Palomar Holdings, Inc. 10-K

Item 8: Financial Statements Palomar Holdings, Inc. and Subsidiaries INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ​ Index to Audited Consolidated Financial Statements of Palomar Holdings, Inc. and Subsidiaries as of December 31, 2020 and 2019 and for each of the Three Years Ended December 31, 2020, 2019 and 2018 ​ Report of Independent Registered Public Accounting Firm 90 Consolidated Financial Statements ​ Consolidated Balance Sheets as of December 31, 2020 and 2019 93 Consolidated Statements of Income and Comprehensive Income for the three years ended December 31, 2020, 2019 and 2018 94 Consolidated Statements of Stockholders’ Equity for the three years ended December 31, 2020, 2019 and 2018 95 Consolidated Statements of Cash Flows for the three years ended December 31, 2020, 2019 and 2018 96 Notes to Consolidated Financial Statements 98 Schedule II—Condensed Financial Information of Registrant—Parent Company only 129 Schedule V—Valuation and Qualifying Accounts 133 ​ 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. ​ 89 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ​ To the Stockholders and the Board of Directors of Palomar Holdings, Inc. 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 90 Table of Contents 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, 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 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 audits in accordance with the standards of the PCAOB. 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. 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. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. 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 91 Table of Contents 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 March 9, 2021 ​ ​ ​ ​ ​ 92 Table of Contents Palomar Holdings, Inc. and Subsidiaries Consolidated Balance Sheets (in thousands, except shares and par value data) ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, December 31, ​ ​ 2020 ​ 2019 Assets ​ ​ Investments: ​ ​ Fixed maturity securities available for sale, at fair value (amortized cost: $381,279 in 2020; $211,278 in 2019) ​ $ 397,987 ​ $ 217,151 Equity securities, at fair value (cost: $22,291 in 2020; $21,336 in 2019) ​ 24,322 ​ 22,328 Total investments ​ 422,309 ​ 239,479 Cash and cash equivalents ​ 33,538 ​ 33,119 Restricted cash ​ 248 ​ 230 Accrued investment income ​ 2,545 ​ 1,386 Premium receivable ​ 48,842 ​ 36,237 Deferred policy acquisition costs ​ 35,481 ​ 25,201 Reinsurance recoverable on unpaid losses and loss adjustment expenses ​ 94,566 ​ 12,952 Reinsurance recoverable on paid losses and loss adjustment expenses ​ 10,162 ​ 4,303 Ceded unearned premiums ​ 35,031 ​ 26,105 Prepaid expenses and other assets ​ 34,119 ​ 14,861 Property and equipment, net ​ 739 ​ 845 Intangible assets ​ 11,512 ​ 744 Total assets ​ $ 729,092 ​ $ 395,462 Liabilities and stockholders' equity ​ ​ Liabilities: ​ ​ Accounts payable and other accrued liabilities ​ $ 20,730 ​ $ 13,555 Reserve for losses and loss adjustment expenses ​ 129,036 ​ 16,821 Unearned premiums ​ 183,489 ​ 130,373 Ceded premium payable ​ 22,233 ​ 11,383 Funds held under reinsurance treaty ​ 4,515 ​ 1,658 Income and excise taxes payable ​ — ​ 1,117 Deferred tax liabilities, net ​ ​ 5,376 ​ ​ 1,999 Total liabilities ​ 365,379 ​ 176,906 Stockholders' equity: ​ ​ 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 ​ 3 ​ 2 Additional paid-in capital ​ 310,507 ​ 180,012 Accumulated other comprehensive income ​ 13,246 ​ 4,686 Retained earnings ​ 39,957 ​ 33,856 Total stockholders' equity ​ 363,713 ​ 218,556 Total liabilities and stockholders' equity ​ $ 729,092 ​ $ 395,462 ​ See accompanying notes. 93 Table of Contents Palomar Holdings, Inc. and Subsidiaries Consolidated Statements of Income and Comprehensive Income (in thousands, except shares and per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2020 2019 2018 Revenues: ​ ​ ​ ​ Gross written premiums ​ $ 354,360 ​ $ 251,961 ​ $ 154,891 Ceded written premiums ​ (155,102) ​ (108,332) ​ (82,949) Net written premiums ​ 199,258 ​ 143,629 ​ 71,942 Change in unearned premiums ​ (44,190) ​ ​ (43,422) ​ ​ (2,045) Net earned premiums ​ 155,068 ​ 100,207 ​ 69,897 Net investment income ​ 8,612 ​ ​ 5,975 ​ ​ 3,238 Net realized and unrealized gains (losses) on investments ​ 1,488 ​ ​ 4,443 ​ ​ (2,569) Commission and other income ​ 3,295 ​ ​ 2,671 ​ ​ 2,405 Total revenues ​ 168,463 ​ 113,296 ​ 72,971 Expenses: ​ ​ ​ Losses and loss adjustment expenses ​ ​ 64,115 ​ ​ 5,593 ​ ​ 6,274 Acquisition expenses ​ ​ 64,041 ​ ​ 37,259 ​ ​ 28,224 Other underwriting expenses (includes stock-based compensation of $2,167, $24,103 and $0 for the years ended December 31, 2020, 2019 and 2018, respectively) ​ ​ 34,084 ​ ​ 51,299 ​ ​ 17,957 Interest expense ​ ​ — ​ ​ 1,068 ​ ​ 2,303 Total expenses ​ 162,240 ​ 95,219 ​ 54,758 Income before income taxes ​ 6,223 ​ 18,077 ​ 18,213 Income tax expense (benefit) ​ ​ (34) ​ ​ 7,456 ​ ​ (6) Net income ​ 6,257 ​ 10,621 ​ 18,219 Other comprehensive income, net: ​ ​ ​ Net unrealized gains (losses) on securities available for sale, net of taxes ​ ​ 8,560 ​ ​ 5,249 ​ ​ (341) Total comprehensive income ​ $ 14,817 ​ $ 15,870 ​ $ 17,878 Per Share Data: ​ ​ ​ Basic earnings per share ​ $ 0.25 ​ $ 0.49 ​ $ 1.07 Diluted earnings per share ​ $ 0.24 ​ $ 0.49 ​ $ 1.07 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average common shares outstanding: ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ 24,872,251 ​ 21,501,541 ​ 17,000,000 Diluted ​ ​ 25,598,647 ​ ​ 21,834,934 ​ ​ 17,000,000 ​ See accompanying notes. ​ 94 Table of Contents Palomar Holdings, Inc. and Subsidiaries Consolidated Statements of Stockholder’s Equity (in thousands, except share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ Common ​ ​ ​ ​ Additional ​ Other ​ ​ ​ ​ Total ​ ​ Shares ​ Common ​ Paid-In ​ Comprehensive ​ Retained ​ Stockholders' ​ ​ Outstanding ​ Stock ​ Capital ​ Income (Loss) ​ Earnings ​ Equity Balance at December 31, 2017 17,000,000 ​ $ 2 ​ $ 68,498 ​ $ 2,993 ​ $ 6,921 ​ $ 78,414 Other comprehensive income, net of tax — ​ — ​ — ​ (341) ​ — ​ (341) Cumulative effect of adopting ASU 2016-01 — ​ — ​ — ​ (3,215) ​ 3,215 ​ — Net income — ​ — ​ — ​ — ​ 18,219 ​ 18,219 Balance at December 31, 2018 17,000,000 ​ $ 2 ​ $ 68,498 ​ $ (563) ​ $ 28,355 ​ $ 96,292 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at December 31, 2018 17,000,000 ​ $ 2 ​ $ 68,498 ​ $ (563) ​ $ 28,355 ​ $ 96,292 Other comprehensive income, net of tax ​ — ​ ​ — ​ ​ — ​ ​ 5,249 ​ ​ — ​ ​ 5,249 Distribution to stockholder ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ (5,120) ​ ​ (5,120) Stock-based compensation — ​ — ​ 24,103 ​ — ​ — ​ 24,103 Issuance of common stock in initial public offering, net of offering costs 6,468,750 ​ — ​ 87,411 ​ — ​ — ​ 87,411 Net income — ​ — ​ — ​ — ​ 10,621 ​ 10,621 Balance at December 31, 2019 23,468,750 ​ $ 2 ​ $ 180,012 ​ $ 4,686 ​ $ 33,856 ​ $ 218,556 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at December 31, 2019 23,468,750 ​ $ 2 ​ $ 180,012 ​ $ 4,686 ​ $ 33,856 ​ $ 218,556 Cumulative effect of adopting ASU 2016-13 (Note 2) ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ (156) ​ ​ (156) Other comprehensive income, net of tax ​ — ​ — ​ — ​ 8,560 ​ — ​ 8,560 Stock-based compensation — ​ — ​ 2,167 ​ — ​ ​ ​ 2,167 Issuance of common stock in January 2020 stock offering, net of offering costs ​ 750,000 ​ ​ — ​ ​ 35,464 ​ ​ — ​ ​ — ​ ​ 35,464 Issuance of common stock in June 2020 stock offering, net of offering costs ​ 1,150,000 ​ ​ 1 ​ ​ 90,082 ​ ​ — ​ ​ — ​ ​ 90,083 Issuance of common stock via employee stock purchase plan 28,367 ​ — ​ 741 ​ — ​ — ​ 741 Issuance of common stock via equity incentive plan ​ 128,679 ​ ​ — ​ ​ 2,041 ​ ​ — ​ ​ — ​ ​ 2,041 Net income — ​ — ​ — ​ — ​ 6,257 ​ 6,257 Balance at December 31, 2020 25,525,796 ​ $ 3 ​ $ 310,507 ​ $ 13,246 ​ $ 39,957 ​ $ 363,713 ​ See accompanying notes. ​ 95 Table of Contents Palomar Holdings, Inc. and Subsidiaries Consolidated Statements of Cash Flows (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2020 2019 2018 Operating activities ​ ​ ​ ​ Net income ​ $ 6,257 ​ $ 10,621 ​ $ 18,219 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ ​ ​ ​ ​ Stock-based compensation expense ​ ​ 2,167 ​ ​ 24,103 ​ ​ — Depreciation and amortization expense ​ ​ 1,336 ​ ​ 216 ​ ​ 212 Amortization and write-off of debt issuance costs ​ ​ — ​ ​ 921 ​ ​ 443 Loss on asset disposal ​ ​ — ​ ​ 1 ​ ​ — Net realized and unrealized losses (gains) on investments ​ ​ (1,488) ​ ​ (4,443) ​ ​ 2,569 Amortization of premium on fixed maturity securities ​ ​ 1,214 ​ ​ 431 ​ ​ 481 Deferred income tax expense ​ ​ 1,094 ​ ​ 646 ​ ​ — Changes in operating assets and liabilities: ​ ​ ​ ​ ​ ​ ​ ​ Accrued investment income ​ ​ (1,159) ​ ​ (652) ​ ​ 54 Premium receivable ​ ​ (12,754) ​ ​ (17,604) ​ ​ (3,546) Deferred policy acquisition costs ​ ​ (10,280) ​ ​ (11,149) ​ ​ 1,109 Reinsurance recoverables ​ ​ (87,473) ​ ​ (2,693) ​ ​ 70 Ceded unearned premiums ​ ​ (8,926) ​ ​ (7,821) ​ ​ (15,109) Prepaid expenses and other assets ​ ​ (20,356) ​ ​ (8,998) ​ ​ (4,603) Accounts payable and other accrued liabilities ​ ​ 5,998 ​ ​ 3,287 ​ ​ 2,748 Reserve for losses and loss adjustment expenses ​ ​ 112,215 ​ ​ 760 ​ ​ (1,723) Unearned premiums ​ ​ 53,116 ​ ​ 51,243 ​ ​ 17,154 Ceded premiums payable ​ ​ 10,850 ​ ​ 776 ​ ​ 5,538 Funds held under reinsurance treaty ​ ​ 2,857 ​ ​ 938 ​ ​ (797) Income taxes payable ​ ​ (1,117) ​ ​ 1,117 ​ ​ (11) Net cash provided by operating activities ​ ​ 53,551 ​ ​ 41,700 ​ ​ 22,808 Investing activities ​ ​ ​ ​ ​ ​ Purchases of property and equipment ​ (132) ​ (115) ​ (332) Purchases of fixed maturity securities ​ (295,002) ​ (211,587) ​ (102,745) Purchases of equity securities ​ (46,944) ​ (58,858) ​ (33,712) Sales and maturities of fixed maturity securities ​ 124,243 ​ 124,151 ​ 81,215 Sales of equity securities ​ 45,983 ​ 64,820 ​ 29,959 Securities receivable or payable, net ​ ​ (2,523) ​ ​ 1,023 ​ ​ 250 Purchase of policy renewal rights ​ ​ (7,068) ​ ​ — ​ ​ — Net cash used in investing activities ​ (181,443) ​ (80,566) ​ (25,365) Financing activities ​ ​ ​ Proceeds from initial public offering, net of offering costs ​ ​ — ​ ​ 87,411 ​ ​ — Repayment of surplus notes ​ ​ — ​ ​ — ​ ​ (17,500) Distribution to stockholder ​ ​ — ​ ​ (5,120) ​ ​ — Proceeds from issuance of Floating Rate Notes, net of issuance costs ​ — ​ — ​ 19,049 Redemption of Floating Rate Notes ​ — ​ (20,000) ​ — Proceeds from January 2020 stock offering, net of offering costs ​ ​ 35,464 ​ ​ — ​ ​ — Proceeds from June 2020 stock offering, net of offering costs ​ ​ 90,083 ​ ​ — ​ ​ — Proceeds from common stock issued via employee stock purchase plan ​ ​ 741 ​ ​ — ​ ​ — Proceeds from common stock issued via stock option exercises ​ ​ 2,041 ​ ​ — ​ ​ — Net cash provided by financing activities ​ 128,329 ​ 62,291 ​ 1,549 Net increase (decrease) in cash, cash equivalents and restricted cash ​ 437 ​ 23,425 ​ (1,008) Cash, cash equivalents and restricted cash at beginning of period ​ 33,349 ​ 9,924 ​ 10,932 Cash, cash equivalents and restricted cash at end of period ​ $ 33,786 ​ $ 33,349 ​ $ 9,924 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Supplementary cash flow information: ​ ​ ​ Cash paid for income taxes ​ $ 7,182 ​ $ 5,645 ​ $ 11 Cash paid for interest ​ $ — ​ $ 1,162 ​ $ 1,727 96 Table of Contents ​ The following table summarizes our cash and cash equivalents and restricted cash within the consolidated balance sheets (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ ​ 2020 ​ 2019 Cash and cash equivalents ​ $ 33,538 ​ $ 33,119 Restricted cash ​ 248 ​ 230 Cash and cash equivalents and restricted cash ​ $ 33,786 ​ $ 33,349 See accompanying notes. ​ 97 Table of Contents Palomar Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements ​ ​ 1. Summary of Operations and Basis of Presentation Summary of Operations Palomar Holdings, Inc. (“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. 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. 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’ programs. PGIA also earns fee income from policyholder transactions. 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 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 The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. 98 Table of Contents Stock Split 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 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. 2. Significant Accounting Policies Cash and Cash Equivalents Cash and cash equivalents include time deposits and marketable securities with original maturities of three months or less at acquisition and are stated at cost, which approximates fair value. The Company maintains cash balances in federally insured financial institutions. Restricted Cash Restricted cash includes cash on deposit with reinsurance carriers. Restricted cash also includes cash held in a fiduciary capacity for the benefit of third-party insurance carriers. Investments 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. 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. Dividend income is recognized on the ex-dividend date. Net investment income represents investment income, net of expenses. 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 99 Table of Contents 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 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. 100 Table of Contents Level 2—Pricing inputs are quoted prices for similar investments in active markets; quoted prices for identical or similar investments in inactive markets; 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. To measure fair value, the Company obtains quoted market prices for its investment securities from its outside investment managers. If a quoted market price is not available, the Company uses prices of similar securities. 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. Industry standard models are used to analyze and value securities with embedded options or prepayment sensitivities. These fair value measurements are estimated based on observable, objectively verifiable market information rather than market quotes; 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 Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, fixed maturity securities and reinsurance recoverables. The Company places its cash and cash equivalents with high credit quality financial institutions and its fixed maturity securities in securities of the U.S. government, U.S. government agencies, and high credit quality issuers of debt securities. The Company evaluates the financial condition of its reinsurers and reinsures its business with highly rated reinsurers and sometimes requires letters of credit or retains funds from reinsurers (see Note 10). Premiums Receivable 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 terms of the policies in force, net of any ceding commissions. 101 Table of Contents Premiums Earned Gross premiums written are recorded at policy inception and are earned as revenue ratably over the term of the respective policies. 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 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. A premium deficiency would first be recognized by charging any unamortized acquisition costs to expense to the extent required to eliminate the deficiency. If the premium deficiency were greater than unamortized acquisition costs, a liability would be accrued for the excess deficiency. The Company does not consider anticipated investment income when determining if a premium deficiency exists. There was no premium deficiency at December 31, 2020 or 2019. Commission and Other Income Commission and other income is comprised of commissions earned on policies where the Company has no exposure to underlying risk and fees earned in conjunction with underwriting policies. Commission and fee income is earned at the time the policy is written. Property and Equipment Property and equipment are capitalized and carried at cost less accumulated depreciation. Depreciation for property and equipment is calculated on a straight-line basis using useful lives of 3 to 5 years. Leasehold improvements and other fixed assets are capitalized and depreciated over the useful lives of the properties and equipment. 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. The implementation costs relate to systems built on software which the Company purchases under a cloud computing arrangement and accounts for as a service contract. As such, capitalized costs are amortized over the term of the service contract, which currently ends in December 2024. Intangible Assets 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. Impairment of Long-Lived Assets Long-lived assets with finite lives are tested for impairment whenever recognized events or changes in circumstances indicate the carrying value of these assets may not be recoverable. If indicators of impairment are present, the fair value is calculated using estimated future cash flows expected to be generated from the use of those assets. 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 102 Table of Contents 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. An impairment loss is measured as the amount by which the carrying amount of a long-lived asset or asset group exceeds its fair value. No impairments of long-lived assets were recognized for the years ended December 31, 2020, 2019 and 2018. Reserve for Losses and Loss Adjustment Expenses The reserve for unpaid losses and loss adjustment expenses includes estimates 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. 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. 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. The Company does not discount its liability for unpaid losses and loss adjustment expenses. The Company does not write insurance policies covering toxic clean-up, asbestos-related illness or other environmental remediation exposures. Reinsurance The Company purchases excess of loss and quota share reinsurance to protect it against the impact of losses. 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 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. Best. 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 103 Table of Contents 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. ​ Income Taxes The Company is taxed as a property/casualty insurer for federal income tax purposes. Deferred income tax assets and liabilities are determined based on the difference between the financial statement and the tax bases of assets and liabilities, using enacted tax rates expected to be in effect during the year in which the basis differences reverse. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company recognizes the tax benefit of uncertain tax positions where the position is more likely than not to be sustained assuming examination by taxing authorities. Based on its evaluation for the tax years ended December 31, 2020 and 2019, the Company has concluded that there are no significant uncertain tax positions requiring recognition in its financial statements. The Company recognizes interest and penalties related to uncertain tax positions, if any, as a component of income tax expense. The Company has not been assessed interest or penalties by any major tax jurisdictions for the respective tax years ended December 31, 2020, 2019, and 2018. Earnings Per Share Basic earnings per share is calculated by dividing net income by the weighted-average common shares outstanding for the period. Diluted earnings per share reflects the dilution which could occur if equity-based awards are converted into common share equivalents as calculated using the treasury stock method. 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. Recently adopted accounting pronouncements 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. ​ 104 Table of Contents Leases ​ 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 Income Taxes ​ 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. ​ ​ 105 Table of Contents 3. Investments The Company’s available-for-sale investments are summarized as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross Gross ​ ​ ​ ​ Amortized ​ Unrealized ​ Unrealized ​ Fair December 31, 2020 ​ Cost or Cost ​ Gains ​ Losses ​ Value ​ (in thousands) Fixed maturities: ​ ​ ​ ​ ​ U.S. Governments ​ $ 16,308 ​ $ 756 ​ $ (5) ​ $ 17,059 States, territories, and possessions ​ 6,208 ​ 428 ​ — ​ 6,636 Political subdivisions ​ 2,027 ​ 125 ​ — ​ 2,152 Special revenue excluding mortgage/asset-backed securities ​ 39,704 ​ 1,525 ​ (2) ​ 41,227 Industrial and miscellaneous ​ 234,049 ​ 11,602 ​ ​ (291) ​ 245,360 Mortgage/asset-backed securities ​ 82,983 ​ 2,785 ​ (215) ​ 85,553 Total available-for-sale investments ​ $ 381,279 ​ $ 17,221 ​ $ (513) ​ $ 397,987 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross Gross ​ ​ ​ ​ Amortized ​ Unrealized ​ Unrealized ​ Fair December 31, 2019 ​ Cost or Cost ​ Gains ​ Losses ​ Value ​ (in thousands) Fixed maturities: ​ ​ ​ ​ U.S. Governments ​ $ 13,371 ​ $ 321 ​ $ (13) ​ $ 13,679 States, territories, and possessions ​ 2,298 ​ 147 ​ — ​ 2,445 Political subdivisions ​ 1,913 ​ 29 ​ — ​ 1,942 Special revenue excluding mortgage/asset-backed securities ​ 18,139 ​ 343 ​ (46) ​ 18,436 Industrial and miscellaneous ​ 124,726 ​ 4,326 ​ (39) ​ 129,013 Mortgage/asset-backed securities ​ 50,831 ​ 824 ​ (19) ​ 51,636 Total available-for-sale investments ​ $ 211,278 ​ $ 5,990 ​ $ (117) ​ $ 217,151 ​ Security holdings in an unrealized loss position As of December 31, 2020, the Company held 90 fixed maturity securities in an unrealized loss position with a total estimated fair value of $41.5 million and total gross unrealized losses of $0.5 million. None of the fixed maturity securities with unrealized losses has ever missed, or been delinquent on, a scheduled principal or interest payment. As of December 31, 2019, the Company held 51 fixed maturity securities in an unrealized loss position with a total estimated fair value of $20.9 million and total gross unrealized losses of $0.1 million. None of the fixed maturity securities with unrealized losses has ever missed, or been delinquent on, a scheduled principal or interest payment. 106 Table of Contents 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, 2020 and 2019, are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Less Than 12 Months ​ More Than 12 Months ​ Total ​ Fair Unrealized Fair Unrealized Fair Unrealized December 31, 2020 ​ Value ​ Losses ​ Value ​ Losses ​ Value ​ Losses ​ ​ (in thousands) Fixed maturity securities: ​ ​ ​ ​ ​ ​ U.S. Governments $ 1,496 ​ $ (5) ​ $ — ​ $ — ​ $ 1,496 ​ $ (5) States, territories, and possessions ​ — ​ ​ — ​ — ​ — ​ — ​ — Political subdivisions ​ — ​ ​ — ​ — ​ — ​ — ​ — Special revenue excluding mortgage/asset-backed securities ​ 520 ​ ​ (2) ​ — ​ — ​ 520 ​ (2) Industrial and miscellaneous ​ 22,718 ​ ​ (234) ​ 203 ​ (57) ​ 22,921 ​ (291) Mortgage/asset-backed securities ​ 16,092 ​ ​ (211) ​ 496 ​ (4) ​ 16,588 ​ (215) Total ​ $ 40,826 ​ $ (452) ​ $ 699 ​ $ (61) ​ $ 41,525 ​ $ (513) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Less Than 12 Months ​ More Than 12 Months ​ Total ​ Fair Unrealized Fair Unrealized Fair Unrealized December 31, 2019 ​ Value ​ Losses ​ Value ​ Losses ​ Value ​ Losses ​ ​ (in thousands) Fixed maturity securities: ​ ​ ​ ​ ​ ​ U.S. Governments ​ $ 1,235 ​ $ (11) ​ $ 1,827 ​ $ (2) ​ $ 3,062 ​ $ (13) States, territories, and possessions ​ — ​ — ​ — ​ — ​ — ​ — Political subdivisions ​ — ​ — ​ — ​ — ​ — ​ — Special revenue excluding mortgage/asset-backed securities ​ 3,548 ​ (46) ​ — ​ — ​ 3,548 ​ (46) Industrial and miscellaneous ​ 6,929 ​ (38) ​ 188 ​ (1) ​ 7,117 ​ (39) Mortgage/asset-backed securities ​ 7,035 ​ (19) ​ 182 ​ — ​ 7,217 ​ (19) Total ​ $ 18,747 ​ $ (114) ​ $ 2,197 ​ $ (3) ​ $ 20,944 ​ $ (117) ​ ​ 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, 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. 107 Table of Contents Contractual maturities of available-for-sale fixed maturity securities The amortized cost and fair value of fixed maturity securities at December 31, 2020, by contractual maturity, are shown below. ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortized Fair ​ ​ Cost ​ Value ​ (in thousands) Due within one year ​ $ 11,222 ​ $ 11,351 Due after one year through five years ​ 146,302 ​ 151,123 Due after five years through ten years ​ 99,194 ​ 106,600 Due after ten years ​ 41,578 ​ 43,360 Mortgage and asset-backed securities ​ 82,983 ​ 85,553 ​ ​ $ 381,279 ​ $ 397,987 ​ Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations. Change in unrealized gains (losses) of investments The following table presents the change in available-for-sale gross unrealized gains or losses by investment type: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2020 2019 2018 ​ ​ (in thousands) Change in net unrealized gains (losses) ​ ​ ​ ​ ​ ​ Fixed maturities ​ $ 10,835 ​ $ 6,602 ​ $ (341) Net increase (decrease) ​ $ 10,835 ​ $ 6,602 ​ $ (341) ​ Net investment income summary Net investment income is summarized as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2020 2019 2018 ​ (in thousands) Interest income ​ $ 8,554 ​ $ 5,894 ​ $ 3,036 Dividend income ​ 489 ​ 424 ​ 514 Investment management fees and expenses ​ (431) ​ (343) ​ (312) Net investment income ​ $ 8,612 ​ $ 5,975 ​ $ 3,238 ​ 108 Table of Contents Net realized and unrealized investment gains and losses The following table presents net realized and unrealized investment gains and losses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ 2020 2019 2018 ​ ​ (in thousands) Realized gains: ​ ​ ​ Gains on sales of fixed maturity securities ​ $ 501 ​ $ 1,405 ​ $ 19 Gains on sales of equity securities ​ 62 ​ 177 ​ 4,287 Total realized gains ​ 563 ​ 1,582 ​ 4,306 Realized losses: ​ ​ ​ Losses on sales of fixed maturity securities ​ (46) ​ ​ (84) ​ ​ (418) Losses on sales of equity securities ​ (68) ​ ​ (64) ​ ​ (421) Total realized losses ​ (114) ​ (148) ​ (839) Net realized investment gains ​ 449 ​ 1,434 ​ 3,467 Net unrealized gains (losses) on equity securities ​ 1,039 ​ 3,009 ​ (6,036) Net realized and unrealized gains (losses) on investments ​ $ 1,488 ​ $ 4,443 ​ $ (2,569) ​ 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. These securities are included in available-for-sale investments on the consolidated balance sheets. At December 31, 2020 and 2019, the carrying value of securities on deposit with state regulatory authorities was $7.5 million and $5.1 million, respectively. 4. 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, 2020 and 2019: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 Level 1 Level 2 Level 3 Total ​ (in thousands) Assets: ​ ​ ​ ​ Fixed maturity securities ​ ​ ​ ​ U.S. Governments ​ $ — ​ $ 17,059 ​ $ — ​ $ 17,059 States, territories, and possessions ​ — ​ 6,636 ​ — ​ 6,636 Political subdivisions ​ — ​ 2,152 ​ — ​ 2,152 Special revenue excluding mortgage/asset-backed securities ​ — ​ 41,227 ​ — ​ 41,227 Industrial and miscellaneous ​ — ​ 245,360 ​ — ​ 245,360 Mortgage/asset-backed securities ​ — ​ 85,553 ​ — ​ 85,553 Equity securities ​ 24,322 ​ — ​ — ​ 24,322 Cash, cash equivalents, and restricted cash ​ 33,786 ​ — ​ — ​ 33,786 Total assets ​ $ 58,108 ​ $ 397,987 ​ $ — ​ $ 456,095 ​ 109 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2019 Level 1 Level 2 Level 3 Total ​ (in thousands) Assets: ​ ​ ​ ​ Fixed maturity securities ​ ​ ​ ​ U.S. Governments ​ $ — ​ $ 13,679 ​ $ — ​ $ 13,679 States, territories, and possessions ​ — ​ 2,445 ​ — ​ 2,445 Political subdivisions ​ — ​ 1,942 ​ — ​ 1,942 Special revenue excluding mortgage/asset-backed securities ​ — ​ 18,436 ​ — ​ 18,436 Industrial and miscellaneous ​ — ​ 129,013 ​ — ​ 129,013 Mortgage/asset-backed securities ​ — ​ 50,136 ​ 1,500 ​ 51,636 Equity securities ​ 22,328 ​ — ​ — ​ 22,328 Cash, cash equivalents, and restricted cash ​ 28,350 ​ 4,999 ​ — ​ 33,349 Total assets ​ $ 50,678 ​ $ 220,650 ​ $ 1,500 ​ $ 272,828 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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. 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. 5. Policy Acquisition Costs The following tables present the policy acquisition costs deferred and amortized over the terms of the policies in force: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2020 2019 2018 ​ ​ (in thousands) Deferred Policy Acquisition Costs: ​ ​ ​ Balance, beginning of year ​ $ 25,201 ​ $ 14,052 ​ $ 15,161 Additions to deferred balance: ​ ​ ​ ​ Direct commissions ​ 82,786 ​ 59,676 ​ 36,934 Ceding commissions ​ (19,371) ​ (17,257) ​ (15,218) Premium taxes ​ 7,024 ​ 5,236 ​ 3,362 Total net additions ​ 70,439 ​ 47,655 ​ 25,078 Amortization of net policy acquisition costs ​ (60,159) ​ (36,506) ​ (26,187) Balance, end of year ​ $ 35,481 ​ $ 25,201 ​ $ 14,052 Acquisition expenses: ​ ​ ​ Amortization of net policy acquisition costs ​ $ 60,159 ​ $ 36,506 ​ $ 26,187 Period costs ​ 3,882 ​ 753 ​ 2,037 Total Acquisition expenses ​ $ 64,041 ​ $ 37,259 ​ $ 28,224 ​ ​ ​ ​ 110 Table of Contents 6. Intangible Assets Intangible assets consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2020 2019 ​ ​ (in thousands) Indefinite-lived intangibles: ​ ​ ​ ​ ​ ​ State insurance licenses ​ $ 744 ​ $ 744 Finite-lived intangibles: ​ ​ ​ ​ ​ ​ Customer relationships ​ ​ 10,768 ​ ​ — Accumulated amortization on finite-lived intangibles ​ ​ — ​ ​ — Total intangible assets ​ $ 11,512 ​ $ 744 ​ ​ ​ 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. ​ ​ 7. Capitalized Assets Capitalized software balances are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ Net December 31, 2020 Cost ​ Amortization Book Value ​ ​ (in thousands) Capitalized Software $ 8,450 $ (1,767) $ 6,683 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ Net December 31, 2019 Cost Amortization Book Value ​ ​ (in thousands) Capitalized Software $ 4,567 $ (669) $ 3,898 ​ ​ 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ Net December 31, 2020 Cost ​ Depreciation Book Value ​ ​ (in thousands) Leasehold improvements ​ $ 879 $ (459) ​ $ 420 Computer hardware ​ 276 ​ (100) ​ 176 Office equipment and furniture ​ 519 ​ (376) ​ 143 Total ​ $ 1,674 ​ $ (935) ​ $ 739 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ Net December 31, 2019 Cost Depreciation Book Value ​ ​ (in thousands) Leasehold improvements ​ $ 879 ​ $ (342) ​ $ 537 Computer hardware ​ 144 ​ (64) ​ 80 Office equipment and furniture ​ 519 ​ (291) ​ 228 Total ​ $ 1,542 ​ $ (697) ​ $ 845 ​ ​ 111 Table of Contents Depreciation expense for the years ended December 31, 2020, 2019 and 2018 was $0.2 million, $0.2 million, and $0.2 million respectively. ​ 8. Leases ​ 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) Operating cash outflows from operating leases ​ $ 842 Right of use assets obtained in exchange for new operating lease liabilities ​ ​ — ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ ($ in thousands) ​ Operating lease ROU assets ​ $ 2,274 ​ Operating lease liabilities ​ $ 3,012 ​ Weighted-average remaining lease term-operating leases ​ ​ 3.5 years Weighted-average discount rate-operating leases ​ ​ 2.1 % ​ ​ Future minimum lease payments as of December 31, 2020 are as follows: ​ ​ ​ ​ ​ ​ Years ending December 31, ​ (in thousands) ​ 2021 ​ $ 879 ​ 2022 ​ ​ 904 ​ 2023 ​ ​ 862 ​ 2024 ​ ​ 478 ​ 2025 ​ ​ — ​ Total future minimum lease payments ​ $ 3,123 ​ Less: imputed interest ​ ​ (111) ​ Total operating lease liability ​ $ 3,012 ​ ​ ​ ​ ​ 9. 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 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 112 Table of Contents 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. The estimates are continually reviewed and adjusted as necessary as experience develops or new information becomes known. Any adjustments to estimates are recorded in the current period. The following table provides a reconciliation of the beginning and ending reserve balances for losses and LAE on a net of reinsurance basis to the gross amounts reported in the accompanying consolidated balance sheets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2020 2019 2018 ​ ​ (in thousands) Reserve for losses and loss adjustment expenses net of reinsurance recoverables at beginning of period ​ $ 3,869 ​ $ 4,165 ​ $ 4,432 Add: Incurred losses and loss adjustment expenses, net of reinsurance, related to: ​ ​ ​ ​ ​ ​ ​ ​ Current year ​ 64,179 ​ ​ 5,774 ​ ​ 8,165 Prior years ​ (64) ​ ​ (181) ​ ​ (1,891) Total incurred ​ 64,115 ​ 5,593 ​ 6,274 Deduct: Loss and loss adjustment expense payments, net of reinsurance, related to: ​ ​ ​ Current year ​ ​ 31,879 ​ ​ 2,179 ​ ​ 4,409 Prior years ​ ​ 1,635 ​ ​ 3,710 ​ ​ 2,132 Total payments ​ 33,514 ​ 5,889 ​ 6,541 Reserve for losses and loss adjustment expense net of reinsurance recoverables at end of period ​ 34,470 ​ 3,869 ​ 4,165 Add: Reinsurance recoverables on unpaid losses and loss adjustment expenses at end of period ​ ​ 94,566 ​ ​ 12,952 ​ ​ 11,896 Reserve for losses and loss adjustment expenses gross of reinsurance recoverables on unpaid losses and loss adjustment expenses at end of period ​ $ 129,036 ​ $ 16,821 ​ $ 16,061 ​ 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. During 2020, this favorable reserve development related to lower than anticipated frequency and severity of claims in our homeowners and special property 113 Table of Contents 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. For the purpose of defining claims frequency, the number of reported claims is by loss occurrence and includes claims that do not result in a liability or payment associated with them. The Company analyzed the usefulness of disaggregation of its results and determined the characteristics associated with the policies and the related unpaid loss reserves, incurred losses, and payment patterns are similar in nature. The Company separates its special property and other claim experience from its homeowner claim experience when analyzing losses and allocated loss adjustment expenses incurred and paid development and claim count triangles, as there are distinct differences in the development and claim count emergence patterns as well as methods of IBNR projection. 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, 2020 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) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Incurred but ​ Cumulative ​ ​ Year Ended December 31, ​ Not Reported ​ Number of Accident Year 2015(1) 2016(1) 2017(1) 2018(1) 2019 2020 Liabilities Claims 2015 ​ $ 2,048 ​ $ 1,785 ​ $ 1,658 ​ $ 1,636 ​ $ 1,642 ​ $ 1,636 ​ $ — ​ 381 2016 ​ ​ ​ ​ ​ 6,069 ​ ​ 5,878 ​ ​ 5,721 ​ ​ 5,636 ​ ​ 5,622 ​ ​ — ​ 1,083 2017 ​ ​ ​ 9,354 ​ 7,418 ​ 6,630 ​ 6,388 ​ 3 ​ 2,973 2018 ​ ​ ​ ​ 2,193 ​ 2,008 ​ 1,930 ​ 3 ​ 789 2019 ​ ​ ​ ​ ​ 914 ​ 838 ​ 98 ​ 1,178 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 19,100 ​ ​ 2,995 ​ 3,223 Total ​ ​ ​ ​ ​ ​ ​ ​ $ 35,514 ​ $ 3,099 9,627 ​ 114 Table of Contents Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance Homeowners’ Insurance (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, Accident Year 2015(1) 2016(1) 2017(1) 2018(1) 2019 2020 2015 ​ $ 860 ​ $ 1,379 ​ $ 1,523 ​ $ 1,615 ​ $ 1,634 ​ $ 1,636 2016 ​ ​ ​ ​ ​ 4,120 ​ ​ 5,356 ​ ​ 5,585 ​ ​ 5,607 ​ ​ 5,619 2017 ​ ​ ​ 7,135 ​ 7,375 ​ 6,628 ​ 6,371 2018 ​ ​ ​ ​ 1,550 ​ 1,853 ​ 1,922 2019 ​ ​ ​ ​ ​ 546 ​ 685 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 13,588 Total ​ ​ ​ ​ ​ ​ ​ ​ $ 29,821 Reserve for losses and loss adjustment expense, net of reinsurance ​ ​ ​ ​ ​ ​ ​ ​ $ 5,693 (1) Data presented for these calendar years is required supplementary information, which is unaudited. Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance Homeowners’ Insurance (unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Payout percentage 75.69 % 17.95 % 1.19 % 0.66 % 0.69 % 0.12 % ​ Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance Special Property Insurance (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Incurred but ​ Cumulative ​ ​ Year Ended December 31, ​ Not Reported ​ Number of Accident Year 2015(1) 2016(1) 2017(1) 2018(1) 2019 2020 Liabilities Claims 2015 ​ $ 630 ​ $ 719 ​ $ 671 ​ $ 671 ​ $ 678 ​ $ 677 ​ $ — ​ 381 2016 ​ ​ ​ ​ ​ 1,381 ​ ​ 1,249 ​ ​ 1,251 ​ ​ 1,454 ​ ​ 1,453 ​ ​ — ​ 1,103 2017 ​ ​ ​ 3,071 ​ 3,475 ​ 4,014 ​ 4,264 ​ — ​ 3,068 2018 ​ ​ ​ ​ 5,970 ​ 6,095 ​ 6,009 ​ — ​ 949 2019 ​ ​ ​ ​ ​ 3,661 ​ 3,385 ​ 332 ​ 1,339 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 42,334 ​ ​ 9,554 ​ 1,240 Total ​ ​ ​ ​ ​ ​ ​ ​ $ 58,122 ​ $ 9,886 8,080 ​ Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance Special Property Insurance (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, Accident Year 2015(1) 2016(1) 2017(1) 2018(1) 2019 2020 2015 ​ $ 265 ​ $ 438 ​ $ 586 ​ $ 626 ​ $ 666 ​ $ 673 2016 ​ ​ ​ ​ ​ 703 ​ ​ 1,064 ​ ​ 1,216 ​ ​ 1,444 ​ ​ 1,453 2017 ​ ​ ​ 1,967 ​ 3,344 ​ 4,011 ​ 4,269 2018 ​ ​ ​ ​ 2,859 ​ 6,036 ​ 6,009 2019 ​ ​ ​ ​ ​ 1,633 ​ 2,825 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 18,274 Total ​ ​ ​ ​ ​ ​ ​ ​ 33,503 Reserve for losses and loss adjustment expense, net of reinsurance ​ ​ ​ ​ ​ ​ ​ ​ 24,619 (1) Data presented for these calendar years is required supplementary information, which is unaudited. 115 Table of Contents Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance Special Property Insurance (unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Payout percentage 45.44 % 34.16 % 11.88 % 9.22 % 3.26 % 1.03 % ​ The reconciliation of the net incurred and paid claims development tables to the liability for claims and claim adjustment expenses in the consolidated balance sheets is as follows: ​ ​ ​ ​ ​ ​ 2020 ​ ​ (in thousands) Net outstanding liabilities: ​ Homeowners’ insurance ​ $ 5,693 Special property ​ ​ 24,619 Reinsurance- Nonproportional assumed property(1) ​ 4,110 Other ​ ​ 48 Reserve for losses and loss adjustment expense, net of reinsurance ​ 34,470 Reinsurance recoverable on unpaid claims: ​ Homeowners’ insurance ​ $ 14,640 Special property ​ ​ 79,825 Other ​ 101 Total reinsurance recoverable on unpaid claims ​ 94,566 Total reserve for losses and loss adjustment expenses ​ $ 129,036 ​ (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. The Company does not use claim frequency information in the determination of loss reserves or for other internal purposes. Based on these considerations, the Company does not believe providing claims frequency information is practicable as it relates to this line of business . ​ 10. Reinsurance The Company utilizes reinsurance in order to limit its exposure to losses and enable it to underwrite policies with sufficient limits to meet policyholder needs. 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. 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. The reinsurer also must share an agreed upon portion of losses and agreed upon portion of the associated commission expense. 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 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. The Company also began ceding a small portion of its Commercial Earthquake premiums 116 Table of Contents 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. (“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, ending May 31, 2020. 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. The effect of reinsurance on premiums written and earned and on losses and LAE incurred for the years ended December 31, 2020, 2019 and 2018, is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2020 ​ 2019 ​ 2018 ​ Written Earned Written Earned Written Earned ​ ​ (in thousands) Premiums Written and Earned: ​ ​ ​ ​ ​ ​ Direct ​ $ 324,253 ​ $ 271,887 ​ $ 220,568 ​ $ 178,536 ​ $ 144,821 ​ $ 129,071 Assumed ​ 30,107 ​ 29,569 ​ 31,393 ​ 21,985 ​ 10,070 ​ 8,688 Ceded ​ (155,102) ​ (146,388) ​ (108,332) ​ (100,314) ​ (82,949) ​ (67,862) Net ​ $ 199,258 ​ $ 155,068 ​ $ 143,629 ​ $ 100,207 ​ $ 71,942 ​ $ 69,897 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2020 ​ Losses LAE Total ​ ​ (in thousands) Losses and LAE Incurred: ​ ​ ​ Direct ​ $ 145,774 ​ $ 18,777 ​ $ 164,551 Assumed ​ 3,485 ​ 159 ​ 3,644 Ceded ​ (91,969) ​ (12,111) ​ (104,080) Net ​ $ 57,290 ​ $ 6,825 ​ $ 64,115 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2019 ​ Losses LAE Total ​ ​ (in thousands) Losses and LAE Incurred: ​ ​ ​ Direct ​ $ 20,105 ​ $ 2,837 ​ $ 22,942 Assumed ​ 1,201 ​ 34 ​ 1,235 Ceded ​ (16,564) ​ (2,020) ​ (18,584) Net ​ $ 4,742 ​ $ 851 ​ $ 5,593 ​ 117 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2018 ​ Losses LAE Total ​ ​ (in thousands) Losses and LAE Incurred: ​ ​ ​ Direct ​ $ 12,153 ​ $ 2,113 ​ $ 14,266 Assumed ​ 46 ​ 6 ​ 52 Ceded ​ (6,580) ​ (1,464) ​ (8,044) Net ​ $ 5,619 ​ $ 655 ​ $ 6,274 ​ The ceding of insurance does not legally discharge the Company from its primary liability for the full amount of the policy coverage, and therefore the Company will be required to pay the loss and bear collection risk if the reinsurer fails to meet its obligations under the reinsurance agreement. To minimize exposure to significant losses from reinsurance insolvencies, the Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk. To reduce credit exposure to reinsurance recoverable balances, the Company obtains letters of credit from certain reinsurers that are not authorized as reinsurers under U.S. state insurance regulations. In addition, under the terms of its reinsurance contracts, the Company may retain funds due from reinsurers as security for those recoverable balances. As of December 31, 2020 and 2019, the Company had retained $4.5 million and $1.7 million in funds from reinsurers, respectively. The Company is able to use the funds in the ordinary course of its business. 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, 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. 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. 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. 11. Long-term Debt Prior to September 2018, the Company had $17.5 million in outstanding surplus notes which had been issued by PSIC on February 3, 2015 for a term of seven years. The surplus notes bore interest at the rate of LIBOR plus 8.00% and had restrictions as to payments of interest and principal and any such payment required the prior approval of the Oregon Insurance Commissioners before such payment could be made. 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. As part of this pre-payment, the Company incurred a penalty of $0.1 million which, along with unamortized debt issuance costs of $0.4 million, was charged to income in 2018. The Floating Rate Notes were redeemed pursuant to their terms on May 23, 2019, at a redemption price equal to 102% of the principal amount of the Floating Rate Notes, or $20.4 million (plus $0.3 million of accrued and unpaid interest thereon). 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 118 Table of Contents 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 and paid $1.2 million in interest expense related to the surplus notes for the year ended December 31, 2018. ​ 12. 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: ​ ​ Stock options outstanding under 2019 Equity Incentive Plan 1,008,648 Restricted stock units outstanding under 2019 Equity Incentive Plan 14,734 Shares authorized for future issuance under 2019 Equity Incentive Plan 1,952,001 Shares authorized for future issuance under 2019 Employee Stock Purchase Plan 451,633 Total 3,427,016 ​ The below table summarizes the Company’s stock-based compensation expense for each period presented: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2020 2019 2018 ​ (in thousands) Stock-Based Compensation Expense $ 2,167 ​ $ 24,103 ​ $ — 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 119 Table of Contents 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 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. The Class P unit holders had no voting rights. The Company did not record stock-based compensation expense related to this plan prior to 2019 because no liquidity events were probable of occurring. 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. 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. In addition, the 2019 Plan contains a mechanism through which the Company may adopt a deferred compensation arrangement in the future. A total of 2,400,000 shares of common stock are initially authorized and reserved for issuance under the 2019 Plan. 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 service to the Company. Stock options expire ten years after the grant date. 120 Table of Contents The following table summarizes stock option transactions for the year ended December 31, 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average ​ ​ ​ ​ ​ ​ ​ ​ ​ remaining ​ Aggregate ​ ​ Number of ​ Weighted-average ​ contractual term ​ intrinsic value ​ shares exercise price (in years) (in thousands) Outstanding at January 1, 2020 ​ 1,046,373 ​ $ 17.05 ​ 9.33 ​ $ 35,039 Options granted ​ 109,374 ​ ​ 80.90 ​ ​ ​ ​ ​ Options exercised ​ (122,613) ​ ​ 16.65 ​ ​ ​ ​ ​ Options canceled ​ (24,486) ​ ​ 21.46 ​ ​ ​ ​ ​ Outstanding at December 31, 2020 ​ 1,008,648 ​ $ 23.92 ​ 8.43 ​ $ 66,028 Vested and Exercisable at December 31, 2020 ​ 522,464 ​ $ 15.78 ​ 8.29 ​ $ 38,170 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 in each year presented: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2020 2019 2018 ​ (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) ​ 5.63-6.08 ​ ​ 5.64-6.08 ​ ​ — Dividend yield (4) ​ 0% ​ ​ 0% ​ ​ — (1) Determined based on the U.S. Treasury yield in effect at the time of the grant for zero-coupon U.S. Treasury notes with remaining terms similar to the expected term of the options. (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 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. 121 Table of Contents The following table summarizes RSU transactions for the year ended December 31, 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average ​ ​ Number of ​ grant date ​ shares fair value Non vested outstanding at January 1, 2020 ​ 6,066 ​ $ 16.49 Granted ​ 14,734 ​ ​ 95.86 Vested ​ (6,066) ​ ​ 16.49 Forfeited ​ — ​ ​ — Non vested outstanding at December 31, 2020 ​ 14,734 ​ $ 95.86 As of December 31, 2020, the Company had approximately $1.2 million of total unrecognized stock-based compensation expense related to RSUs expected to be recognized over a weighted-average period of 2.41 years. 2019 Employee Stock Purchase Plan On April 16, 2019, the Company's 2019 Employee Stock Purchase Plan (“the 2019 ESPP”) became effective. 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 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. 13. Accumulated Other Comprehensive Income Changes in accumulated other comprehensive income (loss) (“AOCI”) are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2020 2019 2018 ​ ​ (in thousands) Balance as of January 1 ​ $ 4,686 ​ $ (563) ​ $ 2,993 ​ Effect of equity accounting guidance adoption ​ — ​ — ​ (3,215) ​ Beginning Balance ​ 4,686 ​ (563) ​ (222) ​ Other comprehensive income (loss) before reclassification ​ 11,292 ​ ​ 6,555 ​ ​ (740) ​ Federal income tax (expense) benefit ​ (2,371) ​ ​ (1,344) ​ ​ 76 ​ Other comprehensive income (loss) before reclassification, net of tax ​ 8,921 ​ 5,211 ​ (664) ​ Amounts reclassified from AOCI ​ (456) ​ ​ 47 ​ ​ 399 ​ Federal income tax expense (benefit) ​ 95 ​ ​ (9) ​ ​ (76) ​ Amounts reclassified from AOCI, net of tax ​ (361) ​ 38 ​ 323 ​ Other comprehensive income (loss) ​ 8,560 ​ 5,249 ​ (341) ​ Balance at end of period ​ $ 13,246 ​ $ 4,686 ​ $ (563) ​ ​ 122 Table of Contents ​ 14. Underwriting Information The Company has a single reportable segment and offers primarily earthquake, wind, and flood insurance products. Gross written premiums (“GWP”) by product are presented below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2020 ​ 2019 2018 ​ ​ ($ in thousands) ​ ​ ​ ​ ​ % of ​ ​ ​ ​ % of ​ ​ ​ % of ​ ​ Amount ​ GWP ​ Amount ​ GWP Amount ​ GWP Product ​ ​ ​ ​ ​ Residential Earthquake ​ $ 140,934 ​ 39.8 % $ 130,473 ​ 51.8 % $ 81,679 ​ 52.7 % Commercial Earthquake ​ 58,890 ​ 16.6 % 38,741 ​ 15.4 % 20,946 ​ 13.5 % Commercial All Risk ​ 53,933 ​ 15.2 % 30,358 ​ 12.0 % 14,338 ​ 9.3 % Specialty Homeowners ​ 49,849 ​ 14.1 % 32,788 ​ 13.0 % 27,680 ​ 17.9 % Inland Marine ​ ​ 15,423 ​ 4.3 % ​ 2,465 ​ 1.0 % ​ — ​ — % Hawaii Hurricane ​ 13,824 ​ 3.9 % 10,764 ​ 4.3 % 8,128 ​ 5.2 % Residential Flood ​ 8,176 ​ 2.3 % 5,216 ​ 2.1 % 2,120 ​ 1.4 % Other ​ ​ 13,331 ​ 3.8 % ​ 1,156 ​ 0.4 % ​ — ​ — % Total Gross Written Premiums ​ $ 354,360 100.0 % $ 251,961 100.0 % $ 154,891 100.0 % ​ Gross written premiums by state are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2020 ​ 2019 2018 ​ ​ ($ in thousands) ​ ​ ​ ​ ​ % of ​ ​ ​ ​ % of ​ ​ ​ % of ​ ​ Amount ​ GWP ​ Amount ​ GWP Amount ​ GWP State ​ ​ ​ ​ ​ California ​ $ 172,765 ​ 48.8 % $ 141,743 ​ 56.3 % $ 82,119 53.0 % Texas ​ ​ 67,974 ​ 19.2 % ​ 44,087 ​ 17.5 % ​ 32,568 ​ 21.0 % Hawaii ​ ​ 16,398 ​ 4.6 % ​ 11,851 ​ 4.7 % ​ 8,128 ​ 5.2 % Washington ​ ​ 14,328 ​ 4.0 % ​ 9,607 ​ 3.8 % 5,658 3.7 % North Carolina ​ 11,143 ​ 3.1 % 3,894 1.5 % 1,568 1.0 % Oregon ​ ​ 10,038 ​ 2.8 % ​ 7,396 ​ 2.9 % 5,286 3.4 % South Carolina ​ 9,196 ​ 2.6 % 6,185 2.5 % 3,208 2.1 % Mississippi ​ 7,461 ​ 2.1 % 4,769 1.9 % ​ 2,585 ​ 1.7 % Other ​ 45,057 ​ 12.8 % 22,429 8.9 % 13,771 ​ 8.9 % Total Gross Written Premiums ​ $ 354,360 100.0 % $ 251,961 100.0 % $ 154,891 100.0 % ​ The Company distributes a significant portion of its Residential Earthquake, Commercial Earthquake, Specialty Homeowners and Hawaii Hurricane products through longstanding relationships with two program administrators. Each of the four products managed by the program administrators operates as a separate program that is governed by an independent, separately negotiated agreement with unique terms and conditions, including geographic scope, key men provisions, economics and exclusivity. These programs also feature separate managerial oversight and leadership, policy administration systems and retail agents originating policies. In total, these four products accounted for $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. 123 Table of Contents 15. 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. 16. Income Taxes 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2020 2019 2018 ​ ​ (in thousands) Current ​ $ (1,128) ​ $ 6,810 ​ $ (6) Deferred ​ 1,094 ​ 646 ​ — Income tax expense (benefit) ​ $ (34) ​ $ 7,456 ​ $ (6) ​ As of December 31, 2020 and 2019, significant components of the Company’s deferred tax assets and liabilities were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2020 2019 ​ ​ (in thousands) Deferred tax assets: ​ ​ Losses and LAE reserve discount ​ $ 238 ​ $ 10 Net operating losses ​ 680 ​ 74 Investment amortization ​ — ​ 85 Unearned premiums ​ 6,272 ​ 3,748 Capitalized organizational costs ​ 244 ​ 274 Deferred compensation ​ 511 ​ — Other ​ 652 ​ 390 Total deferred tax assets ​ $ 8,597 ​ $ 4,581 Deferred tax liabilities: ​ ​ Deferred acquisition costs ​ $ (7,454) ​ $ (4,468) Unrealized gains on investments ​ (3,884) ​ (1,396) Internally developed software ​ ​ (1,283) ​ ​ (640) Other ​ (672) ​ (2) Total deferred tax liabilities ​ (13,293) ​ (6,506) Net deferred tax liability before valuation allowance ​ (4,696) ​ (1,925) Valuation allowance ​ (680) ​ (74) Total net deferred tax liabilities ​ $ (5,376) ​ $ (1,999) ​ 124 Table of Contents 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, ​ ​ 2020 ​ 2019 ​ 2018 ​ ​ ($ in thousands) Expense computed at federal tax rate $ 1,321 ​ 21.00 % $ 3,802 21.00 % $ 3,825 21.00 % Non‑U.S. group member income ​ — ​ — % — — % (4,409) (24.21) % Stock-based compensation ​ (1,538) ​ (24.44) % 4,822 26.63 % — — % Dividend received deduction and tax‑exempt interest ​ (67) ​ (1.06) % (36) (0.20) % (144) (0.79) % Valuation allowance ​ 606 ​ 9.63 % (1,677) (9.27) % 678 3.72 % Other ​ (356) ​ (5.67) % 545 3.01 % 44 0.24 % Income tax expense (benefit) ​ $ (34) (0.54) % $ 7,456 41.17 % $ (6) (0.04) % ​ 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. 17 . Earnings Per Share ​ The following table sets forth the computation of earnings per share of common stock: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2020 2019 2018 ​ (in thousands, except shares and per share data) Net income ​ $ 6,257 ​ $ 10,621 ​ $ 18,219 Weighted average common shares outstanding: ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ 24,872,251 ​ 21,501,541 ​ 17,000,000 Common Share equivalents ​ ​ 726,396 ​ ​ 333,393 ​ ​ — Diluted ​ ​ 25,598,647 ​ ​ 21,834,934 ​ ​ 17,000,000 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Earnings per share: ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ $ 0.25 ​ $ 0.49 ​ $ 1.07 Diluted ​ $ 0.24 ​ $ 0.49 ​ $ 1.07 ​ 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. ​ ​ 125 Table of Contents ​ 18. Statutory financial information U.S. U.S. 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. GAAP. 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2020 2019 2018 ​ ​ (in thousands) Statutory net income (loss) ​ $ 1,753 ​ $ (17,911) ​ $ 9,609 Statutory capital and surplus ​ 213,721 ​ 116,296 ​ 63,731 ​ 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. Bermuda 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. 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, 2020 and 2019, the Company met the minimum liquidity ratio requirement. 126 Table of Contents 19. Dividend Restrictions U.S. 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 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 2021 is calculated to be approximately $10.5 million. However, this dividend amount is subject to annual enhanced solvency requirement calculations. 20. Commitments and Contingencies Litigation 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 $3.2 million of U.S. Treasury bonds which are included in available-for-sale investments on the consolidated balance sheets. ​ ​ 127 Table of Contents 21. Selected Quarterly Financial Data (unaudited) The following is a summary of the Company’s unaudited quarterly results of operations: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2020 Quarter ​ 2020 ​ ​ First ​ ​ Second ​ ​ Third ​ ​ Fourth ​ Year ​ ($ in thousands, except per share data) Gross written premiums $ 71,494 ​ $ 83,807 ​ $ 102,967 ​ $ 96,092 ​ $ 354,360 Total revenues (1) 38,019 ​ ​ 43,149 ​ 44,998 ​ 42,295 ​ 168,463 Net income (loss) 11,776 ​ ​ 12,012 ​ (15,682) ​ (1,849) ​ 6,257 Comprehensive income (loss) 5,943 ​ ​ 22,688 ​ (14,773) ​ 959 ​ 14,817 Earnings per share (2): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic $ 0.49 ​ $ 0.49 ​ $ (0.62) ​ $ (0.07) ​ $ 0.25 Diluted $ 0.48 ​ $ 0.48 ​ $ (0.62) ​ $ (0.07) ​ $ 0.24 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2019 Quarter ​ 2019 ​ ​ First ​ ​ Second ​ ​ Third ​ ​ Fourth ​ Year ​ ($ in thousands, except per share data) Gross written premiums $ 54,031 ​ $ 58,346 ​ $ 66,242 ​ $ 73,342 ​ $ 251,961 Total revenues 22,307 ​ ​ 25,905 ​ 30,461 ​ 34,623 ​ 113,296 Net income (loss) (14,411) ​ ​ 6,698 ​ 7,454 ​ 10,880 ​ 10,621 Comprehensive income (loss) (12,224) ​ ​ 9,996 ​ 8,428 ​ 9,670 ​ 15,870 Earnings per share (2): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic $ (0.85) ​ $ 0.30 ​ $ 0.32 ​ $ 0.46 ​ $ 0.49 Diluted $ (0.85) ​ $ 0.30 ​ $ 0.31 ​ $ 0.45 ​ $ 0.49 (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. ​ ​ ​ ​ ​ ​ ​ 128 Table of Contents Schedule II Palomar Holdings, Inc. and Subsidiaries Balance Sheets (Parent Company) (In Thousands, except shares and par value data) ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, December 31, ​ ​ 2020 ​ 2019 Assets ​ ​ Investments: ​ ​ ​ ​ ​ ​ Fixed maturity securities available for sale, at fair value (amortized cost: $50,177 in 2020, $28,413 in 2019) ​ $ 51,252 ​ $ 29,120 Equity securities, at fair value: (cost: $1,661 in 2020, $1,661 in 2019) ​ 1,727 ​ 1,696 Total investments ​ 52,979 ​ 30,816 Cash and cash equivalents ​ 7,290 ​ 1,654 Accrued investment income ​ 300 ​ 126 Prepaid expenses and other assets ​ ​ 7,322 ​ ​ 36 Receivables from subsidiaries ​ ​ 1,552 ​ ​ — Investment in subsidiaries ​ 317,663 ​ 189,313 Total assets ​ $ 387,106 ​ $ 221,945 Liabilities and Stockholders' equity ​ ​ Liabilities: ​ ​ ​ ​ ​ ​ Accounts payable and other liabilities ​ $ 94 ​ $ 268 Payables to subsidiaries ​ ​ 17,923 ​ ​ — Federal income tax payable ​ ​ — ​ ​ 1,122 Deferred tax liabilities ​ ​ 5,376 ​ ​ 1,999 Total liabilities ​ 23,393 ​ 3,389 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 ​ ​ 3 ​ ​ 2 Additional paid‑in capital ​ 310,507 ​ 180,012 Accumulated other comprehensive income ​ 13,246 ​ 4,686 Retained earnings ​ 39,957 ​ 33,856 Total stockholders' equity ​ 363,713 ​ 218,556 Total liabilities and stockholders' equity ​ $ 387,106 ​ $ 221,945 ​ See accompanying notes. ​ 129 Table of Contents Schedule II Palomar Holdings, Inc. and Subsidiaries Statements of Income (Parent Company) (In Thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2020 2019 2018 Revenues: ​ ​ ​ ​ ​ ​ ​ ​ ​ Net investment income ​ $ 939 $ 1,039 $ 61 Net realized and unrealized losses on investments ​ 63 ​ 131 ​ (2) Total revenues ​ ​ 1,002 ​ ​ 1,170 ​ ​ 59 Expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ Other operating expenses ​ ​ 8,696 ​ ​ 8 ​ ​ — Income (loss) before income taxes ​ ​ (7,694) ​ ​ 1,162 ​ ​ 59 Income tax expense (benefit) ​ ​ (34) ​ ​ 7,441 ​ ​ — Income (loss) before equity in net income of subsidiaries ​ (7,660) ​ (6,279) ​ 59 Equity in net income of subsidiaries ​ 13,917 ​ 16,900 ​ 18,160 Net income ​ ​ 6,257 ​ 10,621 ​ 18,219 Other comprehensive income: ​ ​ ​ Net unrealized losses on securities available for sale ​ 1,075 ​ 708 ​ (87) Equity in other comprehensive income of subsidiaries, net of taxes ​ 7,485 ​ 4,541 ​ (254) Total comprehensive income ​ $ 14,817 ​ $ 15,870 ​ $ 17,878 ​ See accompanying notes. ​ 130 Table of Contents Schedule II Palomar Holdings, Inc. and Subsidiaries Statements of Cash Flows (Parent Company) (In Thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2020 ​ 2019 2018 Operating activities ​ ​ ​ Net income ​ $ 6,257 ​ $ 10,621 ​ $ 18,219 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ Equity in undistributed earnings of subsidiaries ​ (13,917) ​ (16,900) ​ (18,160) Net realized and unrealized losses on investments ​ (63) ​ (131) ​ 2 Amortization of premium on fixed maturity securities ​ ​ 350 ​ ​ 114 ​ ​ — Deferred income tax expense ​ ​ 1,094 ​ ​ 646 ​ ​ — Other ​ — ​ — ​ 546 Changes in operating assets and liabilities: ​ 7,772 ​ 4,218 ​ (67) Net cash provided by (used in) operating activities ​ 1,493 ​ (1,432) ​ 540 Investing activities ​ ​ ​ Purchases of fixed maturity securities ​ ​ (71,048) ​ ​ (73,901) ​ ​ — Sales and maturities of fixed maturity securities ​ 6,651 ​ ​ 13,930 ​ ​ ​ Cash paid to subsidiaries ​ ​ (59,789) ​ ​ — ​ ​ — Cash received from subsidiaries ​ ​ — ​ ​ 226 ​ ​ — Net cash used in investing activities ​ (124,186) ​ (59,745) ​ — Financing activities ​ ​ ​ Proceeds from initial public offering, net of offering costs ​ ​ — ​ ​ 87,411 ​ ​ — Distribution to stockholder ​ ​ — ​ ​ (5,120) ​ ​ — Redemption of Floating Rate Notes ​ ​ — ​ ​ (20,000) ​ ​ — Proceeds from January 2020 stock offering, net of offering costs ​ ​ 35,464 ​ ​ — ​ ​ — Proceeds from June 2020 stock offering, net of offering costs ​ ​ 90,083 ​ ​ — ​ ​ — Proceeds from common stock issued via equity incentive plans ​ ​ 2,782 ​ ​ — ​ ​ — Net cash provided by financing activities ​ 128,329 ​ 62,291 ​ — Net increase in cash and cash equivalents ​ 5,636 ​ 1,114 ​ 540 Cash and cash equivalents at beginning of period ​ 1,654 ​ 540 ​ — Cash and cash equivalents at end of period ​ $ 7,290 ​ $ 1,654 ​ $ 540 Supplementary cash flow information: ​ ​ ​ Cash paid for income taxes ​ $ 7,182 ​ $ 5,645 ​ $ — ​ See accompanying notes. ​ 131 Table of Contents Schedule II 1. Accounting Policies Organization Palomar Holdings, Inc. (“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 The accompanying condensed financial statements have been prepared using the equity method. 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 Preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures. Those estimates are inherently subject to change, and actual results may ultimately differ from those estimates. ​ 132 Table of Contents Schedule V Palomar Holdings, Inc. and Subsidiaries Valuation and Qualifying Accounts ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additions ​ Deductions ​ ​ ​ ​ Balance at ​ Amounts ​ Amounts ​ Balance at ​ ​ Beginning ​ Charged to ​ Written ​ End of (in thousands) of Period Expense Off Period Year Ended December 31, 2020 ​ ​ ​ ​ Valuation Allowance for deferred tax assets ​ $ 74 ​ $ 606 ​ $ — ​ $ 680 Valuation Allowance for premium receivable ​ ​ 150 ​ ​ 53 ​ ​ — ​ ​ 203 Year Ended December 31, 2019 ​ ​ ​ ​ Valuation Allowance for deferred tax assets ​ $ 1,677 ​ $ — ​ $ (1,603) ​ $ 74 ​ ​ ​ ​ 133 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ​ None. ​ ​