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, ​ ​ 2022 ​ 2021 ​ ​ (Unaudited) ​ ​ ​ Assets ​ ​ Investments: ​ ​ Fixed maturity securities available for sale, at fair value (amortized cost: $ 530,992 in 2022; $ 426,122 in 2021) ​ $ 476,794 ​ $ 432,682 Equity securities, at fair value (cost: $ 42,111 in 2022; $ 31,834 in 2021) ​ 35,468 ​ 33,261 Total investments ​ 512,262 ​ 465,943 Cash and cash equivalents ​ 29,471 ​ 50,284 Restricted cash ​ 73 ​ 87 Accrued investment income ​ 3,333 ​ 2,725 Premiums receivable, net ​ 186,850 ​ 88,012 Deferred policy acquisition costs, net of ceding commissions ​ 57,000 ​ 55,953 Reinsurance recoverable on unpaid losses and loss adjustment expenses ​ 131,575 ​ 127,947 Reinsurance recoverable on paid losses and loss adjustment expenses ​ 45,393 ​ 29,368 Ceded unearned premiums ​ 182,657 ​ 58,315 Prepaid expenses and other assets ​ 46,414 ​ 37,072 Deferred tax assets, net ​ ​ 12,200 ​ ​ — Property and equipment, net ​ 663 ​ 527 Intangible assets, net ​ 8,575 ​ 9,501 Total assets ​ $ 1,216,466 ​ $ 925,734 Liabilities and stockholders' equity ​ ​ Liabilities: ​ ​ Accounts payable and other accrued liabilities ​ $ 20,655 ​ $ 21,284 Reserve for losses and loss adjustment expenses ​ 205,823 ​ 173,366 Unearned premiums ​ 443,463 ​ 284,665 Ceded premium payable ​ 145,918 ​ 37,460 Funds held under reinsurance treaty ​ 6,362 ​ 10,882 Deferred tax liabilities, net ​ ​ — ​ ​ 3,908 Borrowings from credit agreements ​ ​ 26,400 ​ ​ — Total liabilities ​ 848,621 ​ 531,565 Stockholders' equity: ​ ​ 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 ​ 3 ​ 3 Additional paid-in capital ​ 330,381 ​ 318,902 Accumulated other comprehensive income (loss) ​ ( 42,629 ) ​ 5,312 Retained earnings ​ 80,090 ​ 69,952 Total stockholders' equity ​ 367,845 ​ 394,169 Total liabilities and stockholders' equity ​ $ 1,216,466 ​ $ 925,734 ​ 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, ​ 2022 2021 2022 2021 Revenues: ​ ​ ​ ​ Gross written premiums ​ $ 253,128 ​ $ 152,332 ​ $ 642,751 ​ $ 385,267 Ceded written premiums ​ ( 161,930 ) ​ ( 58,073 ) ​ ( 374,109 ) ​ ( 153,005 ) Net written premiums ​ 91,198 ​ 94,259 ​ 268,642 ​ 232,262 Change in unearned premiums ​ ( 13,256 ) ​ ​ ( 29,539 ) ​ ( 34,403 ) ​ ​ ( 66,274 ) Net earned premiums ​ 77,942 ​ 64,720 ​ 234,239 ​ 165,988 Net investment income ​ 3,744 ​ ​ 2,236 ​ 9,462 ​ ​ 6,649 Net realized and unrealized losses on investments ​ ( 2,356 ) ​ ​ ( 313 ) ​ ( 8,369 ) ​ ​ ( 752 ) Commission and other income ​ 1,362 ​ ​ 1,018 ​ 3,129 ​ ​ 2,735 Total revenues ​ 80,692 ​ 67,661 ​ 238,461 ​ 174,620 Expenses: ​ ​ ​ ​ Losses and loss adjustment expenses ​ 30,900 ​ ​ 28,475 ​ ​ 60,251 ​ ​ 31,288 Acquisition expenses ​ 27,210 ​ ​ 26,412 ​ ​ 83,928 ​ ​ 68,150 Other underwriting expenses ​ 17,114 ​ ​ 12,652 ​ ​ 51,233 ​ ​ 39,438 Interest expense ​ 270 ​ ​ — ​ ​ 475 ​ ​ — Total expenses ​ 75,494 ​ 67,539 ​ 195,887 ​ 138,876 Income before income taxes ​ 5,198 ​ 122 ​ 42,574 ​ 35,744 Income tax expense (benefit) ​ 912 ​ ​ ( 124 ) ​ ​ 9,163 ​ ​ 6,529 Net income ​ 4,286 ​ 246 ​ 33,411 ​ 29,215 Other comprehensive income (loss), net: ​ ​ ​ ​ Net unrealized losses on securities available for sale for the three and nine months ended September 30, 2022 and 2021, respectively ​ ( 15,412 ) ​ ​ ( 1,655 ) ​ ​ ( 47,941 ) ​ ​ ( 5,144 ) Net comprehensive income (loss) ​ $ ( 11,126 ) ​ $ ( 1,409 ) ​ $ ( 14,530 ) ​ $ 24,071 Per Share Data: ​ ​ ​ ​ Basic earnings per share ​ $ 0.17 ​ $ 0.01 ​ $ 1.32 ​ $ 1.15 Diluted earnings per share ​ $ 0.17 ​ $ 0.01 ​ $ 1.29 ​ $ 1.12 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average common shares outstanding: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ 25,209,368 ​ ​ 25,388,630 ​ ​ 25,258,333 ​ ​ 25,473,006 Diluted ​ ​ 25,787,625 ​ ​ 26,043,680 ​ ​ 25,808,387 ​ ​ 26,133,664 ​ 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, 2020 25,525,796 ​ $ 3 ​ $ 310,507 ​ $ 13,246 ​ $ 39,957 ​ $ 363,713 Other comprehensive 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 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at December 31, 2021 25,428,929 ​ ​ 3 ​ $ 318,902 ​ $ 5,312 ​ $ 69,952 ​ $ 394,169 Other comprehensive loss, net of tax — ​ ​ — ​ ​ — ​ ​ ( 47,941 ) ​ ​ — ​ ( 47,941 ) Stock-based compensation — ​ ​ — ​ ​ 8,556 ​ ​ — ​ ​ — ​ 8,556 Issuance of common stock via employee stock purchase plan ​ 13,990 ​ ​ — ​ ​ 759 ​ ​ — ​ ​ — ​ ​ 759 Issuance of common stock via equity incentive plan ​ 185,765 ​ ​ — ​ ​ 2,164 ​ ​ — ​ ​ — ​ ​ 2,164 Repurchases of common stock ​ ( 399,198 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 23,273 ) ​ ​ ( 23,273 ) Net income — ​ ​ — ​ ​ — ​ ​ — ​ ​ 33,411 ​ 33,411 Balance at September 30, 2022 25,229,486 ​ $ 3 ​ $ 330,381 ​ $ ( 42,629 ) ​ $ 80,090 ​ $ 367,845 ​ See accompanying notes. ​ 5 ​ Palomar Holdings, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended ​ ​ September 30, ​ 2022 2021 Operating activities ​ ​ Net cash provided by operating activities ​ $ 94,544 ​ $ 37,030 Investing activities ​ ​ ​ ​ Purchases of property and equipment ​ ( 307 ) ​ ( 18 ) Capitalized software costs ​ ​ ( 4,138 ) ​ ​ ( 3,612 ) Purchases of fixed maturity securities ​ ( 279,064 ) ​ ( 88,755 ) Purchases of equity securities ​ ( 10,277 ) ​ ( 35,675 ) Sales and maturities of fixed maturity securities ​ 172,380 ​ 70,696 Sales of equity securities ​ — ​ 41,553 Change in securities receivable or payable, net ​ ​ — ​ ​ 17 Payment of additional costs associated with purchase of policy renewal rights ​ ​ ( 16 ) ​ ​ ( 11 ) Net cash used in investing activities ​ ( 121,422 ) ​ ( 15,805 ) Financing activities ​ ​ Proceeds from line of credit ​ ​ 26,400 ​ ​ — Proceeds from common stock issued via employee stock purchase plan ​ ​ 2,164 ​ ​ 719 Proceeds from common stock issued via stock option exercises ​ ​ 760 ​ ​ 1,756 Repurchases of common stock ​ ​ ( 23,273 ) ​ ​ ( 15,852 ) Net cash provided by (used in) financing activities ​ 6,051 ​ ( 13,377 ) Net decrease in cash, cash equivalents and restricted cash ​ ( 20,827 ) ​ 7,848 Cash, cash equivalents and restricted cash at beginning of period ​ 50,371 ​ 33,786 Cash, cash equivalents and restricted cash at end of period ​ $ 29,544 ​ $ 41,634 Supplementary cash flow information: ​ ​ Cash paid for income taxes ​ $ 18,870 ​ $ 2,104 ​ 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, ​ ​ 2022 ​ 2021 ​ ​ (unaudited) ​ ​ ​ Cash and cash equivalents ​ $ 29,471 ​ $ 50,284 Restricted cash ​ 73 ​ 87 Cash and cash equivalents and restricted cash ​ $ 29,544 ​ $ 50,371 ​ 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, 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. 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 The Company has not adopted any new accounting guidance during the three months ended September 30, 2022. 7 ​ 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. ​ ​ 2. Investments The Company’s available-for-sale investments are summarized as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross Gross ​ ​ ​ ​ Amortized ​ Unrealized ​ Unrealized ​ Fair September 30, 2022 ​ Cost or Cost ​ Gains ​ Losses ​ Value ​ (in thousands) Fixed maturities: ​ ​ ​ ​ ​ U.S. Governments ​ $ 52,021 ​ $ — ​ $ ( 2,423 ) ​ $ 49,598 States, territories, and possessions ​ 7,671 ​ — ​ ( 958 ) ​ 6,713 Political subdivisions ​ 4,922 ​ — ​ ( 677 ) ​ ​ 4,245 Special revenue excluding mortgage/asset-backed securities ​ 42,409 ​ — ​ ( 6,334 ) ​ 36,075 Corporate and other ​ 269,308 ​ 5 ​ ( 28,893 ) ​ 240,420 Mortgage/asset-backed securities ​ 154,661 ​ 4 ​ ( 14,922 ) ​ 139,743 Total available-for-sale investments ​ $ 530,992 ​ $ 9 ​ $ ( 54,207 ) ​ $ 476,794 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross Gross ​ ​ ​ ​ Amortized ​ Unrealized ​ Unrealized ​ Fair December 31, 2021 ​ Cost or Cost ​ Gains ​ Losses ​ Value ​ (in thousands) Fixed maturities: ​ ​ ​ ​ U.S. Governments ​ $ 16,713 ​ $ 347 ​ $ ( 190 ) ​ $ 16,870 States, territories, and possessions ​ 3,789 ​ 288 ​ ( 63 ) ​ 4,014 Political subdivisions ​ 6,295 ​ 107 ​ ( 22 ) ​ 6,380 Special revenue excluding mortgage/asset-backed securities ​ 43,301 ​ 1,273 ​ ( 76 ) ​ 44,498 Corporate and other ​ 245,064 ​ 5,873 ​ ​ ( 1,891 ) ​ 249,046 Mortgage/asset-backed securities ​ 110,960 ​ 1,377 ​ ( 463 ) ​ 111,874 Total available-for-sale investments ​ $ 426,122 ​ $ 9,265 ​ $ ( 2,705 ) ​ $ 432,682 ​ Security holdings in an unrealized loss position 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. 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, 2022 and December 31, 2021, are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Less Than 12 Months ​ More Than 12 Months ​ Total ​ Fair Unrealized Fair Unrealized Fair Unrealized September 30, 2022 ​ Value ​ Losses ​ Value ​ Losses ​ Value ​ Losses ​ ​ (in thousands) Fixed maturity securities: ​ ​ ​ ​ ​ ​ U.S. Governments $ 43,268 ​ $ ( 1,673 ) ​ $ 6,330 ​ $ ( 750 ) ​ $ 49,598 ​ $ ( 2,423 ) States, territories, and possessions ​ 5,243 ​ ​ ( 618 ) ​ 1,470 ​ ( 340 ) ​ 6,713 ​ ( 958 ) Political subdivisions ​ 4,245 ​ ​ ( 677 ) ​ — ​ — ​ 4,245 ​ ( 677 ) Special revenue excluding mortgage/asset-backed securities ​ 31,254 ​ ​ ( 4,841 ) ​ 4,821 ​ ( 1,493 ) ​ 36,075 ​ ( 6,334 ) Corporate and other ​ 200,092 ​ ​ ( 21,298 ) ​ 39,574 ​ ( 7,595 ) ​ 239,666 ​ ( 28,893 ) Mortgage/asset-backed securities ​ 131,692 ​ ​ ( 13,840 ) ​ 7,813 ​ ( 1,082 ) ​ 139,505 ​ ( 14,922 ) Total ​ $ 415,794 ​ $ ( 42,947 ) ​ $ 60,008 ​ $ ( 11,260 ) ​ $ 475,802 ​ $ ( 54,207 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Less Than 12 Months ​ More Than 12 Months ​ Total ​ Fair Unrealized Fair Unrealized Fair Unrealized December 31, 2021 ​ Value ​ Losses ​ Value ​ Losses ​ Value ​ Losses ​ ​ (in thousands) Fixed maturity securities: ​ ​ ​ ​ ​ ​ U.S. Governments ​ $ 5,968 ​ $ ( 147 ) ​ $ 1,457 ​ $ ( 43 ) ​ $ 7,425 ​ $ ( 190 ) States, territories, and possessions ​ 1,444 ​ ​ ( 63 ) ​ — ​ — ​ 1,444 ​ ( 63 ) Political subdivisions ​ 1,815 ​ ​ ( 22 ) ​ — ​ — ​ 1,815 ​ ( 22 ) Special revenue excluding mortgage/asset-backed securities ​ 6,280 ​ ​ ( 76 ) ​ — ​ — ​ 6,280 ​ ( 76 ) Corporate and other ​ 94,020 ​ ​ ( 1,468 ) ​ 5,570 ​ ( 423 ) ​ 99,590 ​ ( 1,891 ) Mortgage/asset-backed securities ​ 51,246 ​ ​ ( 412 ) ​ 2,319 ​ ( 51 ) ​ 53,565 ​ ( 463 ) Total ​ $ 160,773 ​ $ ( 2,188 ) ​ $ 9,346 ​ $ ( 517 ) ​ $ 170,119 ​ $ ( 2,705 ) ​ 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 2021 Annual Report on Form 10-K. 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. ​ 9 ​ Contractual maturities of available-for-sale fixed maturity securities The amortized cost and fair value of fixed maturity securities at September 30, 2022, by contractual maturity, are shown below. ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortized Fair ​ ​ Cost ​ Value ​ (in thousands) Due within one year ​ $ 37,321 ​ $ 36,730 Due after one year through five years ​ 177,989 ​ 165,172 Due after five years through ten years ​ 128,378 ​ 109,641 Due after ten years ​ 32,643 ​ 25,508 Mortgage and asset-backed securities ​ 154,661 ​ 139,743 ​ ​ $ 530,992 ​ $ 476,794 ​ 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, ​ 2022 2021 2022 2021 ​ (in thousands) (in thousands) Interest income ​ $ 3,688 ​ $ 2,254 ​ $ 9,328 ​ $ 6,755 Dividend income ​ 178 ​ 104 ​ 518 ​ 261 Investment expense ​ ( 122 ) ​ ( 122 ) ​ ( 384 ) ​ ( 367 ) Net investment income ​ $ 3,744 ​ $ 2,236 ​ $ 9,462 ​ $ 6,649 ​ 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, ​ 2022 2021 2022 2021 ​ ​ (in thousands) ​ (in thousands) Realized gains: ​ ​ ​ ​ Gains on sales of fixed maturity securities ​ $ 2 ​ $ 117 ​ $ 10 ​ $ 335 Gains on sales of equity securities ​ — ​ 188 ​ — ​ 1,416 Total realized gains ​ 2 ​ 305 ​ 10 ​ 1,751 Realized losses: ​ ​ ​ ​ Losses on sales of fixed maturity securities ​ ( 195 ) ​ — ​ ( 309 ) ​ ​ ( 1 ) Losses on sales of equity securities ​ — ​ — ​ — ​ ​ — Total realized losses ​ ( 195 ) ​ — ​ ( 309 ) ​ ( 1 ) Net realized investment gains (losses) ​ ( 193 ) ​ 305 ​ ( 299 ) ​ 1,750 Net unrealized losses on equity securities ​ ( 2,163 ) ​ ( 618 ) ​ ( 8,070 ) ​ ( 2,502 ) Net realized and unrealized losses on investments ​ $ ( 2,356 ) ​ $ ( 313 ) ​ $ ( 8,369 ) ​ $ ( 752 ) ​ 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 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 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. 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. 11 ​ 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 Level 1 Level 2 Level 3 Total ​ (in thousands) Assets: ​ ​ ​ ​ Fixed maturity securities ​ ​ ​ ​ U.S. Governments ​ $ — ​ $ 49,598 ​ $ — ​ $ 49,598 States, territories, and possessions ​ — ​ 6,713 ​ — ​ 6,713 Political subdivisions ​ — ​ 4,245 ​ — ​ 4,245 Special revenue excluding mortgage/asset-backed securities ​ — ​ 36,075 ​ — ​ 36,075 Corporate and other ​ — ​ 240,420 ​ — ​ 240,420 Mortgage/asset-backed securities ​ — ​ 139,743 ​ — ​ 139,743 Equity securities ​ 35,468 ​ — ​ — ​ 35,468 Cash, cash equivalents, and restricted cash ​ 29,544 ​ — ​ — ​ 29,544 Total assets ​ $ 65,012 ​ $ 476,794 ​ $ — ​ $ 541,806 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 Level 1 Level 2 Level 3 Total ​ (in thousands) Assets: ​ ​ ​ ​ Fixed maturity securities ​ ​ ​ ​ U.S. Governments ​ $ — ​ $ 16,870 ​ $ — ​ $ 16,870 States, territories, and possessions ​ — ​ 4,014 ​ — ​ 4,014 Political subdivisions ​ — ​ 6,380 ​ — ​ 6,380 Special revenue excluding mortgage/asset-backed securities ​ — ​ 44,498 ​ — ​ 44,498 Corporate and other ​ — ​ 249,046 ​ — ​ 249,046 Mortgage/asset-backed securities ​ — ​ 110,374 ​ 1,500 ​ 111,874 Equity securities ​ 33,261 ​ — ​ — ​ 33,261 Cash, cash equivalents, and restricted cash ​ 50,371 ​ — ​ — ​ 50,371 Total assets ​ $ 83,632 ​ $ 431,182 ​ $ 1,500 ​ $ 516,314 ​ ​ ​ ​ ​ ​ 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. 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 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. 12 ​ 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, ​ 2022 2021 2022 2021 ​ ​ ​ (in thousands) ​ (in thousands) Reserve for losses and LAE net of reinsurance recoverables at beginning of period ​ $ 55,769 ​ $ 23,633 ​ $ 45,419 ​ $ 34,470 Add: Incurred losses and LAE, net of reinsurance, related to: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Current year ​ 30,904 ​ 28,286 ​ 58,703 ​ ​ 34,202 Prior years ​ ( 4 ) ​ 189 ​ 1,548 ​ ​ ( 2,914 ) Total incurred ​ 30,900 ​ 28,475 ​ 60,251 ​ 31,288 Deduct: Loss and LAE payments, net of reinsurance, related to: ​ ​ ​ ​ Current year ​ 7,873 ​ ​ 2,787 ​ ​ 13,762 ​ ​ 3,407 Prior years ​ 4,548 ​ ​ 2,678 ​ ​ 17,660 ​ ​ 15,708 Total payments ​ 12,421 ​ 5,465 ​ 31,422 ​ 19,115 Reserve for losses and LAE net of reinsurance recoverables at end of period ​ 74,248 ​ 46,643 ​ 74,248 ​ 46,643 Add: Reinsurance recoverables on unpaid losses and LAE at end of period ​ 131,575 ​ ​ 129,044 ​ ​ 131,575 ​ ​ 129,044 Reserve for losses and LAE gross of reinsurance recoverables on unpaid losses and LAE at end of period ​ $ 205,823 ​ $ 175,687 ​ $ 205,823 ​ $ 175,687 ​ 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 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. ​ 13 ​ 5. Stockholders’ Equity Common stock reserved for future issuance Common stock reserved for future issuance consists of the following as of September 30, 2022: ​ ​ ​ Stock options outstanding under 2019 Equity Incentive Plan 890,672 Restricted stock units outstanding under 2019 Equity Incentive Plan 283,470 Performance stock units outstanding under 2019 Equity Incentive Plan, at target 383,103 Shares authorized for future issuance under 2019 Equity Incentive Plan 2,595,486 Shares authorized for future issuance under 2019 Employee Stock Purchase Plan 907,850 Total 5,060,581 ​ 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, ​ 2022 2021 2022 2021 ​ (in thousands) (in thousands) Stock-Based Compensation ​ $ 3,092 ​ $ 1,525 ​ $ 8,556 ​ $ 3,370 ​ 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. 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 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. 14 ​ The following table summarizes stock option transactions for the nine months ended September 30, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of shares ​ ​ Weighted-average exercise price ​ Weighted average remaining contractual term (in years) ​ ​ Aggregate intrinsic value (in thousands) Outstanding at January 1, 2022 933,051 ​ $ 29.41 ​ 7.59 ​ $ 36,679 Options granted 120,978 ​ ​ 51.68 ​ ​ ​ ​ ​ Options exercised ( 141,806 ) ​ ​ 15.26 ​ ​ ​ ​ ​ Options canceled ( 21,551 ) ​ ​ 68.02 ​ ​ ​ ​ ​ Outstanding at September 30, 2022 890,672 ​ $ 33.75 ​ 7.16 ​ $ 45,813 Vested and Exercisable at September 30, 2022 626,853 ​ $ 25.53 ​ 6.70 ​ $ 37,127 ​ 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) 1.69 % - 4.02 % Expected share price volatility (2) 39.73 % - 42.56 % 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. (4) Determined to be zero as the Company has not historically issued dividends. ​ 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, 2022: ​ ​ ​ ​ ​ ​ ​ Number of shares ​ ​ Weighted-average grant date fair value Outstanding at January 1, 2022 235,696 ​ $ 79.33 Granted 97,662 ​ ​ 51.51 Released ( 43,959 ) ​ ​ 79.02 Forfeited ( 5,929 ) ​ ​ 77.45 Non vested outstanding at September 30, 2022 283,470 ​ $ 69.83 ​ 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. 15 ​ Performance Stock Units The Company issues PSUs with a combination of service, performance, and market conditions. 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 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. The PSU’s performance period is the fiscal year of the grant. 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, 2022: ​ ​ ​ ​ ​ ​ ​ Number of shares ​ ​ Weighted-average grant date fair value Outstanding at January 1, 2022 358,401 ​ $ 36.87 Granted 26,165 ​ ​ 50.36 Vested — ​ ​ — Forfeited ( 1,463 ) ​ ​ 80.69 Non vested outstanding at September 30, 2022 383,103 ​ $ 37.62 ​ 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, 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 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 13,990 shares pursuant to the ESPP during the nine months ended September 30, 2022. Share repurchases 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. 16 ​ 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. All repurchased shares are retired and become authorized but unissued shares. 6. Accumulated Other Comprehensive Income Changes in accumulated other comprehensive income (loss) (“AOCI”) are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, ​ 2022 2021 ​ ​ ​ (in thousands) Beginning Balance ​ $ 5,312 ​ $ 13,246 ​ ​ ​ ​ ​ ​ ​ Other comprehensive income (loss) before reclassification ​ ( 60,983 ) ​ ​ ( 6,177 ) Federal income tax expense ​ 12,806 ​ ​ 1,297 Other comprehensive income (loss) before reclassification, net of tax ​ ( 48,177 ) ​ ( 4,880 ) ​ ​ ​ ​ ​ ​ ​ Amounts reclassified from AOCI ​ 299 ​ ​ ( 334 ) Federal income tax expense ​ ( 63 ) ​ ​ 70 Amounts reclassified from AOCI, net of tax ​ 236 ​ ( 264 ) ​ ​ ​ ​ ​ ​ ​ Other comprehensive income (loss) ​ ( 47,941 ) ​ ( 5,144 ) Balance at end of period ​ $ ( 42,629 ) ​ $ 8,102 ​ ​ 7. Underwriting Information 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 September 30, ​ Nine Months Ended September 30, ​ ​ 2022 ​ 2021 ​ 2022 ​ 2021 ​ ​ ($ in thousands) ​ ($ in thousands) ​ ​ ​ ​ ​ % of ​ ​ ​ ​ % of ​ ​ ​ ​ % of ​ ​ ​ ​ % of ​ ​ Amount ​ GWP ​ Amount ​ GWP ​ Amount ​ GWP ​ Amount ​ GWP Product ​ ​ ​ ​ ​ ​ Fronting Premiums ​ $ 82,232 ​ 32.5 % $ — ​ 0.0 % ​ $ 154,232 ​ 24.0 % $ — ​ 0.0 % Residential Earthquake ​ ​ 59,569 ​ 23.5 % ​ 50,075 ​ 32.9 % ​ ​ 159,995 ​ 24.9 % ​ 128,165 ​ 33.3 % Commercial Earthquake ​ 32,647 ​ 12.9 % 27,433 ​ 18.0 % ​ 90,894 ​ 14.1 % 66,052 ​ 17.1 % Inland Marine ​ ​ 30,842 ​ 12.2 % ​ 19,532 ​ 12.8 % ​ ​ 72,214 ​ 11.2 % ​ 39,047 ​ 10.1 % Casualty ​ ​ 12,888 ​ 5.1 % ​ 2,868 ​ 1.9 % ​ ​ 25,697 ​ 4.0 % ​ 5,504 ​ 1.4 % Hawaii Hurricane ​ 9,425 ​ 3.7 % 8,996 ​ 5.9 % ​ 24,579 ​ 3.8 % 22,921 ​ 6.0 % Commercial All Risk ​ ​ 9,224 ​ 3.6 % ​ 6,867 ​ 4.5 % ​ ​ 41,647 ​ 6.5 % ​ 30,032 ​ 7.8 % Residential Flood ​ 3,871 ​ 1.5 % 3,228 ​ 2.1 % ​ 10,448 ​ 1.6 % 8,377 ​ 2.2 % Specialty Homeowners ​ ( 94 ) ​ ( 0.0 ) % 19,881 ​ 13.1 % ​ 30,082 ​ 4.7 % 53,018 ​ 13.8 % Other ​ 12,524 ​ 5.0 % ​ 13,452 ​ 8.8 % ​ ​ 32,963 ​ 5.1 % ​ 32,151 ​ 8.4 % Total Gross Written Premiums ​ $ 253,128 100.0 % $ 152,332 100.0 % ​ $ 642,751 100.0 % $ 385,267 100.0 % ​ 17 ​ Gross written premiums by state are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, ​ Nine Months Ended September 30, ​ ​ 2022 ​ 2021 ​ 2022 ​ 2021 ​ ​ ($ in thousands) ​ ($ in thousands) ​ ​ ​ ​ ​ % of ​ ​ ​ ​ % of ​ ​ ​ ​ % of ​ ​ ​ ​ % of ​ ​ Amount ​ GWP ​ Amount ​ GWP ​ Amount ​ GWP ​ Amount ​ GWP State ​ ​ ​ ​ ​ ​ California ​ $ 131,016 ​ 51.8 % $ 72,505 ​ 47.6 % ​ $ 292,865 ​ 45.6 % $ 180,142 ​ 46.8 % Texas ​ ​ 26,234 ​ 10.4 % ​ 19,715 ​ 13.0 % ​ ​ 71,499 ​ 11.1 % ​ 48,142 ​ 12.5 % Washington ​ ​ 13,573 ​ 5.4 % ​ 7,180 ​ 4.7 % ​ ​ 29,391 ​ 4.6 % ​ 15,931 ​ 4.1 % Hawaii ​ 10,998 ​ 4.3 % 10,342 ​ 6.8 % ​ 29,729 ​ 4.6 % 26,312 ​ 6.8 % Oregon ​ ​ 7,738 ​ 3.1 % ​ 3,964 ​ 2.6 % ​ ​ 16,483 ​ 2.6 % ​ 9,686 ​ 2.5 % Florida ​ ​ 7,445 ​ 2.9 % ​ 7,203 ​ 4.7 % ​ ​ 27,216 ​ 4.2 % ​ 24,958 ​ 6.5 % Illinois ​ 4,204 ​ 1.7 % 2,893 ​ 1.9 % ​ 13,153 ​ 2.1 % 8,668 ​ 2.3 % New York ​ ​ 3,738 ​ 1.5 % ​ 618 ​ 0.4 % ​ ​ 8,401 ​ 1.3 % ​ 1,273 ​ 0.3 % Other ​ 48,182 ​ 19.0 % 27,912 ​ 18.3 % ​ 154,014 ​ 24.0 % 70,155 ​ 18.2 % Total Gross Written Premiums ​ $ 253,128 100.0 % $ 152,332 100.0 % ​ $ 642,751 100.0 % $ 385,267 100.0 % ​ ​ Gross written premiums by insurance subsidiary are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, ​ Nine Months Ended September 30, ​ ​ 2022 ​ 2021 ​ 2022 ​ 2021 ​ ​ ($ in thousands) ​ ($ in thousands) ​ ​ ​ ​ ​ % of ​ ​ ​ ​ % of ​ ​ ​ ​ % of ​ ​ ​ ​ % of ​ ​ Amount ​ GWP ​ Amount ​ GWP ​ Amount ​ GWP ​ Amount ​ GWP Subsidiary ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ PSIC ​ $ 136,814 ​ 54.0 % $ 110,875 ​ 72.8 % ​ $ 357,156 ​ 55.6 % $ 285,991 ​ 74.2 % PESIC ​ ​ 116,314 ​ 46.0 % ​ 41,457 ​ 27.2 % ​ ​ 285,595 ​ 44.4 % ​ 99,276 ​ 25.8 % Total Gross Written Premiums ​ $ 253,128 100.0 % $ 152,332 100.0 % ​ $ 642,751 100.0 % $ 385,267 100.0 % ​ ​ 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. 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. 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, ​ 2022 2021 2022 2021 ​ (in thousands, except shares and per share data) (in thousands, except shares and per share data) Net income ​ $ 4,286 ​ $ 246 ​ $ 33,411 ​ $ 29,215 Weighted average common shares outstanding: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ 25,209,368 ​ 25,388,630 ​ 25,258,333 ​ 25,473,006 Common Share equivalents ​ ​ 578,257 ​ ​ 655,050 ​ ​ 550,054 ​ ​ 660,658 Diluted ​ ​ 25,787,625 ​ ​ 26,043,680 ​ ​ 25,808,387 ​ ​ 26,133,664 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Earnings per share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ $ 0.17 ​ $ 0.01 ​ $ 1.32 ​ $ 1.15 Diluted ​ $ 0.17 ​ $ 0.01 ​ $ 1.29 ​ $ 1.12 ​ 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. 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, 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. 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 Pte.”). Torrey Pines Re Pte. is a special purpose reinsurance vehicle incorporated in Singapore that provides Palomar with indemnity-based reinsurance covering earthquake events through June 1, 2024. During the second quarter of 2022, the Company also closed a $ 275 million 144A catastrophe bond which became effective June 1, 2022. This catastrophe bond was completed through Torrey Pines Re Ltd., a Bermuda-domiciled special purpose insurer that provides indemnity-based reinsurance covering earthquake events through June 1, 2025. ​ 11. Credit Agreements ​ U.S. 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. ​ 19 ​ 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 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 ​ 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, 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 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. ​ ​ ​ ​ 20 ​