What changed in this filing

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Item 1. Financial Statements

2022-11-03 compared with 2022-08-04 · 90 added, 83 removed, 417 unchanged (29% 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:

8 unchanged sentences

Accrued investment income

Premium receivable

Deferred policy acquisition costs

Premiums receivable, net

Deferred policy acquisition costs, net of ceding commissions

Reinsurance recoverable on unpaid losses and loss adjustment expenses

15 unchanged sentences

Stockholders' equity:

Preferred stock, $ 0.0001 par value, 5,000,000 shares authorized, 0 shares issued and outstanding as of June 30, 2022 and December 31, 2021

Common stock, $ 0.0001 par value, 500,000,000 shares authorized, 25,220,131 and 25,428,929 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively

Preferred stock, $ 0.0001 par value, 5,000,000 shares authorized, 0 shares issued and outstanding as of September 30, 2022 and December 31, 2021

Common stock, $ 0.0001 par value, 500,000,000 shares authorized, 25,229,486 and 25,428,929 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively

Additional paid-in capital

9 unchanged sentences

Three Months Ended

Six 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

6 unchanged sentences

Income before income taxes

Income tax expense

Income tax expense (benefit)

Other comprehensive income (loss), net:

Net unrealized gains (losses) on securities available for sale for the three and six months ended June 30, 2022 and 2021, respectively

Net unrealized losses on securities available for sale for the three and nine months ended September 30, 2022 and 2021, respectively

Net comprehensive income (loss)

17 unchanged sentences

Repurchases of common stock

Balance at June 30, 2021

Balance at September 30, 2021

Balance at December 31, 2021

4 unchanged sentences

Repurchases of common stock

Balance at June 30, 2022

Balance at September 30, 2022

See accompanying notes.

3 unchanged sentences

(in thousands)

Six Months Ended

Nine Months Ended

September 30,

Operating activities

Net cash provided by (used in) operating activities

Net cash provided by operating activities

Investing activities

7 unchanged sentences

Payment of additional costs associated with purchase of policy renewal rights

Net cash provided by (used in) investing activities

Net cash used in investing activities

Financing activities

10 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

28 unchanged sentences

Recently adopted accounting pronouncements

The Company has not adopted any new accounting guidance during the three months ended June 30, 2022.

The Company has not adopted any new accounting guidance during the three months ended September 30, 2022.

Recently issued accounting pronouncements not yet adopted

1 unchanged sentence

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

June 30, 2022

September 30, 2022

(in thousands)

16 unchanged sentences

Security holdings in an unrealized loss position

As of June 30, 2022, the Company held 762 fixed maturity securities in an unrealized loss position with a total estimated fair value of $ 437.7 million and total gross unrealized losses of $ 35.0 million.

As of September 30, 2022, the Company held 380 fixed maturity securities in an unrealized loss position with a total estimated fair value of $ 475.8 million and total gross unrealized losses of $ 54.2 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 June 30, 2022 and December 31, 2021, 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, 2022 and December 31, 2021, are as follows:

Less Than 12 Months

More Than 12 Months

June 30, 2022

September 30, 2022

(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 2021 Annual Report on Form 10-K.

The Company has recorded an immaterial allowance for credit losses pertaining to one investment security.

Based on the Company’s review as of June 30, 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 has recorded an insignificant allowance for credit losses pertaining to one investment security.

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

The amortized cost and fair value of fixed maturity securities at September 30, 2022, 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)

9 unchanged sentences

Net realized investment gains (losses)

Net unrealized gains (losses) on equity securities

Net realized and unrealized gains (losses) on investments

Net unrealized losses on equity securities

Net realized and unrealized losses on investments

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 $ 1.0 million and $ 4.8 million for the three months ended June 30, 2022 and 2021, respectively.

Proceeds from the sale of fixed maturity securities were $ 5.8 million and $ 11.1 million for the six months ended June 30, 2022 and 2021, respectively.

Proceeds from the sale of fixed maturity securities were insignificant and $ 1.0 million for the three months ended September 30, 2022 and 2021, respectively.

Proceeds from the sale of fixed maturity securities were $ 5.8 million and $ 12.1 million for the nine months ended September 30, 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.

As of June 30, 2022, the carrying value of securities on deposit with state regulatory authorities was $ 8.4 million.

As of December 31, 2021, the carrying value of securities on deposit with state regulatory authorities was $ 7.5 million.

As of September 30, 2022 and December 31, 2022, the carrying value of securities on deposit with state regulatory authorities was $ 8.5 million and $ 7.5 million, respectively.

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, 2022 and December 31, 2021.

June 30, 2022

The following tables present the hierarchy for financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021.

September 30, 2022

(in thousands)

20 unchanged sentences

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 June 30, 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.

As of September 30, 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 lack of 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 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 adverse prior year development of $ 0.05 million during the three months ended June 30, 2022 and favorable prior year development of $ 0.4 million in the three months ended June 30, 2021.

Adverse prior year development during the three months ended June 30, 2022 was primarily due to higher than anticipated severity catastrophe losses from prior years offset by favorable development on attritional losses.

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 primarily in the Company’s Specialty Homeowners line of business.

The Company experienced adverse prior year development of $ 1.6 million during the six months ended June 30, 2022 and favorable prior year development of $ 3.1 million in the six months ended June 30, 2021.

Adverse prior year development during the six months ended June 30, 2022 was primarily due to higher than anticipated severity of attritional and catastrophe losses from prior years.

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 primarily in the Company’s Specialty Homeowners line of business

The Company experienced insignificant prior year development during the three months ended September 30, 2022 and September 30, 2021.

The Company experienced adverse prior year development of $ 1.5 million during the nine months ended September 30, 2022 and favorable prior year development of $ 2.9 million in the nine months ended September 30, 2021.

Adverse prior year development during the nine months ended September 30, 2022 was primarily due to higher than anticipated severity of attritional and catastrophe losses.

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.

Stockholders’ Equity

Common stock reserved for future issuance

Common stock reserved for future issuance consists of the following as of June 30, 2022:

Common stock reserved for future issuance consists of the following as of September 30, 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 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, 2022:

The following table summarizes stock option transactions for the nine months ended September 30, 2022:

Number of shares

6 unchanged sentences

Options canceled

Outstanding at June 30, 2022

Vested and Exercisable at June 30, 2022

As of June 30, 2022, the Company had approximately $ 4.6 million of total unrecognized stock-based compensation expense related to stock options expected to be recognized over a weighted-average period of 1.83 years.

The fair value of each option granted during the six months ended June 30, 2022 was estimated on the grant date using the Black-Scholes option pricing model with the following assumptions:

Outstanding at September 30, 2022

Vested and Exercisable at September 30, 2022

As of September 30, 2022, the Company had approximately $ 4.1 million of total unrecognized stock-based compensation expense related to stock options expected to be recognized over a weighted-average period of 1.69 years.

The fair value of each option granted during the nine months ended September 30, 2022 was estimated on the grant date using the Black-Scholes option pricing model with the following assumptions:

Risk free rate of return (1)

14 unchanged sentences

All vesting is subject to continued service.

The following table summarizes RSU transactions for the six months ended June 30, 2022:

The following table summarizes RSU transactions for the nine months ended September 30, 2022:

Number of shares

1 unchanged sentence

Outstanding at January 1, 2022

Non vested outstanding at June 30, 2022

As of June 30, 2022, the Company had approximately $ 18.2 million of total unrecognized stock-based compensation expense related to RSUs expected to be recognized over a weighted-average period of 3.43 years.

Non vested outstanding at September 30, 2022

As of September 30, 2022, the Company had approximately $ 16.8 million of total unrecognized stock-based compensation expense related to RSUs expected to be recognized over a weighted-average period of 3.17 years.

Performance Stock Units

3 unchanged sentences

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 June 30, 2022, none of the stock price milestones have been achieved.

As of September 30, 2022, none of the stock price milestones have been achieved.

For other PSUs outstanding, 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.

2 unchanged sentences

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, 2022:

The following table summarizes PSU transactions for the nine months ended September 30, 2022:

Number of shares

1 unchanged sentence

Outstanding at January 1, 2022

Non vested outstanding at June 30, 2022

Non vested outstanding at September 30, 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 June 30, 2022, the Company had approximately $ 12.1 million of total unrecognized stock-based compensation expense related to PSUs expected to be recognized over a weighted-average period of 4.04 years.

As of September 30, 2022, the Company had approximately $ 11.3 million of total unrecognized stock-based compensation expense related to PSUs expected to be recognized over a weighted-average period of 3.79 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 6,078 shares pursuant to the ESPP during the six months ended June 30, 2022.

The Company issued 13,990 shares pursuant to the ESPP during the nine months ended September 30, 2022.

Share repurchases

1 unchanged sentence

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 347,013 shares for $ 20.3 million during the six months ended June 30, 2022.

The Company purchased 399,198 shares for $ 23.3 million during the nine months ended September 30, 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 (loss) (“AOCI”) are as follows:

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

9 unchanged sentences

Underwriting Information

The Company has a single reportable segment and offers primarily earthquake, wind, inland marine, and flood insurance products.

The Company has a single reportable segment and offers primarily property and casualty insurance products.

The Company also writes premiums under fronting agreements where it cedes the majority of the premium and risk in exchange for a fronting fee.

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)

Residential Earthquake

Fronting Premiums

Residential Earthquake

Commercial Earthquake

Inland Marine

Commercial All Risk

Specialty Homeowners

Hawaii Hurricane

Commercial All Risk

Residential Flood

Specialty Homeowners

Total Gross Written Premiums

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)

North Carolina

Total Gross Written Premiums

Gross written premiums by insurance subsidiary 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

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

For the three months ended June 30, 2022 and 2021, the Company’s tax rate of 20.2 % and 20.5 % , respectively, was lower than the statutory rate of 21 % due primarily to the tax impact of the permanent component of employee stock option exercises.

For the six months ended June 30, 2022, the Company’s tax rate of 22.1 % was higher than the statutory rate due primarily to non-deductible executive compensation expense.

For the six months ended June 30, 2021, the Company’s tax rate of 18.7 % was lower than the statutory rate due primarily to the tax impact of the permanent component of employee stock option exercises.

For both the three months ended September 30, 2022 and 2021, the Company’s tax rate was lower than the statutory rate of 21 % due primarily to the tax impact of the permanent component of employee stock option exercises.

For the nine months ended September 30, 2022, the Company’s tax rate was higher than the statutory rate due primarily to non-deductible executive compensation expense.

For the nine months ended September 30, 2021, the Company’s tax rate 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 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)

6 unchanged sentences

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

As of June 30, 2022, the Company’s catastrophe event retention is $ 12.5 million for all perils.

As of June 30, 2022, the Company’s XOL reinsurance structure provides protection up to $ 2.08 billion for earthquake events and $ 900 million for hurricane events.

As of September 30, 2022, the Company’s catastrophe event retention is $ 12.5 million for all perils.

As of September 30, 2022, the Company’s XOL reinsurance structure provides protection up to $ 2.08 billion for earthquake events, $ 900 million for Hawaii hurricane events, and $ 250 million for continental U.S.

hurricane events.

In addition to reinsurance purchased from traditional reinsurers, the Company has historically incorporated collateralized protection from the insurance linked securities market via catastrophe bonds.

15 unchanged sentences

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 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 June 30, 2022, the Company was in compliance with all debt covenants.

As of June 30, 2022 and December 31, 2021, the Company did not have any outstanding borrowings under the Credit Agreement.

As of September 30, 2022, the Company was in compliance with all debt covenants.

As of September 30, 2022 and December 31, 2021, the Company did not have any outstanding borrowings under the Credit Agreement.

FHLB Line of Credit

1 unchanged sentence

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 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, approximately $ 26.8 M as of September 30, 2022.

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

As of June 30, 2022, the Company had $ 23 million of borrowings outstanding through the FHLB at the overnight rate of 1.67 %.

Interest expense on the FHLB Line of Credit was immaterial for the three and six months ended June 30, 2022.

As of September 30, 2022, the Company had $ 26.4 million of borrowings outstanding through the FHLB at the overnight rate of 2.37 %.

Interest expense on the FHLB Line of Credit was $ 0.2 million for the three and nine months ended September 30, 2022.

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