Palomar Holdings, Inc. 10-Q

Item 1: Financial Statements ​ Palomar Holdings, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (in thousands, except shares and par value data) ​ ​ ​ ​ ​ ​ ​ ​ September 30, December 31, ​ ​ 2021 ​ 2020 ​ ​ (Unaudited) ​ ​ ​ Assets ​ ​ Investments: ​ ​ Fixed maturity securities available for sale, at fair value (amortized cost: $ 397,955 in 2021; $ 381,279 in 2020) ​ $ 408,046 ​ $ 397,987 Equity securities, at fair value (cost: $ 17,829 in 2021; $ 22,291 in 2020) ​ 17,358 ​ 24,322 Total investments ​ 425,404 ​ 422,309 Cash and cash equivalents ​ 41,405 ​ 33,538 Restricted cash ​ 229 ​ 248 Accrued investment income ​ 2,506 ​ 2,545 Premium receivable ​ 75,543 ​ 48,842 Deferred policy acquisition costs ​ 53,995 ​ 35,481 Reinsurance recoverable on unpaid losses and loss adjustment expenses ​ 129,044 ​ 94,566 Reinsurance recoverable on paid losses and loss adjustment expenses ​ 54,431 ​ 10,162 Ceded unearned premiums ​ 42,949 ​ 35,031 Prepaid expenses and other assets ​ 40,212 ​ 34,119 Property and equipment, net ​ 578 ​ 739 Intangible assets, net ​ 10,512 ​ 11,512 Total assets ​ $ 876,808 ​ $ 729,092 Liabilities and stockholders' equity ​ ​ Liabilities: ​ ​ Accounts payable and other accrued liabilities ​ $ 21,551 ​ $ 20,730 Reserve for losses and loss adjustment expenses ​ 175,687 ​ 129,036 Unearned premiums ​ 257,667 ​ 183,489 Ceded premium payable ​ 32,426 ​ 22,233 Funds held under reinsurance treaty ​ 7,282 ​ 4,515 Deferred tax liabilities, net ​ ​ 4,418 ​ ​ 5,376 Total liabilities ​ 499,031 ​ 365,379 Stockholders' equity: ​ ​ 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 ​ 3 ​ 3 Additional paid-in capital ​ 316,352 ​ 310,507 Accumulated other comprehensive income ​ 8,102 ​ 13,246 Retained earnings ​ 53,320 ​ 39,957 Total stockholders' equity ​ 377,777 ​ 363,713 Total liabilities and stockholders' equity ​ $ 876,808 ​ $ 729,092 ​ See accompanying notes. ​ 3 ​ Palomar Holdings, Inc. and Subsidiaries ​ Condensed Consolidated Statements of Income (Loss ) and Comprehensive Income (Loss) (Unaudited) (in thousands, except shares and per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, ​ 2021 2020 2021 2020 Revenues: ​ ​ ​ ​ Gross written premiums ​ $ 152,332 ​ $ 102,967 ​ $ 385,267 ​ $ 258,268 Ceded written premiums ​ ( 58,073 ) ​ ( 41,570 ) ​ ( 153,005 ) ​ ( 101,264 ) Net written premiums ​ 94,259 ​ 61,397 ​ 232,262 ​ 157,004 Change in unearned premiums ​ ( 29,539 ) ​ ​ ( 19,377 ) ​ ( 66,274 ) ​ ​ ( 40,859 ) Net earned premiums ​ 64,720 ​ 42,020 ​ 165,988 ​ 116,145 Net investment income ​ 2,236 ​ ​ 2,138 ​ 6,649 ​ ​ 6,287 Net realized and unrealized gains (losses) on investments ​ ( 313 ) ​ ​ 24 ​ ( 752 ) ​ ​ 1,243 Commission and other income ​ 1,018 ​ ​ 816 ​ 2,735 ​ ​ 2,492 Total revenues ​ 67,661 ​ 44,998 ​ 174,620 ​ 126,167 Expenses: ​ ​ ​ ​ Losses and loss adjustment expenses ​ 28,475 ​ ​ 41,060 ​ ​ 31,288 ​ ​ 46,901 Acquisition expenses ​ 26,412 ​ ​ 17,976 ​ ​ 68,150 ​ ​ 45,909 Other underwriting expenses ​ 12,652 ​ ​ 7,805 ​ ​ 39,438 ​ ​ 24,732 Total expenses ​ 67,539 ​ 66,841 ​ 138,876 ​ 117,542 Income (loss) before income taxes ​ 122 ​ ( 21,843 ) ​ 35,744 ​ 8,625 Income tax expense ​ ( 124 ) ​ ​ ( 6,158 ) ​ ​ 6,529 ​ ​ 523 Net income (loss) ​ 246 ​ ( 15,685 ) ​ 29,215 ​ 8,102 Other comprehensive income, net: ​ ​ ​ ​ Net unrealized gains (losses) on securities available for sale for the three and nine months ended September 30, 2021 and 2020, respectively ​ ( 1,655 ) ​ ​ 909 ​ ​ ( 5,144 ) ​ ​ 5,752 Net comprehensive income (loss) ​ $ ( 1,409 ) ​ $ ( 14,776 ) ​ $ 24,071 ​ $ 13,854 Per Share Data: ​ ​ ​ ​ Basic earnings per share ​ $ 0.01 ​ $ ( 0.62 ) ​ $ 1.15 ​ $ 0.33 Diluted earnings per share ​ $ 0.01 ​ $ ( 0.62 ) ​ $ 1.12 ​ $ 0.32 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average common shares outstanding: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ 25,388,630 ​ ​ 25,492,274 ​ ​ 25,473,006 ​ ​ 24,654,722 Diluted ​ ​ 26,043,680 ​ ​ 25,492,274 ​ ​ 26,133,664 ​ ​ 25,384,518 ​ See accompanying notes. ​ 4 ​ Palomar Holdings, Inc. and Subsidiaries Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) (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, 2019 23,468,750 ​ $ 2 ​ $ 180,012 ​ $ 4,686 ​ $ 33,856 ​ $ 218,556 Other comprehensive income (loss), net of tax — ​ — ​ — ​ 5,752 ​ — ​ 5,752 Stock-based compensation — ​ — ​ 1,457 ​ — ​ — ​ 1,457 Issuance of common stock in stock offerings, net of offering costs ​ 1,900,000 ​ ​ 1 ​ ​ 125,546 ​ ​ — ​ ​ — ​ ​ 125,547 Issuance of common stock via employee stock purchase plan ​ 28,367 ​ ​ — ​ ​ 741 ​ ​ — ​ ​ — ​ ​ 741 Issuance of common stock via equity incentive plan ​ 121,840 ​ ​ — ​ ​ 1,740 ​ ​ — ​ ​ — ​ ​ 1,740 Net income — ​ — ​ — ​ — ​ 8,102 ​ 8,102 Balance at September 30, 2020 25,518,957 ​ $ 3 ​ $ 309,496 ​ $ 10,438 ​ $ 41,958 ​ $ 361,895 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at December 31, 2020 25,525,796 ​ $ 3 ​ $ 310,507 ​ $ 13,246 ​ $ 39,957 ​ $ 363,713 Other comprehensive income (loss), net of tax — ​ ​ — ​ ​ — ​ ​ ( 5,144 ) ​ ​ — ​ ( 5,144 ) Stock-based compensation — ​ ​ — ​ ​ 3,370 ​ ​ — ​ ​ — ​ 3,370 Issuance of common stock via employee stock purchase plan ​ 9,793 ​ ​ — ​ ​ 719 ​ ​ — ​ ​ — ​ ​ 719 Issuance of common stock via equity incentive plan ​ 118,806 ​ ​ — ​ ​ 1,756 ​ ​ — ​ ​ — ​ ​ 1,756 Repurchases of common stock ​ ( 239,096 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 15,852 ) ​ ​ ( 15,852 ) Net income — ​ ​ — ​ ​ — ​ ​ — ​ ​ 29,215 ​ 29,215 Balance at September 30, 2021 25,415,299 ​ $ 3 ​ $ 316,352 ​ $ 8,102 ​ $ 53,320 ​ $ 377,777 ​ See accompanying notes. ​ 5 ​ Palomar Holdings, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended ​ ​ September 30, ​ 2021 2020 Operating activities ​ ​ Net cash provided by (used in) operating activities ​ $ 33,418 ​ $ 44,170 Investing activities ​ ​ ​ ​ Purchases of property and equipment ​ ( 18 ) ​ ( 84 ) Purchases of fixed maturity securities ​ ( 88,755 ) ​ ( 251,504 ) Purchases of equity securities ​ ( 35,675 ) ​ ( 46,340 ) Sales and maturities of fixed maturity securities ​ 70,696 ​ 84,663 Sales of equity securities ​ 41,553 ​ 24,662 Securities receivable or payable, net ​ ​ 17 ​ ​ ( 2,748 ) Payment of additional costs associated with purchase of policy renewal rights ​ ​ ( 11 ) ​ ​ — Net cash provided by (used in) investing activities ​ ( 12,193 ) ​ ( 191,351 ) Financing activities ​ ​ Proceeds from stock offerings, net of offering costs ​ ​ — ​ ​ 125,547 Proceeds from common stock issued via employee stock purchase plan ​ ​ 719 ​ ​ 741 Proceeds from common stock issued via stock option exercises ​ ​ 1,756 ​ ​ 1,740 Repurchases of common stock ​ ​ ( 15,852 ) ​ ​ — Net cash provided by (used in) financing activities ​ ( 13,377 ) ​ 128,028 Net increase (decrease) in cash, cash equivalents and restricted cash ​ 7,848 ​ ( 19,153 ) Cash, cash equivalents and restricted cash at beginning of period ​ 33,786 ​ 33,349 Cash, cash equivalents and restricted cash at end of period ​ $ 41,634 ​ $ 14,196 Supplementary cash flow information: ​ ​ Cash paid for income taxes ​ $ 2,104 ​ $ 7,053 ​ 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, ​ December 31, ​ ​ 2021 ​ 2020 ​ ​ (unaudited) ​ ​ ​ Cash and cash equivalents ​ $ 41,405 ​ $ 33,538 Restricted cash ​ 229 ​ 248 Cash and cash equivalents and restricted cash ​ $ 41,634 ​ $ 33,786 ​ See accompanying notes. ​ 6 ​ Palomar Holdings, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) ​ ​ 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”). Basis of Presentation The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and include the accounts of the Company and its wholly-owned subsidiaries. These condensed consolidated financial statements do not contain all information and footnotes required by U.S. GAAP for complete consolidated financial statements. For a more complete description of the Company’s business and accounting policies, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 9, 2021 (the “2020 Annual Report on Form 10-K”) In the opinion of management, all adjustments necessary for a fair presentation of the condensed consolidated financial statements have been included. Such adjustments consist only of normal recurring items. All intercompany balances and transactions have been eliminated in consolidation. Interim results are not necessarily indicative of results of operations for the full year. 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 condensed 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 condensed 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. Recent Accounting Pronouncements Recently adopted accounting pronouncements 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, 7 ​ 2020. The Company adopted this guidance on January 1, 2021 and adoption did not have a material impact on the consolidated financial statements. ​ ​ 2. Investments The Company’s available-for-sale investments are summarized as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross Gross ​ ​ ​ ​ Amortized ​ Unrealized ​ Unrealized ​ Fair September 30, 2021 ​ Cost or Cost ​ Gains ​ Losses ​ Value ​ (in thousands) Fixed maturities: ​ ​ ​ ​ ​ U.S. Governments ​ $ 18,965 ​ $ 461 ​ $ ( 115 ) ​ $ 19,311 States, territories, and possessions ​ 6,171 ​ 348 ​ ( 118 ) ​ 6,401 Political subdivisions ​ 1,494 ​ 94 ​ — ​ 1,588 Special revenue excluding mortgage/asset-backed securities ​ 43,376 ​ 1,228 ​ ( 174 ) ​ 44,430 Corporate and other ​ 248,480 ​ 7,751 ​ ( 1,131 ) ​ 255,100 Mortgage/asset-backed securities ​ 79,469 ​ 1,849 ​ ( 102 ) ​ 81,216 Total available-for-sale investments ​ $ 397,955 ​ $ 11,731 ​ $ ( 1,640 ) ​ $ 408,046 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 Corporate and other ​ 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 ​ Security holdings in an unrealized loss position 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. 8 ​ 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 ​ Total ​ Fair Unrealized Fair Unrealized Fair Unrealized September 30, 2021 ​ Value ​ Losses ​ Value ​ Losses ​ Value ​ Losses ​ ​ (in thousands) Fixed maturity securities: ​ ​ ​ ​ ​ ​ U.S. Governments $ 7,018 ​ $ ( 105 ) ​ $ 490 ​ $ ( 10 ) ​ $ 7,508 ​ $ ( 115 ) States, territories, and possessions ​ 3,236 ​ ​ ( 118 ) ​ — ​ — ​ 3,236 ​ ( 118 ) Political subdivisions ​ — ​ ​ — ​ — ​ — ​ — ​ — Special revenue excluding mortgage/asset-backed securities ​ 13,593 ​ ​ ( 174 ) ​ — ​ — ​ 13,593 ​ ( 174 ) Corporate and other ​ 70,182 ​ ​ ( 799 ) ​ 5,688 ​ ( 332 ) ​ 75,870 ​ ( 1,131 ) Mortgage/asset-backed securities ​ 9,628 ​ ​ ( 79 ) ​ 2,443 ​ ( 23 ) ​ 12,071 ​ ( 102 ) Total ​ $ 103,657 ​ $ ( 1,275 ) ​ $ 8,621 ​ $ ( 365 ) ​ $ 112,278 ​ $ ( 1,640 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 ) Corporate and other ​ 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 ) ​ 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. 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. 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. ​ 9 ​ Contractual maturities of available-for-sale fixed maturity securities The amortized cost and fair value of fixed maturity securities at September 30, 2021, by contractual maturity, are shown below. ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortized Fair ​ ​ Cost ​ Value ​ (in thousands) Due within one year ​ $ 27,733 ​ $ 27,927 Due after one year through five years ​ 134,550 ​ 137,757 Due after five years through ten years ​ 112,259 ​ 116,275 Due after ten years ​ 43,944 ​ 44,871 Mortgage and asset-backed securities ​ 79,469 ​ 81,216 ​ ​ $ 397,955 ​ $ 408,046 ​ Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations. ​ Net investment income summary Net investment income is summarized as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, ​ 2021 2020 2021 2020 ​ (in thousands) (in thousands) Interest income ​ $ 2,254 ​ $ 2,149 ​ $ 6,755 ​ $ 6,242 Dividend income ​ 104 ​ 109 ​ 261 ​ 354 Investment expense ​ ( 122 ) ​ ( 120 ) ​ ( 367 ) ​ ( 309 ) Net investment income ​ $ 2,236 ​ $ 2,138 ​ $ 6,649 ​ $ 6,287 ​ Net realized and unrealized investment gains and losses The following table presents net realized and unrealized investment gains and losses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended Nine Months Ended ​ ​ September 30, September 30, ​ 2021 2020 2021 2020 ​ ​ (in thousands) ​ (in thousands) Realized gains: ​ ​ ​ ​ Gains on sales of fixed maturity securities ​ $ 117 ​ $ 66 ​ $ 335 ​ $ 256 Gains on sales of equity securities ​ 188 ​ 59 ​ 1,416 ​ 57 Total realized gains ​ 305 ​ 125 ​ 1,751 ​ 313 Realized losses: ​ ​ ​ ​ Losses on sales of fixed maturity securities ​ — ​ — ​ ( 1 ) ​ ​ ( 44 ) Losses on sales of equity securities ​ — ​ — ​ — ​ ​ — Total realized losses ​ — ​ — ​ ( 1 ) ​ ( 44 ) Net realized investment gains ​ 305 ​ 125 ​ 1,750 ​ 269 Net unrealized gains (losses) on equity securities ​ ( 618 ) ​ ( 101 ) ​ ( 2,502 ) ​ 974 Net realized and unrealized gains (losses) on investments ​ $ ( 313 ) ​ $ 24 ​ $ ( 752 ) ​ $ 1,243 ​ Realized gains and losses on disposition of investments are based on specific identification of the investments sold on the settlement date. 10 ​ 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 September 30, 2021 and December 31, 2020, the carrying value of securities on deposit with state regulatory authorities was $ 7.5 million. 3. Fair Value Measurements Fair value is defined as the price that the Company would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. The three-tier hierarchy of inputs is summarized in the three broad levels listed below: Level 1—Unadjusted quoted prices are available in active markets for identical investments as of the reporting date. Level 2—Pricing inputs are quoted prices for similar investments in active markets; quoted prices for identical or similar investments in inactive markets; or valuations based on models where the significant inputs are observable or can be corroborated by observable market data. Level 3—Pricing inputs into models are unobservable for the investment. 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 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 Level 1 Level 2 Level 3 Total ​ (in thousands) Assets: ​ ​ ​ ​ Fixed maturity securities ​ ​ ​ ​ U.S. Governments ​ $ — ​ $ 19,311 ​ $ — ​ $ 19,311 States, territories, and possessions ​ — ​ 6,401 ​ — ​ 6,401 Political subdivisions ​ — ​ 1,588 ​ — ​ 1,588 Special revenue excluding mortgage/asset-backed securities ​ — ​ 44,430 ​ — ​ 44,430 Corporate and other ​ — ​ 255,100 ​ — ​ 255,100 Mortgage/asset-backed securities ​ — ​ 81,216 ​ — ​ 81,216 Equity securities ​ 17,358 ​ — ​ — ​ 17,358 Cash, cash equivalents, and restricted cash ​ 41,634 ​ — ​ — ​ 41,634 Total assets ​ $ 58,992 ​ $ 408,046 ​ $ — ​ $ 467,038 11 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 Corporate and other ​ — ​ 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 ​ ​ ​ ​ ​ ​ The carrying amounts of financial assets and liabilities reported in the accompanying condensed consolidated balance sheet 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 September 30, 2021 and December 31, 2020, the Company had no fixed income securities classified as Level 3. 4. 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 September 30, Nine Months Ended September 30, ​ 2021 2020 2021 2020 ​ ​ ​ (in thousands) ​ (in thousands) Reserve for losses and LAE net of reinsurance recoverables at beginning of period ​ $ 23,633 ​ $ 7,087 ​ $ 34,470 ​ $ 3,869 Add: Incurred losses and LAE, net of reinsurance, related to: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Current year ​ 28,286 ​ 40,803 ​ 34,202 ​ ​ 46,867 Prior years ​ 189 ​ 257 ​ ( 2,914 ) ​ ​ 34 Total incurred ​ 28,475 ​ 41,060 ​ 31,288 ​ 46,901 Deduct: Loss and LAE payments, net of reinsurance, related to: ​ ​ ​ ​ Current year ​ 2,787 ​ ​ 8,232 ​ ​ 3,407 ​ ​ 9,754 Prior years ​ 2,678 ​ ​ 375 ​ ​ 15,708 ​ ​ 1,476 Total payments ​ 5,465 ​ 8,607 ​ 19,115 ​ 11,230 Reserve for losses and LAE net of reinsurance recoverables at end of period ​ 46,643 ​ 39,540 ​ 46,643 ​ 39,540 Add: Reinsurance recoverables on unpaid losses and LAE at end of period ​ 129,044 ​ ​ 92,537 ​ ​ 129,044 ​ ​ 92,537 Reserve for losses and LAE gross of reinsurance recoverables on unpaid losses and LAE at end of period ​ $ 175,687 ​ $ 132,077 ​ $ 175,687 ​ $ 132,077 ​ 12 ​ Considerable variability is inherent in the estimate of the reserve for losses and LAE. Although management believes the liability recorded for losses and LAE is adequate, the variability inherent in this estimate could result in changes to the ultimate liability, which may be material to stockholders’ equity. ​ 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. ​ 5. Stockholders’ Equity Common stock reserved for future issuance Common stock reserved for future issuance consists of the following as of September 30, 2021: ​ ​ ​ Stock options outstanding under 2019 Equity Incentive Plan 952,526 Restricted stock units outstanding under 2019 Equity Incentive Plan 168,195 Performance stock units outstanding under 2019 Equity Incentive Plan, at target 233,452 Shares authorized for future issuance under 2019 Equity Incentive Plan 2,259,725 Shares authorized for future issuance under 2019 Employee Stock Purchase Plan 681,840 Total 4,295,738 ​ Stock based compensation The below table summarizes the Company’s stock-based compensation expense for each period presented: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended September 30, ​ Nine months ended September 30, ​ 2021 2020 2021 2020 ​ (in thousands) (in thousands) Stock-Based Compensation ​ $ 1,525 ​ $ 551 ​ $ 3,370 ​ $ 1,457 ​ Stock-based compensation expense is recognized on a straight-line basis over the vesting period of equity-based awards. For performance stock units (“PSUs”), any changes to expense resulting from differences in actual performance versus target are recognized over the remaining vesting period of the awards. The Company does not apply a forfeiture rate to unvested awards and accounts for forfeitures as they occur. All stock-based compensation is included in other underwriting expenses in the Company’s unaudited condensed consolidated statement of income and comprehensive income. 13 ​ 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 were 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 to 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 . Stock options expire ten years after the grant date. The following table summarizes stock option transactions for the nine months ended September 30, 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of shares ​ ​ Weighted-average exercise price ​ Weighted average remaining contractual term (in years) ​ ​ Aggregate intrinsic value (in thousands) Outstanding at January 1, 2021 1,008,648 ​ $ 23.92 ​ 8.43 ​ $ 66,028 Options granted 72,063 ​ ​ 94.76 ​ ​ ​ ​ ​ Options exercised ( 112,819 ) ​ ​ 16.38 ​ ​ ​ ​ ​ Options canceled ( 15,366 ) ​ ​ 84.78 ​ ​ ​ ​ ​ Outstanding at September 30, 2021 952,526 ​ $ 29.19 ​ 7.80 ​ $ 50,981 Vested and Exercisable at September 30, 2021 610,568 ​ $ 18.58 ​ 7.59 ​ $ 38,171 ​ 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) 0.57 % - 1.15 % Expected share price volatility (2) 26.06 % - 38.72 % Expected life in years (3) 5.89 years Dividend yield (4) 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 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. 14 ​ (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. 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 ​ ​ Weighted-average grant date fair value Outstanding at January 1, 2021 14,734 ​ $ 95.86 Granted 160,729 ​ ​ 75.75 Released ( 5,987 ) ​ ​ 91.35 Forfeited ( 1,281 ) ​ ​ 96.90 Non vested outstanding at September 30, 2021 168,195 ​ $ 76.80 ​ 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 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. At the end of the performance period, the actual results will be measured against the predetermined targets to determine the number of PSUs to be earned as compensation. 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. 15 ​ The following table summarizes PSU transactions for the nine months ended September 30, 2021: ​ ​ ​ ​ ​ ​ ​ Number of shares ​ ​ Weighted-average grant date fair value Outstanding at January 1, 2021 — ​ $ — Granted 233,658 ​ ​ 34.45 Vested — ​ ​ — Forfeited ( 206 ) ​ ​ 97.87 Non vested outstanding at September 30, 2021 233,452 ​ $ 34.40 ​ 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 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 9,793 shares pursuant to the ESPP during the nine months ended September 30, 2021. Share repurchases On March 29, 2021, the Company’s Board of Directors approved the adoption of a share repurchase program which became effective March 31, 2021. The program authorizes the repurchase by the Company of up to $ 40 million of its outstanding shares of common stock through the period ending on March 31, 2023. 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 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. All repurchased shares are retired and become authorized but unissued shares. 16 ​ 6. Accumulated Other Comprehensive Income Changes in accumulated other comprehensive income (“AOCI”) are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, ​ 2021 2020 ​ ​ ​ (in thousands) Beginning Balance ​ $ 13,246 ​ $ 4,686 ​ ​ ​ ​ ​ ​ ​ Other comprehensive income before reclassification ​ ( 6,177 ) ​ ​ 7,494 Federal income tax expense ​ 1,297 ​ ​ ( 1,573 ) Other comprehensive income before reclassification, net of tax ​ ( 4,880 ) ​ 5,921 ​ ​ ​ ​ ​ ​ ​ Amounts reclassified from AOCI ​ ( 334 ) ​ ​ ( 214 ) Federal income tax expense ​ 70 ​ ​ 45 Amounts reclassified from AOCI, net of tax ​ ( 264 ) ​ ( 169 ) ​ ​ ​ ​ ​ ​ ​ Other comprehensive income ​ ( 5,144 ) ​ 5,752 Balance at end of period ​ $ 8,102 ​ $ 10,438 ​ ​ 7. Underwriting Information The Company has a single reportable segment and offers primarily earthquake, wind, inland marine, and flood insurance products. Gross written premiums (“GWP”) by product are presented below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, ​ Nine Months Ended September 30, ​ ​ 2021 ​ 2020 ​ 2021 ​ 2020 ​ ​ ($ in thousands) ​ ($ in thousands) ​ ​ ​ ​ ​ % of ​ ​ ​ ​ % of ​ ​ ​ ​ % of ​ ​ ​ ​ % of ​ ​ Amount ​ GWP ​ Amount ​ GWP ​ Amount ​ GWP ​ Amount ​ GWP Product ​ ​ ​ ​ ​ ​ Residential Earthquake ​ $ 50,075 ​ 32.9 % $ 40,507 ​ 39.3 % ​ $ 128,165 ​ 33.3 % $ 103,503 ​ 40.1 % Commercial Earthquake ​ 27,433 ​ 18.0 % 18,061 ​ 17.5 % ​ 66,052 ​ 17.1 % 40,727 ​ 15.8 % Specialty Homeowners ​ 19,881 ​ 13.1 % 17,048 ​ 16.6 % ​ 53,018 ​ 13.8 % 38,461 ​ 14.9 % Inland Marine ​ ​ 19,532 ​ 12.8 % ​ 4,406 ​ 4.3 % ​ ​ 39,047 ​ 10.1 % ​ 9,747 ​ 3.8 % Hawaii Hurricane ​ 8,996 ​ 5.9 % 4,360 ​ 4.2 % ​ 22,921 ​ 5.9 % 10,296 ​ 4.0 % Commercial All Risk ​ ​ 6,867 ​ 4.5 % ​ 12,467 ​ 12.1 % ​ ​ 30,032 ​ 7.8 % ​ 39,765 ​ 15.4 % Residential Flood ​ 3,228 ​ 2.1 % 2,170 ​ 2.1 % ​ 8,377 ​ 2.2 % 5,728 ​ 2.2 % Other ​ 16,320 ​ 10.7 % ​ 3,948 ​ 3.9 % ​ ​ 37,655 ​ 9.8 % ​ 10,041 ​ 3.8 % Total Gross Written Premiums ​ $ 152,332 100.0 % $ 102,967 100.0 % ​ $ 385,267 100.0 % $ 258,268 100.0 % ​ 17 ​ Gross written premiums by state are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, ​ Nine Months Ended September 30, ​ ​ 2021 ​ 2020 ​ 2021 ​ 2020 ​ ​ ($ in thousands) ​ ($ in thousands) ​ ​ ​ ​ ​ % of ​ ​ ​ ​ % of ​ ​ ​ ​ % of ​ ​ ​ ​ % of ​ ​ Amount ​ GWP ​ Amount ​ GWP ​ Amount ​ GWP ​ Amount ​ GWP State ​ ​ ​ ​ ​ ​ California ​ $ 72,505 ​ 47.6 % $ 52,960 ​ 51.4 % ​ $ 180,142 ​ 46.8 % $ 124,131 ​ 48.1 % Texas ​ ​ 19,715 ​ 13.0 % ​ 20,460 ​ 19.9 % ​ ​ 48,142 ​ 12.5 % ​ 55,047 ​ 21.3 % Hawaii ​ ​ 10,342 ​ 6.8 % ​ 5,097 ​ 5.0 % ​ ​ 26,312 ​ 6.8 % ​ 11,990 ​ 4.6 % Florida ​ ​ 7,203 ​ 4.7 % ​ 685 ​ 0.7 % ​ ​ 24,958 ​ 6.5 % ​ 685 ​ 0.3 % Washington ​ 7,180 ​ 4.7 % 4,340 ​ 4.2 % ​ 15,931 ​ 4.1 % 10,002 ​ 3.9 % Oregon ​ ​ 3,964 ​ 2.6 % ​ 2,912 ​ 2.8 % ​ ​ 9,686 ​ 2.5 % ​ 7,298 ​ 2.8 % North Carolina ​ ​ 3,719 ​ 2.4 % ​ 2,839 ​ 2.8 % ​ ​ 11,871 ​ 3.1 % ​ 7,131 ​ 2.8 % Illinois ​ 2,893 ​ 1.9 % 1,575 ​ 1.5 % ​ 8,668 ​ 2.2 % 4,416 ​ 1.7 % Other ​ 24,811 ​ 16.3 % 12,099 ​ 11.7 % ​ 59,557 ​ 15.5 % 37,568 ​ 14.5 % Total Gross Written Premiums ​ $ 152,332 100.0 % $ 102,967 100.0 % ​ $ 385,267 100.0 % $ 258,268 100.0 % ​ ​ Gross written premiums by insurance subsidiary are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, ​ Nine Months Ended September 30, ​ ​ 2021 ​ 2020 ​ 2021 ​ 2020 ​ ​ ($ in thousands) ​ ($ in thousands) ​ ​ ​ ​ ​ % of ​ ​ ​ ​ % of ​ ​ ​ ​ % of ​ ​ ​ ​ % of ​ ​ Amount ​ GWP ​ Amount ​ GWP ​ Amount ​ GWP ​ Amount ​ GWP Subsidiary ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ PSIC ​ $ 110,875 ​ 72.8 % $ 93,987 ​ 91.3 % ​ $ 285,991 ​ 74.2 % $ 249,288 ​ 96.5 % PESIC ​ ​ 41,457 ​ 27.2 % ​ 8,980 ​ 8.7 % ​ ​ 99,276 ​ 25.8 % ​ 8,980 ​ 3.5 % Total Gross Written Premiums ​ $ 152,332 100.0 % $ 102,967 100.0 % ​ $ 385,267 100.0 % $ 258,268 100.0 % ​ ​ 8. Income Taxes 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 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. 18 ​ 9. Earnings Per Share The following table sets out earnings per share of common stock: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended September 30, ​ Nine months ended September 30, ​ 2021 2020 2021 2020 ​ (in thousands, except shares and per share data) (in thousands, except shares and per share data) Net income (loss) ​ $ 246 ​ $ ( 15,685 ) ​ $ 29,215 ​ $ 8,102 Weighted average common shares outstanding: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ 25,388,630 ​ 25,492,274 ​ 25,473,006 ​ 24,654,722 Common Share equivalents ​ ​ 655,050 ​ ​ — ​ ​ 660,658 ​ ​ 729,796 Diluted ​ ​ 26,043,680 ​ ​ 25,492,274 ​ ​ 26,133,664 ​ ​ 25,384,518 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Earnings per share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ $ 0.01 ​ $ ( 0.62 ) ​ $ 1.15 ​ $ 0.33 Diluted ​ $ 0.01 ​ $ ( 0.62 ) ​ $ 1.12 ​ $ 0.32 ​ 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. 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. 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). During the first quarter of 2021, the Company closed a $ 400 million 144A catastrophe bond which became effective June 1, 2021. The catastrophe bond was completed through Torrey Pines Re Pte. Ltd. (“Torrey Pines Re”). Torrey Pines Re. is a special purpose insurer established in Singapore whereby Torrey Pines Re provides Palomar with indemnity-based reinsurance covering earthquake events. ​ ​ ​ 19 ​