What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2021-03-09 compared with 2020-02-28 · 505 added, 431 removed, 664 unchanged (59% of the section changed)

9 unchanged sentences

Consolidated Statements of Income and Comprehensive Income for the three years ended December 31, 2020, 2019 and 2018

Consolidated Statements of Stockholders’

Equity for the three years ended December 31, 2019, 2018 and 2017

Consolidated Statements of Stockholders’ Equity for the three years ended December 31, 2020, 2019 and 2018

Consolidated Statements of Cash Flows for the three years ended December 31, 2020, 2019 and 2018

Notes to Consolidated Financial Statements

Schedule II—Condensed Financial Information of Registrant—Parent Company only

Schedule V—Valuation and Qualifying Accounts

Schedule II—Condensed Financial Information of Registrant—Parent Company only

Schedule V—Valuation and Qualifying Accounts

Schedules other than those listed are omitted for the reason that they are not required, are not applicable or that equivalent information has been included in the financial statements or notes thereto or elsewhere herein.

2 unchanged sentences

and Subsidiaries

Opinion on Internal Control Over Financial Reporting

We have audited Palomar Holdings, Inc.

and Subsidiaries' internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).

In our opinion, Palomar Holdings, Inc.

and Subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of income and comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedules listed in the Index at Item 15(a) and our report dated March 9, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

San Francisco, California

March 9, 2021

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Palomar Holdings, Inc.

and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Palomar Holdings, Inc.

and Subsidiaries (the Company) as of December 31, 2019 and 2018, the related consolidated statements of income and comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and financial statement schedules listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”).

and Subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of income and comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedules listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 9, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

1 unchanged sentence

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

2 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Valuation of Reserve for Losses and Loss Adjustment Expenses

Description of the Matter

At December 31, 2020, the reserve for losses and loss adjustment expenses (LAE) is $129,036 thousand.

As explained in Notes 2 and 9 to the consolidated financial statements, the reserve for losses and LAE represents management's best estimate for unpaid claims and claim adjustment expenses on reported losses and estimates of losses incurred but not reported (IBNR), net of salvage and subrogation recoveries.

The liability is based on individual claims, case reserves and other estimates reported by policyholders, as well as management estimates of ultimate losses and loss adjustment expenses.

Inherent in the

estimates of ultimate losses and loss adjustment expenses are expected trends in claims severity and frequency and other factors that could vary significantly as claims are settled.

IBNR reserves include an estimate for future loss payments on incurred claims not yet reported and for expected development on reported claims.

There is significant uncertainty inherent in determining management’s best estimate of IBNR, which is sensitive to significant assumptions including the selection of actuarial methods and reported and paid loss emergence patterns.

Auditing management’s best estimate of IBNR reserves was complex due to the highly judgmental nature of the assumptions, including selection of actuarial methods and reported and paid loss emergence patterns, used in the valuation process.

These assumptions have a significant effect on the valuation of reserves for IBNR claims.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s controls over the process for estimating IBNR reserves.

This included, among other procedures, testing management review controls in place over the review and approval of methods and assumptions used in estimating IBNR reserves.

To test IBNR reserves, our audit procedures included, among others, testing the completeness and accuracy of the data used in the calculation by testing reconciliations of the underlying claims and policyholder data recorded in the source systems to the actuarial reserving calculations and comparing a sample of incurred and paid claims to source documentation.

We evaluated with the assistance of our actuarial specialists, the Company’s selection and weighting of actuarial methods compared to methods used in prior periods and in the industry for the specific types of insurance.

To evaluate the significant assumptions used by management, we compared the assumptions to current and historical claims trends and to current industry benchmarks.

We compared the Company’s recorded reserves to a range of reasonable reserve estimates developed by our actuarial specialists based on independently selected methods and assumptions.

We also compared the results of the reserve study prepared by a third-party actuarial firm to management’s recorded reserve.

Additionally, we performed a hindsight analysis of the prior period estimates using subsequent claims development.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2016

San Francisco, California

February 28, 2020

March 9, 2021

Palomar Holdings, Inc.

16 unchanged sentences

Reinsurance recoverable on paid losses and loss adjustment expenses

Prepaid reinsurance premium

Ceded unearned premiums

Prepaid expenses and other assets

9 unchanged sentences

Deferred tax liabilities, net

Long-term notes payable

Total liabilities

Stockholders' equity:

Preferred stock, $0.0001 par value, 5,000,000 and 0 shares authorized as of December 31, 2019 and December 31, 2018, respectively, 0 shares issued and outstanding as of December 31, 2019 and December 31, 2018

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

Common stock, $0.0001 par value, 500,000,000 shares authorized, 25,525,796 and 23,468,750 shares issued and outstanding as of December 31, 2020 and December 31, 2019, respectively

Additional paid-in capital

Accumulated other comprehensive income (loss)

Accumulated other comprehensive income

Retained earnings

24 unchanged sentences

Other comprehensive income, net:

Net unrealized gains (losses) on securities available for sale, net of taxes for year ended December 31, 2019 2018, and 2017, respectively

Net comprehensive income

Net unrealized gains (losses) on securities available for sale, net of taxes

Total comprehensive income

Per Share Data:

5 unchanged sentences

and Subsidiaries

Consolidated Statements of Stockholder’s Equity

(in thousands, except share data)

3 unchanged sentences

Balance at December 31, 2017

Net impact of tax reform on net unrealized gains on investments

Change in net unrealized gain on investments

Balance at December 31, 2017

Change in net unrealized loss on investments

Impact of equity accounting guidance adoption

Other comprehensive income, net of tax

Cumulative effect of adopting ASU 2016-01

Balance at December 31, 2018

Change in net unrealized gains on investments

Other comprehensive income, net of tax

Distribution to stockholder

2 unchanged sentences

Balance at December 31, 2019

Cumulative effect of adopting ASU 2016-13 (Note 2)

Other comprehensive income, net of tax

Stock-based compensation

Issuance of common stock in January 2020 stock offering, net of offering costs

Issuance of common stock in June 2020 stock offering, net of offering costs

Issuance of common stock via employee stock purchase plan

Issuance of common stock via equity incentive plan

Balance at December 31, 2020

See accompanying notes.

7 unchanged sentences

Stock-based compensation expense

Depreciation expense

Depreciation and amortization expense

Amortization and write-off of debt issuance costs

8 unchanged sentences

Reinsurance recoverables

Prepaid reinsurance premium

Ceded unearned premiums

Prepaid expenses and other assets

13 unchanged sentences

Securities receivable or payable, net

Purchase of policy renewal rights

Net cash used in investing activities

5 unchanged sentences

Redemption of Floating Rate Notes

Proceeds from January 2020 stock offering, net of offering costs

Proceeds from June 2020 stock offering, net of offering costs

Proceeds from common stock issued via employee stock purchase plan

Proceeds from common stock issued via stock option exercises

Net cash provided by financing activities

5 unchanged sentences

Cash paid for interest

The following table summarizes our cash and cash equivalents and restricted cash and cash equivalents within the Consolidated Balance Sheets (in thousands):

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

Cash and cash equivalents

8 unchanged sentences

Palomar Holdings, Inc.

(the Company), is an insurance holding company that was incorporated in Delaware in March 2019.

Prior to incorporation in Delaware, the Company was known as GC Palomar Holdings (GCPH), which was a Cayman Islands incorporated insurance holding company formed on October 4, 2013 when GC Palomar Investor LP (GCPI) acquired control of GCPH.

The Company and its wholly owned subsidiaries include Palomar Insurance Holdings, Inc.

(PIH), which wholly owns Palomar Specialty Insurance Company (PSIC), Prospect General Insurance Agency, Inc.

(PGIA), and Palomar Specialty Reinsurance Company Bermuda Ltd.

On February 12, 2014, GCPH through PIH acquired PSIC from Pacific Indemnity Company in a stock purchase transaction.

(“the Company”) is a Delaware incorporated insurance holding company that was founded in 2014.

The Company has several wholly owned subsidiaries including an Oregon domiciled insurance company, Palomar Specialty Insurance Company (“PSIC”), a Bermuda based reinsurance company, Palomar Specialty Reinsurance Company Bermuda Ltd.

(“PSRE”), an Arizona domiciled surplus lines insurance company, Palomar Excess and Surplus Insurance Company (“PESIC”), and a California domiciled property and casualty insurance agency, Palomar Insurance Agency, DBA Palomar General Insurance Agency (“PGIA”).

PSIC is a property and casualty insurance company domiciled in the state of Oregon.

The Company’s core focus is on the residential and commercial earthquake markets in earthquake‑exposed states such as California, Oregon, Washington, and states with exposure to the New Madrid Seismic Zone.

In 2015, PSIC expanded into broader geographic regions and perils, to include Hawaii residential hurricane and Texas specialty homeowners products.

In 2016, PSIC began a commercial all risk insurance program which covers commercial property primarily in southeastern wind‑exposed states.

The Company’s core focus is on the residential and commercial earthquake markets in earthquake-exposed states such as California, Oregon, Washington, and states with exposure to the New Madrid Seismic Zone.

The Company also offers products tailored to broader geographic regions and perils, including Hawaii residential hurricane, Specialty Homeowners, Inland Marine, and Flood products.

PSIC is licensed to underwrite insurance on an admitted basis in 32 states in the United States, as of December 31, 2020, mainly through managing general insurance agencies, wholesale brokers, and independent agents.

PGIA is a property and casualty general insurance agency for PSIC and unaffiliated insurance carriers.

PSRE is a Bermuda captive reinsurance company that has historically been used to reinsure certain premiums on a quota share basis exclusively for PSIC.

PESIC is an Arizona domiciled surplus lines insurance company.

PESIC is licensed in Arizona to write surplus lines policies across all the Company’s lines of business and was formed and began writing policies in 2020.

PGIA is a property and casualty general insurance agency for PSIC, PESIC, and unaffiliated insurance carriers.

As a general insurance agency, PGIA assists in developing insurance products, underwriting insurance policies, and receiving and disbursing funds from premium and loss transactions under contracts on behalf of insurance companies.

PGIA earns commissions from the product development, marketing, and servicing of the insurance companies’

PGIA earns commissions from the product development, marketing, and servicing of the insurance companies’ programs.

PGIA also earns fee income from policyholder transactions.

PSRE is a Bermuda captive reinsurance company that reinsures earthquake and Hawaii Hurricane premium on a quota share basis exclusively for PSIC.

The Company operates as an insurance holding company system and is subject to the insurance holding company laws of the State of Oregon, the state in which PSIC is domiciled.

The Company is also commercially domiciled in California and, as a result, subject to the insurance holding company laws of that state.

The Company operates as an insurance holding company system and is subject to the insurance holding company laws of the States of Oregon and Arizona, the states in which PSIC and PESIC are domiciled.

The Company is also commercially domiciled in California, making it subject to California insurance holding company laws.

These statutes require that each insurance company in the system register with the insurance department of its state of domicile and furnish information concerning the operations of companies within the holding company system that may materially affect the operations, management or financial condition of the insurers within the system and domiciled in that state.

The Company’s chief operating decision‑maker is the Chief Executive Officer.

While the chief decision‑maker monitors the revenue streams of the various products and services, operations are managed, resources are allocated, and financial performance is evaluated on a Company‑wide basis.

The Company has a single operating segment, the property and casualty insurance business.

While the Company’s chief operating decision-maker reviews the revenue streams attributable to individual products, operations are managed, resources are allocated, and financial performance is evaluated on a consolidated basis.

Basis of Presentation

3 unchanged sentences

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

Initial Public Offering (“IPO”)

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, including 843,750 shares sold upon the exercise in full of the underwriter’s option to purchase additional shares.

After underwriter discounts and commissions and offering expenses, net proceeds from the IPO were approximately $87.4 million.

Use of Estimates

The preparation of financial statements of insurance companies requires management to make estimates and assumptions that affect amounts reported in the consolidated financial statements and accompanying notes.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported in the consolidated financial statements and accompanying notes.

Such estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported and disclosed herein.

All revisions to accounting estimates are recognized in the period in which the estimates are revised.

Significant estimates reflected in the Company’s consolidated financial statements include, but are not limited to, reserves for losses and loss adjustment expenses, reinsurance recoverables on unpaid losses, and the fair values of investments.

Significant Accounting Policies

5 unchanged sentences

Restricted cash also includes cash held in a fiduciary capacity for the benefit of third-party insurance carriers.

Deferred Offering Costs

Deferred offering costs, which consist of direct incremental legal and accounting fees relating to the Company's April 2019 initial public offering (IPO), were capitalized as incurred.

The deferred offering costs were offset against the IPO proceeds upon the consummation of the offering.

Deferred offering costs were $1.1 million at December 31, 2018 and are classified as Prepaid expenses and other assets on the Company's consolidated balance sheet.

All of the Company’s investments in fixed maturity securities are classified as available‑for‑sale and are carried at fair value.

Unrealized gains and losses related to fixed maturity securities are included in accumulated other comprehensive income as a separate component of stockholder’s equity.

Equity securities are carried at fair value with unrealized gains and losses included as a component of net income on the Company’s consolidated statement of income.

Prior to 2018, unrealized gains and losses on equity securities were included in accumulated other comprehensive income as a separate component of stockholders’

Premiums and discounts on mortgage‑backed securities and asset‑backed securities are amortized or accrued using the prospective method which considers anticipated prepayments at the date of purchase.

To the extent that the estimated lives of such securities change as a result of changes in estimated prepayment rates, the adjustments are included in net investment income using the prospective method.

All of the Company’s investments in fixed maturity securities are classified as available-for-sale and are carried at fair value.

Investment income consists primarily of interest and dividends.

Interest income is recognized on an accrual basis.

Premiums and discounts on mortgage-backed securities and asset-backed securities are amortized or accrued using the prospective method which considers anticipated prepayments at the date of purchase.

Dividend income is recognized on the ex-dividend date.

Net investment income represents investment income, net of expenses.

Other‑than‑temporary declines in fair value of fixed maturity securities are evaluated for amounts considered credit losses by comparing the expected present value of cash flows to be collected to the amortized cost.

Once the amount of other‑than‑temporary impairment (OTTI) related to the credit loss is determined, the unrealized loss is then bifurcated into the credit‑related loss and the loss related to all other factors.

The credit‑related OTTI loss is recognized as a realized loss in the statement of income and comprehensive income and the cost basis of the security is reduced.

The OTTI related to other factors remain in accumulated other comprehensive income.

Before 2018, other‑than‑temporary declines in the fair value of equity securities would have been recorded as realized losses in the consolidated statement of income and comprehensive income and the cost basis of the security would have been reduced (see Note 3).

Unrealized gains and losses related to fixed maturity securities are included in accumulated other comprehensive income as a separate component of stockholders’ equity.

Equity securities are carried at fair value with unrealized gains and losses included as a component of net income on the Company’s consolidated statement of income

and comprehensive income.

The Company uses the specific-identification method to determine the cost of fixed maturity securities sold and the first-in, first-out method for lots of equity securities sold.

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

Factors considered in the review include the extent to which the fair value has been less than amortized cost, and current market interest rates and whether the unrealized loss is credit- driven or a result of changes in market interest rates.

The Company also considers factors specific to the issuer including the general financial condition of the issuer, the issuers industry and future business prospects, any past failure of issuer to make scheduled interest or principal payments, and the payment structure of the investment and the issuers ability to make contractual payments on the investment.

The Company also considers whether it intends to sell the security or if it is more likely than not that it will be required to sell the security before recovery of its amortized cost.

When assessing whether it intends to sell a fixed-maturity security or if it is likely to be required to sell a fixed-maturity security before recovery of its amortized cost, the Company evaluates facts and circumstances including, but not limited to, decisions to reposition the investment portfolio, potential sales of investments to meet cash flow needs, and potential sales of investments to capitalize on favorable pricing.

For fixed-maturity securities where a decline in fair value is below the amortized cost basis and the Company intends to sell the security, or it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost, a credit-loss charge is recognized in net income based on the fair value of the security at the time of assessment.

For fixed-maturity securities that the Company has the intent and ability to hold, the Company compares the estimated present value of the cash flows expected to be collected to the amortized cost of the security.

The extent to which the estimated present value of the cash flows expected to be collected is less than the amortized cost of the security represents the credit-related portion of the impairment, which is recognized in net income through an allowance for credit losses.

Any remaining decline in fair value represents the noncredit portion of the impairment, which is recognized in other comprehensive income.

The Company reports accrued interest receivable as a component of accrued investment income on its consolidated balance sheet which is presented separately from available-for-sale securities.

The Company does not measure an allowance for credit losses on accrued interest receivable and instead would write off accrued interest receivable at the time an issuer defaults or is expected to default on payments.

Prior to the adoption of ASU 2016-13, the Company evaluated fixed maturity securities for credit losses and any losses were bifurcated into the credit-related loss and the loss related to all other factors.

The credit-related impairment loss would have been recognized as a realized loss in the statement of income and comprehensive income and the cost basis of the security would have been reduced.

The impairment related to other factors would have remained in accumulated other comprehensive income.

The Company did not recognize any credit losses during the years ended December 31, 2020 and 2019 related to its available-for-sale securities.

Fair value is defined as the price that the Company would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment.

The three-tier hierarchy of inputs is summarized in the three broad levels listed below:

Level 1—Unadjusted quoted prices are available in active markets for identical investments as of the reporting date.

Level 2—Pricing inputs are quoted prices for similar investments in active markets;

Level 1—Unadjusted quoted prices are available in active markets for identical investments as of the reporting date.

Level 2—Pricing inputs are quoted prices for similar investments in active markets;

quoted prices for identical or similar investments in inactive markets;

or valuations based on models where the significant inputs are observable or can be corroborated by observable market data.

Level 3—Pricing inputs into models are unobservable for the investment.

or valuation based on models where the significant inputs are observable or can be corroborated by observable market data.

Level 3—Pricing inputs into models are unobservable for the investment.

The unobservable inputs require significant management judgment or estimation.

2 unchanged sentences

The fair values obtained from the outside investment managers are reviewed for reasonableness and any discrepancies are investigated for final valuation.

The fair value of the Company’s investments in fixed maturity securities is estimated using relevant inputs, including available market information, benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing.

An Option Adjusted Spread model is also used to develop prepayment and interest rate scenarios.

2 unchanged sentences

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

The fair value of the Company’s investments in equity securities is based on quoted prices available in active markets and classified and disclosed in Level 1 of the hierarchy.

Concentration of Credit Risk

5 unchanged sentences

Premiums Receivable

Premiums receivable are carried at face value net of any allowance for doubtful accounts which approximates fair value.

If necessary, the Company records an allowance for doubtful accounts in an amount approximating anticipated losses.

Individual uncollectible accounts are written off against the allowance when collection of the individual accounts is not reasonably assured.

No allowance for doubtful accounts was required at December 31, 2019 or 2018.

Premiums receivable represent amounts due from policyholders, insurance agents, or program administrators for policies written.

Generally, premiums are collected prior to providing risk coverage, minimizing the Company’s exposure to credit risk.

Premiums receivable are short-term in nature and due within a year.

The Company has established an allowance for uncollectable premiums related to its credit risk, which it reviews on a quarterly basis and adjusts as appropriate.

The company considers the current economic environment, specific regulatory developments, and historic payment and cancelation trends by line of business and location when determining whether to record an allowance for uncollectable premiums.

Prior to December 31, 2019, the Company did not have an allowance for uncollectable premiums.

An initial allowance for uncollectable premiums of $0.2 million was established upon adoption of ASC 2016-13 on January 1, 2020 and the company recognized an immaterial amount of credit losses relating to uncollectable premiums during the year ended December 31, 2020.

Deferred Policy Acquisition Costs

The costs of successfully acquiring new business, principally commission expense and premium taxes, are deferred and amortized over the unexpired terms of the policies in force.

The costs of successfully acquiring new business, principally commission expense and premium taxes, are deferred and amortized over the terms of the policies in force, net of any ceding commissions.

Premiums Earned

1 unchanged sentence

Premiums written not yet recognized as revenue are reflected as unearned premiums on the balance sheet, or as advanced premiums if received prior to the policy effective date.

Premiums written but not yet received are recognized as premiums receivable.

Premiums receivable are presented on the consolidated balance sheets net of estimated uncollectible amounts.

Based on management’s review no allowance for bad debt was required at December 31, 2019 and 2018.

Premiums written where cash is not yet received are recognized as premiums receivable.

A premium deficiency is recognized if the sum of expected losses and loss adjustment expenses, unamortized acquisition costs, and policy maintenance costs exceeds the remaining unearned premiums.

11 unchanged sentences

Expenditures for maintenance and repairs are charged to operations as incurred.

Upon disposition, the asset cost and related depreciation are removed from the accounts and the resulting gain or loss is included in the Company’s results of operations.

Capitalized Software

Costs associated with the implementation of certain internal systems are capitalized and carried at capitalized cost less accumulated amortization and are included as a component of prepaid expenses and other assets on the Company’s consolidated balance sheet.

Costs capitalized include internal personnel costs, external developer costs, and interest.

2 unchanged sentences

Intangible Assets

Upon acquisition, the entire PSIC purchase price was allocated to separately identifiable indefinite lived intangible assets.

The Company acquired seven state licenses in the acquisition to which $0.7 million was allocated.

Indefinite lived intangible assets are initially recognized and measured at fair value;

intangible assets are subsequently evaluated for impairment annually or more frequently if circumstances warrant it.

Intangible assets consist of both finite and indefinite lived assets.

Finite lived intangible assets consist of customer relationships acquired from another insurer during 2020.

Indefinite lived intangible assets consist of state licenses acquired upon formation of the Company.

Intangible assets are initially recognized and measured at fair value and are subsequently evaluated for impairment annually or more frequently if circumstances warrant it.

No impairments of intangible assets were recognized for the years ended December 31, 2020, 2019 or 2018.

3 unchanged sentences

An impairment loss is recognized only if the carrying amount of a long-lived asset or asset group is not recoverable and exceeds its fair value.

The carrying amount of a long‑lived asset or asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group.

The carrying amount of a long-lived asset or asset group is not recoverable if it exceeds the sum of

the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group.

This assessment is based on the carrying amount of the asset or asset group at the date it is tested for recoverability.

5 unchanged sentences

Inherent in the estimates of ultimate losses and loss adjustment expenses are expected trends in claims severity and frequency and other factors that could vary significantly as claims are settled.

The Company’s estimates of ultimate losses and loss adjustment expenses are based in part upon the estimation of claims resulting from natural disasters such as hurricanes and earthquakes.

Estimation by management of the ultimate losses and loss adjustment expenses resulting from catastrophic events is inherently difficult because of the potential severity of property catastrophe claims.

Therefore, the Company uses both proprietary and commercially available models, as well as historic claims experience, for purposes of providing an estimate of ultimate losses and loss adjustment expenses.

For other difficult estimates of ultimate losses and loss adjustment expenses, the Company utilizes historical severity data that may be immature and subject to significant variation, in addition to using loss development methods based on paid and reported losses.

For these estimates, industry data may also be utilized.

Reserves for IBNR are established in accordance with industry practice to provide for (i) the estimated amount of future loss payments on incurred claims not yet reported, and (ii) potential development on reported claims.

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

Ultimate losses and loss adjustment expenses may vary materially from the amounts provided in the consolidated financial statements.

Estimates of unpaid losses and loss adjustment expenses are reviewed regularly and, as experience develops and new information becomes known, the liabilities are adjusted as necessary.

Such adjustments,

if any, are reflected in operations in the period in which they become known and are accounted for as changes in estimates.

Such adjustments, if any, are reflected in operations in the period in which they become known and are accounted for as changes in estimates.

The Company does not discount its liability for unpaid losses and loss adjustment expenses.

2 unchanged sentences

Reinsurance premiums, commissions, ceded unearned premiums are accounted for on bases consistent with the underlying terms of the reinsurance contracts and in proportion to the amount of insurance protection provided.

The Company receives ceding commissions in connection with certain ceded reinsurance.

The ceding commissions are capitalized and amortized as a reduction of underwriting, acquisition and insurance expenses.

Amounts applicable to prepaid reinsurance premiums are reported as assets in the accompanying consolidated balance sheets.

Reinsurance recoverables represent paid losses and loss adjustment expenses and reserves for unpaid losses and loss adjustment expenses ceded to reinsurers that are subject to reimbursement under reinsurance treaties.

The Company receives ceding commissions in connection with quota share reinsurance.

The ceding commissions are capitalized and amortized as a reduction of acquisition expenses.

Amounts applicable to ceded unearned premiums are reported as assets in the accompanying consolidated balance sheets.

Premiums earned and losses and loss adjustment expenses incurred are stated in the accompanying consolidated statements of income and comprehensive income net of amounts ceded to reinsurers.

Reinsurance recoverables represent balances due to the Company from its reinsurers for paid and unpaid losses and loss adjustment expenses.

The Company is exposed to credit losses from reinsurers being unable to meet their obligations.

The Company evaluates the financial condition of potential reinsurers and reinsures its business only with highly rated reinsurers with a rating of “A-“ (Excellent) (Outlook Stable) or better from A.M.

Reinsurers who do not meet the Company’s rating criteria are required to post collateral.

The Company reviews credit quality of its reinsurers on a quarterly basis.

The Company’s reinsurance contracts also include special termination provisions that allow the Company to cancel and replace any participating reinsurer that is downgraded below a rating of “A−” from A.M.

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

Historically, the Company has not experienced any credit

losses from reinsurance recoverables and did not have an allowance for uncollectable reinsurance recoverables as of December 31, 2020 or December 31, 2019.

Stock Based Compensation Expense

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

The Company does not apply a forfeiture rate to unvested awards and accounts for forfeitures as they occur.

For stock option grants, the fair value of awards is estimated using the Black Scholes Model.

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

All stock-based compensation is included in other underwriting expenses in the Company’s consolidated statements of income and comprehensive income.

The Company is taxed as a property/casualty insurer for federal income tax purposes.

10 unchanged sentences

When inclusion of additional common share equivalents increases the earnings per share or reduces the loss per share, the effect on earnings per share is anti-dilutive, and the diluted net earnings or net loss per share is computed excluding these common share equivalents.

Recent Accounting Pronouncements

The Company currently qualifies as an emerging growth company (“EGC”) under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act.

Accordingly, the Company is provided the option to adopt new or revised accounting guidance either (i) within the same periods as those otherwise applicable to non‑emerging growth companies or (ii) within the same time periods as private companies.

The Company is currently electing to adopt new or revised accounting guidance within the same time period as private companies, unless, as indicated below, management determines it is preferable to take advantage of early

adoption provisions offered within the applicable guidance.

If the Company ceases to be an EGC, it will no longer have the option to adopt guidance within the same time periods as private companies.

Recently adopted accounting pronouncements

In January 2016, the FASB issued “ASU 2016‑01, Financial Instruments—Overall (Subtopic 825‑10):

Recognition and Measurement of Financial Assets and Financial Liabilities .”

Among other things, this new guidance requires the Company’s equity investments to be measured at fair value with changes in fair value recognized in net income.

Under the current guidance, equity investments are measured at fair value with changes in fair value recognized in accumulated other comprehensive income as a component of stockholder’s equity.

The Company adopted this guidance on January 1, 2018 and began recognizing changes in fair value of equity securities into net income.

Upon adoption, the Company made a $3.2 million cumulative‑effect adjustment to increase retained earnings and decrease accumulated other comprehensive income.

In the future, this guidance will impact the Company’s results of operations, as changes in fair value of equity investments will impact net income rather than other comprehensive income.

The future impact will vary depending on the volatility of the overall equity market and the amount the Company decides to invest in equity securities.

In August 2016, the FASB issued “ASU 2016‑15, Statement of Cash Flows (Topic 230):

Classification of Certain Cash Receipts and Cash Payments”

, in order to reduce diversity in the presentation and classification of certain cash receipts and cash payments on the statement of cash flows.

The Company adopted this guidance on January 1, 2018.

The adoption of this guidance did not have an impact on the Company’s consolidated financial statements.

In May 2014, the FASB issued “ASU 2014-09, Revenue from Contracts with Customers (Topic 606).”

This guidance applies to all companies that either enter into contracts with customers to transfer goods or services or enter into contracts for the transfer of nonfinancial assets, unless those contracts are within the scope of other standards, such as insurance contracts.

Under this guidance, a company recognizes revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.

Judgments required in adopting this update included identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation.

Nearly all the Company’s consolidated revenue is outside the scope of Topic 606 except for the commission and fee income that the Company's 100% owned insurance agency earns from third-party insurers, which was $1.4 for each of the years ended December 31, 2019 and 2018.

Effective January 1, 2019, the Company adopted Topic 606 using the modified retrospective transition method.

The application of the key aspects of Topic 606 to the in-scope transactions resulted in recognition of revenues and related expenses consistent with the previous revenue guidance.

Adoption had no impact on the Company’s reported fee income or expense and there was no cumulative effect of initially applying the guidance.

Clarification on change in filing status and prior quarterly information

Prior to December 31, 2020, the Company qualified as an emerging growth company (“EGC”) under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act.

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

The Company became a large accelerated filed on December 31, 2020 and must now adopt new accounting guidance within the same time periods as public companies, beginning with this 2020 Annual Report on Form 10-K.

Prior to this annual report, the Company’s 2020 quarterly filings did not reflect adoption of the below guidance as the Company was not required to have adopted it.

Upon adoption of the below guidance, the Company updated its financials as if the below guidance was adopted on January 1, 2020, however, this adoption had a negligible impact on previously filed quarterly information.

In February 2016, the Financial Accounting Standards Board (“FASB”) issued new guidance for accounting for leases, ASU 2016-02, Leases (Topic 842) and subsequently issued multiple clarifying updates to the guidance.

This updated guidance requires the recognition of a right-of-use (“ROU”) asset and a corresponding lease liability, discounted to the present value, for all leases that extend beyond 12 months.

Under the previous guidance, leases were only included on the balance sheet if the criteria to classify the agreement as a capital lease were met.

The Company adopted this new guidance as of January 1, 2020.

The Company adopted this guidance using the modified retrospective transition method, applying the transition provisions on the date of adoption and not restating prior periods.

The Company elected to use a number of practical expedients permitted under the transition guidance, but did not elect to use hindsight in determining the lease term.

Upon adoption, the Company recognized a ROU asset of $2.9 million and lease liabilities of $3.8 million, with the difference representing the reclassification of deferred rent and lease incentive liabilities (the difference between the straight-line rent expenses and cash paid for rent under the leases) to operating lease ROU assets from other liabilities.

The ROU asset and corresponding liability recognized pertained to various operating leases for office space.

The Company did not have any cumulative-effect adjustment because of the adoption.

Measurement of credit losses

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) and subsequently issued multiple clarifying updates to the guidance.

This updated guidance requires financial assets measured at amortized cost to be presented at the net amount expected to be collected by means of an allowance for credit losses that is included in net income.

Credit losses relating to available-for-sale debt securities are also required to be recorded through a reversible allowance for credit losses, but the allowance is limited to the amount by which fair value is less than amortized cost.

The previous accounting guidance delayed the recognition of credit losses until it was probable a loss had been incurred.

The Company adopted this guidance on January 1, 2020 using the modified retrospective approach and recorded a $0.2 million cumulative effect adjustment to beginning retained earnings upon adoption relating to an allowance for credit losses on the Company’s premium receivables.

The adoption of this accounting guidance did not have an impact on value of the Company’s fixed maturity securities or its reinsurance recoverables.

Recently issued accounting pronouncements not yet adopted

In February 2016, the FASB issued new guidance for accounting for leases, “ASU 2016‑02, Leases (Topic 842) .”

Under current guidance, leases are only included on the balance sheet if the criteria to classify the agreement as a capital lease are met.

This update will require the recognition of a right‑of‑use asset and a corresponding lease liability, discounted to the present value, for all leases that extend beyond 12 months.

This guidance was subsequently amended multiple times and offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions.

Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases.

This new guidance requires a modified retrospective adoption, applying the new standard to all leases existing at the date of initial application, with early adoption permitted.

An entity may choose to use the standard’s effective date, rather than the beginning of the earliest comparative period presented, as the date of initial application.

An entity would record the effects of initially applying the new guidance as a

cumulative‑effect adjustment to retained earnings.

Consequently, an entity’s reporting for the comparative periods presented in the year of adoption would continue to be in accordance with the current guidance, including the current disclosure requirements.

To facilitate transition, the new guidance includes a package of practical expedients that entities may elect to apply on adoption.

The package of practical expedients relates to the identification and classification of leases and initial direct costs for leases that commenced before the effective date.

The new guidance also includes a practical expedient permitting the use of hindsight in evaluating lessee options to extend or terminate a lease or to purchase the underlying asset.

Under the Company’s current status as an EGC, this update will be effective for annual reporting periods beginning after December 15, 2020, and interim reporting periods within fiscal years beginning after December 31, 2021 with early adoption permitted.

The Company is currently evaluating the impact that this new guidance will have on its consolidated financial statements.

In June 2016, the FASB issued “ASU 2016‑13, Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments .”

Current guidance delays the recognition of credit losses until it is probable a loss has been incurred.

This updated guidance will require financial assets measured at amortized cost to be presented at the net amount expected to be collected by means of an allowance for credit losses that runs through net income.

Credit losses relating to available‑for‑sale debt securities will also be recorded through an allowance for credit losses, with the amount of the allowance limited to the amount by which fair value is below amortized cost.

In 2019, the FASB issued amendments to this guidance which provide an option to irrevocably elect to measure certain individual financial assets at fair value instead of amortized cost and provide additional clarification and implementation guidance.

Under the Company’s current status as an EGC , this update and its amendments will be effective for annual reporting periods beginning after December 15, 2022, including interim periods within those fiscal years.

Early adoption is permitted, but not before annual reporting periods beginning on or after December 15, 2018.

The Company is currently evaluating the impact that this new guidance will have on its consolidated financial statements.

In August 2018, the FASB issued “ASU 2018‑13, Fair Value Measurement (Topic 820):

Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement .

Among other things, this new guidance eliminates the need to disclose transfers between Level 1 and Level 2 of the fair value hierarchy, changes the policy for timing of transfers and the valuation processes for Level 3 fair value measurements and includes requirements to disclose quantitative information about Level 3 measurements.

This new guidance will be effective for annual and interim reporting periods beginning after December 15, 2019.

The Company adopted this guidance on January 1, 2020 and adoption did not have an impact on the Company’s consolidated financial statements.

The Company will continue to monitor the composition of its investment portfolio and will make appropriate disclosures based on this guidance.

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

In December 2019, the FASB issued ASU No.

2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes.

Among other things, ASU 2019-12 eliminates certain exceptions for recognizing deferred taxes for investments, performing intra-period tax allocation and calculating income taxes in interim periods.

ASU 2019-12 also clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill.

ASU 2019-12 is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.

The Company will adopt this guidance in the first fiscal quarter of 2021 and does not expect adoption to have a material impact on its consolidated financial statements.

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

December 31, 2020

21 unchanged sentences

None of the fixed maturity securities with unrealized losses has ever missed, or been delinquent on, a scheduled principal or interest payment.

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 December 31, 2019 and 2018, are as follows:

Less Than 12 Months

18 unchanged sentences

Mortgage/asset-backed securities

The Company considers the following factors in determining whether declines in the fair value of investments are other‑than‑temporary:

The significance of the decline in fair value compared to the cost basis;

The time period during which there has been a significant decline in fair value;

Whether the unrealized loss is credit‑driven or a result of changes in market interest rates;

A fundamental analysis of the business prospects and financial condition of the issuer;

The Company’s intent to sell the securities as of each reporting date;

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 December 31, 2019 and 2018, 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 reviewed the above securities at each balance sheet date to consider whether it was necessary to recognize a credit loss or other-than-temporary impairment (OTTI) related to any of these securities.

Based on the reviews, 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 for both periods.

The Company does not intend to sell the investments and it is not more likely than not that 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 respective years.

Based on the Company’s reviews as of December 31, 2017, the Company determined that the unrealized losses of the equity securities lots were temporary due to the severity of the declines.

The Company had the ability and intent to hold these investments until a recovery of fair value.

Therefore, none of the equity securities were written down at December 31, 2017 and the remaining unrealized losses of equity securities at that time were recognized to retained earnings upon adoption of ASU 2016‑01 on January 1, 2018.

See “Recent Accounting Pronouncements.”

Therefore, the Company did not recognize an allowance for credit losses related to any of these securities for the year ended December 31, 2020 and did not recognize any OTTI charges for the year ended December 31, 2019.

Contractual maturities of available-for-sale fixed maturity securities

13 unchanged sentences

Fixed maturities

Equity securities

Net (decrease) increase

Net increase (decrease)

Net investment income summary

3 unchanged sentences

Dividend income

investment expense

Investment management fees and expenses

Net investment income

10 unchanged sentences

Total realized losses

Net realized investment gains (losses)

Net realized investment gains

Net unrealized gains (losses) on equity securities

Net realized and unrealized gains (losses) on investments

Proceeds from the sale of fixed maturity securities were $39.8 million, $46.3 million and $48.5 million for the years ended December 31, 2020, 2019 and 2018, respectively.

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

2 unchanged sentences

Fair value measurements

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 December 31, 2019 and 2018:

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 December 31, 2020 and 2019:

December 31, 2020

18 unchanged sentences

Cash, cash equivalents, and restricted cash

Long-term notes payable

Total liabilities

The carrying amounts of financial assets and liabilities reported in the accompanying consolidated balance sheets including cash and cash equivalents, restricted cash, receivables, reinsurance recoverable, and accounts payable and other accrued liabilities approximate fair value due to their short term-maturity.

The fair value of the Company’s long‑term debt was determined by calculating the present value of expected future cash flows under the terms of the note agreements discounted at an estimated market rate of interest at December 31, 2018.

This is a level 3 measurement.

The Company repaid its long-term notes payable in May 2019 and did not have any long-term debt at December 31, 2019.

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

There were no transfers between Level 1, Level 2 or Level 3 during 2019 or 2018.

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 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.

These securities were transferred to Level 2 during the year ended December 31, 2020.

Policy Acquisition Costs

The following tables present the policy acquisition costs deferred and amortized:

The following tables present the policy acquisition costs deferred and amortized over the terms of the policies in force:

(in thousands)

11 unchanged sentences

Total Acquisition expenses

Property and Equipment

Property and Equipment, net consist of the following:

Intangible Assets

Intangible assets consist of the following:

(in thousands)

Indefinite-lived intangibles:

State insurance licenses

Finite-lived intangibles:

Customer relationships

Accumulated amortization on finite-lived intangibles

Total intangible assets

State insurance licenses consist of licenses acquired at the inception of PSIC.

Customer relationships represents the fair value of policy renewal rights acquired by PSIC from another insurance company in November 2020.

The policy renewals pertaining to this intangible asset will begin in early 2021 and the Company intends to amortize this customer relationship intangible over a period of 8 years.

Capitalized Assets

Capitalized software balances are as follows:

December 31, 2020

(in thousands)

Capitalized Software

December 31, 2019

(in thousands)

Capitalized Software

Amortization expense relating to capitalized software for the years ended December 31, 2020, 2019 and 2018 was $1.1 million, $0.6 million and $0.03 million, respectively.

Property and Equipment consists of the following:

December 31, 2020

(in thousands)

Leasehold improvements

7 unchanged sentences

Depreciation expense for the years ended December 31, 2020, 2019 and 2018 was $0.2 million, $0.2 million, and $0.2 million respectively.

Capitalized Software

Capitalized software balances are as follows:

December 31, 2019

The Company has operating leases for office space used to conduct its insurance operations and administration activities.

Operating lease ROU assets are a component of prepaid expenses and other assets and operating lease liabilities are included in accounts payable and other accrued liabilities in the Company's consolidated balance sheets.

The Company determines whether an arrangement is a lease at its inception.

Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.

To determine the present value of lease payments, the Company uses its incremental borrowing rate, which it calculates based on information available at the lease commencement date.

For certain leases that contain options to extend, the options are included in lease liabilities only if the company is reasonably certain the option will be exercised.

Variable lease costs such as parking are expensed in the period the obligation is incurred and are not included in the Company’s operating lease liability.

The Company's lease agreements do not contain any residual value guarantees.

Operating lease costs for the years ended December 31, 2020, 2019 and 2018 were $0.7 million, $0.6 million and $0.6 million, respectively.

Operating lease costs are comprised of rental expense for operating leases.

Lease expense is recognized on a straight-line basis over the lease term and is included as a component of other underwriting expenses in the Company’s consolidated statements of income and comprehensive income.

The following tables provide supplementary information about the Company’s leases:

Year ended December 31, 2020

(in thousands)

Capitalized Software

Operating cash outflows from operating leases

Right of use assets obtained in exchange for new operating lease liabilities

December 31, 2020

($ in thousands)

Capitalized Software

Amortization expense relating to capitalized software the years ended December 31, 2019 and 2018 was $0.6 million and an immaterial amount, respectively.

Operating lease ROU assets

Operating lease liabilities

Weighted-average remaining lease term-operating leases

Weighted-average discount rate-operating leases

Future minimum lease payments as of December 31, 2020 are as follows:

Years ending December 31,

(in thousands)

Total future minimum lease payments

imputed interest

Total operating lease liability

Reserve for Losses and Loss Adjustment Expenses

Loss and loss adjustment expenses reserves represent management’s best estimate of the ultimate cost of all reported and unreported losses incurred through December 31, 2019 and 2018.

Loss and loss adjustment expenses reserves represent management’s best estimate of the ultimate cost of all reported and unreported losses incurred for the years ended December 31, 2020, 2019, and 2018.

The Company does not discount loss and loss adjustment expense reserves.

The reserves for unpaid losses and loss adjustment expenses are estimated using individual case‑basis valuations and statistical analyses.

The reserves for unpaid losses and loss adjustment expenses are

estimated using individual case-basis valuations and statistical analyses.

Those estimates are subject to the effects of trends in loss severity and frequency.

In addition to case reserves, which are generally based on reported claims, the Company establishes reserves for incurred but not reported claims (“IBNR”).

IBNR reserves are developed to provide for (i) the estimated amount of future loss payments on incurred claims not yet reported, and (ii) potential development on reported claims.

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

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

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

The Company regularly reviews its reserve estimates and adjusts them as necessary as experience develops or as new information becomes known.

Such adjustments are included in current operations.

During the loss settlement period, if there are indications that claims frequency or severity exceeds initial expectations, the Company generally increases its reserves for losses and loss adjustment expenses.

Conversely, when claims frequency and severity trends are more favorable than initially anticipated, the Company generally reduces its reserves for losses and loss adjustment expenses once it has sufficient data to confirm the validity of the favorable trends.

Even after such adjustments, the ultimate liability may exceed or be less than the revised estimates.

Accordingly, the ultimate settlement of losses and the related loss adjustment expenses may vary significantly from the estimate included in the Company’s consolidated financial statements.

Although considerable variability is inherent in such estimates, management believes the reserves for losses and loss adjustment expenses are adequate.

12 unchanged sentences

Reserve for losses and loss adjustment expenses gross of reinsurance recoverables on unpaid losses and loss adjustment expenses at end of period

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

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

The foregoing reconciliation shows loss and loss adjustment expense reserve redundancies of $0.1 million, $0.2 million, and $1.9 million developed in 2020, 2019 and 2018, respectively.

This favorable reserve development was primarily in the Texas homeowners segment for all accident years presented.

Expectations of ultimate losses from these periods have decreased due to lower than originally anticipated frequency and severity of claims.

During 2020, this favorable reserve development related to lower than anticipated frequency and severity of claims in our homeowners and special property

lines of business offset by higher than anticipated frequency and severity of claims in our assumed reinsurance line.

During 2019, this favorable reserve development was primarily related to lower than originally anticipated frequency and severity of claims in our homeowners lines of business, offset by higher than originally anticipated frequency and severity of claims in our special property lines of business.

During 2018, this favorable reserve development was primarily due to favorable development in our homeowners lines of business due to lower than originally anticipated frequency and severity of claims.

The Company compiles and aggregates its claims data by grouping the claims according to the year in which the claim occurred (“Accident Year”) when analyzing claim payment and emergence patterns and trends over time.

3 unchanged sentences

The Special Property classification includes fire, allied lines, inland marine, and earthquake claims.

As such, the following tables show the Company’s historical homeowner and special property incurred and cumulative paid losses and LAE development, net of reinsurance, as well as IBNR loss reserves and the number of reported claims on an aggregate basis as of December 31, 2019 for each of the previous two accident years.

The information provided herein about incurred and paid accident year claims development for the years ended December 31, 2018 and prior is presented as unaudited supplementary information.

Incurred Losses and Allocated Loss Adjustment Expenses,

Net of Reinsurance Homeowners’

Insurance (in thousands)

Year Ended December 31,

Net of Reinsurance Homeowners’ Insurance (in thousands)

As of December 31, 2020

Year Ended December 31,

1 unchanged sentence

Cumulative Paid Losses and Allocated Loss Adjustment Expenses,

Net of Reinsurance Homeowners’

Insurance (in thousands)

Net of Reinsurance Homeowners’ Insurance (in thousands)

Year Ended December 31,

3 unchanged sentences

Average Annual Percentage Payout of Incurred Claims by Age,

Net of Reinsurance Homeowners’

Insurance (unaudited)

Net of Reinsurance Homeowners’ Insurance (unaudited)

Payout percentage

16 unchanged sentences

Net outstanding liabilities:

Homeowners’

Homeowners’ insurance

Special property

2 unchanged sentences

Reinsurance recoverable on unpaid claims:

Homeowners’

Homeowners’ insurance

Special property

1 unchanged sentence

Total reserve for losses and loss adjustment expenses

Reflects the Company’s share of Loss and Loss Adjustment Expense related to non-proportional assumed business.

Gross and net reserves related to this treaty are $1.2 million and the ultimate incurred amount reflects IBNR only.

(1) Reflects the Company’s share of Loss and Loss Adjustment Expense related to non-proportional assumed reinsurance business.

This amount reflects gross and net reserves related to this treaty and the ultimate incurred amount reflects IBNR only.

The Company does not have direct access to individual claim information underlying the assumed quota arrangement.

3 unchanged sentences

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

In an XOL treaty, the Company retains losses for any occurrence up to a specified amount (its “retention”) and reinsurers assume any losses above that amount.

Prior to March 1, 2015, the Company had a retention of $15 million on non‑earthquake events.

This was reduced to $5 million on March 1, 2015 and remained in place through December 31, 2019.

The Company’s retention for earthquake events was $15 million from its inception through December 31, 2017 and was reduced to $5 million on January 1, 2018 and remained in place through December 31, 2019.

The Company maintained XOL coverage up to $1.05 billion nationwide ($1.12 billion in California) and $825 million for earthquake events as of December 31, 2019 and 2018, respectively, and $740 million and $625 million for non-earthquake events as of December 31, 2019 and 2018, respectively.

As of December 31, 2019 for non-earthquake events the Company retains 55% of losses between $299 million and $350 million, 30% of losses between $350 million and $477 million, and 100% of losses between $524 million and $569 million.

As of December 31, 2018, for non‑earthquake events the Company retains 54.55% of losses between $230 million and $351 million and 30% of losses between $351 million and $501 million.

In an XOL treaty, the Company retains losses for any occurrence up to a specified amount (its “retention”) and reinsurers assume any losses above that amount.

Historically, the Company has had a retention of between $5 million and $15 million for hurricane and earthquake events.

As of December 31, 2020, the Company’s catastrophe event retention is $10 million for all perils and $1 million as a vertical co-participation in selected layers.

As of December 31, 2020, the Company’s XOL reinsurance structure provides protection up to $1.4 billion for earthquake events and $600 million for hurricane events.

In a quota share agreement, the Company transfers, or cedes, part or all of its exposure to a reinsurer who receives a portion of the associated premium in exchange.

1 unchanged sentence

The Company has quota share reinsurance agreements on several of its lines with the Commercial All Risk and Specialty Homeowners lines currently accounting for the largest amount of ceded written premiums.

For Texas Homeowners, a component of Specialty Homeowners, the Company ceded substantially all exposure between June 2018 and June 2019 and ceded the majority of exposure thereafter.

For Texas Homeowners, a component of Specialty Homeowners, the Company ceded substantially all exposure between June 2018 and June 2019 and ceded a significant portion of exposure thereafter.

Ceded written premium related to the Texas Homeowners line was $14.6 million, $20.4 million and $24.9 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Ceded written premium related to the Commercial All Risk line was $19.2 million, $19.0 million and $7.2 million for the years ended December 31, 2020, 2019 and 2018, respectively.

No other quota share program accounted for more than 10% of total ceded written premium for those years.

The Company recognizes ceded unearned premiums related to quota share agreements on its consolidated balance sheets as a prepaid reinsurance premium asset.

As of December 31, 2019 and 2018, prepaid reinsurance premiums totaled $26.1 million and $18.3 million, respectively.

The increase in 2019 was driven primarily by increased ceding on the Commercial All Risk line.

As part of its reinsurance program, in June 2017, the Company obtained catastrophe protection through a reinsurance agreement with Torrey Pines Re Ltd.

(“TPRe”).

In connection with the reinsurance agreement, TPRe issued notes to unrelated investors in an amount equal to the full $166 million of coverage provided under the reinsurance agreement covering a three year period.

At the time of the agreement, the Company performed an evaluation of TPRe to determine if it meets the definition of a variable interest entity (“VIE”).

The Company also began ceding a small portion of its Commercial Earthquake premiums

in November 2020, which accounted for approximately $7.1 million in ceded written premiums for the year ended December 31, 2020.

No other quota share program accounted for more than 10% of total ceded written premiums for those years.

The Company recognizes ceded unearned premiums related to quota share agreements as an asset on its consolidated balance sheets.

As of December 31, 2020 and 2019, ceded unearned premiums totaled $35.0 million and $26.1 million, respectively.

The increase was driven primarily by premium growth in lines subject to quota shares and the timing at which the Company entered quota share arrangements.

As part of its reinsurance program, in May 2017, the Company obtained catastrophe protection through a reinsurance agreement with Torrey Pines Re Ltd.

At the time of the agreement, the Company performed an evaluation of TPRe to determine if it meets the definition of a variable interest entity (“VIE”).

The Company concluded that TPRe is a VIE but it does not have a variable interest in the entity, as the variability in results is expected to be absorbed entirely by the investors in TPRe.

Accordingly, TPRe is not consolidated in the Company’s financial statements.

The premium ceded to TPRe for the year ended December 31, 2020 was approximately $5.0 million.

16 unchanged sentences

The funds are held in cash and cash equivalents and investments with an offsetting liability on the accompanying consolidated balance sheets.

For the year ended December 31, 2019, reinsurance premiums ceded to the Company’s three largest reinsurers totaled $21.7 million, $7.5 million, and $4.9 million, representing 31.5% of the total balance.

For the year ended December 31, 2018, reinsurance premiums ceded to the Company’s three largest reinsurers totaled $7.5 million, $7.2 million, and $5.2 million, representing 24.0% of the total balance.

For the year ended December 31, 2017, reinsurance premiums ceded to the Company’s three largest reinsurers totaled $4.0 million, $3.4 million, and $2.4 million, representing 20.8% of the total balance.

At December 31, 2019 reinsurance recoverable on unpaid losses by the Company’s three largest reinsurers were $2.7 million, $1.9 million, and $1.9 million representing 38.2% of the total balance.

At December 31, 2018 reinsurance recoverables on paid and unpaid losses by the Company’s three largest reinsurers were $1.8 million, $0.8 million, and $0.8 million representing 23.0% of the total balance.

All of the Company’s reinsurers post collateral or have an A.M.

best rating of A−

(excellent) or better.

For the year ended December 31, 2020, reinsurance premiums ceded to the Company’s three largest reinsurers totaled $9.7 million, $8.6 million, and $6.0 million, representing 22.4% of the total balance.

At December 31, 2020 reinsurance recoverable on unpaid losses by the Company’s three largest reinsurers were $36.0 million, $5.8 million, and $3.1 million representing 42.8% of the total balance.

At December 31, 2019 reinsurance recoverables on paid and unpaid losses by the Company’s three largest reinsurers were $2.7 million, $1.9 million, and $1.9 million representing 38.2% of the total balance.

All of the Company’s reinsurers post collateral or have an A.M.

best rating of A− (excellent) or better.

Long-term Debt

2 unchanged sentences

Such payments could only be made from surplus.

In September 2018, the Company completed a private placement financing of $20.0 million floating rate senior secured notes (the “Floating Rate Notes”), bearing interest at the three-month treasury rate plus 6.50% per annum.

As part of the financing agreement, the Company immediately used surplus funds to pay down the existing $17.5 million in surplus notes.

2 unchanged sentences

The Company recognized a charge of $1.3 million upon redemption with $0.4 million due to the redemption premium and $0.9 million due to the write-off of unamortized debt issuance costs.

The $0.4 million redemption premium was recognized as a component of interest expense and the $0.9 million issuance cost write‑off was recognized as a component of other underwriting expenses in the Company’s consolidated statements of income and comprehensive income.

The $0.4 million

redemption premium was recognized as a component of interest expense and the $0.9 million issuance cost write-off was recognized as a component of other underwriting expenses in the Company’s consolidated statements of income and comprehensive income.

The Company incurred $1.1 million in interest expense related to the Floating Rate Notes for the year ended December 31, 2019 (inclusive of the $0.4 million redemption premium) and $0.6 million for the year ended December 31, 2018 and paid $1.2 million and $0.5 million for each period, respectively.

The Company incurred $1.2 million and $1.6 million in interest expense related to the surplus notes for the year ended December 31, 2018 and 2017, respectively and paid $1.2 million and $1.6 million in each period, respectively.

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

tax residency.

On March 14, 2019, the Company implemented a domestication (the Domestication) pursuant to Section 388 of the Delaware General Corporation Law and Section 206 of the Companies Law (2018 Revision), as amended, of the Cayman Islands pursuant to which it became a Delaware corporation and no longer subject to the laws of the Cayman Islands.

Historically, the Company’s Bermuda based subsidiary, PSRE, was not required to pay any taxes on its income or capital gains but was subject to a 1% U.S.

federal excise tax on reinsurance premiums assumed.

The Company intends to make an irrevocable election for PSRE to be taxed as a U.S.

domestic corporation under Section 953(d) of the Code effective January 1, 2019.

The components of the Company’s federal income tax expense (benefit) are as follows:

(in thousands)

Income tax expense (benefit)

As of December 31, 2019 and 2018, significant components of the Company’s deferred tax assets and liabilities were as follows:

(in thousands)

Deferred tax assets:

Losses and LAE reserve discount

Net operating losses

Investment amortization

Unearned premiums

Capitalized organizational costs

Unrealized losses on investments

Total deferred tax assets

Deferred tax liabilities:

Deferred acquisition costs

Unrealized gains on investments

Internally developed software

Total deferred tax liabilities

Net deferred tax asset before valuation allowance

Valuation allowance

Total net deferred tax liabilities

Prior to 2019, the Company maintained a valuation allowance on the U.S.

tax attributes due to significant negative evidence, including cumulative U.S.

losses in the most recent three-year period and our assessment that the realization of the net deferred tax assets did not meet the "more likely than not" criteria under ASC 740, Income Taxes .

Management assessed available positive and negative evidence to estimate whether sufficient future taxable income would be generated to permit use of the existing deferred tax assets.

The projected reversal of temporary differences, the Domestication, and projected future operating income in the U.S.

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 following is a reconciliation of the statutory federal income tax rate to the Company’s effective tax rate for the tax years ended December 31, 2019, 2018 and 2017:

Years Ended December 31,

($ in thousands)

Expense computed at federal tax rate

Non‑U.S.

group member income

Stock-based compensation

Dividend received deduction and tax‑exempt interest

Impact of tax reform

Valuation allowance

Income tax expense (benefit)

On December 22, 2017, the President of the United States signed into law the Tax Act.

The legislation significantly changes U.S.

tax law by, among other things, lowering corporate income tax rates from 35% to 21%, effective January 1, 2018.

GAAP requires companies to recognize the effect of tax law changes in the period of enactment.

We evaluated all available information and made reasonable estimates of the impact of tax reform to substantially all components of our net deferred tax assets as of December 31, 2017.

We finalized our accounting for the Tax Act during 2018 with no significant impact to earnings or deferred taxes.

As of December 31, 2019 and 2018, the Company had no uncertain tax positions that required either recognition or disclosure in the consolidated financial statements.

This is not expected to change significantly during the next twelve months.

The Company classifies interest and penalties, if any, related to the liability for unrecognized tax benefits as a component of the provision for income taxes.

The Company’s income tax returns for 2015 through 2019 remain subject to examination by the tax authorities.

Capital Stock

As of 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.

There were no preferred shares authorized as of December 31, 2018.

The Company incurred and paid $1.2 million in interest expense related to the surplus notes for the year ended December 31, 2018.

Stockholders’ Equity

As of December 31, 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 December 31, 2020 and December 31, 2019, the Company has 500,000,000 common shares authorized and 25,525,796 and 23,468,750 common shares issued and outstanding, respectively, with a par value of $0.0001.

Additional paid in capital is $310.5 million as of December 31, 2020 and $180.0 million as of December 31, 2019.

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.

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 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.

On June 26, 2020, the Company sold 1,150,000 shares of common stock to the public at a price of $82.00 per share in an underwritten public offering.

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 December 31, 2020:

3 unchanged sentences

Shares authorized for future issuance under 2019 Employee Stock Purchase Plan

Statutory financial information

state insurance laws and regulations prescribe accounting practices for determining statutory net income and capital and surplus for insurance companies.

In addition, state regulators may permit statutory accounting practices that differ from prescribed practices.

Statutory accounting practices (SAP) prescribed or permitted by regulatory authorities for the Company’s insurance subsidiaries differ from U.S.

The principal differences between SAP

and GAAP as they relate to the financial statements of the Company’s insurance subsidiaries are (a) policy acquisition costs are expensed as incurred under SAP, whereas they are deferred and amortized under GAAP, (b) certain assets are not admitted for purposes of determining surplus under SAP, (c) investments in fixed income securities are carried at fair value under GAAP whereas such securities are carried at amortized cost under SAP, and (d) the criteria for recognizing net DTAs and the methodologies used to determine such amounts are different under SAP and GAAP.

Risk‑Based Capital (RBC) requirements promulgated by the NAIC require property/casualty insurers to maintain minimum capitalization levels determined based on formulas incorporating various business risks of the insurance subsidiaries.

PSIC’s statutory net income and statutory capital surplus as of December 31, 2019, 2018 and 2017 and for the years then ended are summarized as follows:

(in thousands)

Statutory net income (loss)

Statutory capital and surplus

As of December 31, 2019 and 2018, the company’s capital and surplus exceeds its authorized control level.

The authorized control level as determined by the RBC calculation was $34.2 million and $19.7 million at December 31, 2019 and 2018, respectively.

Under the Bermuda Insurance Act, 1978 and related regulations, PSRE is required to maintain certain solvency and liquidity levels.

The minimum statutory solvency margin required at December 31, 2019 and 2018 was approximately $1.2 million and $6.9 million, respectively.

Actual statutory capital and surplus at December 31, 2019 and 2018 was $38.3 million and $19.6 million, respectively.

PSRE had statutory net income of $18.5 million, $17.3 million and $4.8 million for 2019, 2018 and 2017, respectively.

PSRE had stockholder’s equity of $39.7 million and $23.5 million on a GAAP basis at December 31, 2019 and 2018, respectively.

The principal difference between statutory capital and surplus and stockholder’s equity presented in accordance with GAAP are prepaid expenses, which are non‑admitted assets for Bermuda statutory purposes.

PSRE maintains a Class 3A license and thus must maintain a minimum liquidity ratio in which the value of its relevant assets is not less than 75.0% of the amount of its relevant liabilities for general business.

Relevant assets include cash and cash equivalents, fixed maturity securities, accrued interest income, premiums receivable, losses recoverable from reinsurers, and funds withheld.

The relevant liabilities include total general business insurance reserves and total other liabilities, less sundry liabilities.

As of December 31, 2019 and 2018, the Company met the minimum liquidity ratio requirement.

Dividend Restrictions

PSIC must receive the approval of the Oregon and California insurance commissioners prior to paying certain dividends.

The maximum dividend or distribution amount that may be declared and paid by PSIC to its shareholder without prior approval is subject to restrictions relating to policyholder surplus and net income.

A dividend or distribution that requires approval is any dividend or distribution, together with all other dividends or distributions paid in the preceding 12 months that exceeds the greater of (i) 10% of the combined statutory capital and surplus of the insurer as of the 31 st day of December of the preceding year or (ii) statutory net income (excluding realized investment gains or losses) for the 12‑month period ending the 31 st day of December preceding year.

In addition, the Company may only declare a dividend from earned surplus, which does not include surplus arising from unrealized capital gains or revaluation of assets.

The Company may declare a dividend from other than earned surplus with prior approval from the Commissioner.

Due to cumulative earned surplus of $10.3 million, PSIC may pay a dividend or distribution no greater than $10.3 million to the Company in 2020 without the prior approval of the Oregon and California Insurance Commissioners.

Any dividend or distribution greater than $10.3 million will require the prior approval of the Oregon and California Insurance Commissioners.

Bermuda regulations limit the amount of dividends and return of capital paid by a regulated entity.

A Class 3A insurer is prohibited from declaring or paying a dividend if it is in breach of its minimum solvency margin, its enhanced capital requirement, or its minimum liquidity ratio, or if the declaration or payment of such dividend would cause such a breach, or if there are reasonable grounds for believing there has been such a breach.

Pursuant to Bermuda regulations, the maximum amount of dividends and return of capital available to be paid by a reinsurer is determined pursuant to a formula.

Under this formula, the maximum amount of dividends and return of capital available to the Company from PSRE during 2020 is calculated to be approximately $5.7 million.

However, this dividend amount is subject to annual enhanced solvency requirement calculations.

Commitments and Contingencies

The Company is subject to legal proceedings arising from the normal conduct of its business.

In the opinion of management, any ultimate liability that may arise from these proceedings will not have a material effect on the Company’s financial position.

Operating Leases

The Company leases office space and office equipment under operating leases expiring at various dates through July 2024.

The following is a schedule by year of the future minimum rental payments required under operating leases that have initial or remaining non‑cancelable lease terms exceeding one year as of December 31, 2019:

(in thousands)

Years ending December 31:

Total rent expense for the years ended December 31, 2019, 2018 and 2017, was $0.6 million, $0.6 million and $0.8 million, respectively.

Letters of Credit

As of December 31, 2019, the Company has three irrevocable standby letters of credit for the benefit of ceding insurance companies to secure the unearned premium assumed by PSIC.

The bank letters of credit amount to $1.5 million, $0.4 million and $0.4 million, two of which expire December 31, 2020 with no renewal terms.

One of the $0.4 million letters of credit auto renews each year.

As of December 31, 2018, the Company has four irrevocable standby letters of credit for the benefit of ceding insurance companies to secure the unearned premium assumed by PSIC.

The bank letters of credit amount to $1.3 million, $0.4 million, $0.5 million and $0.4 million, all of which expire

December 31, 2018 and all but the $0.5 million letter of credit auto renew for one year.

The collateral increases were a result of additional unearned premium assumed from the ceding insurance companies.

The letters of credit were collateralized by $3.2 million and $3.0 million of U.S.

Treasury bonds at December 31, 2019 and 2018, respectively.

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

Accumulated Other Comprehensive Income

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

Year Ended December 31,

(in thousands)

Balance as of January 1

Effect of equity accounting guidance adoption

Beginning Balance

Other comprehensive income (loss) before reclassification

Federal income tax (expense) benefit

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

Amounts reclassified from AOCI

Federal income tax expense

Amounts reclassified from AOCI, net of tax

Other comprehensive income (loss)

Effect of new tax rates from Tax Reform

Balance at end of period

Retirement and Post‑Employment Retirement Plans

For employees meeting certain eligibility requirements, the Company provides a defined contribution retirement plan under IRC Section 401(k).

Under a safe‑harbor plan, the Company contributes 3% of each participant’s gross wages regardless of the employee’s contribution.

For the years ended December 31, 2019, 2018, and 2017 the Company’s contributions to the plan were $0.3 million, $0.2 million and $0.2 million, respectively.

Stock-Based Compensation

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

Year ended December 31,

(in thousands)

Stock-Based Compensation

Stock-Based Compensation Expense

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

The Company does not apply a forfeiture rate to unvested awards and accounts for forfeitures as they occur.

All stock-based compensation is included in other underwriting expenses in the Company’s consolidated statements of income and comprehensive income.

All stock-based

compensation is included in other underwriting expenses in the Company’s consolidated statements of income and comprehensive income.

The Company recognized approximately $23.0 million of stock-based compensation expense in March 2019 relating to the modification of its 2014 Management Incentive Plan.

The Company began recognizing stock-based compensation expense relating to its 2019 Equity Incentive Plan and the 2019 Employee Stock Purchase Plan upon their inception and initial equity grants in April 2019.

Aside from the aforementioned $23.0 million charge, all stock-based compensation expense recognized during the year ended December 31, 2019 relates to the 2019 Equity Incentive Plan and 2019 Employee Stock Purchase Plan.

Aside from the aforementioned $23.0 million charge, all stock-based compensation expense recognized during the years ended December 31, 2020 and December 31, 2019 relates to the 2019 Equity Incentive Plan and 2019 Employee Stock Purchase Plan.

Management Incentive Plan prior to IPO

The Company’s former parent, GC Palomar Investor LP, adopted a 2014 Management Incentive Plan (in the form of profits interests) on February 12, 2014 under which certain officers and employees of PSIC and its affiliates were entitled to Class P Units in GC Palomar Investor LP.

Class P unit holders were expected to realize value only upon the occurrence of liquidity events meeting requisite financial thresholds after the Class A unit holders recovered their investment.

2 unchanged sentences

On March 15, 2019, the Company modified its 2014 Management Incentive Plan by eliminating the requirement of a liquidity event to occur for the holders of its Class P units to realize value.

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.

The stock compensation charge is included in other underwriting expenses in the Company’s consolidated statements of income and comprehensive income.

2019 Equity Incentive Plan

On April 16, 2019, the Company’s 2019 Equity Incentive Plan (the 2019 Plan) became effective.

On April 16, 2019, the Company’s 2019 Equity Incentive Plan (“the 2019 Plan”) became effective.

The 2019 Plan provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), performance shares and units, and other cash-based or share-based awards.

1 unchanged sentence

A total of 2,400,000 shares of common stock are initially authorized and reserved for issuance under the 2019 Plan.

This reserve will automatically increase on January 1, 2020 and each subsequent anniversary through 2029, by an amount equal to the smaller of:

This reserve increases on January 1 of each year through 2029, by an amount equal to the smaller of:

3% of the number of shares of common stock issued and outstanding on the immediately preceding December 31, or an amount determined by the board of directors.

Stock Options

Recipients of stock options can purchase shares of the Company’s common stock at a price equal to the stock’s fair market value on the grant date, determined by the closing price of the Company's common stock on the grant date.

Stock options vest over a two or four year period with 25% or 50% vesting on the first anniversary of the grant date and the remainder vesting monthly over the remaining period, subject to continued employment.

Stock options expire ten years after the grant date.

The following table summarizes stock option transactions for the 2019 Plan for the year ended December 31, 2019:

The following table summarizes stock option transactions for the year ended December 31, 2020:

Weighted average

4 unchanged sentences

(in thousands)

Outstanding at December 31, 2018

Outstanding at January 1, 2020

Options granted

3 unchanged sentences

Vested and Exercisable at December 31, 2020

The total intrinsic value of stock options exercised during the year ended December 31, 2020 was $7.7 million.

No options were exercised prior to 2020.

As of December 31, 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 was estimated on the grant date using the Black-Scholes option pricing model with the following assumptions:

The fair value of each option granted was estimated on the grant date using the Black-Scholes option pricing model with the following assumptions in each year presented:

Year ended December 31,

(in thousands)

Risk free rate of return (1)

0.32% - 1.52%

1.59% - 2.45%

Expected share price volatility (2)

18.13% - 25.67%

18.12% - 18.45%

Expected life in years (3)

5.64 - 6.08 years

Dividend yield (4)

2 unchanged sentences

Treasury notes with remaining terms similar to the expected term of the options.

Determined based on analysis of the volatility of a peer group of publicly traded companies.

Determined using the “simplified method”

for estimating the expected option life, which is the average of the weighted-average vesting period and contractual term of the option as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time its common stock has been publicly traded.

(2) Determined based on analysis of the historical volatility of a peer group of publicly traded companies.

(3) Determined using the “simplified method” for estimating the expected option life, which is the average of the weighted-average vesting period and contractual term of the option as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time its common stock has been publicly traded.

(4) Determined to be zero as the Company does not currently plan to issue dividends.

Restricted Stock Units

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

The fair value of RSUs is determined by 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 year ended December 31, 2019:

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 with the Company.

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 year ended December 31, 2020:

Weighted-average

Non vested outstanding at December 31, 2018

Non vested outstanding at January 1, 2020

Non vested outstanding at December 31, 2020

3 unchanged sentences

A total of 240,000 shares of common stock are initially authorized and reserved for issuance under the 2019 ESPP.

In addition, the 2019 ESPP provides for annual increases in the number of shares available for issuance on January 1, 2020 and each subsequent anniversary through 2029, equal to the smaller of 240,000 shares of the Company’s common stock or such other amount as may be determined by the board of directors.

Under the 2019 ESPP purchases of common stock occur through employee participation in discrete offering periods.

In each discrete offering period, employee funds are withheld and stock purchases occur upon the conclusion of the offering period.

The first discrete offering period has not concluded as of December 31, 2019 and the Company did not issue any shares of common stock pursuant to the 2019 ESPP during the year ended December 31, 2019.

Net Income Per Share

The following table sets forth the computation of net income per share of common stock:

In addition, the 2019 ESPP provides for annual increases in the number of shares available for issuance on January 1 of each year through 2029, equal to the smaller of 240,000 shares of the Company’s common stock or such other amount as may be determined by the board of directors.

Under the 2019 ESPP, employees can purchase Company stock at a discount via payroll withholdings.

The 2019 ESPP is administered through employee participation in discrete offering periods.

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

The Company issued 28,367 shares pursuant to the ESPP during the year ended December 31, 2020.

Accumulated Other Comprehensive Income

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

Year Ended December 31,

(in thousands, except shares and per share data)

Weighted average common shares outstanding:

Common Share equivalents

Earnings per share:

Common share equivalents relate to outstanding shares under the 2019 Plan and unpurchased shares under the 2019 ESPP.

(in thousands)

Balance as of January 1

Effect of equity accounting guidance adoption

Beginning Balance

Other comprehensive income (loss) before reclassification

Federal income tax (expense) benefit

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

Amounts reclassified from AOCI

Federal income tax expense (benefit)

Amounts reclassified from AOCI, net of tax

Other comprehensive income (loss)

Balance at end of period

Underwriting Information

5 unchanged sentences

Commercial Earthquake

Specialty Homeowners

Commercial All Risk

Specialty Homeowners

Inland Marine

Hawaii Hurricane

4 unchanged sentences

($ in thousands)

North Carolina

South Carolina

3 unchanged sentences

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

In total, these four programs accounted for $148.6 million or 59.0% of the Company’s gross written premiums for the year ended December 31, 2019, $104.9 million or 67.7% of the Company’s gross written premiums for the year ended December 31, 2018 and $85.8 million or 71.3% of the Company’s gross written premiums for the year ended December 31, 2017.

In total, these four products accounted for $191.3 million or 54.0% of the Company’s gross written premiums for the year ended December 31, 2020, $148.6 million or 59.0% of the Company’s gross written premiums for the year ended December 31, 2019 and $104.9 million or 67.7% of the Company’s gross written premiums for the year ended December 31, 2018.

Retirement and Post-Employment Retirement Plans

For employees meeting certain eligibility requirements, the Company provides a defined contribution retirement plan under IRC Section 401(k).

Under a safe-harbor plan, the Company contributes 3% of each participant’s gross wages regardless of the employee’s contribution.

For the years ended December 31, 2020, 2019, and 2018 the Company’s contributions to the plan were $0.3 million, $0.3 million and $0.2 million, respectively.

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

tax residency.

On March 14, 2019, the Company implemented a domestication (“the Domestication”) pursuant to Section 388 of the Delaware General Corporation Law and Section 206 of the Companies Law (2018 Revision), as amended, of the Cayman Islands pursuant to which it became a Delaware corporation and no longer subject to the laws of the Cayman Islands.

Historically, the Company’s Bermuda based subsidiary, PSRE, was not required to pay any taxes on its income or capital gains but was subject to a 1% U.S.

federal excise tax on reinsurance premiums assumed.

The Company has elected for PSRE to be taxed as a U.S.

domestic corporation under Section 953(d) of the Code effective January 1, 2019.

The components of the Company’s federal income tax expense (benefit) are as follows:

(in thousands)

Income tax expense (benefit)

As of December 31, 2020 and 2019, significant components of the Company’s deferred tax assets and liabilities were as follows:

(in thousands)

Deferred tax assets:

Losses and LAE reserve discount

Net operating losses

Investment amortization

Unearned premiums

Capitalized organizational costs

Deferred compensation

Total deferred tax assets

Deferred tax liabilities:

Deferred acquisition costs

Unrealized gains on investments

Internally developed software

Total deferred tax liabilities

Net deferred tax liability before valuation allowance

Valuation allowance

Total net deferred tax liabilities

The valuation allowance shown above relates to deferred tax assets associated with state net operating loss carryforwards.

These carryforwards do not meet the “more likely than not” criteria under ASC 740, Income Taxes 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 following is a reconciliation of the statutory federal income tax rate to the Company’s effective tax rate for the tax years ended December 31, 2020, 2019 and 2018:

Years Ended December 31,

($ in thousands)

Expense computed at federal tax rate

group member income

Stock-based compensation

Dividend received deduction and tax‑exempt interest

Valuation allowance

Income tax expense (benefit)

The stock-based compensation difference shown above relates primarily to the permanent component of employee stock option exercises for the year ended December 31, 2020.

For the year ended December 31, 2019, this difference relates primarily to a non-deductible stock compensation charge of $23.1 million incurred by the Company in March 2019.

For the year ended December 31, 2020, the Company increased its valuation allowance relating to deferred tax assets associated with state net operating losses.

The Company reversed the valuation allowance on its U.S.

tax attributes during the year ended December 31, 2019 because of Domestication in the United States and projected future operating income in the U.S.

As of December 31, 2020 and 2019, the Company had no uncertain tax positions that required either recognition or disclosure in the consolidated financial statements.

This is not expected to change significantly during the next twelve months.

The Company classifies interest and penalties, if any, related to the liability for unrecognized tax benefits as a component of the provision for income taxes.

The Company’s income tax returns for 2015 through 2019 remain subject to examination by the tax authorities.

Earnings Per Share

The following table sets forth the computation of earnings per share of common stock:

Year ended December 31,

(in thousands, except shares and per share data)

Weighted average common shares outstanding:

Common Share equivalents

Earnings per share:

Common share equivalents relate 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.

Statutory financial information

state insurance laws and regulations prescribe accounting practices for determining statutory net income and capital and surplus for insurance companies.

In addition, state regulators may permit statutory accounting practices that differ from prescribed practices.

Statutory accounting practices (“SAP”) prescribed or permitted by regulatory authorities for the Company’s insurance subsidiaries differ from U.S.

The principal differences between SAP and GAAP as they relate to the financial statements of the Company’s insurance subsidiaries are (a) policy acquisition costs are expensed as incurred under SAP, whereas they are deferred and amortized under GAAP, (b) certain assets are not admitted for purposes of determining surplus under SAP, (c) investments in fixed income securities are carried at fair value under GAAP whereas such securities are carried at amortized cost under SAP, and (d) the criteria for recognizing net DTAs and the methodologies used to determine such amounts are different under SAP and GAAP.

Combined statutory net income and statutory capital surplus for the U.S.

insurance subsidiaries, PSIC and PESIC as of December 31, 2020, 2019 and 2018 and for the years then ended are summarized as follows:

(in thousands)

Statutory net income (loss)

Statutory capital and surplus

Risk-Based Capital (“RBC”) requirements promulgated by the NAIC require property/casualty insurers to maintain minimum capitalization levels determined based on formulas incorporating various business risks of the insurance subsidiaries.

As of December 31, 2020 and 2019, the company’s capital and surplus exceeds its authorized control level.

Under the Bermuda Insurance Act, 1978 and related regulations, PSRE is required to maintain certain solvency and liquidity levels.

The minimum statutory solvency margin required at December 31, 2020 and 2019 was approximately $1.2 million and $1.2 million, respectively.

Actual statutory capital and surplus at December 31, 2020 and 2019 was $39.2 million and $38.3 million, respectively.

PSRE had statutory net income of $0.9 million, $18.5 million and $17.3 million for 2020, 2019 and 2018, respectively.

PSRE had stockholder’s equity of $41.9 million and $39.7 million on a GAAP basis at December 31, 2020 and 2019, respectively.

The principal difference between statutory capital and surplus and stockholder’s equity presented in accordance with GAAP are prepaid expenses, which are non-admitted assets for Bermuda statutory purposes.

Relevant assets include cash and cash equivalents, fixed maturity securities, accrued interest income, premiums receivable, losses recoverable from reinsurers, and funds withheld.

The relevant liabilities include total general business insurance reserves and total other liabilities, less sundry liabilities.

As of December 31, 2020 and 2019, the Company met the minimum liquidity ratio requirement.

Dividend Restrictions

The Company’s U.S.

insurance company subsidiaries, PSIC and PESIC are restricted by the statutes as to the amount of dividends that they may pay without prior approval by state insurance commissioners.

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

Any dividends or distributions in excess of these amounts would require regulatory approval.

In addition, under Oregon statute, PSIC may only declare a dividend from earned surplus, which does not include contributed capital.

Surplus arising from unrealized capital gains or revaluation of assets is not considered part of earned surplus.

Based on the above restrictions, PSIC may pay a dividend or distribution of no greater than $11.3 million in 2021 without approval by the California and Oregon Insurance Commissioners.

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

As such, PESIC is unable to pay a dividend or distribution in 2021 without the approval of the Arizona Insurance Commissioner as it had a statutory net loss in 2020.

In addition to the above limitations, any dividend or distribution declared is also subject to state regulatory approval prior to payment.

In the future, state insurance regulatory authorities may adopt statutory provisions and dividend limitations more restrictive than those currently in effect.

Bermuda regulations limit the amount of dividends and return of capital paid by a regulated entity.

Pursuant to Bermuda regulations, the maximum amount of dividends and return of capital available to be paid by a reinsurer is determined pursuant to a formula.

Under this formula, the maximum amount of dividends and return of capital available to the Company from PSRE during 2021 is calculated to be approximately $10.5 million.

However, this dividend amount is subject to annual enhanced solvency requirement calculations.

Commitments and Contingencies

The Company is subject to legal proceedings arising from the normal conduct of its business.

In the opinion of management, any ultimate liability that may arise from these proceedings will not have a material effect on the Company’s financial position.

Letters of Credit

As of December 31, 2020, the Company has three irrevocable standby letters of credit for the benefit of ceding insurance companies to secure the unearned premium assumed by PSIC.

The bank letters of credit amount to $1.5 million, $0.5 million and $0.4 million.

The $1.5 million and $0.4 million letters of credit expire December 31, 2021 with no renewal terms.

The $0.4 million letter of credit auto renews each year.

The letters of credit are collateralized by $3.2 million of U.S.

Treasury bonds which are included in available-for-sale investments on the consolidated balance sheets.

Selected Quarterly Financial Data (unaudited)

The following is a summary of the Company’s unaudited quarterly results of operations:

($ in thousands, except per share data)

7 unchanged sentences

Total revenues

Comprehensive income

Net income (loss)

Comprehensive income (loss)

Earnings per share (2):

(1) Due to rounding differences, quarterly total revenues does not add up to the yearly total.

(2) Due to differences in weighted-average common shares outstanding between periods, quarterly earnings per share may not add up to the totals reported for the full year.

The first quarter 2018 gross written premiums shown above differs by an immaterial amount versus the amount reported in our first quarter 10-Q due to a subsequent reclassification between gross written premiums and policy fees.

Subsequent Events

On January 9, 2020, the Company and certain selling stockholders completed the January 2020 Secondary Offering of 5,750,000 shares of common stock at a public offering price of $49.00 per share.

Of the 5,750,000 shares sold, 750,000 represented the underwriters’

exercise of their option to purchase additional shares.

The offering was comprised of 5,000,000 shares sold by certain selling stockholders and 750,000 shares sold by the Company.

The Company’s net proceeds from the January 2020 Secondary Offering were approximately $35.4 million, after deducting underwriting discounts and commissions and offering costs.

Palomar Holdings, Inc.

10 unchanged sentences

Prepaid expenses and other assets

Receivables from subsidiaries

Investment in subsidiaries

1 unchanged sentence

Accounts payable and other liabilities

Payables to subsidiaries

Federal income tax payable

2 unchanged sentences

Stockholders' equity:

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

Common stock, $0.0001 par value, 500,000,000 shares authorized, 25,525,796 and 23,468,750 shares issued and outstanding as of December 31, 2020 and December 31, 2019, respectively

Additional paid‑in capital

Accumulated other comprehensive (loss) income

Additional paid‑in capital

Accumulated other comprehensive income

Retained earnings

9 unchanged sentences

Net realized and unrealized losses on investments

Operating expenses

Income before income taxes

Income tax expense

Total revenues

Other operating expenses

Income (loss) before income taxes

Income tax expense (benefit)

Income (loss) before equity in net income of subsidiaries

17 unchanged sentences

Changes in operating assets and liabilities:

Net cash (used in) provided by operating activities

Net cash provided by (used in) operating activities

Investing activities

Purchases of fixed maturity securities

Cash received from subsidiary

Sales and maturities of fixed maturity securities

Cash paid to subsidiaries

Cash received from subsidiaries

Net cash used in investing activities

1 unchanged sentence

Proceeds from initial public offering, net of offering costs

Redemption of Floating Rate Notes

Distribution to stockholder

Redemption of Floating Rate Notes

Proceeds from January 2020 stock offering, net of offering costs

Proceeds from June 2020 stock offering, net of offering costs

Proceeds from common stock issued via equity incentive plans

Net cash provided by financing activities

7 unchanged sentences

Palomar Holdings, Inc.

(the Company), is an insurance holding company that was incorporated in Delaware in March 2019.

(“the Company”), is an insurance holding company that domesticated in Delaware in March 2019.

Prior to domestication in Delaware, the Company was known as GC Palomar Holdings (“GCPH”), which was a Cayman Islands incorporated insurance holding company formed on October 4, 2013 when GC Palomar Investor LP (“GCPI”) acquired control of GCPH.

Basis of Presentation

1 unchanged sentence

Under the equity method, the investment in consolidated subsidiaries is stated at cost plus equity in undistributed earnings of consolidated subsidiaries since the date of acquisition.

These condensed financial statements should be read in conjunction with the Company’s consolidated financial statements.

Estimates and Assumptions

7 unchanged sentences

Valuation Allowance for deferred tax assets

Valuation Allowance for premium receivable

Year Ended December 31, 2019

2 unchanged sentences

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data