What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2020-08-05 compared with 2020-05-06 · 126 added, 171 removed, 445 unchanged (40% of the section changed)

A description of the risks and uncertainties associated with our business is set forth below.

and our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q.

You should carefully consider the risks and uncertainties described below, together with all of the other information in this Quarterly Report on Form 10-Q, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q.

The risks and uncertainties described below may not be the only ones we face.

4 unchanged sentences

We and our customers could be negatively and adversely impacted by the Pandemic, which may result in a decline in demand for our products, a decrease in underwriting income and a decrease in the value of our investment portfolio.

The ongoing Pandemic and response thereto have significantly impacted financial markets, businesses, households, and communities and has caused a contraction in business activity and volatility in financial markets.

The ongoing Pandemic and response thereto have significantly impacted financial markets, businesses, households, and communities and have caused a contraction in business activity and volatility in financial markets.

Continuation of the Pandemic could cause additional reduction in business activity and financial market instability.

The extent of the impact of the Pandemic on our operational and financial performance will depend on several factors, including the duration of the outbreak, the ability for our customers to continue to pay premiums, contraction of the insurance and reinsurance markets, the ability for reinsurers to satisfy claims, and actions taken by government and health officials in response, all of which are uncertain and cannot be predicted.

The extent of the impact of the Pandemic on our operational and financial performance will depend on several factors, including the duration of the outbreak, actions taken and restrictions imposed by the government and health officials in response, 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.

Disruptions to the economy from the Pandemic could cause our customers to have less need for insurance coverage, cancel or cease payment on existing insurance policies, modify their coverage, or not renew the policies they hold with us.

2 unchanged sentences

We underwrite a significant amount of our commercial insurance policies for businesses such as hotels, motels, retail, and professional services.

These businesses largely require patrons to generate profits and are located in areas that are quarantined in response to the Pandemic.

A prolonged quarantine or ongoing changes in patron behavior as a result of the Pandemic would have a negative adverse impact on these insureds and their revenue streams, which consequently will impact their ability to meet their financial obligations, including purchasing or renewing insurance policies.

These businesses largely require patrons to generate profits and their ability to serve patrons has been significantly impacted by the Pandemic and restrictions placed on them in response.

Prolonged restrictions or ongoing changes in patron behavior as a result of the Pandemic would have a negative adverse impact on these insureds and their revenue streams, which consequently will impact their ability to meet their financial obligations, including purchasing or renewing insurance policies.

In addition, our results of operations depend, in part, on the performance of our investment portfolio.

The Pandemic’s impact on the economy and financial markets could reduce our net investment income and result in realized investment losses in future periods.

Claims arising from unpredictable and severe catastrophe events, including those caused by global climate change, could reduce our earnings and stockholders’

equity and limit our ability to underwrite new insurance policies.

The Pandemic’s impact on the economy and financial markets could reduce our net investment income and result in realized investment losses in future periods.

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

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

Furthermore, the actual occurrence, frequency and magnitude of such events are uncertain.

While there can be no certainty surrounding the timing and magnitude of earthquakes, some observers believe that significant shifts in the tectonic plates, including the San Andreas Fault, may

occur in the future.

While there can be no certainty surrounding the timing and magnitude of

earthquakes, some observers believe that significant shifts in the tectonic plates, including the San Andreas Fault, may occur in the future.

Over the past several years, changing weather patterns and climatic conditions, such as global warming, have added to the unpredictability and frequency of natural disasters in certain parts of the world, including the markets in which we operate.

7 unchanged sentences

Increases in the replacement cost and concentrations of insured property, the effects of inflation, and changes in cyclical weather patterns may increase the severity of claims from catastrophe events in the future.

Claims from catastrophe events could reduce our earnings and cause substantial volatility in our results of operations for any fiscal quarter or year, which could materially adversely affect our financial condition, possibly to the extent of eliminating our total stockholders’

For example, Hurricane Harvey in August 2017 caused our gross losses and loss adjustment expenses to increase 66% from the prior year.

1 unchanged sentence

In addition, a natural disaster could materially impact the financial condition of our policyholders, resulting in loss of premiums.

As of January 1, 2020, we retain $5 million of risk per earthquake or wind event, inclusive of any amounts retained through our Bermuda reinsurance subsidiary, and our reinsurance program currently provides for coverage up to $1.2 billion for earthquake events, subject to customary exclusions, with coverage in excess of our estimated peak zone 1 in 250 year PML event and in excess of our A.M.

Our catastrophe event retention is currently $10 million for all perils and we retain $3 million as a vertical co-participation in selected layers of our reinsurance program.

Effective June 1, 2020, our reinsurance coverage exhausts at $1.4 billion for earthquake events and $600 million for hurricane events, with coverage in excess of our estimated peak zone 1 in 250 year PML event and in excess of our A.M.

Best requirement.

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

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

While we only select reinsurers whom we believe to have acceptable credit, if our reinsurers are unable to pay the claims for which they are responsible, we ultimately retain primary liability.

Furthermore, our earthquake policies do not provide coverage for fire damage arising from an earthquake.

In addition, we maintain reinsurance coverage equivalent or better to 1 in 250 year PML for our other lines.

While we believe this risk transfer program insulates us from volatility in our earnings, one severe catastrophe event could result in claims that substantially exceed the limits of our reinsurance coverage.

While we believe this risk transfer program insulates us from volatility in our earnings, one or more severe catastrophe events could result in claims that substantially exceed the limits of our reinsurance coverage.

Our reinsurers may not pay claims on a timely basis, or at all, which may materially adversely affect our business, financial condition and results of operations.

1 unchanged sentence

Although reinsurance makes the reinsurer liable to us to the extent the risk is transferred or ceded to the reinsurer, it does not relieve us (the ceding insurer) of our primary liability to our policyholders.

Our current reinsurance program is designed to limit our risk retention to $5 million of risk per earthquake or wind event, inclusive of any amounts retained through our Bermuda reinsurance subsidiary, and provide coverage up to $1.2 billion for earthquake events, subject to customary exclusions.

Our current reinsurance program is designed to limit our risk retention to $10 million of risk per earthquake or wind event, along with a $3 million vertical co-participation in selected layers, and provide coverage up to $1.4 billion for earthquake events and $600 million for hurricane events, subject to customary exclusions.

However, particularly in the event of a major catastrophe, our reinsurers may not pay claims made by us on a timely basis, or they may not pay some or all these claims.

For example, the Pandemic has put financial pressure on the insurance market due to several factors, including the inability of customers to pay premiums and increased claims for business interruption.

Increased claim demands for business interruption has put substantial financial pressure on the insurance and reinsurance market which may impact the ability of insurers and reinsurers to satisfy the liability under their policies.

Increased claim demands for business interruption has put substantial financial pressure on the insurance and reinsurance market which may lead to court action and impact the ability of insurers and reinsurers to satisfy the liability under their policies.

In addition, reinsurers may default in their financial obligations to us as the result of insolvency, lack of liquidity, operational failure, fraud, asserted defenses based on agreement wordings or the principle of utmost good faith, asserted deficiencies in the documentation of agreements or other reasons.

3 unchanged sentences

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 March 31, 2020, we had $19.0 million of aggregate reinsurance recoverables.

As of June 30, 2020, we had $24.7 million of aggregate reinsurance recoverables.

These risks could cause us to incur increased net losses, and, therefore, adversely affect our financial condition.

2 unchanged sentences

Reinsurance involves transferring, or ceding, a portion of our risk exposure on policies that we write to another insurer, the reinsurer, in exchange for a premium.

We primarily use treaty reinsurance, consisting of catastrophe excess of loss (“XOL”) coverage, and, on a limited basis, facultative reinsurance coverage.

Treaty coverage refers to a reinsurance contract that is applied to a group or class of business where all the risks written meet the criteria for that class.

Facultative coverage refers to a reinsurance contract on individual risks as opposed to a group or class of business.

Our catastrophe XOL treaties are divided into layers, many of which are placed using alternating 24‑month contracts.

Our catastrophe XOL treaties are divided into multiple layers.

From time to time, market conditions have limited, and in some cases prevented, insurers from obtaining the types and amounts of reinsurance they consider adequate for their business needs.

As a result, we may not be able to purchase reinsurance in the areas and for the amounts we desire or on terms we deem acceptable or at all.

In addition to limit purchased from traditional reinsurers, we have expanded our catastrophe XOL coverage to incorporate collateralized protection from the insurance linked securities (“ILS”) market.

In May 2017, we closed a $166 million 144A catastrophe bond offering completed through Torrey Pines Re Ltd., a special purpose insurer in Bermuda, that provides fully collateralized protection over a three‑year risk period.

We may seek to expand our catastrophe XOL coverage through similar bond offerings in the future but there can be no assurances that we will be able to complete such offerings on acceptable terms, if at all.

In addition to limit purchased from traditional reinsurers, we have historically incorporated collateralized protection from the insurance linked securities (“ILS”) market.

In May 2017, we closed a $166 million 144A catastrophe bond offering completed through Torrey Pines Re Ltd., a special purpose insurer in Bermuda, that provided fully collateralized protection over a three-year risk period, ending in May 2020.

Although we do not currently have any catastrophe bonds outstanding, we may seek to expand our catastrophe XOL coverage through similar bond offerings in the future.

There can be no assurances that we will be able to complete such offerings on acceptable terms, if at all.

If we are unable to renew our expiring contracts, enter into new reinsurance arrangements on acceptable terms or expand our catastrophe coverage through future bond offerings or otherwise, our loss exposure could increase, which would increase our potential losses related to catastrophe events.

9 unchanged sentences

These estimates, models, data and scenarios may not produce accurate predictions;

consequently, we could incur losses both in the risks we underwrite and to the value of our investment portfolio.

consequently, we could incur losses both in the risks we underwrite and to the value of our investment portfolio due to the overall impact on financial markets from the occurrence of catastrophe events.

In addition, output from our risk modeling software is based on third-party data that we believe to be reliable.

The estimates and assumptions we use are dependent on many variables, such as loss adjustment expenses,

insurance‑to‑value, storm or earthquake intensity, building code compliance and demand surge, which is the temporary inflation of costs for building materials and labor resulting from increased demand for rebuilding services in the aftermath of a catastrophe.

The estimates and assumptions we use are dependent on many variables, such as loss adjustment expenses, insurance-to-value, storm or earthquake intensity, building code compliance and demand surge, which is the temporary inflation of costs for building materials and labor resulting from increased demand for rebuilding services in the aftermath of a catastrophe.

Accordingly, if the estimates and assumptions used in our risk models are incorrect or if our risk models prove to be an inaccurate forecasting tool, the losses we might incur from an actual catastrophe could be materially higher than our expectation of losses generated from modeled catastrophe scenarios, and our business, financial condition, and results of operations could be materially adversely affected.

1 unchanged sentence

Changes in these estimates or assumptions or the use of inaccurate third-party data could cause our actual losses to be materially higher than our current expectation of losses generated by modeled catastrophe scenarios, which in turn could materially adversely affect our business, financial condition, and results of operations.

We run many model simulations in order to understand the impact of these assumptions on a catastrophe’s loss potential.

Furthermore, there are risks associated with catastrophe events, which are either poorly represented or not represented at all by catastrophe models.

3 unchanged sentences

The models may not accurately reflect the true frequency of events;

The models may not accurately reflect a risk’s vulnerability or susceptibility to damage for a given event characteristic;

The models may not accurately represent loss potential to insurance or reinsurance contract coverage limits, terms and conditions;

8 unchanged sentences

In setting its ratings, A.M.

Best performs quantitative and qualitative analysis of a company’s balance sheet strength, operating performance and business profile.

Best financial strength ratings range from “A++”

(Superior) to “F”

for insurance companies that have been publicly placed in liquidation.

Best performs quantitative and qualitative analysis of a company’s balance sheet strength, operating performance and business profile.

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

As of December 31, 2019, A.M.

Best has assigned a financial strength rating of “A−”

(Excellent) (Outlook Stable) to us.

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.

Best’s analysis includes comparisons to peers and industry standards as well as assessments of operating plans, philosophy and management.

Best has assigned a financial strength rating of “A−” (Excellent) (Outlook Stable) to us.

Best’s analysis includes comparisons to peers and industry standards as well as assessments of operating

plans, philosophy and management.

Best periodically reviews our financial strength rating and may revise it downward or revoke it at A.M.

Best’s discretion based primarily on its analyses of our balance sheet strength (including

capital adequacy and loss adjustment expense reserve adequacy), operating performance and business profile.

Best’s discretion based primarily on its analyses of our balance sheet strength (including capital adequacy and loss adjustment expense reserve adequacy), operating performance and business profile.

Factors that could affect such analyses include, but are not limited to:

If we change our business practices from our organizational business plan in a manner that no longer supports A.M.

Best’s rating;

If unfavorable financial, regulatory or market trends affect us, including excess market capacity;

9 unchanged sentences

Severely limiting or preventing us from writing new and renewal insurance contracts.

In addition, in view of the earnings and capital pressures experienced by many financial institutions, including insurance companies, it is possible that rating organizations will heighten the level of scrutiny that they apply to such institutions, will increase the frequency and scope of their credit reviews, will request additional information from the companies that they rate or will increase the capital and other requirements employed in the rating organizations’

models for maintenance of certain ratings levels.

If our credit rating were to be downgraded, or general market conditions were to ascribe higher risk to our rating levels, due to the Pandemic, our access to capital markets and the cost of any equity or debt financing will be negatively impacted.

6 unchanged sentences

On March 11, 2020, the World Health Organization formally declared the COVID-19 outbreak to be a pandemic.

The spread of COVID-19 caused illness, quarantines, cancellation of events and travel, business and school shutdowns, reduction in business activity, widespread unemployment, supply chain interruptions, and overall economic and financial market instability.

currently has the most reported COVID-19 cases in the world, and all 50 states and the District of Columbia have reported cases of infected individuals.

states, including California and Texas, where we generated more than one-half of our gross written premiums for the three months ended March 31, 2020, have declared states of emergency.

The spread of COVID-19 has caused illness, quarantines, cancellation of events and travel, business and school shutdowns, reduction in business activity, widespread unemployment, supply chain interruptions, and overall economic and financial market instability.

There continue to be significant reported cases of infected individuals throughout the United States.

states, including California and Texas, where we generated more than one-half of our gross written premiums for the six months ended June 30, 2020, have declared states of emergency.

Impacts to our business could be widespread and material impacts may result, including but not limited to, the following:

10 unchanged sentences

However, no assurance can be given that these actions will be sufficient, nor can we predict the level of disruption that will occur to our employees' ability to continue to provide customer support and service as they work from home.

Furthermore, should the Pandemic and its related macro-economic risks continue for an extended period of time, demand for our insurance products would be negatively impacted and the level and severity of our compensable claims could increase, each of which could result in a material adverse effect on our results of operations and financial condition.

Furthermore, should the Pandemic and its related macro-economic risks continue for an extended period of time, demand for our insurance products could be negatively impacted and the level and severity of our compensable claims could increase, each of which could result in a material adverse effect on our results of operations and financial condition.

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

Our policyholders and insurance risks are currently concentrated in California and Texas, which generated 56% and 18% of our gross written premiums, respectively, for the year ended December 31, 2019 and 46% and 22% of our gross written premiums, respectively, for the three months ended March 31, 2020.

Our policyholders and insurance risks are currently concentrated in California and Texas, which generated 56% and 19% of our gross written premiums, respectively, for the year ended December 31, 2019 and 46% and 22% of our gross written premiums, respectively, for the six months ended June 30, 2020.

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

13 unchanged sentences

We distribute a significant portion of our Residential Earthquake, Commercial Earthquake, Specialty Homeowners and Hawaii Hurricane products through longstanding relationships with two program administrators.

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

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

In total, these four products accounted for $148.6 million or 59.0% of our gross written premiums for the year ended December 31, 2019 and $71.5 million or 52% for the three months ended March 31, 2020.

In total, these four products accounted for $148.6 million or 59.0% of our gross written premiums for the year ended December 31, 2019 and $80.9 million or 52.1% for the six months ended June 30, 2020.

This amount includes our Value Select Residential Earthquake program, which represents the majority of our Residential Earthquake premium and is administered through a mutually exclusive program administrator agreement with Arrowhead for the states of California, Oregon and Washington.

13 unchanged sentences

Some of these competitors also have longer operating history and more market recognition than we do in certain lines of business.

In addition, we compete against state or other publicly managed enterprises including the California Earthquake Authority (“CEA”), the National Flood Insurance Program and the Texas Wind Insurance Association.

If the CEA decided to provide coverage to non-CEA member carriers or lessened the capital requirements for membership, we would face additional competition in our markets, and our operating results could be adversely affected.

18 unchanged sentences

Computer viruses, hackers, employee misconduct, and other external hazards could expose our systems to security breaches, cyber-attacks or other disruptions.

In addition, we routinely transmit and receive personal, confidential and proprietary data and information by electronic means and are subject to numerous data privacy laws and regulations enacted in the jurisdictions in which we do business.

While we have implemented security measures designed to protect against breaches of security and other interference with our systems and networks, our systems and networks may be subject to breaches or interference.

Any such event may result in operational disruptions as well as unauthorized access to or the disclosure or loss of our proprietary information or our customers’

data and information, which in turn may result in legal claims, regulatory scrutiny and liability, reputational damage, the incurrence of costs to eliminate or mitigate further exposure, the loss of customers or affiliated advisors, reputational harm or other damage to our business.

Any such event may result in operational disruptions as well as unauthorized access to or the disclosure or loss of our proprietary information or our customers’ data and information, which in turn may result in legal claims, regulatory scrutiny and liability, reputational damage, the incurrence of costs to eliminate or mitigate further exposure, the loss of customers or affiliated advisors, reputational harm or other damage to our business.

In addition, the trend toward general public notification of such incidents could exacerbate the harm to our business, financial condition and results of operations.

18 unchanged sentences

We market and distribute certain of our insurance products through program administrators that have limited quoting and binding authority and that in turn sell our insurance products to insureds through retail agents and wholesale brokers.

These program administrators can bind certain risks without our initial approval.

These program administrators can bind certain risks without our expressed approval.

If any of these program administrators fail to comply with our underwriting guidelines and the terms of their appointments, we could be bound on a particular risk or number of risks that were not anticipated when we developed the insurance products or estimated losses and loss adjustment expenses.

1 unchanged sentence

Because our business depends on insurance brokers and program administrators, we are exposed to certain risks arising out of our reliance on these distribution channels that could adversely affect our results.

Certain premiums from policyholders, where the business is produced by brokers, are collected directly by the brokers and forwarded to our U.S.

insurance subsidiary.

In certain jurisdictions, when the insured pays its policy premium to its broker for payment on behalf of our U.S.

insurance subsidiary, the premium might be considered to have been paid under applicable insurance laws and regulations.

Certain premiums from policyholders, where the business is produced by brokers, are collected directly by the brokers and forwarded to our insurance subsidiaries.

In certain jurisdictions, when the insured pays its policy premium to its broker for payment to us, the premium might be considered to have been paid under applicable insurance laws and regulations.

Accordingly, the insured would no longer be liable to us for those amounts, whether or not we have actually received the premium from that broker.

7 unchanged sentences

We must accurately and timely evaluate and pay claims that are made under our policies.

Many factors affect our ability to pay claims accurately and timely, including the training and experience of our claims representatives, including our third party claims administrators (“TPAs”), the effectiveness of our management, and our ability to develop or select and implement appropriate procedures and systems to support our claims functions and other factors.

Our failure to pay claims accurately and timely could lead to regulatory and administrative actions or material litigation, undermine our reputation in the marketplace and materially and adversely affect our business, financial condition, results of operations, and prospects.

31 unchanged sentences

Other fixed maturity securities, such as mortgage-backed and asset-backed securities, carry prepayment risk or, in a rising interest rate environment, may not prepay as quickly as expected.

The value of our investment portfolio is subject to the risk that certain investments may default or become impaired due to deterioration in the financial condition of one or more issuers of the securities we hold, or due to deterioration in the financial condition of an insurer that guarantees an issuer’s payments on such investments.

Downgrades in the credit ratings of fixed maturities also have a significant negative effect on the market valuation of such securities.

5 unchanged sentences

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

Our equity invested assets totaled $22.9 million as of March 31, 2020.

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 Department of Insurance.

Our equity invested assets totaled $37.6 million as of June 30, 2020.

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.

11 unchanged sentences

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.

insurance company subsidiary, Palomar Specialty Insurance Company, 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.

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

(“Palomar Re”), is subject to regulation in Bermuda.

Palomar Specialty Insurance Company (“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.

Palomar Excess and Surplus Insurance Company (‘‘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 Bermuda based reinsurance subsidiary, Palomar Specialty Reinsurance Company Bermuda Ltd.

(“PSRE”), is subject to regulation in Bermuda.

Most insurance regulations are designed to protect the interests of insurance policyholders, as opposed to the interests of investors or stockholders.

3 unchanged sentences

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

insurance subsidiary is part of an “insurance holding company system”

within the meaning of applicable California and Oregon statutes and regulations.

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

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

insurance subsidiary 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 or the Oregon Division of Financial Regulation, as applicable, at least 30 days prior to engaging in the transaction and the California Department of Insurance or the Oregon Division of Financial Regulation, 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 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.

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

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

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

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.

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

In some instances, where there is uncertainty as to applicability, we follow practices based on our interpretations of regulations or practices that we believe generally to be followed by the industry.

These practices may turn out to be different from the interpretations of regulatory authorities.

If we do not have the requisite licenses and approvals or do not comply with applicable regulatory requirements, state insurance regulators could preclude or temporarily suspend us from carrying on some or all of our activities or could otherwise penalize us.

If we do not have

the requisite licenses and approvals or do not comply with applicable regulatory requirements, state insurance regulators could preclude or temporarily suspend us from carrying on some or all of our activities or could otherwise penalize us.

This could adversely affect our ability to operate our business.

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 subsidiary is 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 Oregon and California law.

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.

It identifies property and casualty insurers that may be inadequately capitalized by looking at certain inherent risks of each insurer’s assets and liabilities and its mix of net written premium.

Insurers falling below a calculated threshold may be subject to varying degrees of regulatory action, including supervision, rehabilitation or liquidation.

Failure to maintain our risk‑based capital at the required levels could adversely affect the ability of our U.S.

insurance subsidiary to maintain regulatory authority to conduct our business.

See also “Regulation—Required Licensing.”

Our Bermuda reinsurance subsidiary is subject to regulation from the European Union.

The European Union adopted the Economic Substance Act 2018 and the Economic Substance Regulations 2018 (together, the “ES Requirements”).

Failure by any of our U.S.

subsidiaries to maintain risk-based capital at the required levels could adversely affect their ability to maintain regulatory authority to conduct business.

PSRE is subject to regulation from the European Union.

The European Union adopted the Economic Substance Act 2018 and the Economic Substance Regulations 2018 (together, the “ES Requirements”).

As an insurance company, our Bermuda subsidiary conducts a relevant activity and will be subject to the ES Requirements.

As a result, our Bermuda subsidiary may be required to change or increase our business operations in Bermuda in order to meet the new requirements.

As a result, our Bermuda subsidiary may be required to change or increase our business operations in Bermuda to meet the new requirements.

Compliance with the ES Requirements is required with effect from July 1, 2019.

4 unchanged sentences

In addition, the Bermuda reinsurance regulatory framework has become subject to increased scrutiny in many jurisdictions.

As a result, the BMA has implemented and imposed additional requirements on the companies it regulates, which requirements could adversely impact the operations of our reinsurance subsidiary.

As a result, the BMA has implemented and imposed additional requirements on the companies it regulates, which requirements could adversely impact the operations of PSRE.

Any government mandates and/or legislative changes related to the ongoing Pandemic, including mandated premium refunds or credits and extended premium grace periods, could have a material adverse effect on our results of operations and financial condition.

15 unchanged sentences

As Palomar Specialty Insurance Company grows, our share of any assessments in each state in which it underwrites business on an admitted basis may increase.

We paid assessments of $1.1 million in 2018, $14,750 in 2019 and have paid $0.3 million during the three months ended March 31, 2020.

We paid assessments of $1.1 million in 2018, $14,750 in 2019 and have paid $0.3 million during the six months ended June 30, 2020.

The increase in assessments paid during 2018 was primarily amounts assessed by the Texas Windstorm Insurance Association and Texas Fair Plan Association relating to Hurricane Harvey, with such amounts recovered from our reinsurers.

7 unchanged sentences

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, Palomar Specialty Insurance Company and Palomar Re.

State insurance laws, including the laws of Oregon and California, and the laws of Bermuda restrict the ability of Palomar Specialty Insurance Company and Palomar Re, respectively, to declare stockholder dividends.

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

The maximum dividend distribution absent the approval or non‑disapproval of the insurance regulatory authority in Oregon and California is limited by Oregon law at ORS 732.576 and California law at Cal.

Code 1215.5(g).

The maximum dividend distribution absent the approval or non-disapproval of the insurance regulatory authority in Oregon, California and Arizona is limited by Oregon law at ORS 732.576, California law at Cal.

Code 1215.5(g) and Arizona Revised Statute 20-481.

Dividend payments are further limited to that part of available policyholder surplus that is derived from net profits on our business.

State insurance regulators have broad powers to prevent the reduction of statutory surplus to inadequate levels, and there is no assurance that dividends up to the maximum amounts calculated under any applicable formula would be permitted.

Moreover, state insurance regulators that have jurisdiction over the payment of dividends by Palomar Specialty Insurance Company may in the future adopt statutory provisions more restrictive than those currently in effect.

Our Bermuda reinsurance subsidiary is highly regulated and is required to comply with various conditions before it is able to pay dividends or make distributions to us.

Bermuda law, including the Insurance Act 1978, as amended (“Insurance Act”) and the Companies Act 1981, as amended (“Companies Act”) impose restrictions on our Bermuda reinsurance subsidiary’s ability to pay dividends to us based on solvency margins and surplus and capital requirements.

These restrictions, and any other future restrictions adopted by the BMA, could have the effect, under

certain circumstances, of significantly reducing dividends or other amounts payable to us by our Bermuda reinsurance subsidiary without affirmative approval of the BMA.

Moreover, state insurance regulators that have jurisdiction over the payment of dividends by PSIC and PESIC may in the future adopt statutory provisions more restrictive than those currently in effect.

PSRE is highly regulated and is required to comply with various conditions before it is able to pay dividends or make distributions to us.

Bermuda law, including the Insurance Act 1978, as amended (“Insurance Act”) and the Companies Act 1981, as amended (“Companies Act”) impose restrictions on PSRE’s ability to pay dividends to us based on solvency margins and surplus and capital requirements.

These restrictions, and any other future restrictions adopted by the BMA, could have the effect, under certain circumstances, of significantly reducing dividends or other amounts payable to us by PSRE without affirmative approval of the BMA.

Any determination to pay dividends in the future will be at the discretion of our Board of Directors and will depend upon results of operations, financial condition, restrictions imposed by applicable law and other factors our Board of Directors deems relevant.

6 unchanged sentences

The full extent of the impact and effects of COVID-19 on our business, operations, liquidity, financial condition and results of operations remain uncertain at this time.

We seek to underwrite products and make investments to achieve favorable returns on tangible stockholders’

equity over the long term.

We seek to underwrite products and make investments to achieve favorable returns on tangible stockholders’ equity over the long term.

Our opportunistic nature and focus on long-term growth in tangible equity may result in fluctuations in gross written premiums from period to period as we concentrate on underwriting contracts that we believe will generate better long-term, rather than short-term, results.

10 unchanged sentences

Employees may, however, take such risks regardless of the structure of our compensation programs and practices.

Similarly, although we employ controls and procedures designed to monitor employees’

business decisions and prevent them from taking excessive risks, these controls and procedures may not be effective.

Similarly, although we employ controls and procedures designed to monitor employees’ business decisions and prevent them from taking excessive risks, these controls and procedures may not be effective.

If our employees take excessive risks, the impact of those risks could have a material adverse effect on our financial condition and business operations.

1 unchanged sentence

Our future capital requirements depend on many factors, including our ability to write new business successfully and to establish premium rates and reserves at levels sufficient to cover losses.

Many factors will affect the amount and timing of our capital needs, including our growth rate and profitability, our claims experience, and the

availability of reinsurance, market disruptions, and other unforeseeable developments.

Many factors will affect the amount and timing of our capital needs, including our growth rate and profitability, our claims experience, and the availability of reinsurance, market disruptions, and other unforeseeable developments.

If we need to raise additional capital, equity or debt financing may not be available at all or may be available only on terms that are not favorable to us.

9 unchanged sentences

Most of our contracts are written for a one-year term.

In our financial forecasting process, we make assumptions about the rates of renewal of our prior year’s contracts.

The insurance and reinsurance industries have historically been cyclical businesses with intense competition, often based on price.

If actual renewals do not meet expectations or if we choose not to write a renewal because of pricing conditions, our written premium in future years and our future operations would be materially adversely affected.

If we are unable to successfully scale our new excess and surplus insurance company, our business and future prospects may be harmed.

We intend to launch our excess and surplus lines insurance product offerings via our recently formed surplus lines subsidiary, PESIC.

The excess and surplus market is highly competitive and many of our competitors are better capitalized and have a longer history in the market.

While we believe that the underwriting acumen and market expertise we have established through our admitted insurance company, PSIC, can be applied to the surplus lines market as well, there can be no assurances that we will be successful in accurately analyzing risks and scaling a profitable operation in the excess and surplus market.

If we are unable to underwrite profitably in the excess and surplus market, our business and future prospects may be adversely impacted.

We may change our underwriting guidelines or our strategy without stockholder approval.

8 unchanged sentences

Developments in accounting practices may require us to incur considerable additional expenses to comply, particularly if we are required to prepare information relating to prior periods for comparative purposes or to apply the new requirements retroactively.

Our consolidated financial statements are prepared in accordance with Generally Accepted Accounting Principles (“GAAP”).

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, our U.S.

insurance subsidiary, Palomar Specialty Insurance Company, is required to comply with statutory accounting principles (“SAP”).

Our consolidated financial statements are prepared in accordance with Generally Accepted Accounting Principles (“GAAP”).

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 and PSRE 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, in an effort to address emerging issues and otherwise improve financial reporting.

Various proposals are

pending before committees and task forces of the NAIC, some of which, if enacted, could have negative effects on insurance industry participants.

Various proposals are pending before committees and task forces of the NAIC, some of which, if enacted, could have negative effects on insurance industry participants.

The NAIC continuously examines existing laws and regulations.

5 unchanged sentences

Risks Related to Ownership of Our Common Stock

Genstar Capital owns a significant amount of our common stock and has the ability to exert significant influence over us and our corporate decisions.

Genstar Capital currently controls approximately 14.6% of our common stock.

Currently, one of our directors, James Ryan Clark, is affiliated with Genstar Capital.

Clark has fiduciary duties to us and, in addition, has duties to Genstar Capital.

As a result, Mr.

Clark may face real or apparent conflicts of interest with respect to matters affecting both us and Genstar Capital, whose interests may be adverse to ours in some circumstances

In addition, we are party to a Stockholders Agreement with Genstar Capital that permits Genstar Capital to exert influence over us and our corporate decisions.

The Stockholders Agreement specifies that until such time as Genstar Capital beneficially owns less than 10% of our outstanding common stock we will not take certain significant actions specified therein without the prior written consent of Genstar Capital, including, but not limited to, (i) amendments or modifications to our or our subsidiaries’

organizational documents in a manner that adversely affects Genstar Capital, (ii) making any payment or declaration of any dividend or other distribution on any shares of our common stock, (iii) merging or consolidating with or into any other entity, or transferring all or substantially all of our or our subsidiaries’

assets, taken as a whole, to another entity, or entering into or agreeing to undertake any transaction that would constitute a “Change of Control”

as defined in our or our subsidiaries’

credit facilities, (iv) other than in the ordinary course of business with vendors, customers and suppliers, entering into or effecting any (A) acquisition by us or any of our subsidiaries of the equity interests or assets of any person, or the acquisition by us or any of our subsidiaries of any business, properties, assets, or person, in one transaction or a series of related transactions or (B) disposition of assets of us or any of our subsidiaries or the shares or other equity interests of any of our subsidiary, in each case where the amount of consideration for any such acquisition or disposition exceeds $15 million in any single transaction, or an aggregate amount of $30 million in any series of transactions during a calendar year, (v) undertaking any liquidation, dissolution or winding up, and (vi) changing the size of the Board of Directors.

Under the Stockholders Agreement, Genstar Capital has the right, but not the obligation, to nominate (a) 50% of our directors, as long as Genstar Capital beneficially owns 50% or more of our outstanding common stock, (b) 40% of our directors, as long as Genstar Capital beneficially owns 40% or more, but less than 50% of our outstanding common stock, (c) 30% of our directors, as long as Genstar Capital beneficially owns 30% or more, but less than 40% of our outstanding common stock, (d) 20% of our directors, as long as Genstar Capital beneficially owns 20% or more, but less than 30% of our outstanding common stock, (e) 10% of our directors, as long as Genstar Capital beneficially owns 10% or more, but less than 20% of our outstanding common stock, in each case rounded up to the nearest whole number of directors.

If Genstar Capital is able to exert significant influence over our Board of Directors as a result of their nomination rights pursuant to the Stockholders Agreement, our other stockholders may have limited ability to influence corporate matters and, as a result, we may take actions that our other stockholders do not view as beneficial.

As a result of its ownership and the Stockholders Agreement, Genstar Capital is able to influence matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other extraordinary transactions.

Genstar Capital may have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests.

The concentration of ownership could deprive stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and may ultimately affect the market price of our common stock.

In addition, the requirement to obtain Genstar Capital’s prior consent for certain transactions, including acquisitions and dispositions, may adversely impact our ability to operate our business or take advantage of certain opportunities.

We incur significant costs as a result of operating as a public company, and our management is required to devote substantial time to complying with public company regulations.

As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company.

As a public company, we incur certain legal, accounting and other expenses that we would not incur as a private company.

We are subject to the reporting requirements of the Exchange Act, which require, among other things, that we file with the SEC annual, quarterly and current reports with respect to our business and financial condition and therefore we need to have the ability to prepare financial statements that comply with all SEC reporting requirements on a timely basis.

In addition, we are subject to other reporting and corporate governance requirements, including certain requirements of and certain provisions of the Sarbanes-Oxley Act and the regulations promulgated thereunder, which impose significant compliance obligations upon us.

In particular, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management and, to the extent that we are no longer an “emerging growth company”

as defined in the JOBS Act, our independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes‑Oxley Act.

In particular, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act.

Our compliance with Section 404 requires that we incur substantial accounting expense and expend significant management efforts.

We must maintain accounting and financial staff and consultants with appropriate public company reporting, technical accounting, and internal control knowledge to satisfy the ongoing requirements of Section 404 and provide internal audit services.

The Sarbanes‑Oxley Act and the Dodd‑Frank Act, as well as new rules subsequently implemented by the SEC and Nasdaq, have increased regulation of, and imposed enhanced disclosure and corporate governance requirements on, public companies.

Our efforts to comply with these evolving laws, regulations and standards increases our operating costs and divert management’s time and attention from revenue‑generating activities.

The Sarbanes-Oxley Act and the Dodd-Frank Act, as well as new rules subsequently implemented by the SEC and Nasdaq, have increased regulation of, and imposed enhanced disclosure and corporate governance requirements on,

public companies.

Our efforts to comply with these evolving laws, regulations and standards increases our operating costs and divert management’s time and attention from revenue-generating activities.

These requirements also place significant additional demands on our finance and accounting staff and on our financial accounting and information systems.

We may need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge.

Other expenses associated with being a public company include increases in auditing, accounting and legal fees and expenses, investor relations expenses, increased directors’

fees and director and officer liability insurance costs, registrar and transfer agent fees and listing fees, as well as other expenses.

We must retain accounting and financial staff with appropriate public company experience and technical accounting knowledge.

Other expenses associated with being a public company include increased auditing, accounting and legal fees and expenses, investor relations expenses, increased directors’ fees and director and officer liability insurance costs, registrar and transfer agent fees and listing fees, as well as other expenses.

As a public company, we are required, among other things, to:

2 unchanged sentences

institute comprehensive compliance and investor relations functions;

evaluate and maintain our system of internal control over financial reporting, and report on management’s assessment thereof, in compliance with rules and regulations of the SEC and the Public Company Accounting Oversight Board.

We may not be successful in complying with these requirements, and compliance with them could materially adversely affect our business.

9 unchanged sentences

As a public company with SEC reporting obligations, we are required to document and test our internal control procedures to satisfy the requirements of Section 404(b) of the Sarbanes- Oxley Act, which requires annual assessments by management of the effectiveness of our internal control over financial reporting.

We are an emerging growth company, and thus we are exempt from the auditor attestation requirement of Section 404(b) of Sarbanes‑Oxley until such time as we no longer qualify as an emerging growth company.

See also “We qualify as an emerging growth company, and any decision on our part to comply with reduced reporting and disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors.”

Regardless of whether we qualify as an emerging growth company, we will still need to implement substantial internal control systems and procedures in order to satisfy the reporting requirements under the Exchange Act and applicable requirements.

During the course of our assessment, we may identify deficiencies that we are unable to remediate in a timely manner.

Testing and maintaining our internal control over financial reporting may also divert management’s attention from other matters that are important to the operation of our business.

Although we currently qualify as an emerging growth company, we expect we will become a large accelerated filer on December 31, 2020.

As such, our auditor will be required to attest to the effectiveness of our internal control over financial reporting beginning with our 2020 Annual Report on form 10-K.

We must implement and maintain substantial internal control systems and procedures to satisfy the reporting requirements under the Exchange Act.

During our assessments, we may identify deficiencies that we are unable to remediate in a timely manner.

Testing and maintaining our internal control over financial reporting may also divert management’s attention from other matters that are important to the operation of our business.

We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404(b) of Sarbanes-Oxley.

1 unchanged sentence

Moreover, any material weaknesses or other deficiencies in our internal control over financial reporting may impede our ability to file timely and accurate reports with the SEC.

Any of the above could cause investors to lose confidence in our reported financial information or our common stock listing on Nasdaq to be suspended or terminated, which could have a negative effect on the trading price of our common stock.

Any of the above could cause investors to lose confidence in our reported financial

information or our common stock listing on Nasdaq to be suspended or terminated, which could have a negative effect on the trading price of our common stock.

We qualify as an emerging growth company, and any decision on our part to comply with reduced reporting and disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors.

We are an “emerging growth company,”

and, for as long as we continue to be an emerging growth company, we currently intend to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,”

including, but not limited to, not being required to have our independent registered public accounting firm audit our internal control over financial reporting under Section 404 of the Sarbanes‑Oxley Act, reduced disclosure obligations regarding executive compensation in our registration statements, periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

We will cease to be an emerging growth company upon the earliest of:

(i) the end of the fiscal year following the fifth anniversary of the IPO;

(ii) the first fiscal year after our annual gross revenue is $1.07 billion or more;

(iii) the date on which we have, during the previous three‑year period, issued more than $1.0 billion in non‑convertible debt securities;

or (iv) the end of any fiscal year in which the market value of our common stock held by non‑affiliates exceeded $700 million as of the end of the second quarter of that fiscal year.

We are an “emerging growth company,” and, are currently taking advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including, but not limited to, not being required to have our independent registered public accounting firm audit our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our registration statements, periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

We will cease to be an emerging growth company on December 31, 2020.

We cannot predict whether investors will find our common stock less attractive if we choose to rely on these exemptions while we are an emerging growth company.

2 unchanged sentences

We plan to avail ourselves of this exemption from new or revised accounting standards and, therefore, we may not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

Future transactions where we raise capital may negatively affect our stock price.

We are currently a “Well-Known Seasoned Issuer” and may file automatic shelf registration statements at any time with the SEC.

Sales of substantial amounts of shares of our common stock or other securities under our current or future shelf registration statements could lower the market price of our common stock and impair our ability to raise capital through the sale of equity securities.

Our operating results and stock price may be volatile, or may decline regardless of our operating performance, and holders of our common stock could lose all or part of their investment.

4 unchanged sentences

You should consider an investment in our common stock to be risky, and you should invest in our common stock only if you can withstand a significant loss and wide fluctuation in the market value of your investment.

The market price of our common stock is likely to continue to be subject to significant fluctuations in response to the factors described in this “Risk Factors”

section and other factors, many of which are beyond our control.

The market price of our common stock is likely to continue to be subject to significant fluctuations in response to the factors described in this “Risk Factors” section and other factors, many of which are beyond our control.

Among the factors that could affect our stock price are:

2 unchanged sentences

introduction of new products or services by us or our competitors;

issuance of new or changed securities analysts’

reports or recommendations;

issuance of new or changed securities analysts’ reports or recommendations;

results of operations that vary from expectations of securities analysis and investors;

20 unchanged sentences

In addition, the stock markets, including Nasdaq, have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies.

If any of the foregoing occurs, it could cause our stock price to fall and may expose us to securities class action litigation that, even if unsuccessful, could be costly to defend, divert management’s attention and resources or harm our business.

Our certificate of incorporation provides that Genstar Capital has no obligation to offer us corporate opportunities.

Genstar Capital and the member of our Board of Directors who is affiliated with Genstar Capital, by the terms of our certificate of incorporation, will not be required to offer us any corporate opportunity of which they become aware and could take any such opportunity for themselves or offer it to other companies in which they have an investment, unless such opportunity is expressly offered to them solely in their capacity as our directors.

We, by the terms of our certificate of incorporation, expressly renounce any interest in any such corporate opportunity to the extent permitted under applicable law, even if the opportunity is one that we would reasonably be deemed to have pursued if given the opportunity to do so.

Our certificate of incorporation cannot be amended to eliminate our renunciation of any such corporate opportunity arising prior to the date of any such amendment.

Genstar Capital is in the business of making investments in portfolio companies and may from time to time acquire and hold interests in businesses that compete with us, and Genstar Capital has no obligation to refrain from acquiring competing businesses.

Any competition could intensify if an affiliate or subsidiary of Genstar Capital were to enter into or acquire a business similar to ours.

These potential conflicts of interest could have a material adverse effect on our business, financial condition, results of operations or prospects if attractive corporate opportunities are allocated by Genstar Capital to itself, its portfolio companies or its other affiliates instead of to us.

Anti-takeover provisions in our organizational documents could delay a change in management and limit our share price.

13 unchanged sentences

In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law.

These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, (excluding Genstar Capital), from merging or combining with us for a period of time.

ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a period of time.

Our certificate of incorporation and bylaws provide that the Court of Chancery of the State of Delaware is the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our certificate of incorporation and bylaws provide that the Court of Chancery of the State of Delaware is the exclusive forum for the following civil actions:

7 unchanged sentences

Accordingly, there is uncertainty as to whether a court would enforce such provision, and our stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder.

This choice of forum provision, if enforced, may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees, although our stockholders will not be deemed to have waived our compliance with federal securities laws and the rules and regulations thereunder.

Alternatively, if a court were to find the choice of forum provision contained in our certificate of incorporation and bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could have a material adverse effect on our business, financial condition or results of operations.

4 unchanged sentences

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

Under applicable Oregon and California 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.

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 and California 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 Oregon‑domiciled or California‑domiciled insurer.

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.

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.

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 and California insurance laws and regulations, absent a disclaimer of control filing and its acceptance by the Oregon and California Insurance Departments.

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.

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.

might consider to be desirable.

See also “Regulation—Changes of Control.”

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