What changed in this filing

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Item 1. Financial Statements

2020-11-13 compared with 2020-08-05 · 91 added, 76 removed, 437 unchanged (28% of the section changed)

4 unchanged sentences

(in thousands, except shares and par value data)

September 30,

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

26 unchanged sentences

Stockholders' equity:

Preferred stock, $0.0001 par value, 5,000,000 shares authorized as of June 30, 2020 and December 31, 2019, respectively, 0 shares issued and outstanding as of June 30, 2020 and December 31, 2019

Common stock, $0.0001 par value, 500,000,000 shares authorized, 25,468,321 and 23,468,750 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively

Preferred stock, $0.0001 par value, 5,000,000 shares authorized as of September 30, 2020 and December 31, 2019, respectively, 0 shares issued and outstanding as of September 30, 2020 and December 31, 2019

Common stock, $0.0001 par value, 500,000,000 shares authorized, 25,518,957 and 23,468,750 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively

Additional paid-in capital

9 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Gross written premiums

9 unchanged sentences

Acquisition expenses

Other underwriting expenses (includes stock-based compensation of $464 and $306 for the three months ended June 30, 2020 and 2019, respectively and $907 and $23,267 for the six months ended June 30, 2020 and 2019, respectively)

Other underwriting expenses (includes stock-based compensation of $551 and $410 for the three months ended September 30, 2020 and 2019, respectively and $1,457 and $23,677 for the nine months ended September 30, 2020 and 2019, respectively)

Interest expense

1 unchanged sentence

Income (loss) before income taxes

Income tax expense

Income tax expense (benefit)

Net income (loss)

Other comprehensive income, net:

Net unrealized gains on securities available for sale for the three and six months ended June 30, 2020 and 2019, respectively

Net unrealized gains on securities available for sale for the three and nine months ended September 30, 2020 and 2019, respectively

Net comprehensive income (loss)

16 unchanged sentences

Proceeds from common stock sold in initial public offering, net of offering costs

Balance at June 30, 2019

Balance at September 30, 2019

Balance at December 31, 2019

5 unchanged sentences

Issuance of common stock via equity incentive plan

Balance at June 30, 2020

Balance at September 30, 2020

See accompanying notes.

3 unchanged sentences

(in thousands)

Six Months Ended

Nine Months Ended

September 30,

Operating activities

9 unchanged sentences

Financing activities

Proceeds from initial public offering, net of costs

Proceeds from initial public offering, net of offering costs

Redemption of Floating Rate Notes

5 unchanged sentences

Net cash provided by financing activities

Net increase in cash, cash equivalents and restricted cash

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

Cash, cash equivalents and restricted cash at beginning of period

4 unchanged sentences

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

September 30,

Cash and cash equivalents

29 unchanged sentences

The Company is currently electing to adopt new or revised accounting guidance within the same time periods as private companies as permitted by its status as an EGC.

Based on the market value of the Company’s common stock held by non-affiliates as of the last business day of its second fiscal quarter, the Company expects it will become a large accelerated filer on December 31, 2020 and will no longer be permitted to adopt guidance within the same time periods as private companies at that time.

Based on the market value of the Company’s common stock held by non-affiliates as of the last business day of its second fiscal quarter, the Company will become a large accelerated filer on December 31, 2020 and will no longer be permitted to adopt guidance within the same time periods as private companies at that time.

Recently adopted accounting pronouncements

27 unchanged sentences

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

June 30, 2020

September 30, 2020

(in thousands)

16 unchanged sentences

Security holdings in an unrealized loss position

As of June 30, 2020, the Company held 85 fixed maturity securities in an unrealized loss position with a total estimated fair value of $40.0 million and total gross unrealized losses of $2.0 million.

As of September 30, 2020, the Company held 145 fixed maturity securities in an unrealized loss position with a total estimated fair value of $96.3 million and total gross unrealized losses of $1.6 million.

As of December 31, 2019, the Company held 51 fixed maturity securities in an unrealized loss position with a total estimated fair value of $20.9 million and total gross unrealized losses of $0.1 million.

The aggregate fair value and gross unrealized losses of the Company’s investments aggregated by investment category and the length of time these individual securities have been in a continuous unrealized loss position as of June 30, 2020 and December 31, 2019, are as follows:

The aggregate fair value and gross unrealized losses of the Company’s investments aggregated by investment category and the length of time these individual securities have been in a continuous unrealized loss position as of September 30, 2020 and December 31, 2019, are as follows:

Less Than 12 Months

More Than 12 Months

June 30, 2020

September 30, 2020

(in thousands)

22 unchanged sentences

● If the Company does not expect to recover the entire amortized cost basis or cost of the investment.

Based on the Company’s reviews as of June 30, 2020, the Company determined that the fixed maturity securities’ unrealized losses were primarily the result of the widening credit spreads during the six months ended June 30, 2020 which more than offset declines in interest rates during that period.

While the Company held some securities in industries such as energy and airlines, the Company believes it will be able to recover its investment in these securities given the financial condition and near-term prospects of the issuers.

Based on the Company’s reviews as of September 30, 2020 and December 31, 2019, the Company determined that the fixed maturity securities’ unrealized losses were primarily the result of the interest rate environment and not the credit quality of the issuers.

None of the fixed maturity securities were determined to be other-than-temporarily impaired.

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

Therefore, none of the fixed maturity securities were written down during the six months ended June 30, 2020.

Therefore, none of the fixed maturity securities were written down during the respective periods.

Contractual maturities of available-for-sale fixed maturity securities

The amortized cost and fair value of fixed maturity securities at June 30, 2020, by contractual maturity, are shown below.

The amortized cost and fair value of fixed maturity securities at September 30, 2020, by contractual maturity, are shown below.

(in thousands)

8 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

7 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

9 unchanged sentences

Net realized investment gains (losses)

Net unrealized gains on equity securities

Net unrealized gains (losses) on equity securities

Net realized and unrealized gains on investments

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

Proceeds from the sale of fixed maturity securities were $10.5 million and $4.4 million for the three months ended June 30, 2020 and 2019, respectively and $12.9 million and $14.3 million for the six months ended June 30, 2020 and 2019, respectively.

Proceeds from the sale of fixed maturity securities were $16.3 million and $28.8 million for the three months ended September 30, 2020 and 2019, respectively and $29.2 million and $88.1 million for the nine months ended September 30, 2020 and 2019, respectively.

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

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

At June 30, 2020 and December 31, 2019, the carrying value of securities on deposit with state regulatory authorities was $5.9 million and $5.1 million, respectively.

At September 30, 2020 and December 31, 2019, the carrying value of securities on deposit with state regulatory authorities was $6.5 million and $5.1 million, respectively.

Fair Value Measurements

15 unchanged sentences

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

The following tables present the Company’s fair value hierarchy for financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2020 and December 31, 2019.

June 30, 2020

The following tables present the Company’s fair value hierarchy for financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2020 and December 31, 2019.

September 30, 2020

(in thousands)

19 unchanged sentences

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

As of June 30, 2020, the Company had no fixed income securities classified as Level 3.

As of December 31, 2019, the Company had $1.5 million of fixed income securities classified as Level 3 due to the availability of market observable inputs which were transferred to Level 2 during the six months ended June 30, 2020.

As of September 30, 2020, the Company had no fixed income securities classified as Level 3.

Reserve for Losses and Loss Adjustment Expenses

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

Three months ended June 30,

Six Months Ended June 30,

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

Three months ended September 30,

Nine Months Ended September 30,

(in thousands)

10 unchanged sentences

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

The Company experienced adverse development of $0.09 million in the three months ended June 30, 2020 and favorable development of $0.22 million in the six months ended June 30, 2020 and favorable development of $0.09 million and $0.05 million in the three and six months ended June 30, 2019.

Adverse development in the three months ended June 30, 2020 was primarily due to reported activity in the Assumed Reinsurance line of business.

Favorable development in the six months ended June 30, 2020 was primarily due to lower than anticipated frequency and severity of claims in the specialty homeowners and residential flood lines of business.

Favorable development during for the three and six months ended June 30, 2019 was primarily due to lower than originally anticipated frequency and severity of claims in the Texas homeowners line of business.

The Company experienced adverse development of $0.3 million and $0.03 million in the three and nine months ended September 30, 2020 and favorable development of $0.2 million and $0.3 million in the three and nine months ended September 30, 2019.

Adverse development in the three and nine months ended September 30, 2020 was primarily due to reported activity in the assumed reinsurance line of business, partially offset by favorable development in the specialty homeowners line of business.

Favorable development during for the three and nine months ended September 30, 2019 was primarily due to lower than originally anticipated frequency and severity of claims in the specialty homeowners line of business.

Long-term Debt

4 unchanged sentences

component of other underwriting expenses in the Company's unaudited condensed consolidated statement of income (loss) and comprehensive income (loss).

The Company incurred and paid $0.7 million and $1.1 million in interest expense related to the Floating Rate Notes for the three and six months ended June 30, 2019.

The Company incurred and paid $1.1 million and $1.2 million in interest related to the Floating Rate Notes for the nine months ended September 30, 2019.

Prior to March 2019, the Company was a Cayman Islands incorporated holding company with U.K.

12 unchanged sentences

represents significant positive evidence, which outweighed the historical negative evidence.

Based on this evidence, management determined it was more likely than not that the federal deferred tax assets are recoverable and therefore the associated valuation allowance was released as of March 31, 2019.

State NOL carryforwards, due to the limited carryforward period, do not meet the “more likely than not” criteria and the Company will continue to maintain a valuation allowance on the associated deferred tax assets.

The Company decreased the valuation allowance on the federal deferred tax assets by $1.7 million as a result of this analysis.

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

The tax expense for the three and six months ended June 30, 2020 and for the three months ended June 30, 2019 differs from the statutory rate of 21% due to miscellaneous differences between taxable income calculated under GAAP and IRS regulations.

The tax expense for the six months ended June 30, 2019 differs significantly the statutory rate of 21% primarily due to a U.S.

Based on this evidence, management determined it was more likely than not that the federal deferred tax assets are recoverable and released the associated $1.7 million valuation allowance as of March 31, 2019.

The Company will continue to have a valuation allowance on deferred tax assets associated with state net operating loss carryforwards as they do not meet the “more likely than not” criteria due to the limited carryforward period.

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

The tax expense for the three and nine months ended September 30, 2020 differs from the statutory rate of 21% due primarily to the tax impact of the permanent component of employee stock option exercises.

For the three months ended September 30, 2019 differs from the statutory rate of 21% due to miscellaneous differences between taxable income calculated under GAAP and IRS regulations.

The tax expense for the nine months ended September 30, 2019 differs significantly the statutory rate of 21% primarily due to a U.S.

tax benefit of $1.7 million for the reversal of a significant portion of the Company’s U.S.

1 unchanged sentence

Capital Stock

As of June 30, 2020 and December 31, 2019, the Company has 5,000,000 preferred shares authorized with a par value of $0.0001 and no preferred shares issued and outstanding.

As of June 30, 2020 and December 31, 2019, the Company has 500,000,000 common shares authorized and 25,468,321 and 23,468,750 common shares issued and outstanding, respectively, with a par value of $0.0001.

Additional paid in capital is $308.1 million as of June 30, 2020 and $180.0 million as of December 31, 2019.

As of September 30, 2020 and December 31, 2019, the Company has 5,000,000 preferred shares authorized with a par value of $0.0001 and no preferred shares issued and outstanding.

As of September 30, 2020 and December 31, 2019, the Company has 500,000,000 common shares authorized and 25,518,957 and 23,468,750 common shares issued and outstanding, respectively, with a par value of $0.0001.

Additional paid in capital is $309.5 million as of September 30, 2020 and $180.0 million as of December 31, 2019.

On March 15, 2019, the Company effected a 17,000,000 for one forward stock split in conjunction with domestication in the United States.

All share and per share information included in the condensed consolidated financial statements and notes to the condensed consolidated financial statements have been retroactively adjusted to reflect the stock split for the Company’s common stock for all periods presented.

All share and per share information included in the condensed consolidated financial

statements and notes to the condensed consolidated financial statements have been retroactively adjusted to reflect the stock split for the Company’s common stock for all periods presented.

On April 22, 2019, the Company completed its IPO with the sale of 6,468,750 shares of common stock at a price to the public of $15.00 per share.

The Company received net proceeds of approximately $87.4 million, after deducting underwriting discounts and commissions and offering costs.

On January 9, 2020, the Company completed a secondary offering in which the Company sold 750,000 shares of common stock to the public at a price of $49.00 per share (along with 5,000,000 shares sold by existing shareholders).

On January 9, 2020, the Company sold 750,000 shares of common stock to the public at a price of $49.00 per share (along with 5,000,000 shares sold by existing stockholders) in an underwritten public offering.

The Company received net proceeds of approximately $35.5 million, after deducting underwriting discounts and commissions and offering costs.

1 unchanged sentence

The Company received net proceeds of approximately $90.1 million, after deducting underwriting discounts and commissions and offering costs.

Common stock reserved for future issuance consists of the following as of June 30, 2020:

Common stock reserved for future issuance consists of the following as of September 30, 2020:

Stock options outstanding under 2019 Equity Incentive Plan

4 unchanged sentences

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

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

(in thousands)

13 unchanged sentences

The 12,552,825 Class P units outstanding were modified such that the vesting of each Class P unit holder’s awards was accelerated and their Class P distribution percentages were determined and distributed based on these percentages.

This modification resulted in a

stock compensation charge and corresponding increase to additional paid-in capital of $23.0 million during the quarter ending March 31, 2019.

This modification resulted in a stock compensation charge and corresponding increase to additional paid-in capital of $23.0 million during the quarter ending March 31, 2019.

2019 Equity Incentive Plan

9 unchanged sentences

Stock options expire ten years after the grant date.

The following table summarizes stock option transactions for the 2019 Plan for the six months ended June 30, 2020:

The following table summarizes stock option transactions for the 2019 Plan for the nine months ended September 30, 2020:

Number of shares

6 unchanged sentences

Options canceled

Outstanding at June 30, 2020

Vested and Exercisable at June 30, 2020

As of June 30, 2020, the Company had approximately $2.9 million of total unrecognized stock-based compensation expense related to stock options expected to be recognized over a weighted-average period of 2.18 years.

The fair value of each option granted during the six months ended June 30, 2020 was estimated on the grant date using the Black-Scholes option pricing model with the following assumptions:

Outstanding at September 30, 2020

Vested and Exercisable at September 30, 2020

As of September 30, 2020, the Company had approximately $3.7 million of total unrecognized stock-based compensation expense related to stock options expected to be recognized over a weighted-average period of 2.27 years.

The fair value of each option granted during the nine months ended September 30, 2020 was estimated on the grant date using the Black-Scholes option pricing model with the following assumptions:

Risk free rate of return (1)

12 unchanged sentences

Restricted Stock Units

Restricted stock units are valued on their grant date and generally vest on the first anniversary of the grant date.

Restricted stock units are valued on their grant date and generally vest either on the first anniversary of the grant date or over a three-year period with one third vesting on each anniversary date, subject to continued service.

The fair value of RSUs is determined using the closing price of the Company's common stock on the grant date.

The following table summarizes RSU transactions for the 2019 Plan for the six months ended June 30, 2020:

The following table summarizes RSU transactions for the 2019 Plan for the nine months ended September 30, 2020:

Number of shares

1 unchanged sentence

Non vested outstanding at December 31, 2019

Non vested outstanding at June 30, 2020

As of June 30, 2020, the Company had approximately $0.1 million of total unrecognized stock-based compensation expense related to RSUs expected to be recognized over a weighted-average period of 0.89 years.

Non vested outstanding at September 30, 2020

As of September 30, 2020, the Company had approximately $1.3 million of total unrecognized stock-based compensation expense related to RSUs expected to be recognized over a weighted-average period of 2.66 years.

2019 Employee Stock Purchase Plan

5 unchanged sentences

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

The Company issued 21,111 shares pursuant to the ESPP during the six months ended June 30, 2020.

The Company issued 28,367 shares pursuant to the ESPP during the nine months ended September 30, 2020.

Accumulated Other Comprehensive Income

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

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

1 unchanged sentence

Other comprehensive income before reclassification

Federal income tax (expense) benefit

Other comprehensive income (loss) before reclassification, net of tax

Federal income tax expense

Other comprehensive income before reclassification, net of tax

Amounts reclassified from AOCI

5 unchanged sentences

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

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

(in thousands, except shares and per share data)

4 unchanged sentences

Earnings per share:

Common share equivalents relate primarily to outstanding stock options and RSUs under the 2019 Plan and unpurchased shares under the 2019 ESPP.

For the six months ended June 30, 2019, there were 64,880 common share equivalents excluded from the calculation of diluted earnings per share as their effects were anti-dilutive.

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

For the respective three months ended September 31, 2020 and nine months ended September 30, 2019, there were 761,337 and 196,741 common share equivalents excluded from the calculation of diluted earnings per share as their effects were anti-dilutive due to the net loss reported in these periods.

Cash Distribution

In March 2019, the Company made a one-time cash distribution totaling approximately $5.1 million to its then-sole stockholder, GC Palomar Investor LP, enabling it to distribute funds to its partners, including Genstar Capital, in order to allow such partners to satisfy tax obligations incurred as a result of the Domestication transactions.

In March 2019, the Company made a one-time cash distribution totaling approximately $5.1 million to its then-sole stockholder, GC Palomar Investor LP, enabling it to distribute funds to its partners in order to allow such partners to satisfy tax obligations incurred as a result of the Domestication transactions.

Underwriting Information

1 unchanged sentence

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

($ in thousands)

1 unchanged sentence

Residential Earthquake

Commercial All Risk

Commercial Earthquake

Specialty Homeowners

Commercial All Risk

Inland Marine

3 unchanged sentences

Gross written premiums by state are as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

($ in thousands)

3 unchanged sentences

Total Gross Written Premiums

Subsequent Events

On November 10, 2020, the Company announced that its wholly-owned subsidiary, PSIC, had entered into a Renewal Rights Agreement, dated as of November 9, 2020, with GeoVera Holdings Inc.

(“GeoVera”), pursuant to which GeoVera agreed to sell, and the Company’s PSIC subsidiary agreed to purchase, the renewal rights to GeoVera’s Hawaii residential Hurricane policies.

The sale was consummated on November 9, 2020.

As part of this agreement, the Company has the ability to gain approximately $17 million of written premiums over the next 12 months.

There is no guarantee that current GeoVera policyholders will renew their Hurricane policies with the Company;

therefore, the ultimate impact to the Company’s written premiums is uncertain.

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

What changed 10-Q

Item 1. Financial Statements