payroll, technology, stock-based compensation, and professional fees expenses associated with growth of the Company.

Other underwriting expenses as a percentage of gross earned premiums were 8.9% for the six months ended June 30, 2024 compared to 8.9% for the six months ended June 30, 2023.

Excluding the impact of expenses relating to transactions, stock-based compensation, amortization of intangibles, and catastrophe bonds, other underwriting expenses as a percentage of gross earned premiums were 7.1% for the six months ended June 30, 2024 compared to 6.9% for the six months ended June 30, 2023.

Other underwriting expenses as a percentage of gross earned premiums were 8.2% for the nine months ended September 30, 2024 compared to 8.7% for the nine months ended September 30, 2023.

Excluding the impact of expenses relating to transactions, stock-based compensation, amortization of intangibles, and catastrophe bonds, other underwriting expenses as a percentage of gross earned premiums were 6.6% for the nine months ended September 30, 2024 compared to 6.8% for the nine months ended September 30, 2023.

Other underwriting expenses as a percentage of gross earned premiums may fluctuate period over period based on timing of certain expenses relative to premium growth.

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

Net investment income increased $4.4 million, or 41.6%, to $15.1 million for the six months ended June 30, 2024 from $10.7 million for the six months ended June 30, 2023.

The increase was primarily due to a higher average balance of investments during the six months ended June 30, 2024 and higher yields on invested assets.

The Company incurred $3.0 million of net realized and unrealized gains on investments for the six months ended June 30, 2024 compared to $1.3 million of net realized and unrealized gains for the six months ended June 30, 2023 due primarily to higher gains on our equity securities during the period ended June 30, 2024 compared to the period ended June 30, 2023.

Net investment income increased $7.8 million, or 46.8%, to $24.5 million for the nine months ended September 30, 2024 from $16.7 million for the nine months ended September 30, 2023.

The increase was primarily due to a higher average balance of investments during the nine months ended September 30, 2024 and also due to higher yields on invested assets versus the prior year.

The Company incurred $5.8 million of net realized and unrealized gains on investments for the nine months ended September 30, 2024 compared to $0.1 million of net realized and unrealized losses for the nine months ended September 30, 2023 due primarily to higher gains on our equity securities during the period ended September 30, 2024 compared to the period ended September 30, 2023.

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

The following table summarizes the components of our investment income for each period presented:

Six Months Ended

Nine Months Ended

September 30,

($ in thousands)

3 unchanged sentences

Net investment income

Net realized and unrealized gains on investments

Net realized and unrealized gains (losses) on investments

NM- not meaningful

Income Tax Expense

Income tax expense increased $4.8 million or 45.0% to $15.6 million for the six months ended June 30, 2024 from $10.8 million for the six months ended June 30, 2023 due to higher pre-tax income and a higher effective tax rate during the six months ended June 30, 2024.

During the six months ended June 30, 2024, our income tax rate of 23.1% was higher than the statutory rate of 21% due primarily to non-deductible executive compensation expense.

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

Income tax expense increased $6.7 million or 40.0% to $23.6 million for the nine months ended September 30, 2024 from $16.9 million for the nine months ended September 30, 2023 due to higher pre-tax income and a higher effective tax rate during the nine months ended September 30, 2024.

During the nine months ended September 30, 2024, our income tax rate of 22.2% was higher than the statutory rate of 21% due primarily to non-deductible executive compensation expense.

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

Reconciliation of Non ‑ GAAP Financial Measures

6 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

2 unchanged sentences

Net investment income

Net realized and unrealized gains on investments

Net realized and unrealized (gains) losses on investments

Underwriting revenue

10 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

2 unchanged sentences

Net investment income

Net realized and unrealized gains on investments

Net realized and unrealized (gains) losses on investments

Interest expense

13 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

Net realized and unrealized gains on investments

Net realized and unrealized (gains) losses on investments

Expenses associated with transactions

9 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

9 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

15 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands, except per share data)

10 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

12 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

15 unchanged sentences

Stockholders’ equity calculated in accordance with GAAP reconciles to tangible stockholders’ equity as follows:

September 30,

(in thousands)

13 unchanged sentences

Based on the above restrictions, PSIC may pay a dividend or distribution of no greater than $96.0 million in 2024 without approval by the California and Oregon Insurance Commissioners.

During October 2024, PSIC elected to pay a dividend of $95.0 million to its parent company.

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

24 unchanged sentences

Management believes that our current liquidity and cash receipts from written premiums, investment income, proceeds from investment sales and redemptions, and reinsurance recoveries, if necessary, are sufficient to cover cash outflows for each of the Company’s insurance subsidiaries in the foreseeable future.

The following table summarizes our cash flows for the six months ended June 30, 2024 and 2023:

Six Months Ended

The following table summarizes our cash flows for the nine months ended September 30, 2024 and 2023:

Nine Months Ended

September 30,

($ in thousands)

4 unchanged sentences

Change in cash, cash equivalents, and restricted cash

Our cash flow from operating activities was positive during the six months ended June 30, 2024 and 2023 due to net income and a decrease in net operating assets in each period.

Our cash flow from operating activities was positive during the nine months ended September 30, 2024 and 2023 due to net income and a decrease in net operating assets in each period.

Variations in operating cash flow between periods are primarily driven by variations in our gross and ceded written premiums and the volume and timing of premium receipts, claim payments, reinsurance payments, and reinsurance recoveries on paid losses.

In addition, fluctuations in losses and loss adjustment expenses and other insurance operating expenses impact operating cash flows.

Cash used in investing activities for the six months ended June 30, 2024 and 2023 related primarily to purchases of fixed maturity securities in excess of sales and maturities in each period.

Cash used in financing activities for six months ended June 30, 2024 was related to $52.6 million in payments on our lines of credit, offset by the receipt of $4.0 million in proceeds from stock option exercises, the receipt of $0.4 million in proceeds from our employee stock purchase plan and the receipt of $1.1 million in proceeds from policy holder contributions of surplus.

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

Cash used in investing activities for the nine months ended September 30, 2024 and 2023 related primarily to purchases of fixed maturity securities in excess of sales and maturities in each period.

Cash provided by financing activities for nine months ended September 30, 2024 was related to the receipt of $115.7 million in net proceeds from the August 2024 Secondary Offering, the receipt of $5.0 million in proceeds from stock option exercises, the receipt of $0.9 million in proceeds from our employee stock purchase plan and the receipt of $2.0 million in proceeds from policy holder contributions of surplus, offset by $52.6 million in payments on our lines of credit.

Cash used in financing activities for nine months ended September 30, 2023 was related to the repurchase of $22.1 million of our common stock, offset by $16.2 million in borrowings from our FHLB line of credit, the receipt of $0.6 million in proceeds from stock option exercises and the receipt of $0.8 million in proceeds from our employee stock purchase plan.

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

1 unchanged sentence

The key factor that will affect our future operating cash flows is the frequency and severity of catastrophe losses.

To the extent our future operating cash flows are insufficient to cover our net losses from catastrophic events, we had $777.9 million in cash and investment securities available at June 30, 2024.

To the extent our future operating cash flows are insufficient to cover our net losses from catastrophic events, we had $1,017.5 million in cash and investment securities available at September 30, 2024.

We also have the ability to access additional capital through pursuing third‑party borrowings, sales of our equity or debt securities or entrance into a reinsurance arrangement.

Share Repurchases

We have previously implemented a share repurchase plan and have used and may use our cash in the future to purchase outstanding shares of our common stock.

We have previously administered a share repurchase plan and have used and may use our cash in the future to purchase outstanding shares of our common stock.

Under our previous share repurchase program, shares were repurchased from time to time in the open market or negotiated transactions at prevailing market rates, or by other means in accordance with federal securities laws.

The program ended on March 31, 2024 and no shares have been repurchased in 2024.

Our previous share repurchase program ended on March 31, 2024 and no shares have been repurchased in 2024.

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

8 unchanged sentences

Currently, $15 million of the borrowing capacity of the Credit Agreement is pledged as collateral and not able to be utilized.

As of June 30, 2024, we had no borrowings outstanding through the Credit Agreement.

As of September 30, 2024, we had no borrowings outstanding through the Credit Agreement.

Our PSIC subsidiary is a member of the Federal Home Loan Bank of San Francisco (“FHLB”).

2 unchanged sentences

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

As of June 30, 2024, we had no borrowings outstanding through the FHLB line of credit.

As of September 30, 2024, we had no borrowings outstanding through the FHLB line of credit.

Stockholders ’ Equity

At June 30, 2024 total stockholders’ equity was $532.6 million and tangible stockholders’ equity was $521.1 million, compared to total stockholders’ equity of $471.3 million and tangible stockholders’ equity of $458.9 million as of December 31, 2023.

Stockholder’s equity increased primarily due to net income earned for the period, activity related to stock-based compensation, and unrealized gains on fixed maturity securities.

At September 30, 2024 total stockholders’ equity was $703.3 million and tangible stockholders’ equity was $692.2 million, compared to total stockholders’ equity of $471.3 million and tangible stockholders’ equity of $458.9 million as of December 31, 2023.

Stockholder’s equity increased primarily due to the receipt of $115.7 million in net proceeds from our August 2024 Secondary Offering.

In addition, stockholders' equity increased due to net income earned for the period, activity related to stock-based compensation, and unrealized gains on fixed maturity securities.

Tangible stockholders’ equity is a non‑GAAP financial measure.

6 unchanged sentences

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

As of June 30, 2024, the majority of our investment portfolio, or $687.1 million, was comprised of fixed maturity securities that are classified as available‑for‑sale and carried at fair value with unrealized gains and losses on these securities, net of applicable taxes, reported as a separate component of accumulated other comprehensive income.

As of September 30, 2024, the majority of our investment portfolio, or $883.0 million, was comprised of fixed maturity securities that are classified as available‑for‑sale and carried at fair value with unrealized gains and losses on these securities, net of applicable taxes, reported as a separate component of accumulated other comprehensive income.

Also included in our investment portfolio were $40.2 million of equity securities, $2.5 million of equity method investments and $5.2 million of investments in limited partnerships.

In addition, we maintained a non‑restricted cash and cash equivalent balance of $47.8 million at June 30, 2024.

Our fixed maturity securities, including cash equivalents, had a weighted average effective duration of 3.73 and 3.48 years and an average rating of “A1/A+” and “Aa3/A+” at June 30, 2024 and December 31, 2023, respectively.

Our fixed income investment portfolio had a book yield of 4.30% as of June 30, 2024, compared to 4.07% as of December 31, 2023.

At June 30, 2024 and December 31, 2023 the amortized cost and fair value on available‑for‑sale securities were as follows:

June 30, 2024

In addition, we maintained a non‑restricted cash and cash equivalent balance of $86.5 million at September 30, 2024.

Our fixed maturity securities, including cash equivalents, had a weighted average effective duration of 3.86 and 3.48 years and an average rating of “A1/A+” and “Aa3/A+” at September 30, 2024 and December 31, 2023, respectively.

Our fixed income investment portfolio had a book yield of 4.58% as of September 30, 2024, compared to 4.07% as of December 31, 2023.

At September 30, 2024 and December 31, 2023 the amortized cost and fair value on available‑for‑sale securities were as follows:

September 30, 2024

($ in thousands)

13 unchanged sentences

Total available-for-sale investments

The following tables provide the credit quality of investment securities as of June 30, 2024 and December 31, 2023:

June 30, 2024

The following tables provide the credit quality of investment securities as of September 30, 2024 and December 31, 2023:

September 30, 2024

($ in thousands)

1 unchanged sentence

($ in thousands)

The amortized cost and fair value of our available‑for‑sale investments in fixed maturity securities summarized by contractual maturity as of June 30, 2024 were as follows:

June 30, 2024

The amortized cost and fair value of our available‑for‑sale investments in fixed maturity securities summarized by contractual maturity as of September 30, 2024 were as follows:

September 30, 2024

($ in thousands)

22 unchanged sentences

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

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

The catastrophe bond was completed through Torrey Pines Re Pte.

(“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, the Company closed a $275 million 144A catastrophe bond which became effective June 1, 2022.

In addition to reinsurance purchased from traditional reinsurers, we have historically incorporated collateralized protection from the insurance linked securities market via catastrophe bonds.

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

During the second quarter of 2023, the Company also closed a $200 million 144A catastrophe bond which became effective June 1, 2023.

During the second quarter of 2023, we closed a $200 million 144A catastrophe bond which became effective June 1, 2023.

This catastrophe bond was also completed through Torrey Pines Re Ltd and provides indemnity-based reinsurance covering earthquake events through June 1, 2026.

During the second quarter of 2024, the Company also closed a $420 million 144A catastrophe bond which became effective June 1, 2024.

During the second quarter of 2024, we closed a $420 million 144A catastrophe bond which became effective June 1, 2024.

This catastrophe bond was also completed through Torrey Pines Re Ltd and provides indemnity-based reinsurance covering earthquake events through June 1, 2027.

16 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements