What changed in this filing

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Item 1A. Risk Factors

2025-05-06 compared with 2024-11-06 · 64 added, 35 removed, 594 unchanged (14% of the section changed)

Summary Risk Factors

Our business is subject to numerous risks and uncertainties, these risks include, but are not limited to, the following:

Our business is subject to numerous risks and uncertainties.

These risks include, but are not limited to, the following:

Risks Related to Our Business and Industry:

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There is intense competition for business in our industry;

Volatility in crop prices, as a result of weather conditions or other events, could adversely impact our results of operations;

Risks Related to the Economic Environment:

Adverse economic factors, including recession, inflation, periods of high unemployment or lower economic activity could affect our growth and profitability;

Changes in global trade policies, including the imposition of tariffs, along with broader economic uncertainty, could contribute to financial market volatility, shifts in interest rates, and disruptions to the sectors we insure;

Risks Related to Technology:

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Claims arising from unpredictable and severe catastrophe events, including those caused by global climate change, could reduce or eliminate our earnings and stockholders ’ equity and limit our ability to underwrite new insurance policies.

Our insurance operations expose us to claims arising from unpredictable catastrophe events, such as earthquakes, hurricanes, windstorms, floods and other severe events.

Our insurance operations expose us to claims arising from unpredictable catastrophe events, such as earthquakes, hurricanes, windstorms, floods, wildfires, and other severe events.

We have incurred significant losses from catastrophe events multiple times in our history and we may incur significant losses from future catastrophe events.

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The occurrence of a natural disaster or other catastrophe loss could materially adversely affect our business, financial condition, and results of operations.

These events could impact our business even where we do not have insured exposure, such as the 2025 California wildfires, as homes and businesses lost due to such events may cancel or not renew their policies with us which could adversely affect our business, financial condition, and results of operations.

Additionally, any increased frequency and severity of such weather events, including hurricanes, could have a material adverse effect on our ability to predict, quantify, reinsure and manage catastrophe risk and may materially increase our losses resulting from such catastrophe events.

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Best threshold.

Our catastrophe event retention is $20 million for earthquake events and $15.5 million for hurricane events and all other perils.

Our catastrophe event retention is currently $20 million for earthquake events and $15.5 million for hurricane events and all other perils.

In addition to our event retention, we may also incur additional reinsurance expenses upon a catastrophe event.

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We evaluate each reinsurance claim based on the facts of the case, historical experience with the reinsurer on similar claims and existing case law and consider including any amounts deemed uncollectible from the reinsurer in a reserve for uncollectible reinsurance.

As of September 30, 2024, we had $419.1 million of aggregate reinsurance recoverables.

As of March 31, 2025, we had $391.6 million of aggregate reinsurance recoverables.

Our loss reserves are established based on estimates which may be inadequate to cover actual incurred losses and could have a material adverse impact on our results of operations and financial condition.

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Accordingly, claims may arise in years after a policy has lapsed.

In addition, catastrophe events often involve a significant number of claims and ultimate cost of settling all claims is inherently difficult to predict upon the event’s occurrence.

In addition, there may be significant reporting lags between the occurrence of an insured event and the time it is actually reported to us and additional lags between the time of reporting and final settlement of any claims.

Consequently, estimates of loss associated with specified claims can increase as new information emerges, which could cause the reserves for the claim to become inadequate.

Our reserves are driven by several important factors, including litigation and regulatory trends, legislative activity, climate change, social and economic patterns, and claims inflation assumptions.

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

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 provided Palomar with indemnity-based reinsurance covering earthquake events through June 1, 2024.

During the second quarter of 2022, we closed a $275 million 144A catastrophe bond 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, we closed a $200 million 144A catastrophe bond which became effective June 1, 2023.

During the second quarter of 2023, we also 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, we closed a $420 million 144A catastrophe bond which became effective June 1, 2024.

During the second quarter of 2024, we also 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.

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Best financial strength ratings range from “A++” (Superior) to “F” for insurance companies that have been publicly placed in liquidation.

As of September 30, 2024, A.M.

Best has assigned a financial strength rating of “A” (Excellent) (Outlook Positive) to our insurance company subsidiaries, Palomar Specialty Insurance Company (“PSIC”) and Palomar Excess and Surplus Insurance Company (“PESIC”).

As of March 31, 2025, A.M.

Best has assigned a financial strength rating of “A” (Excellent) (Outlook Stable) to our insurance company subsidiaries, Palomar Specialty Insurance Company (“PSIC”) and Palomar Excess and Surplus Insurance Company (“PESIC”).

First Indemnity of America Insurance Co.

("FIA") carries an “A-” (Stable) rating from A.M.

Best assigns ratings that are intended to provide an independent opinion of an insurance company’s ability to meet its obligations to policyholders and such ratings are not evaluations directed to investors and are not a recommendation to buy, sell or hold our common stock or any other securities we may issue.

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It is possible that such reviews of us may result in adverse ratings consequences, which could have a material adverse effect on our financial condition and results of operations.

We and our customers could be negatively and adversely impacted by pandemics, disease outbreaks and other public health crises, such as the COVID-19 pandemic.

We and our customers could be negatively and adversely impacted by pandemics, disease outbreaks and other public health crises.

The extent of the impact of a pandemic, disease outbreak or other public health crisis on our operational and financial performance depends on several factors, including the ultimate duration and severity of the event, the emergence and severity of variant strains, actions taken and restrictions imposed by the government and health officials in response, the effectiveness and adoption of vaccines and therapeutics, the ability for our customers to continue to pay premiums, contraction of the insurance and reinsurance markets, and the ability for reinsurers to satisfy claims, all of which are uncertain and cannot be predicted.

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Our business is concentrated in California and, as a result, we are exposed more significantly to California loss activity and regulatory environments.

Our policyholders and insurance risks are currently concentrated in California, which generated 53% of our gross written premiums for the year ended December 31, 2023 and 44% for the nine months ended September 30, 2024.

Our policyholders and insurance risks are currently concentrated in California, which generated 43% of our gross written premiums for the year ended December 31, 2024 and 32% for the three months ended March 31, 2025.

We are exposed to business, economic, political, judicial and regulatory risks due to this concentration that are greater than the risks faced by insurance companies with a lower concentration of their premiums in California.

Any single, major catastrophe event, series of events or other condition causing significant losses in California could materially adversely affect our business, financial condition and results of operations.

This may include catastrophes even where we do not insure against the loss, such as the 2025 California wildfires, as homes and businesses lost or damaged due to catastrophe may otherwise cancel our policies following such event.

Additionally, unfavorable business, economic or regulatory conditions in California may result in a significant reduction of our premiums or increase our loss exposure.

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As such, higher demand for employees having the desired skills and expertise could lead to increased compensation expectations for existing and prospective personnel, making it difficult for us to retain and recruit key personnel and maintain labor costs at desired levels.

Recently, companies have had issues with employee turnover and finding, hiring, and retaining qualified employees.

These challenges may continue for the foreseeable future.

In particular, our future success is substantially dependent on the continued service of our Founder, Chief Executive Officer and Chairman, Mac Armstrong, and our Chief Financial Officer, Christopher Uchida.

In particular, our future success is substantially dependent on the continued service of our Founder, Chief Executive Officer and Chairman, Mac Armstrong, our Chief Financial Officer, Christopher Uchida and our President, Jon Christianson.

Should any of our key executives terminate their employment with us, or if we are unable to retain and attract talented personnel, we may be unable to maintain our current competitive position in the specialized markets in which we operate, which could adversely affect our results of operations.

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

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

For the year ended December 31, 2024, our largest program administrator distributed $403.4 million or 26.2% of our gross written premiums.

There were no other program administrators which distributed greater than 10% of our gross written premiums for the year ended December 31, 2024.

For the nine months ended September 30, 2024, our largest program administrator distributed $298.7 million or 25.6% of our gross written premiums and our second largest program administrator distributed $123.0 million, or 10.5% of our gross written premiums.

There were no other program administrators which distributed greater than 10% of our gross written premiums for the nine months ended September 30, 2024.

For the three months ended March 31, 2025, our largest program administrator distributed $95.1 million or 21.5% of our gross written premiums.

There were no other program administrators which distributed greater than 10% of our gross written premiums for the three months ended March 31, 2025.

Our largest program administrator, Arrowhead General Insurance Agency, distributes our Value Select Residential Earthquake program, which represents the majority of our Residential Earthquake premium and is administered through a mutually exclusive agreement for the states of California, Oregon and Washington.

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As part of our business strategy, we may make acquisitions, including acquisitions in lines of business that are natural adjacencies.

For example, we recently completed the acquisition of FIA in January 2025 and the acquisition of AAP in April 2025.

The success of our acquisition strategy is dependent upon our ability to identify appropriate acquisition targets, negotiate transactions on favorable terms, complete transactions, have adequate access to financing and the ability to finance acquisitions on acceptable terms, and successfully integrate them into our existing businesses.

We may not realize the anticipated benefits of acquisitions we have completed or may complete in the future, and we may not be able to incorporate any acquired lines of business with our existing operations, or integrate personnel from the acquired businesses, in which case our business, financial condition and results of operations could be harmed.

If acquisitions are made, we may not realize the anticipated benefits of such acquisitions, including, but not limited to, revenue growth, operational efficiencies, or expected synergies.

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In addition, many of the businesses that we acquire and develop will likely have smaller scales of operations prior to the implementation of our growth strategy.

If our growth continues, it may place a significant strain on our management team and on our operational and financial systems, procedures, and controls.

If we are not able to manage the growing complexity of these businesses, including improving, refining, or revising our systems and operational practices, enlarging the scale and scope of the businesses, and integrating the new business into our culture and operations, our business may be adversely affected.

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If we breach any of the covenants and do not obtain a waiver from the noteholders or lenders, then, subject to applicable cure periods, any outstanding debt may be declared immediately due and payable.

Volatility in crop prices, as a result of weather conditions or other events, could adversely impact our results of operations.

Weather conditions, including too much moisture (flooding or excessive rain), not enough moisture (droughts), and the level of crop prices in the commodities market heavily impact our crop insurance products.

These factors are inherently unpredictable and could result in significant volatility in our operating results from one year to the next.

Our results could also be negatively impacted by pests and plant disease.

A large decline in the commodity prices of one or more of the major crops that we insure could have a material adverse effect on our results of operations or financial condition.

Instability in the surety market, resulting from construction defaults, contractual disputes, or evolving regulatory requirements, could negatively impact the performance of our surety products;

Fluctuations in construction industry performance, defaults on bonded projects, contractual disagreements and regulatory changes are inherent risks in the surety insurance industry.

These events may lead to significant challenges in underwriting, claims management, and regulatory compliance.

Depending on our ability to effectively manage the impact of these risks, we could face increased loss reserves, higher underwriting losses, and rising operational costs, all of which could materially affect our financial performance and overall profitability.

Risks Related to the Economic Environment

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An economic downturn which particularly impacts California could have an adverse effect on our financial condition and results of operations.

Ongoing global economic uncertainty, including the effects of inflation, interest rate volatility, and changes in international trade policies such as the imposition of tariffs, could have wide-ranging impacts on the markets in which we operate.

These conditions may lead to shifts in consumer behavior, changes in exposure levels across personal and commercial lines, and increased costs associated with claims, operations, and policy administration.

In addition, market volatility may negatively impact the performance of our investment portfolio and influence policyholder behavior.

Together, these developments could adversely affect our financial results, capital position, and ability to execute our long-term business strategy.

Performance of our investment portfolio is subject to a variety of investment risks that may adversely affect our financial results.

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These securities are carried on the balance sheet at fair market value and are subject to potential losses and declines in market value based on the performance of equity markets.

Our equity invested assets totaled $40.2 million as of September 30, 2024.

Risks for all types of securities are managed through the application of our investment policy, which establishes investment parameters that include but are not limited to, maximum percentages of investment in certain types of securities and minimum levels of credit quality, which we believe are within applicable guidelines established by the National Association of Insurance Commissioners (“NAIC”), the Oregon Division of Financial Regulation and the California and Arizona Departments of Insurance.

Our equity invested assets totaled $44.4 million as of March 31, 2025.

Risks for all types of securities are managed through the application of our investment policy, which establishes investment parameters that include but are not limited to, maximum percentages of investment in certain types of securities and minimum levels of credit quality, which we believe are within applicable guidelines established by the National Association of Insurance Commissioners (“NAIC”), and the respective state insurance departments regulating each of our insurance company subsidiaries.

Although we seek to preserve our capital, we cannot be certain that our investment objectives will be achieved, and results may vary substantially over time.

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In addition, declines in fixed income yields would result in decreases in net investment income from future investment activity, including re-investments.

We may, in certain circumstances, invest in private companies or limited partnerships which we believe provide strategic opportunities.

We do not intend to devote a significant portion of our investment portfolio to these types of investments.

We may, in certain circumstances, invest a small percentage of our investment portfolio in private companies or limited partnerships which we believe provide strategic opportunities.

These types of investments are typically illiquid, and we have limited ability to take actions that protect or increase the value of this type of investment.

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While we have implemented business contingency plans and other reasonable plans to protect our systems, sustained or repeated system failures or service denials could severely limit our ability to write and process new and renewal business, provide customer service, pay claims in a timely manner or otherwise operate in the ordinary course of business.

A portion of our employees work remotely and outside of our primary offices on a regular basis.

We believe remote work increases the need for our information technology and telecommunications systems to work properly and creates additional operational risk and difficulty should these systems fail.

Security breaches or cyber-attacks could expose us to liability and damage our reputation and business.

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If we are unable to deploy this technology effectively or if our competitors are better able to deploy this technology our business may be adversely impacted.

Our third-party software vendors and service providers are increasing incorporating artificial intelligence into their processes and this may expose us to additional risks should they not be able to incorporate the technology effectively.

Our third-party software vendors and service providers are increasingly incorporating artificial intelligence into their processes and this may expose us to additional risks should they not be able to incorporate the technology effectively.

The evolution and increased reliance on artificial intelligence may exacerbate our information technology and cybersecurity risks.

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In addition, if we fail to comply with these regulations, we may be subject to penalties, including fines and suspensions, which may adversely affect our financial condition and results of operations.

PSIC is subject to extensive regulation in Oregon, its state of domicile, California, where it is commercially domiciled, and to a lesser degree, the other states in which it operates.

PESIC is subject to extensive regulation in Arizona, its state of domicile, and to a lesser degree, the other states in which it writes business.

Our insurance company subsidiaries, PSIC, PESIC and FIA, are subject to extensive rules and regulations enforced by the insurance regulator of the state in which they are commercially domiciled.

To a lesser degree, they are also subject to regulations in the other states in which they operate.

Our Bermuda based reinsurance subsidiary, Palomar Specialty Reinsurance Company Bermuda Ltd.

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These regulatory requirements may impose timing and expense constraints that could adversely affect our ability to achieve some or all our business objectives.

insurance subsidiaries are part of an “insurance holding company system” within the meaning of applicable California, Oregon and Arizona statutes and regulations.

insurance subsidiaries are part of an “insurance holding company system” within the meaning of applicable state statutes and regulations.

As a result of such status, certain transactions between our U.S.

insurance subsidiaries and one or more of their affiliates, such as a tax sharing agreement or cost sharing arrangement, may not be effected unless the insurer has provided notice of that transaction to the California Department of Insurance, the Oregon Division of Financial Regulation, or the Arizona Department of Insurance, as applicable, at least 30 days prior to engaging in the transaction and the California Department of Insurance, the Oregon Division of Financial Regulation, or the Arizona Department of Insurance, as applicable, has not disapproved such transaction within the 30-day time period.

insurance subsidiaries and one or more of their affiliates, such as a tax sharing agreement or cost sharing arrangement, may not be effected unless the insurer has provided notice of that transaction to the respective state regulator, at least 30 days prior to engaging in the transaction, and the regulator has not disapproved such transaction within the 30-day time period.

These prior notification requirements may result in business delays and additional business expenses.

If any of our U.S.

insurance subsidiaries fail to file a required notification or fail to comply with other applicable insurance regulations in California, Oregon or Arizona, as applicable, we may be subject to significant fines and penalties and our working relationship with the California Department of Insurance, the Oregon Division of Financial Regulation, or the Arizona Department of Insurance, as applicable, may be impaired.

insurance subsidiaries fail to file a required notification or fail to comply with other applicable insurance regulations, we may be subject to significant fines and penalties and our working relationship with the state insurance regulators may be impaired.

In addition, state insurance regulators have broad discretion to deny, suspend, or revoke licenses for various reasons, including the violation of regulations.

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Further, changes in the level of regulation of the insurance industry or changes in laws or regulations themselves or interpretations by regulatory authorities could interfere with our operations and require us to bear additional costs of compliance, which could adversely affect our ability to operate our business.

insurance subsidiaries are subject to risk‑based capital requirements, based upon the “risk-based capital model” adopted by the NAIC, and other minimum capital and surplus restrictions imposed under Arizona, Oregon and California law.

These requirements establish the minimum amount of risk-based capital necessary for a company to support its overall business operations.

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If Laulima is unable to comply with the applicable insurance regulations in Hawaii, it may be subject to significant fines and penalties and its working relationship with the Hawaii Department of Commerce and Consumer Affairs, Hawaii Insurance Division may be impaired.

FIA is subject to regulation from the New Jersey Department of Banking and Insurance, which requires that FIA comply with New Jersey Statutes and Insurance Code.

Failure to meet these regulatory requirements could result in substantial fines or penalties and may negatively affect FIA’s relationship with the New Jersey Department of Banking and Insurance.

Unexpected changes in the interpretation of our coverage or provisions, including loss limitations and exclusions, in our policies could have a material adverse effect on our financial condition and results of operations.

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As PSIC grows, its share of any assessments in each state in which it underwrites business on an admitted basis may increase.

PSIC paid assessments of $0.2 million in 2023 and paid $5.0 million of assessments for the nine months ended September 30, 2024.

We cannot predict with certainty the amount of future assessments, because they depend on factors outside our control, such as insolvencies of other insurance companies as well as the occurrence of significant catastrophes.

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We do not intend to declare and pay cash dividends on shares of our common stock in the foreseeable future.

Because we are a holding company with no business operations of our own, our ability to pay dividends to stockholders largely depends on dividends and other distributions from our insurance subsidiaries, PSIC, PESIC and PSRE.

State insurance laws, including the laws of Oregon, California, Arizona, and the laws of Bermuda restrict the ability of our subsidiaries to declare stockholder dividends.

State insurance laws, including the laws of Oregon, California, Arizona, New Jersey, and the laws of Bermuda restrict the ability of our subsidiaries to declare stockholder dividends.

State insurance regulators require insurance companies to maintain specified levels of statutory capital and surplus.

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The impact of changes in GAAP cannot be predicted but may affect the calculation of net income, stockholders’ equity, and other relevant financial statement line items.

In addition to compliance with GAAP on a consolidated basis, PSIC, PESIC, PSRE and Laulima are required to comply with statutory accounting principles (“SAP”).

In addition to compliance with GAAP on a consolidated basis, many of our subsidiaries are required to comply with statutory accounting principles (“SAP”).

SAP and various components of SAP are subject to constant review by the NAIC and its task forces and committees, as well as state insurance departments to address emerging issues and otherwise improve financial reporting.

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Applicable insurance laws may make it difficult to effect a change of control.

Under applicable Oregon, California and Arizona insurance laws and regulations, no person may acquire control of a domestic insurer until written approval is obtained from the state insurance commissioner following a public hearing on the proposed acquisition.

Under applicable state insurance laws and regulations which govern our subsidiaries' operations, no person may acquire control of a domestic insurer until written approval is obtained from the state insurance commissioner following a public hearing on the proposed acquisition.

Such approval would be contingent upon the state insurance commissioner’s consideration of a number of factors including, among others, the financial strength of the proposed acquiror, the acquiror’s plans for the future operations of the domestic insurer and any anti‑competitive results that may arise from the consummation of the acquisition of control.

Oregon, California and Arizona insurance laws and regulations pertaining to changes of control apply to both the direct and indirect acquisition of ten percent or more of the voting stock of an insurer domiciled in that state.

State insurance laws and regulations pertaining to changes of control apply to both the direct and indirect acquisition of ten percent or more of the voting stock of an insurer domiciled in that state.

Accordingly, the acquisition of ten percent or more of our common stock would be considered an indirect change of control of Palomar Holdings, Inc.

and would trigger the applicable change of control filing requirements under Oregon, California and Arizona insurance laws and regulations, absent a disclaimer of control filing and its acceptance by the Oregon, California and Arizona Insurance Departments.

and would trigger the applicable change of control filing requirements under state insurance laws and regulations, absent a disclaimer of control filing and its acceptance by the respective state insurance departments.

These requirements may discourage potential acquisition proposals and may delay, deter or prevent a change of control of Palomar Holdings, Inc., including through transactions that some or all of the stockholders of Palomar Holdings, Inc.

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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-Q

Item 1A. Risk Factors