What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-11-05 compared with 2021-08-06 · 103 added, 75 removed, 388 unchanged (31% of the section changed)

4 unchanged sentences

(in thousands, except shares and par value data)

September 30,

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

25 unchanged sentences

Stockholders' equity:

Preferred stock, $ 0.0001 par value, 5,000,000 shares authorized, 0 shares issued and outstanding as of June 30, 2021 and December 31, 2020

Common stock, $ 0.0001 par value, 500,000,000 shares authorized, 25,369,503 and 25,525,796 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively

Preferred stock, $ 0.0001 par value, 5,000,000 shares authorized, 0 shares issued and outstanding as of September 30, 2021 and December 31, 2020

Common stock, $ 0.0001 par value, 500,000,000 shares authorized, 25,415,299 and 25,525,796 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively

Additional paid-in capital

6 unchanged sentences

and Subsidiaries

Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited)

Condensed Consolidated Statements of Income (Loss ) and Comprehensive Income (Loss) (Unaudited)

(in thousands, except shares and per share data)

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Gross written premiums

11 unchanged sentences

Total expenses

Income before income taxes

Income (loss) before income taxes

Income tax expense

Net income (loss)

Other comprehensive income, net:

Net unrealized gains (losses) on securities available for sale for the three and six months ended June 30, 2021 and 2020, respectively

Net comprehensive income

Net unrealized gains (losses) on securities available for sale for the three and nine months ended September 30, 2021 and 2020, respectively

Net comprehensive income (loss)

Per Share Data:

16 unchanged sentences

Issuance of common stock via equity incentive plan

Balance at June 30, 2020

Balance at September 30, 2020

Balance at December 31, 2020

4 unchanged sentences

Repurchases of common stock

Balance at June 30, 2021

Balance at September 30, 2021

See accompanying notes.

3 unchanged sentences

(in thousands)

Six Months Ended

Nine Months Ended

September 30,

Operating activities

20 unchanged sentences

Cash paid for income taxes

Cash paid for interest

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

September 30,

Cash and cash equivalents

35 unchanged sentences

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

June 30, 2021

September 30, 2021

(in thousands)

16 unchanged sentences

Security holdings in an unrealized loss position

As of June 30, 2021, the Company held 111 fixed maturity securities in an unrealized loss position with a total estimated fair value of $ 76.0 million and total gross unrealized losses of $ 1.1 million.

As of September 30, 2021, the Company held 153 fixed maturity securities in an unrealized loss position with a total estimated fair value of $ 112.3 million and total gross unrealized losses of $ 1.6 million.

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.

The aggregate fair value and gross unrealized losses of the Company’s investments aggregated by investment category and the length of time these individual securities have been in a continuous unrealized loss position as of June 30, 2021 and December 31, 2020, are as follows:

The aggregate fair value and gross unrealized losses of the Company’s investments aggregated by investment category and the length of time these individual securities have been in a continuous unrealized loss position as of September 30, 2021 and December 31, 2020, are as follows:

Less Than 12 Months

More Than 12 Months

June 30, 2021

September 30, 2021

(in thousands)

17 unchanged sentences

The Company considers numerous factors in its review as described in Footnote 1 of the Notes to the Consolidated Financial Statements in the 2020 Annual Report on Form 10-K.

Based on the Company’s reviews as of June 30, 2021, the Company recorded an immaterial allowance for credit losses pertaining to one investment security.

For the remainder of securities, 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.

The Company recorded an immaterial allowance for credit losses during the second quarter of 2021 pertaining to one investment security.

Based on the Company’s reviews as of September 30, 2021, for the remainder of securities, 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.

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

Contractual maturities of available-for-sale fixed maturity securities

The amortized cost and fair value of fixed maturity securities at June 30, 2021, by contractual maturity, are shown below.

The amortized cost and fair value of fixed maturity securities at September 30, 2021, by contractual maturity, are shown below.

(in thousands)

8 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

7 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

12 unchanged sentences

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

Proceeds from the sale of fixed maturity securities were $ 11.1 million and $ 10.5 million for the six months ended June 30, 2021 and 2020, respectively.

Proceeds from the sale of fixed maturity securities were $ 12.1 million and $ 29.2 million for the nine months ended September 30, 2021 and 2020, respectively.

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

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

At both June 30, 2021 and December 31, 2020, the carrying value of securities on deposit with state regulatory authorities was $ 7.5 million.

At both September 30, 2021 and December 31, 2020, the carrying value of securities on deposit with state regulatory authorities was $ 7.5 million.

Fair Value Measurements

15 unchanged sentences

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

The following tables present the hierarchy for financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2021 and December 31, 2020.

June 30, 2021

The following tables present the hierarchy for financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020.

September 30, 2021

(in thousands)

19 unchanged sentences

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

As of June 30, 2021 and December 31, 2020, the Company had no fixed income securities classified as Level 3.

As of September 30, 2021 and December 31, 2020, the Company had no fixed income securities classified as Level 3.

Reserve for Losses and Loss Adjustment Expenses

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

10 unchanged sentences

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

The Company experienced favorable prior year development of $ 0.4 million during the three months ended June 30, 2021 and adverse development of $ 0.09 million in the three months ended June 30, 2020.

The Company experienced favorable prior year development of $ 3.1 million and $ 0.2 million during the six months ended June 30, 2021 and June 30, 2020, respectively.

Favorable prior year development during the three months ended June 30, 2021 was primarily due to lower than anticipated severity of catastrophe losses associated with certain hurricanes which occurred during the second half of 2020 in the Company’s Commercial All Risk and Specialty Homeowners line of business.

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

Favorable prior year development during the six months ended June 30, 2021 was primarily due to lower than anticipated severity of catastrophe losses associated with certain hurricanes which occurred during the second half of 2020 in the Company’s Commercial All Risk and Specialty Homeowners line of business.

Favorable development in the six months ended June 30, 2020 was primarily due to lower than anticipated frequency and severity of claims in the Specialty Homeowners and Residential Flood lines of business.

The Company experienced adverse prior year development of $ 0.2 million during the three months ended September 30, 2021 and adverse prior year development of $ 0.3 million in the three months ended September 30, 2020.

Adverse prior year development during the three months ended September 30, 2021 was primarily due to higher than anticipated severity of attritional losses, partially offset by favorable development on catastrophe losses associated with certain hurricanes which occurred during the second half of 2020 in the Company’s Commercial All Risk and Specialty Homeowners line of business.

Adverse prior year development in the three months ended September 30, 2020 was primarily due to reported activity in the assumed reinsurance line of business, partially offset by favorable development in the Specialty Homeowners line of business.

The Company experienced favorable prior year development of $ 2.9 million during the nine months ended September 30, 2021 and adverse development of $ 0.03 million in the nine months ended September 30, 2020.

Favorable prior year development during the nine months ended September 30, 2021 was primarily due to lower than anticipated severity of catastrophe losses associated with certain hurricanes which occurred during the second half of 2020 in the Company’s Commercial All Risk and Specialty Homeowners line of business.

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

Stockholders’ Equity

Common stock reserved for future issuance

Common stock reserved for future issuance consists of the following as of June 30, 2021:

Common stock reserved for future issuance consists of the following as of September 30, 2021:

Stock options outstanding under 2019 Equity Incentive Plan

5 unchanged sentences

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

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

(in thousands)

16 unchanged sentences

Stock options expire ten years after the grant date.

The following table summarizes stock option transactions for the six months ended June 30, 2021:

The following table summarizes stock option transactions for the nine months ended September 30, 2021:

Number of shares

6 unchanged sentences

Options canceled

Outstanding at June 30, 2021

Vested and Exercisable at June 30, 2021

As of June 30, 2021, the Company had approximately $ 4.2 million of total unrecognized stock-based compensation expense related to stock options expected to be recognized over a weighted-average period of 2.29 years.

The fair value of each option granted during the six months ended June 30, 2021 was estimated on the grant date using the Black-Scholes option pricing model with the following assumptions:

Outstanding at September 30, 2021

Vested and Exercisable at September 30, 2021

As of September 30, 2021, the Company had approximately $ 3.8 million of total unrecognized stock-based compensation expense related to stock options expected to be recognized over a weighted-average period of 2.04 years.

The fair value of each option granted during the nine months ended September 30, 2021 was estimated on the grant date using the Black-Scholes option pricing model with the following assumptions:

Risk free rate of return (1)

7 unchanged sentences

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

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

(2) Determined based on a blend of the Company’s historic stock price volatility and the historic 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 has not historically issued dividends.

July 2021 CEO stock grant

On July 15, 2021, the Company granted its CEO 125,000 RSUs and 225,000 PSUs (the “July 2021 grant”) in connection with entrance into an employment agreement lasting through December 31, 2025.

The RSUs vest as follows:

25,000 of the shares will vest on each of the first, second and third anniversary of the date of grant and the remainder shall vest in equal quarterly installments thereafter over a two-year period, subject to continued service.

The PSUs are earned based on the achievement of stock price milestones.

If the Company’s stock price reaches and remains at certain milestones for 30 days, the PSUs shall become earned units and will vest upon continued service as an employee through December 31, 2025 and as an employee and/or director through the fifth anniversary of the grant date.

As of September 30, 2021, none of the stock price milestones have been achieved.

The RSUs were valued based on the closing price of the Company’s stock on the grant date.

The PSUs were valued using a Monte Carlo simulation to account for the market condition within the award.

The Company expects to recognize $ 8.9 million of expense relating to the RSUs and $ 7.2 million relating to the PSUs.

The expense shall be recognized straight-line over the five-year requisite service period.

Should the Company’s CEO leave prior to the five-year service period, any recognized compensation expense related to unvested RSUs and PSUs will be reversed.

Restricted Stock Units

RSUs are valued using the closing price of the Company’s common stock 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 thereafter, subject to continued service.

The following table summarizes RSU transactions for the six months ended June 30, 2021:

RSUs are valued using the closing price of the Company’s common stock on their grant date.

The Company has issued RSUs with vesting periods of one to five years .

All vesting is subject to continued service.

The following table summarizes RSU transactions for the nine months ended September 30, 2021:

Number of shares

1 unchanged sentence

Outstanding at January 1, 2021

Non vested outstanding at June 30, 2021

As of June 30, 2021, the Company had approximately $ 3.5 million of total unrecognized stock-based compensation expense related to RSUs expected to be recognized over a weighted-average period of 2.32 years.

Non vested outstanding at September 30, 2021

As of September 30, 2021, the Company had approximately $ 11.8 million of total unrecognized stock-based compensation expense related to RSUs expected to be recognized over a weighted-average period of 4.09 years.

Performance Stock Units

During the six months ended June 30, 2021, the Company began issuing PSUs to certain employees.

PSUs are generally valued using the closing price of the Company’s common stock on the grant date with vesting conditions described below.

Vesting of PSUs requires a period of future service and the number of shares that vest depends on performance relative to predetermined targets of the Company’s Gross Written Premiums and Adjusted Return on Equity as set by the Compensation Committee.

During the nine months ended September 30, 2021, the Company began issuing PSUs to certain employees.

The Company issues PSUs with a combination of service, performance, and market conditions.

The majority of PSUs were issued pursuant to the July 2021 grant, as described above.

For other PSU grants, vesting of PSUs requires a period of future service and the number of shares that vest depends on performance relative to predetermined targets of the Company’s Gross Written Premiums and Adjusted Return on Equity as set by the Compensation Committee.

The PSU’s performance period is the fiscal year of the grant.

1 unchanged sentence

The earned PSUs are then subject to a required service period of approximately three years from the grant date before vesting and being issued as common stock.

The following table summarizes PSU transactions for the six months ended June 30, 2021:

The following table summarizes PSU transactions for the nine months ended September 30, 2021:

Number of shares

1 unchanged sentence

Outstanding at January 1, 2021

Non vested outstanding at June 30, 2021

The PSU grants above represent shares that would vest based on achievement of the predetermined targets and do not reflect potential increases or decreases resulting from the Company’s actual performance relative to the predetermined targets.

The actual number of PSUs which vest is subject to adjustment based on the Company’s actual performance relative to the predetermined targets.

As of June 30, 2021, the Company had approximately $ 0.7 million of total unrecognized stock-based compensation expense related to PSUs expected to be recognized over a weighted-average period of 2.5 years.

Non vested outstanding at September 30, 2021

The PSU grants above represent the number of shares that would vest based on achievement of all stock price milestones in the July 2021 grant and the 100 % achievement of the predetermined performance and market conditions for the other PSU grants.

The actual number of PSUs which will vest is subject to adjustment based on the Company’s actual stock price performance and financial performance relative to the predetermined targets.

As of September 30, 2021, the Company had approximately $ 7.5 million of total unrecognized stock-based compensation expense related to PSUs expected to be recognized over a weighted-average period of 4.70 years.

2019 Employee Stock Purchase Plan

1 unchanged sentence

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.

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.

1 unchanged sentence

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

The Company issued 4,596 shares pursuant to the ESPP during the six months ended June 30, 2021.

The Company issued 9,793 shares pursuant to the ESPP during the nine months ended September 30, 2021.

Share repurchases

2 unchanged sentences

Under the share repurchase program, shares may be repurchased from time to time in the open market or negotiated transactions at prevailing market rates, or by other means in accordance with federal securities laws.

The Company purchased 239,096 shares for $ 15.8 million under this program during the six months ended June 30, 2021.

The Company purchased 239,096 shares for $ 15.8 million under this program during the nine months ended September 30, 2021.

The Company accounts for share repurchases by charging the excess of repurchase price over the common stock’s par value entirely to retained earnings.

2 unchanged sentences

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

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

11 unchanged sentences

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

($ in thousands)

1 unchanged sentence

Residential Earthquake

Specialty Homeowners

Commercial Earthquake

Commercial All Risk

Specialty Homeowners

Inland Marine

Hawaii Hurricane

Commercial All Risk

Residential Flood

1 unchanged sentence

Gross written premiums by state are as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

($ in thousands)

2 unchanged sentences

Total Gross Written Premiums

During the three months ended June 30, 2021, PSIC accounted for $ 95.3 million or approximately 73.6 % of the Company’s gross written premiums and PESIC accounted for $ 34.1 million or approximately 26.4 % of our gross written premiums.

During the six months ended June 30, 2021, PSIC accounted for $ 175.1 million or approximately 75.2 % of the Company’s gross written premiums and PESIC accounted for $ 57.8 million or approximately 24.8 % of our gross written premiums .

Gross written premiums by insurance subsidiary are as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

($ in thousands)

Total Gross Written Premiums

The Company calculates its tax provision in interim periods using its best estimate of the effective tax rate expected for the full year.

The tax rate for the three and six months ended June 30, 2021 differs from the statutory rate of 21 % due primarily to the tax impact of the permanent component of employee stock option exercises.

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

The tax rate for the three and nine months ended September 30, 2021 and 2020 differs from the statutory rate of 21 % due primarily to the tax impact of the permanent component of employee stock option exercises.

Earnings Per Share

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

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

(in thousands, except shares and per share data)

Net income (loss)

Weighted average common shares outstanding:

1 unchanged sentence

Earnings per share:

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

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

For the three months ended September 30, 2020, there were 761,337 common share equivalents excluded from the calculation of diluted earnings per share as their effects were anti-dilutive due to the net loss reported in this period.

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.

As of June 30, 2021, the Company’s catastrophe event retention is $ 12.5 million for all perils.

As of June 30, 2021, the Company’s XOL reinsurance structure provides protection up to $ 1.65 billion for earthquake events and $ 700 million for hurricane events.

In addition to reinsurance purchased from traditional reinsurers, the Company has historically incorporated collateralized protection from the insurance linked securities market (i.e.

As of September 30, 2021, the Company’s catastrophe event retention is $ 12.5 million for all perils.

As of September 30, 2021, the Company’s XOL reinsurance structure provides protection up to $ 1.68 billion for earthquake events and $ 700 million for hurricane events.

In addition to reinsurance purchased from traditional reinsurers, the Company has historically incorporated collateralized protection from the insurance linked securities market (e.g.

catastrophe bonds).

5 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements