What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2025-02-25 compared with 2024-02-23 · 69 added, 74 removed, 675 unchanged (17% of the section changed)

3 unchanged sentences

Prior to that time, there was no public market for our common shares.

As of February 22, 2024, there were approximately seven holders of record of our common stock.

As of February 22, 2025, there were approximately six holders of record of our common stock.

Because most of our shares of common stock are held by brokers and other institutions on behalf of our stockholders, this number is not representative of our total stockholders.

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Issuer Purchases of Equity Securities

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

The Company purchased 418,901 shares for $22.3 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.

There were no share repurchases during the quarter ended December 31, 2023.

This program ended on March 31, 2024 and there were no share repurchases during the year ended December 31, 2024.

Performance Graph

The following performance graph compares the cumulative total shareholder return of an investment in (1) our common stock, (2) the cumulative total returns to the Nasdaq Composite Index and (3) the cumulative total returns to the Nasdaq Insurance Index, for the period from April 17, 2019 (the date our common stock began trading on Nasdaq) through December 31, 2023.

The graph assumes an initial investment of $100.

Such returns are based on historical results and are not indicative of future performance.

April 17, 2019

December 31, 2019

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December 31, 2023

December 31, 2024

Palomar Holdings, Inc

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Forward-looking statements in this Annual Report on Form 10-K are based on information available to us as of the date hereof, and we assume no obligation to update any such forward-looking statements.

The following section generally discusses 2023 results compared to 2022 results.

Discussion of 2022 results compared to 2021 results can be found in item 7 of our 2022 Annual Report on Form 10-K.

We are a specialty insurance company that provides property and casualty insurance products to individuals and businesses.

We use our underwriting and analytical expertise to provide products for select markets that we believe are underserved by other insurance companies, including the market for earthquake insurance.

We use our underwriting and analytical expertise to provide innovative insurance products serving five categories:

Earthquake, Inland Marine and Other Property, Casualty, Fronting, and Crop.

We use proprietary data analytics and a modern technology platform to offer our customers flexible products with customized and granular pricing for both the admitted and excess and surplus lines (“E&S”) markets.

We provide admitted insurance products through our Oregon domiciled insurance company, Palomar Specialty Insurance Company (“PSIC”), and E&S insurance products through our Arizona domiciled surplus lines insurance company, Palomar Excess and Surplus Insurance Company (“PESIC”).

Each of our insurance company subsidiaries as carries an “A-“ rating from A.M.

Our insurance company subsidiaries, Palomar Specialty Insurance Company (“PSIC”) and Palomar Excess and Surplus Insurance Company (“PESIC”) carry an “A” rating from A.M.

Best Company (“A.M.

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

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

In recent years, we have introduced several new products including Crop, Environmental Liability, and E&S Casualty.

In January 2025, we completed the acquisition of First Indemnity of America ("FIA"), a New Jersey domiciled insurance carrier specializing in surety bonds for small to medium sized contractors primarily in the Northeast United States.

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

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In periods where we assume a large volume of unearned premiums, our gross written premiums may increase significantly compared to prior periods and the increase may not be indicative of future trends.

The majority of our Crop written premiums are recognized in the third quarter, as we receive the requisite reporting from insureds at that time.

Ceded Written Premiums

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The majority of our insurance policies have a term of one year and premiums are earned pro rata over the terms of the policies.

Crop premiums are earned ratably over the risk period.

The requisite reporting of Crop premiums is primarily received in the third quarter, after the start of the risk period, and earned premium is caught up to cover the period between the start of the risk period and receipt of reporting.

Generally, this process results in most of the Crop earned premiums being recognized in the third quarter of each year.

Commission and Other Income

Commission and other income consist of commissions earned on policies written on behalf of third-party insurance companies where we have no exposure to the insured risk and certain fees earned in conjunction with underwriting policies.

Commission and other income consists primarily of fees and commissions earned in conjunction with underwriting policies.

Commission and other income are earned on the effective date of the underlying policy.

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These expenses are a function of the size and term of the insurance policies we write and the loss experience associated with the underlying coverage.

Certain policies we write subject us to attritional losses such as building fires.

Certain policies we write subject us to attritional losses such as building fires or casualty claims.

In addition, many of the policies we write subject us to catastrophe losses.

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We invest primarily in investment grade fixed maturity securities, including U.S.

government issues, state government issues, mortgage and asset-backed obligations, and corporate bonds with a small portion of our portfolio in equity securities, equity method investments, and cash and cash equivalents.

The principal factors that influence net investment income are the size of our investment portfolio, the yield on that portfolio, and investment management expenses.

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Net Realized and Unrealized Gains and Losses on Investments

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

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

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

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Results of Operations

Year ended December 31, 2023 compared to year ended December 31, 2022

The following table summarizes our results for the years ended December 31, 2024 and 2023:

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Net investment income

Net realized and unrealized gains (losses) on investments

Net realized and unrealized gains on investments

Income before income taxes

Income tax expense

Net realized and unrealized (gains) losses on investments

Net realized and unrealized gains on investments

Expenses associated with transactions

1 unchanged sentence

Amortization of intangibles

Expenses associated with catastrophe bond, net of rebate

Expenses associated with catastrophe bond

Adjusted net income (1)

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Gross Written Premiums

Gross written premiums were $1.1 billion for the year ended December 31, 2023 compared to $881.9 million for the year ended December 31, 2022, an increase of $259.7 million, or 29.4%.

Gross written premiums were $1.5 billion for the year ended December 31, 2024 compared to $1.1 billion for the year ended December 31, 2023, an increase of $400.4 million, or 35.1%.

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:

The following table summarizes our gross written premiums by product and shows each product's percentage of total gross written premiums for each period:

Year Ended December 31,

($ in thousands)

Residential Earthquake

Commercial Earthquake

Inland Marine

Hawaii Hurricane

Commercial All Risk

Residential Flood

Specialty Homeowners

Inland Marine and Other Property

Total Gross Written Premiums

(1) - Beginning in 2024, the Company has updated the categorization of its products to align with management's current strategy and view of the business.

Prior year amounts have been reclassified for comparability purposes.

The recategorization is for presentation purposes only and does not impact overall gross written premiums.

Fronting premiums represent premium where we subsequently cede the majority of the premium and risk in exchange for a fronting fee, which is our primary source of profit in the arrangement.

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

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

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

In addition, during 2022, we made underwriting changes to reduce our exposure to continental U.S.

hurricane events.

These underwriting changes contributed to the decline in Commercial All Risk and Specialty Homeowners premiums shown above.

A large fronting partnership terminated in the third quarter of 2024, causing the decline in fronting premiums shown above.

The year ended December 31, 2024 was our first full year of offering Crop products, which led to the growth shown above.

Crop premiums are primarily written and earned during the third quarter of each year.

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

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Total Gross Written Premiums

NM- Not meaningful

Ceded Written Premiums

Ceded written premiums increased $165.6 million, or 22.6%, to $897.1 million for the year ended December 31, 2024 from $731.5 million for the year ended December 31, 2023.

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

The increase was primarily due to increased premiums ceded related to our Crop products as these products saw significant growth and we currently cede the majority of Crop premiums and risk to reinsurers.

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

Ceded written premiums as a percentage of gross written premiums increased to 64.1% for the year ended December 31, 2023 from 59.5% for the year ended December 31, 2022.

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

Although our volume of ceded written premiums increased, ceded written premiums as a percentage of gross written premiums decreased to 58.2% for the year ended December 31, 2024 from 64.1% for the year ended December 31, 2023.

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

Net Written Premiums

Net written premiums increased $234.8 million, or 57.3%, to $644.9 million for the year ended December 31, 2024 from $410.0 million for the year ended December 31, 2023.

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

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

Net Earned Premiums

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Net earned premium ratio

The decline in net earned premium ratio shown above was primarily caused by an increase to fronting premiums whereby the majority of premium and exposure is ceded in exchange for a fronting fee which is recognized as an offset to acquisition expenses.

Our net earned premium ratio increased due to changes in our composition of business whereby premiums earned in the current period were subject to lower quota share or XOL cession percentages compared to premiums earned in the prior period.

Commission and Other Income

Commission and other income decreased $0.6 million, or 17.3%, to $2.8 million for the year ended December 31, 2024 from $3.4 million for the year ended December 31, 2023.

The decrease was driven by a lower volume of policies written through our internal managing general agency, Palomar Insurance Agency.

The decrease was driven by a decrease in policy related fees driven by changes in the mix of business produced.

Losses and Loss Adjustment Expenses

Losses and loss adjustment expenses decreased $6.1 million, or 7.7%, to $72.6 million for the year ended December 31, 2023 from $78.7 million for the year ended December 31, 2022.

Losses and loss adjustment expenses increased $62.2 million, or 85.6%, to $134.8 million for the year ended December 31, 2024 from $72.6 million for the year ended December 31, 2023.

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

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Total loss ratio

Catastrophe losses increased during the year ended December 31, 2024 due to higher frequency and severity of catastrophe events compared to the prior year.

Catastrophe losses during the year ended December 31, 2024 were related to floods occurring during the first quarter, severe convective storms occurring during the second quarter, and Hurricanes Beryl, Debby, Helene and Milton which occurred during the third and fourth quarters.

Catastrophe losses during the year ended December 31, 2023 were primarily related to floods occurring during the first quarter and severe convective storms occurring during the second quarter.

Catastrophe losses during the year ended December 31, 2022 primarily included losses from Hurricane Ian which mainly impacted our Commercial All Risk line of business.

Catastrophe losses decreased due to less severe events during the year ended December 31, 2023.

Non-catastrophe attritional losses increased due to a higher volume of premiums being subject to attritional losses, primarily driven by the growth in Inland Marine and Casualty Premiums.

Non-catastrophe attritional losses increased due to a higher volume of premiums being subject to attritional losses, primarily driven by the growth in Casualty and Inland Marine and other Property premiums.

Acquisition Expenses

Acquisition expenses decreased $3.0 million, or 2.7%, to $107.7 million for the year ended December 31, 2023 from $110.8 million for the year ended December 31, 2022.

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

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

Acquisition expenses increased $41.9 million, or 38.9%, to $149.7 million for the year ended December 31, 2024 from $107.7 million for the year ended December 31, 2023.

The increase was primarily due to higher commission expenses driven by higher gross earned premiums.

This was partially offset by higher ceding commissions due to a higher volume of premiums subject to quota share arrangements.

Acquisition expenses as a percentage of gross earned premiums were 10.7% for the year ended December 31, 2024 compared to 10.6% for the year ended December 31, 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 and growth in fronting premiums.

Acquisition expenses as a percentage of gross earned premiums slightly increased due to the higher commission expenses as a percentage of gross earned premiums due to changes in mix of business produced.

Other Underwriting Expenses

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Excluding the impact of expenses relating to transactions, stock-based compensation, amortization of intangibles, and catastrophe bonds, other underwriting expenses as a percentage of gross earned premiums were 6.8% for the year ended December 31, 2024 compared to 6.8% for the year ended December 31, 2023.

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

This percentage was relatively consistent as adjusted operating expenses grew at approximately the same rate as gross earned premiums.

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.

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The increase was primarily due to a higher average balance of investments during the year ended December 31, 2024 and higher yields on invested assets.

The Company incurred $2.9 million of net realized and unrealized gains on investments for the year ended December 31, 2023 compared to $7.5 million of net realized and unrealized losses for the year ended December 31, 2022.

In both periods, the balance was primarily driven by unrealized gains and losses on our equity securities due to the general performance of equity security markets.

The Company incurred $4.6 million of net realized and unrealized gains on investments for the year ended December 31, 2024 compared to $2.9 million of net realized and unrealized gains for the year ended December 31, 2023.

In both periods, the balance was primarily driven by unrealized gains on our equity securities due to the general performance of equity security markets.

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

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Net investment income

Net realized and unrealized gains (losses) on investments

Net realized and unrealized gains on investments

Income Tax Expense

Income tax expense increased $9.2 million, or 37.6%, to $33.6 million for the year ended December 31, 2024 compared to $24.4 million during the year ended December 31, 2023.

For the year ended December 31, 2023 our effective tax rate was 23.6% and the difference between our tax effective tax rate and the statutory rate of 21% relates primarily to non-deductible executive compensation expense, offset by the permanent component of employee stock options.

For the year ended December 31, 2024 our effective tax rate was 22.2% and the difference between our tax effective tax rate and the statutory rate of 21% relates primarily to non-deductible executive compensation expense and state taxes, offset by the permanent component of employee stock options.

For the year ended December 31, 2023, our effective tax rate was 23.6% and the difference between our tax rate and the statutory rate of 21% relates primarily to non-deductible executive compensation expense and state taxes, offset by the permanent component of employee stock options.

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Amortization of intangibles

Expenses associated with catastrophe bond, net of rebate

Expenses associated with catastrophe bond

Adjusted underwriting income

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Amortization of intangibles

Expenses associated with catastrophe bond, net of rebate

Expenses associated with catastrophe bond

Adjusted net income

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Amortization of intangibles

Expenses associated with catastrophe bond, net of rebate

Expenses associated with catastrophe bond

Adjusted combined ratio

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Amortization of intangibles

Expenses associated with catastrophe bond, net of rebate

Expenses associated with catastrophe bond

Catastrophe losses

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Based on the above restrictions, PSIC may pay a dividend or distribution of no greater than $99.6 million in 2025 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.

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Cash used in investing activities for each of the last two years related primarily to purchases of fixed income and equity securities in excess of sales and maturities.

Cash used in financing activities for the year ended December 31, 2023 related to the repurchase of $22.3 million of our common stock, offset by $16.2 million in proceeds from our FHLB line of credit, $1.2 million in proceeds from common stock issued via stock option exercises and the receipt of $0.8 million in proceeds from our employee stock purchase plan.

Cash provided by financing activities for the year ended December 31, 2022 related to $36.4 million in proceeds from our FHLB line of credit, $2.3 million in proceeds from common stock issued via stock option exercises and $0.8 million in proceeds from our employee stock purchase plan, offset by the repurchase of $34.4 million of our common stock.

Cash provided by financing activities for the year ended December 31, 2024 related to the receipt of $115.7 million in proceeds from a stock offering, $7.0 million in proceeds from stock option exercises, $2.8 million in proceeds from policy holder contributions of surplus and $0.9 million in proceeds from our employee stock purchase plan, offset by $52.6 million in payments on our FHLB line of credit.

Cash used in financing activities for the year ended December 31, 2023 related to the repurchase of $22.3 million of our common stock, offset by $16.2 million in proceeds from our FHLB line of credit, $1.2 million in proceeds from stock option exercises and $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.

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More Than Five Years

($ in thousands)

(in thousand)

Reserves for losses and loss adjustment expenses

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Share repurchases

We also have implemented 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 current share repurchase program, shares may be repurchased from time to time in the open market or negotiated transactions at prevailing market rates, or by other means in accordance with federal securities laws.

We purchased 418,901 shares for $22.3 million under this program during the year ended December 31, 2023 and $43.5 million remains available for future repurchases.

The timing and amount of future share repurchases will depend on several factors, including our stock price performance, ongoing capital planning considerations, general market conditions, and applicable legal requirements.

Our share repurchase program expired on March 31, 2024 and we did not make any share repurchases during the year ended December 31, 2024.

Credit Agreement

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

As of December 31, 2023, the Company had $52.6 million of borrowings outstanding through the FHLB line of credit.

As of December 31, 2024, the Company did not have any borrowings outstanding through the FHLB line of credit.

Financial Condition

1 unchanged sentence

At December 31, 2024 total stockholders’ equity was $729.0 million and tangible stockholders’ equity was $715.8 million, compared to total stockholders’ equity of $471.3 million and tangible stockholders’ equity of $458.9 million as of December 31, 2023.

Stockholders’ equity increased primarily due to net income we earned for the period and activity related to stock-based compensation, and was partially offset by repurchases of shares of our common stock.

Stockholders’ equity increased primarily due to net income we earned for the period, stock offering proceeds, and activity related to stock-based compensation.

Stock-based compensation expense is treated as an additional paid-in-capital and increases stockholders’ equity.

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In addition, we maintained a non-restricted cash and cash equivalent balance of $80.5 million at December 31, 2024.

Our fixed maturity securities, including cash equivalents, had a weighted average effective duration of 3.48 and 3.81 years and an average rating of “Aa3/A+” and “A1/A+” at December 31, 2023 and December 31, 2022, respectively.

Our fixed maturity securities, including cash equivalents, had a weighted average effective duration of 4.04 and 3.48 years and an average rating of A1/A+ and “Aa3/A+” at December 31, 2024 and December 31, 2023, respectively.

Our fixed income investment portfolio had a book yield of 4.59% as of December 31, 2024, compared to 4.07% as of December 31, 2023.

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

With the assistance of an independent actuarial firm, we use statistical analysis to estimate the cost of losses and loss adjustment expenses related to IBNR.

We use statistical analysis to estimate the cost of losses and loss adjustment expenses related to IBNR.

Those estimates are based on our historical information, industry information and practices, and estimates of trends that may affect the ultimate frequency of incurred but not reported claims and changes in ultimate claims severity.

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During the year ended December 31, 2024, our total gross incurred losses for accident years 2023 and prior developed favorably by $43.2 million.

The gross favorable development was due primarily to lower than anticipated severity of attritional losses in our Inland Marine and other property line of business.

On a net basis, the development was favorable by $3.0 million due to the same reason.

During the year ended December 31, 2023, our total gross incurred losses for accident years 2022 and prior developed favorably by $35.8 million.

The gross favorable development was due primarily to lower than anticipated severity of catastrophe losses, offset by higher than anticipated severity of attritional losses.

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The favorable 2021 development was subject to a higher amount of ceding versus the unfavorable 2020 development resulting in the net unfavorable development being higher than the gross amount.

During the year ended December 31, 2021, our gross incurred losses for accident years 2020 and prior developed unfavorably by $28.7 million.

The gross unfavorable development was due primarily to losses on certain 2020 Hurricanes emerging at a higher severity than expected, primarily in our special property lines of business.

On a net basis, the development was favorable by $3.6 million due to the effect of ceding gross unfavorable development under our reinsurance program.

The catastrophe events which experienced unfavorable development were primarily subject to ceding under our XOL treaties while the catastrophe events which experienced favorable development were subject to a lower amount of ceding.

Although we believe that our reserve estimates are reasonable, it is possible that our actual loss experience may not conform to our assumptions.

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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.

The Company also invests a small portion of its portfolio in limited partnerships, which are classified as other investments on its consolidated balance sheet.

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

Deferred Income Taxes

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These tax planning strategies include the holding of fixed maturity securities that are currently in a net unrealized loss position for tax purposes until recovery or maturity, if needed, to avoid future expiring capital loss carryforwards.

As of December 31, 2023, we had a valuation allowance of $3.5 million relating to our state net operating loss carryforwards and federal net operating losses related to Laulima, and the remainder of our deferred tax assets did not require a valuation allowance.

As of December 31, 2024, we had a valuation allowance of $3.4 million relating to our state net operating loss carryforwards and the remainder of our deferred tax assets did not require a valuation allowance.

Recent Accounting Pronouncements

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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 5. Market for Registrant’s Common Equity