What changed in this filing

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Item 1. Financial Statements

2022-05-05 compared with 2021-11-05 · 102 added, 122 removed, 369 unchanged (38% 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:

23 unchanged sentences

Deferred tax liabilities, net

Borrowings from credit agreements

Total liabilities

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

Preferred stock, $ 0.0001 par value, 5,000,000 shares authorized, 0 shares issued and outstanding as of March 31, 2022 and December 31, 2021

Common stock, $ 0.0001 par value, 500,000,000 shares authorized, 25,231,571 and 25,428,929 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively

Additional paid-in capital

Accumulated other comprehensive income

Accumulated other comprehensive income (loss)

Retained earnings

7 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Gross written premiums

4 unchanged sentences

Net investment income

Net realized and unrealized gains (losses) on investments

Net realized and unrealized losses on investments

Commission and other income

3 unchanged sentences

Other underwriting expenses

Interest expense

Total expenses

Income (loss) before income taxes

Income 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 nine months ended September 30, 2021 and 2020, respectively

Net unrealized losses on securities available for sale for the three months ended March 31, 2022 and 2021, respectively

Net comprehensive income (loss)

12 unchanged sentences

Balance at December 31, 2020

Other comprehensive income (loss), net of tax

Other comprehensive loss, net of tax

Stock-based compensation

Issuance of common stock in stock offerings, net of offering costs

Issuance of common stock via employee stock purchase plan

Issuance of common stock via equity incentive plan

Balance at September 30, 2020

Balance at March 31, 2021

Balance at December 31, 2021

Other comprehensive income (loss), net of tax

Other comprehensive loss, net of tax

Stock-based compensation

2 unchanged sentences

Repurchases of common stock

Balance at September 30, 2021

Balance at March 31, 2022

See accompanying notes.

3 unchanged sentences

(in thousands)

Nine Months Ended

September 30,

Three Months Ended

Operating activities

6 unchanged sentences

Sales of equity securities

Securities receivable or payable, net

Change in securities receivable or payable, net

Payment of additional costs associated with purchase of policy renewal rights

1 unchanged sentence

Financing activities

Proceeds from stock offerings, net of offering costs

Proceeds from line of credit

Proceeds from common stock issued via employee stock purchase plan

8 unchanged sentences

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

September 30,

Cash and cash equivalents

16 unchanged sentences

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”)

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, 2021, filed with the SEC on February 24, 2022 (the “2021 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.

9 unchanged sentences

Recently adopted accounting pronouncements

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,

The Company adopted this guidance on January 1, 2021 and adoption did not have a material impact on the consolidated financial statements.

The Company has not adopted any new accounting guidance during the three months ended March 31, 2022.

Recently issued accounting pronouncements not yet adopted

There are not currently any recent accounting pronouncements or pending accounting guidance that have significance, or potential significance, to the Company’s consolidated financial statements.

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

September 30, 2021

March 31, 2022

(in thousands)

3 unchanged sentences

Special revenue excluding mortgage/asset-backed securities

Corporate and other

Industrial and miscellaneous

Mortgage/asset-backed securities

6 unchanged sentences

Special revenue excluding mortgage/asset-backed securities

Corporate and other

Industrial and miscellaneous

Mortgage/asset-backed securities

1 unchanged sentence

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 March 31, 2022, the Company held 534 fixed maturity securities in an unrealized loss position with a total estimated fair value of $ 346.7 million and total gross unrealized losses of $ 18.3 million.

As of December 31, 2021, the Company held 231 fixed maturity securities in an unrealized loss position with a total estimated fair value of $ 170.1 million and total gross unrealized losses of $ 2.7 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 September 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 March 31, 2022 and December 31, 2021, are as follows:

Less Than 12 Months

More Than 12 Months

September 30, 2021

March 31, 2022

(in thousands)

3 unchanged sentences

Special revenue excluding mortgage/asset-backed securities

Corporate and other

Industrial and miscellaneous

Mortgage/asset-backed securities

7 unchanged sentences

Special revenue excluding mortgage/asset-backed securities

Corporate and other

Industrial and miscellaneous

Mortgage/asset-backed securities

1 unchanged sentence

The Company considers numerous factors in its review as described in Footnote 1 of the Notes to the Consolidated Financial Statements in the 2021 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 has recorded an immaterial allowance for credit losses pertaining to one investment security.

Based on the Company’s review as of March 31, 2022, 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 September 30, 2021, by contractual maturity, are shown below.

The amortized cost and fair value of fixed maturity securities at March 31, 2022, by contractual maturity, are shown below.

(in thousands)

8 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

Interest income

5 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

Realized gains:

10 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 $ 12.1 million and $ 29.2 million for the nine months ended September 30, 2021 and 2020, respectively.

Proceeds from the sale of fixed maturity securities were $ 4.8 million and $ 6.2 million for the three months ended March 31, 2022 and 2021, 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.

As of March 31, 2022, the carrying value of securities on deposit with state regulatory authorities was $ 8.2 million.

As of December 31, 2021, 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 September 30, 2021 and December 31, 2020.

September 30, 2021

The following tables present the hierarchy for financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021.

March 31, 2022

(in thousands)

13 unchanged sentences

Special revenue excluding mortgage/asset-backed securities

Corporate and other

Industrial and miscellaneous

Mortgage/asset-backed securities

2 unchanged sentences

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.

The carrying amount of the Company’s borrowings under the Federal Home Loan Bank (“FHLB”) line of credit approximates fair value as the Company is currently borrowing at the overnight rate.

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

As of March 31, 2022, the Company had no fixed income securities classified as Level 3.

As of December 31, 2021, the Company had $ 1.5 million of fixed income securities classified as Level 3 due to the availability of observable market inputs for recently purchased securities.

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,

(in thousands)

Three Months Ended March 31,

(in thousands)

9 unchanged sentences

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

The Company experienced adverse 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.

The Company experienced adverse prior year development of $ 1.5 million during the three months ended March 31, 2022 and favorable prior year development of $ 2.7 million in the three months ended March 31, 2021.

Adverse prior year development during the three months ended March 31, 2022 was primarily due to higher than anticipated severity of attritional losses from prior years.

Favorable prior year development during the three months ended March 31, 2021 was primarily due to lower than anticipated severity of catastrophe losses associated with certain hurricanes which occurred during the second half of 2020 primarily in the Company’s 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 September 30, 2021:

Common stock reserved for future issuance consists of the following as of March 31, 2022:

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 September 30,

Nine months ended September 30,

(in thousands)

Three months ended March 31,

(in thousands)

13 unchanged sentences

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 vest over a two to four-year period with a portion 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:

The following table summarizes stock option transactions for the three months ended March 31, 2022:

Number of shares

6 unchanged sentences

Options canceled

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:

Outstanding at March 31, 2022

Vested and Exercisable at March 31, 2022

As of March 31, 2022, the Company had approximately $ 5.1 million of total unrecognized stock-based compensation expense related to stock options expected to be recognized over a weighted-average period of 1.98 years.

The fair value of each option granted during the three months ended March 31, 2022 was estimated on the grant date using the Black-Scholes option pricing model with the following assumptions:

Risk free rate of return (1)

10 unchanged sentences

(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

2 unchanged sentences

All vesting is subject to continued service.

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

The following table summarizes RSU transactions for the three months ended March 31, 2022:

Number of shares

1 unchanged sentence

Outstanding at January 1, 2022

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.

Non vested outstanding at March 31, 2022

As of March 31, 2022, the Company had approximately $ 19.4 million of total unrecognized stock-based compensation expense related to RSUs expected to be recognized over a weighted-average period of 3.58 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.

The majority of PSUs were issued via grants made to certain executives during 2021.

These 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 completion of a requisite service period of approximately five years from the date of grant.

As of March 31, 2022, none of the stock price milestones have been achieved.

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.

At the end of the performance period, the actual results are 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.

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

The following table summarizes PSU transactions for the three months ended March 31, 2022:

Number of shares

1 unchanged sentence

Outstanding at January 1, 2022

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.

Non vested outstanding at March 31, 2022

The PSU grants above represent the number of shares that would vest based on achievement of all stock price milestones in the 2021 executive stock grants 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.

As of March 31, 2022, the Company had approximately $ 13.0 million of total unrecognized stock-based compensation expense related to PSUs expected to be recognized over a weighted-average period of 4.28 years.

2019 Employee Stock Purchase Plan

5 unchanged sentences

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

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

The Company issued 6,078 shares pursuant to the ESPP during the three months ended March 31, 2022.

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.

During the year ended December 31, 2021, the Company’s Board of Directors authorized a $ 40 million share repurchase program and the Company repurchased $ 15.9 million of shares under this program in 2021.

Subsequent to December 31, 2021, the Board of Directors approved a new share repurchase program, replacing the existing program and authorizing the repurchase by the Company of up to $ 100 million of its outstanding shares of common stock over the period ending on March 31, 2024.

The Company purchased 219,061 shares for $ 13.0 million during the three months ended March 31, 2022.

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:

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands)

11 unchanged sentences

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

Three Months Ended September 30,

Nine Months Ended September 30,

($ in thousands)

Three Months Ended March 31,

($ in thousands)

Residential Earthquake

Fronting Premiums

Commercial Earthquake

Specialty Homeowners

Inland Marine

Hawaii Hurricane

Specialty Homeowners

Commercial All Risk

Hawaii Hurricane

Residential Flood

1 unchanged sentence

Gross written premiums by state are as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

($ in thousands)

Three Months Ended March 31,

($ in thousands)

2 unchanged sentences

Gross written premiums by insurance subsidiary are as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

($ in thousands)

Three Months Ended March 31,

($ in thousands)

1 unchanged sentence

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.

During the three months ended March 31, 2022, the Company’s income tax rate of 23.8 % was higher than the statutory rate of 21 % due primarily to non-deductible executive compensation expense.

For the three months ended March 31, 2021 the income tax rate of 17.3 % was lower than the statutory rate 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 September 30,

Nine months ended September 30,

(in thousands, except shares and per share data)

Three months ended March 31,

(in thousands, except shares and per share data)

Net income (loss)

Weighted average common shares outstanding:

2 unchanged sentences

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 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).

As of March 31, 2022, the Company’s catastrophe event retention is $ 12.5 million for all perils.

As of March 31, 2022, the Company’s XOL reinsurance structure provides protection up to $ 1.71 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 (“ILS”) market via catastrophe bonds.

During the first quarter of 2021, the Company closed a $ 400 million 144A catastrophe bond which became effective June 1, 2021.

3 unchanged sentences

is a special purpose insurer established in Singapore whereby Torrey Pines Re provides Palomar with indemnity-based reinsurance covering earthquake events.

Credit Agreements

Bank Credit Agreement

In December 2021, the Company entered into a Credit Agreement (the “Credit Agreement”) with U.S.

Bank National Association which provides a revolving credit facility of up to $ 100 million through December 8, 2026.

Interest on the credit facility accrues on each SOFR rate loan at the applicable SOFR (as defined in the Credit Agreement) plus 1.75 % and on each base rate loan at the applicable Alternate Base Rate (as defined in the Credit Agreement) plus 0.75 %.

A loan may be either a SOFR rate loan or a base rate loan, at the Company’s discretion.

Outstanding amounts under the Credit Agreement may be prepaid in full or in part at any time with no prepayment premium and may be reduced in full or in part at any time upon prior notice.

In addition to interest on funds borrowed, the Company must pay an unused line fee of 0.25 % on any amounts not borrowed.

The Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants, including, among other things, financial covenants, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of other indebtedness and dividends and other distributions.

The financial covenants include requirements to maintain a permissible debt to capital ratio, a minimum consolidated net worth, a minimum risk based capital ratio and minimum A.M Best financial strength rating.

The Credit Agreement also contains customary events of default, such as non-compliance with financial covenants.

If an event of default occurs, any debt may be declared immediately due and payable.

As of March 31, 2022, the Company was in compliance with all debt covenants.

As of March 31, 2022 and December 31, 2021, the Company did not have any outstanding borrowings under the Credit Agreement.

FHLB Line of Credit

The Company’s PSIC subsidiary is a member of the Federal Home Loan Bank of San Francisco (“FHLB”).

Membership in the FHLB provides PSIC access to collateralized advances, which can be drawn for general corporate purposes and used to enhance liquidity management.

All borrowings are fully secured by a pledge of specific investment securities of PSIC and the borrowing capacity is equal to 5% of PSIC’s statutory admitted assets.

All advances have a predetermined term and the interest rate varies based on the term of the advance.

As of March 31, 2022, the Company had $ 15 million of borrowings outstanding through the FHLB at the current overnight rate of 0.35 %.

There were no borrowings outstanding at December 31, 2021.

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