What changed in this filing

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Item 1. Business

2023-03-01 compared with 2022-02-25 · 155 added, 906 removed, 408 unchanged (72% of the section changed)

We are a rapidly growing and innovative insurer focused on providing specialty insurance to residential and commercial customers.

Our underwriting and analytical expertise allow us to concentrate on certain markets that we believe are underserved by other insurance companies, such as the markets for earthquake, hurricane, inland marine, and flood insurance.

We are a specialty insurance company that provides property and casualty insurance products to individuals and businesses.

We use our underwriting and analytical expertise to provide products for select markets that we believe are underserved by other insurance companies, including the market for earthquake insurance.

We use proprietary data analytics and a modern technology platform to offer our customers flexible products with customized and granular pricing for both the admitted and excess and surplus lines (“E&S”) markets.

We provide admitted insurance products through our Oregon domiciled insurance company, Palomar Specialty Insurance Company (“PSIC”), and non-admitted insurance products through our Arizona domiciled surplus lines insurance company, Palomar Excess and Surplus Insurance Company (“PESIC”).

We provide admitted insurance products through our Oregon domiciled insurance company, Palomar Specialty Insurance Company (“PSIC”), and E&S insurance products through our Arizona domiciled surplus lines insurance company, Palomar Excess and Surplus Insurance Company (“PESIC”).

Each of our insurance company subsidiaries carries an “A-” rating from A.M.

Best Company (“A.M.

Best”), a leading rating agency for the insurance industry.

We distribute our products through multiple channels, including retail agents, program administrators, wholesale brokers, and partnerships with other insurance companies.

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We have organically increased gross written premiums from $16.6 million in our first year of operations to $881.9 million for the year ended December 31, 2022, which reflects a compound annual growth rate of approximately 64%.

For the year ended December 31, 2021, 55% of our gross written premiums were generated by our Residential Earthquake, Commercial Earthquake and Hawaii Hurricane lines of business, all of which are not subject to attritional losses.

We experienced average monthly premium retention rates above 89% overall for these lines of business, providing strong visibility into future revenue.

In February 2014, PSIC was awarded an “A−” rating from A.M.

Best Company (“A.M.

Best”), a leading rating agency for the insurance industry.

An “A−” rating is categorized by A.M.

Best as an excellent rating and indicates a stable outlook.

In July 2020, PESIC was also awarded an “A−” rating by A.M.

In May 2021, A.M.

Best affirmed the “A−”rating of PSIC and PESIC.

These ratings reflect A.M.

Best’s opinion of our subsidiaries’ financial strength, operating performance, and ability to meet obligations to policyholders and are not an evaluation directed towards the protection of investors.

We received regulatory approval for PESIC during the second quarter of 2020 and capitalized PESIC with approximately $100 million in initial surplus.

PESIC is domiciled in the State of Arizona and licensed in Arizona to transact across all our existing lines of business.

We believe that the underwriting acumen and market expertise we have established in the admitted insurance market is also applicable to the non-admitted market (also known as the “surplus lines” or “E&S” market), and that PESIC enables us to serve certain risks that our admitted products cannot currently satisfy.

We began writing E&S business on a national basis during the third quarter of 2020.

We have also been profitable since 2016 and our net income growth since 2016 reflects a compound annual growth rate of 41%.

We seek to continuously grow our income by developing product offerings for lines of business that harness our core competencies and where we believe we can generate attractive risk adjusted returns.

Since 2021, we have introduced several new products including General Casualty, Fronting, Excess Liability, and Excess Property to diversify our book of business and broaden our product portfolio.

We believe that our market opportunity, distinctive products, and differentiated business model position us to grow our business profitably.

Our management team founded our company to address unmet needs that we perceived to exist in certain specialty insurance markets.

These markets have primarily been served by either large generalist insurance companies and state-managed entities applying “one-size-fits-all” pricing and policy forms across broad geographies, or by surplus lines companies.

These markets have primarily been served by either large generalist insurance companies and state-managed entities applying “one-size-fits-all” pricing and policy forms across broad geographies.

We sell both admitted and surplus lines products.

For our admitted products, the rates and policy forms have been approved by the insurance department of each state in which we sell our policies thus providing a further level

of security to policyholders through our backing from state guaranty funds.

As a result, our admitted products typically charge lower taxes and fees than alternatives sold by surplus lines carriers.

Our admitted products feature rates and policy forms approved by state insurance departments and are backed by state guaranty funds, providing a further level of security to policyholders.

We believe that for our personal lines products, both our customers and distribution partners prefer the ease of use and security of admitted products with flexible coverages.

We primarily write surplus lines policies for our commercial business.

We write surplus lines policies primarily for our commercial business.

As the E&S market does not involve the same level of regulation and required approvals as the admitted market, our surplus lines products enable us to react quickly to changing market conditions.

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Our primary lines of business include:

Residential Earthquake, Commercial Earthquake, Specialty Homeowners, Inland Marine, Commercial All Risk, Hawaii Hurricane, and Residential Flood.

We seek to write a diverse mix of business by loss exposure, customer type and geography in order to mitigate the potential impact of any single catastrophe event, reduce our cost of reinsurance, and position us to capitalize on emerging market opportunities.

The following table outlines our primary lines of business and the market opportunities that they address:

Line of Business

Palomar Offering

● Competitors’ products have limited options and are priced in broad territorial zones.

● Earthquake is an optional coverage that many property owners choose not to purchase due to the high price and limited coverage options.

● Our Residential and Commercial Earthquake products are priced at a granular level and offer flexible product features.

● Our Earthquake products seek to expand the earthquake insurance market by attracting buyers who may not otherwise acquire protection.

● Our Residential products are primarily admitted and backed by state guaranty funds, which we believe makes them easier to sell.

● We identified specific hurricane-exposed geographic markets in the Southeastern United States with limited homeowners product offerings due to the perceived risk of windstorms.

We also compete in the layered and shared commercial property market, an area where we believe there is currently a high-level of market dislocation.

Our Specialty Homeowners products are offered in markets that we identified through detailed analysis of pricing dynamics and historical loss ratios.

Our Commercial All Risk products are offered on a national E&S basis to insure certain risks which our admitted products previously could not satisfy.

The national scope allows us to diversify our geographic mix and participate in primary and excess policies.

Inland Marine

Many admitted inland marine carriers avoid markets with perceived exposure to windstorms and earthquakes.

Our Inland Marine products utilize a technical risk pricing methodology that we believe enables us to select and price risk appropriately.

Line of Business

Palomar Offering

Hawaii Hurricane

● There are a limited number of highly rated insurers writing standalone residential hurricane business in Hawaii.

● Our Hawaii Hurricane products are preferred by local retail agents due to our “A−” rating and our easy to use technology platform.

● Coverage is required for homeowners that carry a mortgage for their homes in the state of Hawaii.

● Coverage is only provided for named hurricanes, which eliminates our exposure to attritional losses.

Residential Flood

● We believe the current private market flood product offerings are scarce and outdated.

● Our primary flood competitor is the National Flood Insurance Program (“NFIP”), which caps dwelling coverage at $250,000 and prices risks using broad territorial zones.

● Our Residential Flood products offer property coverage up to $5 million and price risk at the specific geocode level.

● Our Residential Flood products also provide broader coverage than the NFIP and have a more streamlined approval process with no required elevation certificate or waiting period.

Residential and Commercial Earthquake, Fronting, and Inland Marine.

We seek to write a diverse mix of business by loss exposure, customer type and geography to capitalize on market opportunities, mitigate the potential impact of any single catastrophe event, and reduce our cost of reinsurance.

We continue to develop product offerings for lines of business that harness our core competencies and where we believe we can generate attractive risk-adjusted returns.

Notable recent examples of our commitment to developing new products include the launch of our casualty and fronting operations during 2021.

We believe these markets compliment our existing product offerings and offer significant growth opportunity across both the admitted and E&S markets.

Since our founding, we have made substantial progress diversifying our business by product, market, and geography.

In 2014, our first year of operations, all of our premiums were related to earthquake insurance.

For the year ended December 31, 2021, 49% of our gross written premiums were related to earthquake insurance.

For the year ended December 31, 2021, 54% of our gross written premiums were attributable to personal lines and 46% of gross written premiums were attributable to commercial lines business.

For the year ended December 31, 2021, non-earthquake related premiums grew 77% while earthquake related premiums grew 31% versus the prior year.

Our principal insurance subsidiary, PSIC, is licensed in 34 states and we have the flexibility to write nationally through our surplus lines subsidiary, PESIC.

Currently, California and Texas represent our largest exposures with 46% and 12% of our gross written premiums for the year ended December 31, 2021, respectively.

Our business strategy is to continue diversifying our book of business by extending our geographic reach and expanding our product portfolio.

Notable recent examples of our commitment to developing new products include the expansion of our Casualty and Fronting operations during 2022.

We believe these markets complement our existing product offerings and offer significant growth opportunity across both the admitted and E&S markets.

We seek to have a diversified business mix, anchored by our core earthquake offerings and we have made substantial progress diversifying our business by product, market, and geography.

In 2014, our first year of operations, all our premiums were related to earthquake insurance.

For the year ended December 31, 2022, 39% of our gross written premiums were related to earthquake insurance and non-earthquake related premiums grew 96% while earthquake related premiums grew 32% versus the prior year.

Our admitted insurance subsidiary, PSIC, is licensed in 37 states and we have the flexibility to write nationally through our surplus lines subsidiary, PESIC.

California represents our largest current exposure with 47% of our gross written premiums for the year ended December 31, 2022.

Our business strategy involves continuing to grow our core earthquake insurance business while also diversifying our book of business into uncorrelated products such as Casualty and Fronting and extending the reach of heritage lines of business such as Inland Marine.

The following charts illustrate our business mix by product, residential versus commercial markets, state, and entity for the year ended December 31, 2022:

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Our systems enable us to underwrite all of our personal lines business automatically within minutes by leveraging our proprietary modeling techniques to analyze data at the geocode or ZIP code level.

For example, our 2016 Residential Earthquake rate and policy form filing with the Washington State Office of the Insurance Commissioner has over 20,000 distinct pricing zones that consider nuanced regional differences in soil types, liquefaction potential and distance from known faults.

In contrast, we believe most competing earthquake insurance rate filings in Washington are based on broad territorial pricing zones across the entire state.

With our commercial products, we balance automation with human expertise and controls to underwrite more complex risks.

Because the data we collect through our underwriting process is highly granular, we can utilize detailed portfolio analytics to actively manage aggregation of policies and to ensure an appropriate dispersion of risks across our full portfolio.

Similarly, our casualty products are subject to extensive risk analysis, including review by experienced underwriters, thorough actuarial review, fostering broker relationships to obtain complete underwriting information, and accurately assessing and quantifying loss exposures to inform pricing, terms and conditions, limits, and attachment points.

Our Competitive Strengths

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Our products generally offer our customers flexible features that are not typical of standard products in our markets.

By offering our customers the ability to choose deductibles and other a la carte coverage options, we believe we have created products that are attractive both to those who have existing coverages with our competitors, and to those who have not historically bought insurance in our target markets.

Furthermore, since our admitted products have been approved by individual state regulators and have been supported by proprietary pricing models since inception, we believe that these products are not easily replaceable, particularly by existing carriers who would face the burden of gathering data, building new models, and revising existing rates and policy forms with regulators.

Finally, our policy forms and ratings methodology provide us with significant flexibility to manage coverage options and pricing.

Product offerings in both the admitted and surplus lines markets.

By offering our customers the ability to manage pricing, coverage options, and deductibles, we believe we have created products that are attractive both to those who have existing coverages with our competitors, and to those who have not historically bought insurance in our target markets.

Furthermore, since our admitted products have been approved by individual state regulators and have been supported by proprietary pricing models since inception, we believe that these products are not easily replicable, particularly by existing carriers who would face the burden of gathering data, building new models, and revising existing rates and policy forms with regulators.

Product offerings in both the admitted and E&S markets.

We believe that our core capabilities can be applied to both the admitted as well as the E&S insurance markets.

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We primarily serve the commercial lines insurance market through the sale of E&S insurance products as those markets are better suited to the flexibility of rate and form available to E&S carriers.

Having surplus lines offerings allows us to react quickly to changing market conditions and to accelerate the expansion of our business nationally as we do not have to go through the process of receiving required approvals from individual state regulators.

Having E&S offerings allows us to react quickly to changing market conditions and to accelerate the expansion of our business nationally as we do not have to go through the process of receiving required approvals from individual state regulators.

Analytically driven, disciplined and scalable underwriting.

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Our proprietary models enable automated pricing of risks at the geocode or ZIP code level, in contrast to our competitors who we believe use less granular analytics and more manual underwriting processes.

For example, our Residential Flood products underwrite risks at the distinct address level compared to the broader pricing zones of the National Flood Insurance Program (“NFIP”) product offerings.

For example, our Residential Flood products underwrite risks at the distinct address level compared to broader pricing zones employed by alternative product offerings in the market.

Our analytical pricing framework is embedded in all facets of our business and is incorporated into our filings, pricing, underwriting and risk management.

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We work with a wide variety of retail agents, program administrators, and wholesale brokers.

We serve over twenty insurance companies as a specialty partner either by issuing companion policies or providing reinsurance for their in-force risks that fit our strict underwriting parameters.

The breadth and

flexibility of our distribution model allows us to generate premium from many different parts of the insurance ecosystem and to rapidly take advantage of changing market conditions.

We serve over 25 insurance companies as a specialty partner either by issuing companion policies or providing reinsurance for their in-force risks that fit our strict underwriting parameters.

The breadth and flexibility of our distribution model allows us to generate premium from many different parts of the insurance ecosystem and to rapidly take advantage of changing market conditions.

Sophisticated and conservative risk transfer program.

Our risk transfer program utilizes excess of loss, quota share and property per risk coverages for both our property and casualty products.

We manage our exposure to catastrophe events through several risk mitigation strategies, including the purchase of reinsurance.

We believe that our reinsurance program provides appropriate levels of protection and improves visibility into our earnings.

We believe our current reinsurance program provides coverage well in excess of our theoretical losses from any recorded historical event.

We regularly model our hypothetical losses from historically significant catastrophes, including the 1906 San Francisco and 1994 Northridge earthquakes.

Under our current reinsurance program, should an event equivalent to either of these two events recur, our hypothetical net loss before any tax effect would be capped at $12.5 million, equivalent to approximately 3.1% of our total stockholders’ equity as of December 31, 2021, inclusive of any amounts retained through our Bermuda reinsurance subsidiary.

While we select reinsurers whom we believe to have acceptable credit and a minimum A.M.

Best rating of “A−”, if our reinsurers are unable to pay the claims for which they are responsible, we ultimately retain primary liability to our policyholders.

In addition, at each reinsurance treaty renewal, we consider any plans to change the underlying insurance coverage we offer, our current capital, our risk appetite, and the cost and availability of reinsurance coverage, which may vary from time to time.

Our current reinsurance program is designed to limit our net loss before tax from a single event to $12.5 million , equivalent to approximately 3.2% of our total stockholders’ equity as of December 31, 2022.

At each reinsurance treaty renewal, we consider any plans to change the underlying insurance coverage we offer, our current capital, our risk appetite, and the cost and availability of reinsurance coverage, which may vary from time to time.

In addition to the magnitude of coverage, we believe our reinsurance program provides us with significant protection and stability during potential periods of multiple severe catastrophes or market volatility due to our use of aggregate reinsurance protection as well as features such as prepaid reinstatements and expanded coverage windows for catastrophe events and our diverse panel of more than 100 highly rated reinsurers and capital markets investors.

Given that our reinsurance purchases are driven primarily by our peak zone earthquake exposure, as we scale and diversify our book of business into uncorrelated geographies and perils, we have been able to secure multi-peril coverage that reduces the cost of reinsurance per dollar of risk.

Additionally, we buy program specific quota share reinsurance coverage for specific lines of business to further mitigate the impact of attritional losses on underwriting results.

Further, we buy program specific quota share reinsurance coverage for certain lines of business to mitigate the impact of attritional losses on underwriting results.

In our quota share agreements, we cede a portion of our premium for lines of business subject to attritional losses to reinsurers and, in return, we also cede a proportionate amount of losses and receive ceding commissions from the reinsurers.

Emphasis on the use of technology and analytics across our business.

As a recently formed insurance company, we have built a proprietary operating platform that employs best practices derived from our management team’s extensive prior experience.

Our technology platform is not burdened by outdated legacy technology and process which may be utilized by older insurance companies.

We have built a proprietary operating platform that employs best practices derived from our management team’s extensive prior experience.

Our technology platform is not burdened by outdated technology and processes which may be utilized by older insurance companies.

In building our platform, we have emphasized automated processes that use granular data and analytics consistently across all aspects of our business.

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Many of our management team members such as Mr.

Armstrong, Jon Christianson, our Chief Underwriting Officer, Jon Knutzen, our Chief Risk Officer, and Chris Uchida, our Chief Financial Officer, have a long history of working together.

Armstrong, Jon Christianson, our President, Jon Knutzen, our Chief Risk Officer, and Chris Uchida, our Chief Financial Officer, have a long history of working together.

For example, while at Arrowhead, Mac Armstrong worked closely with Chris Uchida, who served as Executive Vice President and Chief Accounting Officer of Arrowhead.

As owners of approximately 2.8% of our outstanding common stock as of December 31, 2022, we believe our management team has closely aligned interests with our stockholders.

Additionally, our Board of Directors is comprised of accomplished industry veterans who bring decades of experience from their prior roles working in insurance and financial services companies.

We believe that our approach to our business will allow us to achieve our goals of both growing our business and generating attractive returns.

In addition, our Board of Directors is comprised of accomplished industry veterans who bring decades of experience from their prior roles working in insurance and financial services companies.

We believe that our approach will allow us to achieve our goals of both growing our business and generating attractive returns.

Our strategy involves:

Expand our presence in existing markets.

We primarily compete in lines of business and states that represented over $100 billion in total written premiums during 2020.

We compete in the United States property and casualty market that represented nearly $800 billion in total written premiums during 2021.

By comparison, we generated $881.9 million of gross written premiums for the year ended December 31, 2022.

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and (iii) increasing the total addressable market by providing attractive products to customers who previously elected not to purchase coverage.

Extend our geographic reach and product portfolio.

Our admitted insurance company, PSIC, is licensed in 34 states, while our E&S company operates on a nationwide basis.

We continue to evaluate additional geographic markets and lines of business where we believe we can generate attractive risk-adjusted returns by harnessing our core competencies.

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As a result, we are able to generate an attractive underwriting profit through expanding the addressable market and winning market share with our distinctive products.

For the years ended December 31, 2021 and 2020, our adjusted return on equity was 14.1% and 3.0%, respectively, with our results for 2020 reflecting profitability in spite of losses sustained by several severe weather events.

Additionally, we will look to achieve industry leading combined ratios to ensure we are achieving attractive risk-adjusted returns.

For the years ended December 31, 2022 and 2021, our return on equity (“ROE”) was 13.4% and 12.1%, and our adjusted ROE was 18.3% and 13.8%, respectively.

As we seek premium growth, we intend to remain disciplined in our pricing, underwriting, and risk management processes, including closely managing our net probable maximum loss (“PML”), average annual loss (“AAL”), and spread of risk.

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Maintain a diversified book of business.

We currently write a book comprised primarily of specialty insurance that is diversified by underlying loss exposure, customer type and geography.

We currently write a book of specialty insurance that is diversified by underlying loss exposure, customer type and geography.

Our major product lines and exposures are uncorrelated, such that events contributing to a loss in one line of business are unlikely to generate material losses in our other lines of business.

The diversification of our book of business improves our risk-adjusted returns, reduces our reinsurance cost per dollar of premium, insulates us from swings in any single insurance or reinsurance market, and allows us to capitalize on market shifts opportunistically.

As we grow, we intend to maintain a diversified book of business to continue to capitalize on these advantages.

Pursue new opportunities via our surplus lines company.

Our surplus lines company, PESIC, began writing business in the third quarter of 2020.

Our current strategy with our surplus lines company primarily involves addressing segments of the commercial lines insurance market, where the flexibility of premium rates and forms is better suited to the market.

Our surplus lines company is licensed to write on a national basis and we intend to use it to grow our national footprint including through partnerships with program administrators that target national account business.

The diversification of our book of business improves our risk-adjusted returns, insulates us from swings in any single insurance or reinsurance market, and allows us to capitalize on market shifts opportunistically.

As we grow, we intend to maintain a diversified book of business and continually capitalize on these advantages.

Leverage our underwriting, analytics, and risk transfer acumen to generate fee income.

We generate fee income by underwriting on behalf of other insurance companies and through the use of quota share reinsurance treaties whereby third-party reinsurers pay us a ceding commission in order to access attractive pools of risk.

Our newly launched fronting business offers an additional source of fee income that we earn from program administrators and reinsurers seeking to access our licensed insurance companies.

Our fronting business offers an additional source of fee income that we earn from program administrators and reinsurers seeking to access our licensed insurance companies.

Our multi-channel distribution model produces attractive business that we aim to translate into a balanced mix of underwriting and fee income.

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We believe that protecting our earnings and balance sheet through the use of reinsurance is critical to our business and supports our ability to meet obligations to our policyholders and other constituents, and generate strong returns for our stockholders.

We plan to maintain a conservative, robust reinsurance program to help ensure that we are adequately protected against potential severe or frequent catastrophe losses.

We plan to maintain a conservative, robust reinsurance program to provide protection against severe or frequent catastrophe losses.

Our goal is to protect our earnings by constructing a reinsurance program that mitigates losses and ensures profitability in spite of potential shock losses or catastrophic activity.

As we grow, we expect that we will benefit from increased scale and diversification of risk in our business, and we plan to optimize our reinsurance program continuously by adjusting terms, structure, pricing, and participants to maximize our risk-adjusted returns.

Strengthen and harness our strong and growing capital base.

We compete with larger, more longstanding insurers in many of the markets that we serve.

Nevertheless, we were awarded an “A−” (Excellent) (Outlook Stable) rating from A.M.

Best at our formation, which we believe has been a source of competitive differentiation in certain markets where we operate.

As we continue to demonstrate profitable operations and generate additional equity, we believe we will have access to more distribution sources, particularly in commercial lines insurance, that may have been reluctant to refer business to us earlier in our operating history.

Continue to invest in proprietary technology assets that deepen our competitive advantage.

We believe that the success of our business is centered upon our relentless commitment to apply technology to improve our business.

We believe that the success of our business is centered upon our relentless commitment to using technology to improve our business.

For example, we have dedicated software developers focused on building application programming interfaces (“APIs”), which enable seamless integration into the point of sale systems of our partner carriers and distribution partners.

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PSIC was formed in February 2014.

In August 2014, we incorporated Palomar Specialty Reinsurance Company Bermuda Ltd.(“PSRE”), a Bermuda-based reinsurance subsidiary that provides reinsurance support exclusively to PSIC and PESIC.

August 2014, we incorporated Palomar Specialty Reinsurance Company Bermuda Ltd.(“PSRE”), a Bermuda-based reinsurance subsidiary that provides reinsurance support exclusively to PSIC and PESIC.

In August 2015, we incorporated Prospect General Insurance Agency, Inc., now known as Palomar Insurance Agency, Inc., (“PIA”), to underwrite specialty insurance products on behalf of third-party insurance companies.

During 2020, we received regulatory approval for and capitalized PESIC with approximately $100 million in initial surplus.

During 2020, we received regulatory approval for and capitalized PESIC.

PESIC is domiciled in the State of Arizona and licensed in Arizona to write surplus lines business on a nationwide basis across all our existing lines of business.

Our Structure

Our entities are structured are follows:

We provide personal and commercial specialty insurance products in our target markets.

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(i) have loss characteristics, including limited attritional losses, similar to our initial earthquake product, (ii) can benefit from our technology platform, data analytics and customer centric products, and/or (iii) allow us to leverage our existing underwriting talent, reinsurance expertise and/or distribution relationships.

Our primary insurance products include Residential and Commercial Earthquake, Specialty Homeowners, Inland Marine, Commercial All Risk, Hawaii Hurricane, and Residential Flood.

Our primary insurance products include Residential and Commercial Earthquake, Fronting, and Inland Marine.

We aim to develop a diversified portfolio with exposure spread across geographic regions with limited correlation.

Our largest exposure remains in the state of California and we have expanded to address regions including the New Madrid Seismic zone in the Midwestern United States, wind-exposed markets in the southeastern United States and in the state of Hawaii.

Although our largest exposure remains in the state of California, we have expanded across the United States.

We tailor our risk participation to optimize our returns depending on the conditions of specific markets.

In total, we are licensed as an admitted insurer in 37 total states.

The following table shows our gross written premium by state for the years ended December 31, 2021, 2020 and 2019:

The following table shows gross written premium (“GWP”) by state for the years ended December 31, 2022, 2021 and 2020.

Year Ended December 31,

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For the year ended December 31, 2022, 37% of our gross written premium consisted of personal lines business and 63% of gross written premium consisted of commercial lines business, compared to 54% personal lines business and 46% commercial lines business during the year ended December 31, 2021.

The following table shows gross written premium (“GWP”) by product line for the years ended December 31, 2021, 2020 and 2019:

The following table shows gross written premium by product line for the years ended December 31, 2022, 2021 and 2020:

Year Ended December 31,

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Commercial Earthquake

Specialty Homeowners

Inland Marine

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Hawaii Hurricane

Specialty Homeowners

Residential Flood

Total Gross Written Premiums

Premium Retention Rates

Our products demonstrate strong renewal rate trends, which we believe are an indication of the distinctive value we provide to insureds and which provide visibility into future earned premium.

The following table shows our premium retention for the years ended December 31, 2021 and 2020 for our Residential Earthquake, Commercial Earthquake and Hawaii Hurricane lines of business, which represented 55% of overall gross written premiums during the year and which are not subject to attritional losses:

Average monthly premium retention by product:

Residential Earthquake

Commercial Earthquake

Hawaii Hurricane

NM-Not Meaningful

Residential Earthquake

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all policies involve automated underwriting and lower limit policies are issued via automated processing.

During the year ended December 31, 2022 and 2021, our Residential Earthquake products had a premium retention rate of approximately 91%.

Commercial Earthquake

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Our Commercial Earthquake products focus on providing coverage for benign commercial risks where the business interruption exposure is typically less than 15% of the total insured value (“TIV”).

We attempt to avoid risks where the contents are hard to value or represent a disproportionate percentage of the value.

We attempt to avoid risks where the contents are hard to value or represent a disproportionate

percentage of the value.

We write policy limits up to $25 million with the ability to serve larger accounts using facultative reinsurance.

Specialty Homeowners

Our Specialty Homeowners product provides admitted insurance coverage to homeowners in wind-exposed coastal regions.

We believe that the homeowners insurance market on a national level is highly competitive but that there are specific geographic markets with attractive return potential that many insurance companies avoid due to windstorm exposure.

Our Fronting business offers both admitted and E&S products to reinsurers, insurance carriers and managing general agents to enable the design and operation of customized insurance programs.

We issue insurance policies for other insurance companies which may not have the licensure, product suite or rating to serve their desired markets, or for programs supported by reinsurance or alternative capital providers.

In addition, we enter fronting arrangements with program administrators that require a broadly licensed, highly rated carrier to conduct their business in certain states.

Inland Marine

Our Inland Marine division currently offers products that include Builder’s Risk, Contractor’s Equipment, Mobile Equipment, Motor Truck Cargo, Miscellaneous Floaters, Installation Floaters, and Special Property Floaters.

Our Inland Marine products include Builder’s Risk, Contractor’s Equipment, Mobile Equipment, Motor Truck Cargo, Miscellaneous Floaters, Installation Floaters, and Special Property Floaters.

We write our Inland Marine products on an admitted and on an E&S basis directly and through program administrators.

Policy limits vary by product, however, our E&S offerings are designed to target larger limit business and does not directly compete with our admitted offerings.

We believe the flexibility of our Inland Marine product enables us to compete in select market segments and price risk appropriately.

We believe the flexibility of our Inland Marine products enables us to compete in select market segments and price risk appropriately.

Commercial All Risk

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We offer admitted residential property coverage for named hurricanes in the state of Hawaii.

This is a required coverage for homeowners that carry a mortgage on their properties in the state.

The state requires this coverage for homeowners that carry a mortgage on their properties.

Similar to our residential earthquake product, insureds have the ability to tailor limits to their preferences.

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all policies involve automated underwriting and policies under $5 million in limit are issued via automated processing.

Specialty Homeowners

Our Specialty Homeowners product previously provided admitted insurance coverage to homeowners in wind-exposed coastal regions.

During the year ended December 31, 2022, we ceased writing Specialty Homeowners policies outside the state of Texas and converted our Texas Specialty Homeowners business to a fronting arrangement.

We do not plan to write Specialty Homeowners business in the future.

Residential Flood

We provide residential flood products on an admitted basis in 14 states and on an E&S basis in 16 states across the United States.

Our products primarily compete against those of the NFIP, which caps dwelling coverage at $250,000 and prices risk using broadly defined zones.

Our products primarily compete against those of the NFIP, which caps dwelling coverage at $250,000 and prices risk using less granular regional zones.

We offer higher limits than the NFIP and price risk at the specific geocode level having developed detailed granular models of all current markets in partnership with a leading national catastrophe modeling agency.

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We write policy limits up to $5 million, all of which involve automated underwriting and are issued via automated processing.

We continue to develop product offerings for lines of business that harness our core competencies and where we believe we can generate attractive risk adjusted returns.

Notable recent examples of our commitment to developing new products include the launch of our casualty and fronting operations during 2021.

Our Casualty division provides casualty coverage on an admitted and non-admitted basis in two segments of the casualty sector:

General Casualty and Professional Liability.

Our Fronting business, known as PLMR-FRONT, provides fronting paper on both an admitted and E&S basis through Palomar Specialty Insurance Company and PESIC, to reinsurers, insurance carriers and managing general agents to enable the design and operation of customized insurance programs.

The Fronting team targets opportunities across multiple lines of business where traditional insurance is difficult to source.

In addition, we offer commercial flood products in certain markets and generate premiums through assumed reinsurance agreements on selected risks.

We believe these markets compliment our existing product offerings and offer significant growth opportunity across both the admitted and E&S markets.

We provide casualty products on an admitted and non-admitted basis.

We write primarily general casualty and professional liability coverages directly and through program administrators.

We utilize experienced underwriters and thorough actuarial review to optimize our pricing, terms and conditions, limits, and attachment points.

Examples of our other product offerings include assumed reinsurance contracts where the exposure is uncorrelated to our existing product offerings.

We continuously seek to develop product offerings and write business in areas that harness our core competencies and where we believe we can generate attractive risk adjusted returns.

Marketing and Distribution

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To assist with this goal, our underwriters regularly visit with brokers to market and discuss the products we offer.

We terminate brokers who are unable to produce consistently profitable business or who produce unacceptably low volumes of business.

Program Administrators:

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Under this agreement, which accounted for $173.1 million of written premiums for the year ended December 31, 2022, we conduct product development and underwriting while our program administrator manages a base of over 1,000 retail agents who individually bind policies through PASS or an internal system which automatically applies our pricing and underwriting guidelines to new policies, and is subjected to our disciplined risk management.

The fees payable by us to Arrowhead under the agreement are based upon our premiums written in each state.

The agreement remains in effect until terminated by either party upon 180 days’ prior written notice to the other party for cause.

In addition, our Specialty Homeowner products are sold through program administrators with local expertise in their respective markets and that participate in the economics of produced business through risk sharing agreements, which we believe strengthens the alignment of interests toward generating underwriting profit.

Finally, we have partnered with several program administrators that focus on specific areas of the E&S market as we pursue the growth of PESIC, our surplus lines insurance carrier.

We have also partnered with several program administrators that focus on specific areas of the E&S market as we pursue the growth of PESIC.

Carrier Partnerships:

Given our unique specialty focus and underwriting expertise, we are a carrier of choice for other insurance companies seeking a specialty insurance partner to transfer certain classes of risk, satisfy insurance department mandatory offer requirements or provide a more comprehensive risk solution to their customers.

As of December 31, 2021, we had partnerships with over twenty insurance companies.

Given our unique specialty focus and underwriting expertise, we are a carrier of choice for other insurance companies seeking a specialty insurance partner to act as a fronting carrier, transfer certain classes of risk, satisfy insurance department mandatory offer requirements or provide a more comprehensive risk solution to their customers.

As of December 31, 2022, we had partnerships with over 25 insurance companies.

Several carriers invite us to provide a companion offer for residential earthquake insurance alongside their homeowners’ insurance policy offerings.

Other carriers will direct their captive agents to our online system so that they may quote, bind and issue policies directly.

Finally, we offer assumed reinsurance arrangements to carriers whereby we assume up to 100% of the underlying risk for specific classes of business, typically Residential Earthquake, in exchange for a ceding commission.

Our assumed reinsurance treaties represent risks that we would ordinarily underwrite on a primary basis and that fit well within our risk tolerance, however, the cedant either (i) has already written these policies or (ii) the cedant wants to issue the policies on its paper but not retain any of the risk and as such prefers an assumed reinsurance partnership.

We believe that our carrier partnerships with sophisticated industry participants speak to the value and quality of our products,

service offering and systems.

Finally, we offer assumed reinsurance arrangements to carriers whereby we assume up to 100% of the underlying risk for specific classes of business in exchange for a ceding commission.

Our assumed reinsurance treaties represent risks that we would ordinarily underwrite on a primary basis and/or that fit well within our risk tolerance, however, the cedant either (i) has already written these policies or (ii) the cedant wants to issue the policies on its paper but not retain any of the risk and as such prefers an assumed reinsurance partnership.

We believe that our carrier partnerships with sophisticated industry participants speak to the value and quality of our products, service offering and systems.

Furthermore, carrier partnerships are a highly scalable distribution model as they enable us to tap into a sizable customer base and to quickly build scale in new markets.

With all partnerships, we review pricing at the policy level to ensure that the risk characteristics of both new and assumed business are consistent with our underwriting of direct business.

We intend to pursue additional carrier partnerships in the future including those that involve PESIC, our E&S company.

We intend to pursue additional carrier partnerships in the future including those that involve PESIC.

Our underwriting team combines comprehensive data analysis with experienced underwriting techniques to build a profitable, stable and diversified book of business.

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Our overarching underwriting philosophy is ‘to write what we know’ a straightforward approach that allows our underwriters to focus on business they understand and can process quickly without sacrificing diligence and attention to detail.

We develop our underwriting guidelines and pricing models through traditional underwriting metrics, management experience, and advanced data analytics that allow us to assess information about construction type, contingent exposure, location, occupancy type and size and granularly rate exposure at the ZIP code or geocode level.

We access data for our pricing models provided from multiple leading risk modeling vendors, and use our information from proprietary extensions of catastrophe models to assist in evaluating soil types, proximity to faults, and loss estimates in the form of modeled marginal impact, AAL and PML.

This analytical underwriting framework enables us to offer rate relief in low risk areas and to accurately price locations that are at higher risk.

We develop our underwriting guidelines and pricing models for our property and casualty products through traditional underwriting metrics, management experience, and advanced data analytics.

Our underwriters actively collaborate with our actuarial team to determine pricing and risk exposure.

This analytical and underwriting expertise framework enables us to offer rate relief in low risk areas and to accurately price risks that are at higher risk.

Personal lines policies are issued via automated underwriting and account for approximately 37% of our gross written premium for the year ended December 31, 2022.

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We believe that automated underwriting of personal lines policies improves efficiency, reduces errors, and enhances the customer experience.

Since commercial lines risks involve additional complexity and do not lend themselves to highly automated underwriting, we combine robust risk analysis an data collection with underwriter expertise to evaluate individual risk and to quote business efficiently.

Since property and casualty commercial lines risks involve additional complexity and do not lend themselves to highly automated underwriting, we combine robust risk analysis and data collection with underwriter expertise to evaluate individual risk and to quote business efficiently.

We regularly audit data gathered during our underwriting process to determine the accuracy of rating information and risk pricing.

For example, we often inspect properties as part of our underwriting process to discover any unrepaired damage and identify any other conditions that affect the insurability of the property.

Our underwriters bring specific line of business experience including underwriting expertise, distribution relationships and support from the reinsurance community.

Additionally, we continue to pursue the use of technology to streamline inspections and other components of the underwriting process.

Our underwriters bring specific line of business experience including underwriting expertise, distribution relationships and support from the reinsurance community while collaborating closely with our actuarial team on pricing.

In addition, we continue to pursue the use of technology to streamline inspections and other components of the underwriting process.

We apply the same principles and discipline to underwriting when selecting program administrator partners.

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We currently contract with multiple TPAs to reduce our reliance on any single TPA, as well as to benefit from expertise of individual vendors in specific lines of business.

Our management team is responsible

for overseeing our TPAs, including the management of loss reserves, event preparation, settlement, arbitration, and mediation.

Our management team is responsible for overseeing our TPAs, including the management of loss reserves, event preparation, settlement, arbitration, and mediation.

Claims are reported directly to us and the applicable TPA, which adheres to agreed upon service level standards.

In the case of a catastrophe event, our technology infrastructure and data analytics enable us to identify potentially affected policies immediately and begin assisting our customers by notifying our TPAs, our reinsurance partners and other potentially impacted parties.

A network of TPAs improves our ability to mobilize claims adjusters immediately to the areas where our customers are most affected and helps insulate us from the “demand surge” following a catastrophe event.

Contracting with a network of TPAs improves our ability to mobilize claims adjusters immediately to the areas where our customers are most affected and helps insulate us from the “demand surge” following a catastrophe event.

To prepare for a potential catastrophe event, we run simulations and work closely with our TPAs to ensure there are dedicated desk and field adjusters to handle the volume of claims that would be expected in each loss scenario.

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We review all claims received from our TPAs to validate coverage, limits, and deductibles prior to making payment.

Additionally, we have certain managerial requirements of our TPAs around notification, reserve approval, payment management, correspondence with insureds, and reports for all claims in excess of the claims analyst’s authority.

In addition, we have certain managerial requirements of our TPAs around notification, reserve approval, payment management, correspondence with insureds, and reports for all claims in excess of the claims analyst’s authority.

We also monitor possible litigation and litigation trends associated with our claims.

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Reinsurance involves transferring, or ceding, a portion of our risk exposure on policies that we write to another insurer, the reinsurer, in exchange for a premium.

To the extent that our reinsurers are unable to meet the obligations they assume under our reinsurance agreements, we remain liable for the entire insured loss;

see “Risk Factors—Risks Related to Our Business and Industry—We may be unable to purchase third-party reinsurance or otherwise expand our catastrophe coverage in amounts we desire on commercially acceptable terms or on terms that adequately protect us, and this inability may materially adversely affect our business, financial condition and results of operations.”

We use treaty reinsurance and, on a limited basis, facultative reinsurance coverage.

Treaty coverage refers to a reinsurance contract that is applied to a group or class of business where all the risks written meet the criteria for that class.

Our treaty reinsurance program primarily consists of catastrophe XOL, in which the reinsurer(s) agree to assume all or a portion of the ceding company’s losses relating to a group of policies occurring in relation to specified events, subject to customary exclusions, in excess of a specified amount.

Additionally, we buy program specific reinsurance coverage for specific lines of business on a quota share, property per risk, or a facultative basis.

We purchase several types of reinsurance, including catastrophe excess of loss (“XOL”), in which the reinsurer(s) agree to assume all or a portion of losses relating to a group of policies occurring in relation to specified events, subject to customary exclusions, in excess of a specified amount.

In addition, we buy reinsurance coverage for specific lines of business on a quota share, property per risk, or a facultative basis.

In quota share reinsurance, the reinsurer agrees to assume a specified percentage of the ceding company’s losses arising out of a defined class of business in exchange for a corresponding percentage of premiums, net of a ceding commission.

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Best, or whose surplus drops by more than 20%.

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

catastrophe bonds).

In addition to reinsurance purchased from traditional reinsurers, we have 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.

(“Torrey Pines Re”).

Torrey Pines Re.

is a special purpose insurer established in Singapore that provides Palomar with indemnity-based reinsurance covering earthquake events.

The catastrophe bond was completed through Torrey Pines Re Pte.

(“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.

Our largest single XOL reinsurer, excluding Torrey Pines Re, comprises 5.2% of the total catastrophe XOL reinsurance limit we have in effect.

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Torrey Pines Re 144A Cat Bond 2022

Fidelis Insurance Bermuda Limited / Fidelis Underwriting Limited

Renaissance Reinsurance, Ltd.

/ DaVinci Reinsurance, Ltd / Vermeer Reinsurance, Ltd.

Elementum Re Ltd.

obo Allianz Risk Transfer / Hannover Rueck SE

MS Amlin AG / Lloyd's # 2001 - MS Amlin Underwriting, Ltd.

Lancashire Insurance Company Limited / Lloyd's # 2010 - Lancashire Syndicates Ltd.

Torrey Pines Re 144A Cat Bond 2021

Houston Casualty Company (UK Branch)

Securis ILS Management, Ltd.

Bermuda obo Arch Re and Hannover Rueck SE

Transatlantic Reinsurance Company / obo General Reinsurance Corporation

Lloyd's # 1084 - Chaucer Syndicates Ltd

Lancashire Insurance Company, Ltd.

Ariel Re Bda Limited obo Synd 1910 (Bermuda)

Lloyd's # 1947 - GIC Re

Swiss Reinsurance America Corporation

MS Amlin AG Bermuda Branch

Elementum Re Ltd.

obo Allianz Risk Transfer AG (Bermuda Branch)

Lloyd's # 1301 - Inigo Insurance

Catastrophe XOL Reinsurance Coverage

Our catastrophe event retention before any tax effect is currently $12.5 million for all perils.

Our reinsurance coverage exhausts at $1.68 billion for earthquake events and $700 million for hurricane events, providing coverage in excess of our 1:250 year peak zone PML and in excess of our A.M.

Best requirement.

Our reinsurance coverage exhausts at $2.11 billion for earthquake events, $1.01 billion for Hawaii hurricane events, and $250 million for continental U.S.

hurricane events, providing coverage in excess of our 1:250 year peak zone PML and in excess of our A.M.

Best threshold.

In addition, we maintain reinsurance coverage equivalent to or better than the 1 in 250 year PML for our other lines.

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This coverage, applying within our per occurrence retention, has an attachment point of $30 million and applies across all perils including but not limited to earthquakes, hurricanes, convective storms, and floods above a qualifying level of $2.0 million in ultimate gross loss.

We believe the aggregate reinsurance cover reduces the volatility of our business and we expect to utilize similar coverage in the future.

To assess the sufficiency of our catastrophe XOL reinsurance coverage, we continuously quantify our exposure to catastrophes including earthquakes, hurricanes, tornadoes and hail storms.

We believe subsequent event coverage and the aggregate reinsurance cover reduces the volatility of our business and we will always consider the need to protect against subsequent or multiple events in our reinsurance strategy.

To assess the sufficiency of our catastrophe XOL reinsurance coverage, we continuously quantify our exposure to catastrophes including earthquakes, hurricanes, tornadoes, and hailstorms.

We evaluate and monitor the total policy limit insured for each peril and in each geographic region, and we use third-party catastrophe models to evaluate the AAL as well as the estimated PML at various intervals.

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We believe our current reinsurance program provides coverage well in excess of our theoretical losses from any recorded historical event.

This coverage includes events such as the 1906 San Francisco and 1994 Northridge earthquakes.

Under our current reinsurance program, because the PML for each of the historical events is less than $1.68 billion, the amount covered by our current reinsurance program, should an event equivalent to either of these two events or other historical events recur, our hypothetical net loss before any tax effect would be capped at our current net retention of $12.5 million as demonstrated in the following table:

The below table shows the PML from selected historical catastrophe events, all of which are less than the amount covered by our current catastrophe reinsurance program.

Should an event equivalent to one of these historical events recur, our hypothetical net loss before any tax effect would be capped at our current net retention of $12.5 million.

Historical Event

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CA 1868 Hayward M7.0

HI 1992 Hurricane Iniki

NM 1811‑12 sequence M7.8

HI 1992 Hurricane Iniki

NW 1949 Puget Sound M7.1

CA 1933 Long Beach M6.4

CA 1857 Fort Tejon M7.9

CA 1933 Long Beach M6.4

While we only select reinsurers whom we believe to have acceptable credit and a minimum A.M.

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Program Specific Reinsurance Coverage

In addition to our catastrophe XOL coverage, we purchase reinsurance for specific programs in order to control our net exposure for any single risk, manage our exposure to attritional losses and improve our economics through ceding a portion of the risk to reinsurers in exchange for a ceding commission.

We purchase program specific reinsurance, consisting primarily of quota share coverage, for certain lines of business with an attritional loss component.

Third-Party Capacity

In order to utilize our internal product development, underwriting and distribution expertise on behalf of third- party insurance companies, we launched an affiliated managing general agent called Prospect General Insurance Agency (“PGIA”) in 2016.

During 2020, Prospect General Insurance Agency was renamed to Palomar Insurance Agency, DBA Palomar General Insurance Agency (“PGIA”).

In 2019, we entered into a new partnership to underwrite commercial flood risk on behalf of a proven partner.

We will continue to develop third-party capacity relationships that support our products.

We purchase program specific reinsurance, consisting primarily of quota share coverage, for certain lines of business with an attritional loss component such as Inland Marine and Casualty.

We also utilize a combination of XOL and quota share reinsurance to provide coverage for our Flood products.

Our integrated technology systems form the backbone of our business as they enable us to offer quality and timely service to our policyholders and producers, communicate seamlessly with reinsurers and partner carriers, and run our business more efficiently and cost effectively.

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We have dedicated in-house software developers as well as external resources, all of whom report to our Chief Technology Officer.

Our internally developed

PASS provides producers direct access to our retail and wholesale distributed products including Residential Earthquake, Commercial Earthquake, Hawaii Hurricane, Inland Marine and Residential Flood.

Our internally developed PASS provides producers direct access to our retail and wholesale distributed products including Residential Earthquake, Commercial Earthquake, Hawaii Hurricane, Inland Marine and Residential Flood.

PASS also serves as the administration system for select policy data and the access point for business written through direct personal lines partnerships.

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We regularly review our loss reserves using a variety of actuarial techniques.

We also update the reserve estimates as historical loss experience develops, additional claims are reported and/or settled and new information

becomes available.

Additionally, our loss reserving is reviewed quarterly for reasonableness by a reputable third-party actuarial firm.

We also update the reserve estimates as historical loss experience develops, additional claims are reported and/or settled and new information becomes available.

A reserve can be increased or decreased over time as claims move towards settlement, which can impact earnings in the form of either adverse development or reserve releases.

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We invest these reserves, primarily in fixed maturity investments.

Our fixed maturity investment portfolio is managed by Conning and Company, an investment advisory firm that is an experienced manager of insurance company assets, and operates under guidelines approved by our Board of Directors.

Our fixed maturity investment portfolio is managed by Conning, Inc., an investment advisory firm that is an experienced manager of insurance company assets, and operates under guidelines approved by our Board of Directors.

We believe our investment strategy allows us to eliminate the expense of a treasury department while allowing our management to maintain oversight over the investment portfolio.

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Given our existing exposure to property values, notably in the state of California, we have imposed restrictions on municipal obligations in the state of California and CMBS single issuers concentrated in the state of California.

In addition, we allocate at least 1% of our investment portfolio to investments in green bonds- or fixed income investments tailored towards environmental solutions such as renewable energy, clean transportation, green building, and wastewater treatment – a commitment that is consistent with both our investment objectives and our company values.

Enterprise Risk Management (“ERM”)

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Our ERM framework plays an important role in fostering our risk management culture and practices.

We continue to enhance our ERM framework, which is guided by the Own Risk and Solvency Assessment (“ORSA”) model developed by the NAIC.

These ongoing enhancements include the creation of an ERM Sub-Committee comprised of executive management and select board members, creation and maintenance of a risk register and regular reporting on risk management.

We continue to enhance our ERM framework, which is guided by the Own Risk and Solvency Assessment (“ORSA”) model developed by the National Association of Insurance Commissioners (“NAIC”) and the National Institute of Standards and Technology (“NIST”) cybersecurity framework.

These ongoing enhancements include the creation of an ERM Sub Committee of the Audit Committee of the

Board of Directors which is comprised of executive management and select board members, creation and maintenance of a risk register, and regular reporting on risk management.

An additional important part of our ERM is business continuity, including in the circumstances of a catastrophe event.

We have established a business continuity team made up of executive management with predefined roles and responsibilities in the event of an emergency response situation and a business continuity communication site where

employees are directed to receive instructions that are tailored to various scenarios.

We store all data offsite and ensure it is accessible remotely.

Our communications, virtual file servers, underwriting and distribution systems, and claims portal are hosted in geographically diverse data centers domestically and globally.

We maintain additional offices in Mission Viejo, California and Bloomington, Minnesota to use as redundant locations in the event of a disruptive event in San Diego, and purchase business continuity services to support the La Jolla office in the event of a disruptive event.

Environmental and Climate Change Matters

We maintain an additional office in Edina, Minnesota to use as a redundant location in the event of a disruptive event in San Diego, and purchase business continuity services to support the La Jolla office in the event of a disruptive event.

Environmental, Social and Governance Matters

In 2021, our Board of Directors established an Environmental, Social and Corporate Governance (“ESG”) Committee which is comprised of various members of our Board.

The ESG committee oversees and provides guidance on the company’s strategies related to several factors, including environmental, health and safety, corporate social responsibility, governance, sustainability and public policy matters relevant to our business.

Specific duties of the ESG committee include:

• Assisting the management team in setting general strategy relating to ESG matters;

• Developing, implementing and monitoring initiatives and policies based on that strategy;

• Overseeing communications with employees, investors and shareholders with respect to ESG matters.

The ESG committee meets on a regular basis to assess progress on ESG matters and will continue to look for opportunities to integrate ESG concerns in our strategy.

Environmental and Climate Change

Our economic model is closely tied to our coverages for natural disasters and catastrophes.

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From an underwriting standpoint, we carefully consider the development and deployment of insurance products in coastal areas that may be impacted by rising sea levels, and we incorporate scenarios into our catastrophe modeling that involve elevated sea surface temperatures and other relevant data.

From an operations standpoint, our efforts include establishing a standing environmental, social, and governance (“ESG”) committee of the Board of Directors that works with the company to establish and measure progress toward several metrics related to climate change and environmental health.

We are undertaking a third-party audit of the company’s carbon footprint, as well as options to mitigate that footprint.

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While we currently target underserved markets, some of our competitors have greater financial, marketing and management resources and experience than we do.

Our primary competitors include national insurance companies, including American International Group, Inc., Chubb Limited, State Farm Mutual Automobile Insurance Company and Zurich Insurance Group Ltd., as well as specialty insurers such as Zephyr Insurance Company, a subsidiary of Heritage Insurance Holdings, and GeoVera Holdings, Inc.

We also compete with the E&S market, including Lloyd’s of London in some of our lines.

In addition, we compete against state or other publicly managed enterprises including the California Earthquake Authority, the National Flood Insurance Program and the Texas Wind Insurance Association.

In addition, we compete against state or other publicly managed enterprises including the California Earthquake Authority and the National Flood Insurance Program.

We may also compete with new market entrants in the future.

Competition is based on many factors, including the reputation and experience of the insurer, coverages offered, pricing and other terms and conditions, customer service, relationships with brokers and agents (including ease of doing business, service provided and commission rates paid), size and financial strength ratings, among other considerations.

Our insurance group, Palomar Holdings, Inc., currently has a rating of “A−” (Excellent) (Outlook Stable) from A.M.

Each of our insurance company subsidiaries, PSIC and PESIC has a rating of “A−” (Excellent) (Outlook Stable) from A.M.

Best, which rates insurance companies based on factors of concern to policyholders.

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We set diversity goals in our annual Sustainability & Citizenship report.

In 2021, 39% of our team members identify as a member of an ethnic minority group, compared to 37% in 2020.

In 2022, 40% of our team members identify as a member of an ethnic minority group, compared to 39% in 2021, and 50% of our senior executive team identifies as a member of an ethnic minority group.

Our commitment to Diversity and Inclusion follows:

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We regularly benchmark programs to ensure our team has access to industry-leading benefits to address all aspects of well-being — physical and mental health, family care, financial support, and community engagement.

In response to the COVID-19 pandemic, many of our team members have been working from home since March 2020.

We recently began allowing all employees to return to our offices on a voluntary basis, with established protocols to ensure operational reliability and employee safety.

We provide team members a reimbursement to help manage incremental costs associated with remote work.

In our initial response to the COVID-19 pandemic, we allowed many of our team members to work from home since March 2020.

As the pandemic began to ease, we began allowing all employees to return to our offices on a voluntary basis, with established protocols to ensure operational reliability and employee safety.

As a result of the continued progress made against the COVID-19 pandemic, beginning the first quarter of 2023, we have established a return-to-office policy under which employees located near Palomar offices have a goal to work onsite a minimum of ten days per month.

We continue to provide team members a reimbursement to help manage incremental costs associated with remote work.

We also regularly check-in with team members to assess their mental health.

Team members receive 24/7 access to behavioral health tools and resources and a company paid subscription to Headspace, a meditation and wellness application.

Effective January 1, 2023, the state of California will implement pay transparency legislation.

To comply with this legislation, we intend to include base pay ranges in all our job listings.

Additionally, we will voluntarily disclose our base pay ranges to all our internal employees for the roles they hold in alignment with our philosophy of pay transparency.

Talent Development

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To support this belief, we provide a $3,000 tuition and/or certification reimbursement for ongoing development.

Lastly, we have a methodical approach to talent development, offering organizational advancement and mentoring services to all team members regardless of position or title.

Lastly, we have a methodical approach to talent development, offering organizational advancement and

mentoring services to all team members regardless of position or title.

In 2 022, 28% of our workforce was promoted or moved into new positions.

During the fourth quarter of 2021, our team members completed an engagement survey, and we received a 90% response rate.

We are using the responses and learnings from this survey to inform our future talent management strategies.

R isk Factors

An investment in our common stock involves a high degree of risk.

In deciding whether to invest, you should carefully consider the following risk factors, as well as the financial and other information contained in this Annual Report on Form 10-K, including our consolidated financial statements and related notes.

Any of the following risks could have a material adverse effect on our business, financial condition, results of operations or prospects and cause the value of our stock to decline, which could cause you to lose all or part of your investment.

Additional risks and uncertainties of which we are unaware, or that we currently deem immaterial also may become important factors that affect us.

Summary Risk Factors

Our business is subject to numerous risks and uncertainties, these risks include, but are not limited to, the following:

● Claims arising from unpredictable and severe catastrophe events, including those caused by global climate change, could reduce or eliminate our earnings and stockholders' equity, and limit our ability to underwrite new insurance policies;

● We and our customers could be negatively and adversely impacted by the COVID-19 Pandemic (“The Pandemic”), which may result in a decline in demand for our products, a decrease in underwriting income and a decrease in the value of our investment portfolio.

● Our reinsurers may not pay claims on a timely basis, or at all, which may materially adversely affect our business, financial condition, and results of operations

● The inability to purchase third-party reinsurance or otherwise expand our catastrophe coverage in amounts we desire on commercially acceptable terms or on terms that adequately protect us;

● Our risk management and loss limitation methods, including estimates and models, may fail to adequately manage our exposure to losses from catastrophe events and our losses could be materially higher than our expectations;

● A decline in our financial strength rating may adversely affect the amount of business we write;

● In the event that the reinsurance we purchase is inadequate or a reinsurer is unable or unwilling to make timely payments, our operating results and liquidity would be adversely impacted;

● Our business is concentrated in California and Texas and we are exposed more significantly to California and Texas loss activity and regulatory environments;

● The potential loss of one or more key executives or an inability to attract and retain qualified personnel could adversely affect our results of operations;

● We rely on a select group of brokers and program administrators to manage the distribution of a significant portion of our Residential Earthquake, Commercial Earthquake, Specialty Homeowners and Hawaii Hurricane products.

Two program administrators with which we have long-standing relationships represented approximate ly 48% of our gross written premiums for the year ended December 31, 2021, and such relationships may not continue;

● There is intense competition for business in our industry;

● The failure of our information technology and telecommunications systems could adversely affect our business;

● Unexpected changes in the interpretation of our coverage or provisions, including loss limitations and exclusions, in our policies could have a material adverse effect on our financial condition or results of operations;

● Any failure to protect our intellectual property rights could impair our ability to protect our intellectual property, proprietary technology platform and brand, or we may be sued by third parties for alleged infringement of their proprietary rights;

● We incur significant costs as a result of operating as a public company, and our management is required to devote substantial time to complying with public company regulations;

● Our operating results and stock price may be volatile, or may decline regardless of our operating performance, and holders of our common stock could lose all or part of their investment.

Risks Related to Our Business and Industry

Claims arising from unpredictable and severe catastrophe events, including those caused by global climate change, could reduce or eliminate our earnings and stockholders’ equity and limit our ability to underwrite new insurance policies.

Our insurance operations expose us to claims arising from unpredictable catastrophe events, such as earthquakes, hurricanes, windstorms, floods and other severe events.

Furthermore, the actual occurrence, frequency and magnitude of such events are uncertain.

While there can be no certainty surrounding the timing and magnitude of earthquakes, some observers believe that significant shifts in the tectonic plates, including the San Andreas Fault, may occur in the future.

Over the past several years, changing weather patterns and climatic conditions, such as global warming, have added to the unpredictability and frequency of natural disasters in certain parts of the world, including the markets in which we operate.

Climate change may increase the frequency and severity of extreme weather events.

This effect has led to conditions in the ocean and atmosphere, including warmer-than-average sea-surface temperatures and low wind shear that increase hurricane activity.

Hurricane activity typically increases between June and November of each year, though the actual occurrence and magnitude of such events is uncertain.

The occurrence of a natural disaster or other catastrophe loss could materially adversely affect our business, financial condition, and results of operations.

Additionally, any increased frequency and severity of such weather events, including hurricanes, could have a material adverse effect on our ability to predict, quantify, reinsure and manage catastrophe risk and may materially increase our losses resulting from such catastrophe events.

The extent of losses from catastrophes is a function of both the frequency and severity of the insured events and the total amount of insured exposure in the areas affected.

The frequency and severity of catastrophes are inherently unpredictable and the occurrence of one catastrophe does not make the occurrence of another catastrophe more or less likely.

Increases in the replacement cost of insured property due higher material and labor costs, increases in concentrations of insured property, the effects of inflation, and changes in cyclical weather patterns may increase the severity of claims from catastrophe events in the future.

Claims from catastrophe events could reduce our earnings and cause substantial volatility in our results of operations for any fiscal quarter or year, which could materially adversely affect our financial condition, possibly to the extent of eliminating our total stockholders’ equity.

We have recently experienced significant catastrophe losses including hurricane related losses during the third and fourth quarters of 2020 and third quarter of 2021.

Our ability to underwrite new insurance policies could also be materially adversely impacted as a result of corresponding reductions in our capital.

In addition, a natural disaster could materially impact the financial condition of our policyholders, resulting in loss of premiums.

Our catastrophe event retention is currently $12.5 million for all perils.

Our reinsurance coverage exhausts at $1.68 billion for earthquake events and $700 million for hurricane events, with coverage in excess of our estimated peak zone 1 in 250 year PML event and in excess of our A.M.

Best requirement.

While we only select reinsurers whom we believe to have acceptable credit, if our reinsurers are unable to pay the claims for which they are responsible, we

ultimately retain primary liability.

Furthermore, our earthquake policies do not provide coverage for fire damage arising from an earthquake.

While we believe this risk transfer program reduces volatility in our earnings, one or more severe catastrophe events could result in claims that substantially exceed the limits of our reinsurance coverage.

Furthermore, catastrophe events which cause our reinsurers to incur losses may increase the cost of reinsurance in future periods or make it more difficult to obtain reinsurance on commercially acceptable terms.

We and our customers could be negatively and adversely impacted by the Pandemic, which may result in a decline in demand for our products, a decrease in underwriting income and a decrease in the value of our investment portfolio.

The ongoing Pandemic and response thereto has impacted and may continue to impact financial markets, businesses, households, and communities.

The extent of the impact of the Pandemic on our operational and financial performance will depend on several factors, including the ultimate duration and severity of the Pandemic, the emergence and severity of variant strains, actions taken and restrictions imposed by the government and health officials in response, the effectiveness and adoption of COVID-19 vaccines and therapeutics, the ability for our customers to continue to pay premiums, contraction of the insurance and reinsurance markets, and the ability for reinsurers to satisfy claims, all of which are uncertain and cannot be predicted.

In addition, the Pandemic has contributed to financial market volatility, supply chain disruptions, price inflation, and material and labor shortages, all of which may have a negative impact on our business.

Continuation of the Pandemic could cause additional reduction in business activity and financial market instability and the global macroeconomic effects of the Pandemic, may persist for an indefinite period, even after the Pandemic has subsided.

Disruptions to the economy from the Pandemic could cause our customers to have less need for insurance coverage, cancel or cease payment on existing insurance policies, modify their coverage, or not renew the policies they hold with us.

Policyholders may exaggerate or even falsify claims to obtain higher claims payments.

Any of these outcomes would reduce our underwriting income.

Inflationary pressures or supply chain shortages caused by the Pandemic may increase our operating expenses and the average size of our loss claims.

We underwrite a significant amount of our commercial insurance policies for businesses such as hotels, motels, retail stores, and professional services.

These businesses have been impacted by restrictions placed on them and changes in consumer behavior resulting from the Pandemic.

Prolonged restrictions or ongoing changes in consumer behavior as a result of the Pandemic would have a negative adverse impact on these insureds and their revenue streams, which consequently will impact their ability to meet their financial obligations, including purchasing or renewing insurance policies.

In addition, our results of operations depend, in part, on the performance of our investment portfolio.

The Pandemic’s impact on the economy and financial markets could reduce our net investment income and result in realized investment losses in future periods.

Our reinsurers may not pay claims on a timely basis, or at all, which may materially adversely affect our business, financial condition, and results of operations.

Our ability to grow our business is dependent in part in our ability to secure reinsurance for a substantial portion of the risk associated with our policies.

Although reinsurance makes the reinsurer liable to us to the extent the risk is transferred or ceded to the reinsurer, it does not relieve us (the ceding insurer) of our primary liability to our policyholders.

Our current reinsurance program is designed to limit our risk retention to $12.5 million of risk per earthquake or wind event and provide coverage up to $1.68 billion for earthquake events and $700 million for hurricane events, subject to customary exclusions.

However, particularly in the event of a major catastrophe, our reinsurers may not pay claims made by us on a timely basis, or they may not pay some or all these claims.

For example, the Pandemic has put financial pressure on the insurance market due to several factors, including the inability of customers to pay premiums and increased claims for business interruption.

Increased claim demands for business interruption has put substantial financial pressure on the insurance and reinsurance market which may lead to court action and impact the ability of insurers and reinsurers to satisfy the liability under their policies.

In addition, reinsurers may default in their financial obligations to us as the result of insolvency, lack of liquidity, operational failure, fraud, asserted defenses based on agreement wordings or the principle of utmost good faith,

asserted deficiencies in the documentation of agreements or other reasons.

Any disputes with reinsurers regarding coverage under reinsurance contracts could be time consuming, costly, and uncertain of success.

If a catastrophic event were to occur and our reinsurers were unable to satisfy their commitments to us, we may be unable to satisfy the liability to our policyholders.

We evaluate each reinsurance claim based on the facts of the case, historical experience with the reinsurer on similar claims and existing case law and consider including any amounts deemed uncollectible from the reinsurer in a reserve for uncollectible reinsurance.

As of December 31, 2021, we had $157.3 million of aggregate reinsurance recoverables.

These risks could cause us to incur increased net losses, and, therefore, adversely affect our financial condition.

We may be unable to purchase third-party reinsurance or otherwise expand our catastrophe coverage in amounts we desire on commercially acceptable terms or on terms that adequately protect us, and this inability may materially adversely affect our business, financial condition and results of operations.

We purchase a significant amount of reinsurance from third parties that we believe enhances our business by reducing our exposure to potential catastrophe losses and reducing volatility in our underwriting performance, providing us with greater visibility into our future earnings.

Reinsurance involves transferring, or ceding, a portion of our risk exposure on policies that we write to another insurer, the reinsurer, in exchange for a premium.

We primarily use treaty reinsurance, consisting of excess of loss (“XOL”) coverage.

Additionally, we buy program specific reinsurance coverage on a quota share, property per risk or a facultative basis.

Treaty coverage refers to a reinsurance contract that is applied to a group or class of business where all the risks written meet the criteria for that class.

Facultative coverage refers to a reinsurance contract on individual risks as opposed to a group or class of business.

Our catastrophe XOL treaties are divided into multiple layers.

From time to time, market conditions have limited, and in some cases prevented, insurers from obtaining the types and amounts of reinsurance they consider adequate for their business needs.

As a result, we may not be able to purchase reinsurance in the areas and for the amounts we desire or on terms we deem acceptable or at all.

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

catastrophe bonds).

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

The catastrophe bond was completed through Torrey Pines Re Pte.

(“Torrey Pines Re”).

Torrey Pines Re.

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

We may seek to expand our catastrophe XOL coverage through similar bond offerings in the future.

However, there can be no assurance that we will be able to complete such offerings on acceptable terms, if at all.

If we are unable to renew our expiring reinsurance contracts on acceptable terms or expand our reinsurance coverage through traditional reinsurers, catastrophe bonds, or otherwise, our loss exposure could increase, which would increase our potential losses related to catastrophe or non-catastrophe events.

If we are unwilling to bear an increase in loss exposure, we could have to reduce the level of our underwriting commitments, both of which could materially adversely affect our business, financial condition, and results of operations.

Many reinsurance companies have begun to exclude certain coverages from, or alter terms in, our reinsurance contracts with them.

As a result, we, like other insurance companies, write insurance policies which to some extent do not have the benefit of reinsurance protection.

These gaps in reinsurance protection expose us to greater risk and greater potential losses.

We utilize several risk management and loss limitation methods, including relying on estimates and models.

If these methods fail to adequately manage our exposure to losses from catastrophe events, our losses could be materially higher than our expectations, and our business, financial condition, and results of operations could be materially adversely affected.

Our approach to risk management relies on subjective variables that entail significant uncertainties.

We manage our exposure to catastrophe losses by analyzing the probability of the occurrence of catastrophe events and their severity and overall impact on our underwriting and investment portfolio.

We monitor and mitigate our exposure through a

number of methods designed to minimize risk, including underwriting specialization, modeling and data systems, data quality control, strategic use of policy deductibles and regular review of aggregate exposure and probable maximum loss reports, which report the maximum amount of losses that one would expect based on computer or actuarial modeling techniques.

These estimates, models, data, and scenarios may not produce accurate predictions;

consequently, we could incur losses both in the risks we underwrite and to the value of our investment portfolio due to the overall impact on financial markets from the occurrence of catastrophe events.

In addition, output from our risk modeling software is based on third-party data that we believe to be accurate and reliable.

The estimates and assumptions we use are dependent on many variables, such as loss adjustment expenses, insurance-to-value, storm or earthquake intensity, building code compliance and demand surge, which is the temporary inflation of costs for building materials such as lumber and labor resulting from increased demand for rebuilding services in the aftermath of a catastrophe.

Accordingly, if the estimates and assumptions used in our risk models are incorrect or if our risk models prove to be an inaccurate forecasting tool, the losses we might incur from an actual catastrophe could be materially higher than our expectation of losses generated from modeled catastrophe scenarios, and our business, financial condition, and results of operations could be materially adversely affected.

In addition, our third-party data providers may change the estimates or assumptions that we use in our risk models and/or their data may be inaccurate.

Changes in these estimates or assumptions or the use of inaccurate third-party data could cause our actual losses to be materially higher than our current expectation of losses generated by modeled catastrophe scenarios, which in turn could materially adversely affect our business, financial condition, and results of operations.

We run many model simulations to understand the impact of these assumptions on a catastrophe’s loss potential.

Furthermore, there are risks associated with catastrophe events, which are either poorly represented or not represented at all by catastrophe models.

Each modeling assumption or un-modeled risk introduces uncertainty into probable maximum loss estimates that management must consider.

These uncertainties can include, but are not limited to, the following:

The models do not address all the possible hazard characteristics of a catastrophe peril (e.g., the precise path and wind speed of a hurricane);

The models may not accurately reflect the true frequency of events;

The models may not accurately reflect a risk’s vulnerability or susceptibility to damage for a given event characteristic;

The models may not account for unusual or unprecedented catastrophe events;

The models may not accurately represent loss potential to insurance or reinsurance contract coverage limits, terms and conditions;

The models may not accurately reflect the impact on the economy of the area affected or the financial, judicial, political, or regulatory impacts on insurance claim payments during or following a catastrophe event.

As a result of these factors and contingencies, our reliance on assumptions and data used to evaluate our entire risk portfolio and specifically to estimate a probable maximum loss is subject to a high degree of uncertainty that could result in actual losses that are materially different from our probable maximum loss estimates and could adversely impact our financial results.

A decline in our financial strength rating may adversely affect the amount of business we write and impact compliance with our debt covenants.

Participants in the insurance industry use ratings from independent ratings agencies, such as A.M.

Best, as an important means of assessing the financial strength and quality of insurers.

In setting its ratings, A.M.

Best performs quantitative and qualitative analysis of a company’s balance sheet strength, operating performance and business profile.

Best financial strength ratings range from “A++” (Superior) to “F” for insurance companies that have been

publicly placed in liquidation.

As of June 30, 2021, A.M.

Best has assigned a financial strength rating of “A−” (Excellent) (Outlook Stable) to our insurance company subsidiaries, Palomar Specialty Insurance Company (“PSIC”) and Palomar Excess and Surplus Insurance Company (“PESIC”).

Best assigns ratings that are intended to provide an independent opinion of an insurance company’s ability to meet its obligations to policyholders and such ratings are not evaluations directed to investors and are not a recommendation to buy, sell or hold our common stock or any other securities we may issue.

Best’s analysis includes comparisons to peers and industry standards as well as assessments of operating plans, philosophy and management.

Best periodically reviews our financial strength rating and may revise it downward or revoke it at A.M.

Best’s discretion based primarily on its analyses of our balance sheet strength (including capital adequacy and loss adjustment expense reserve adequacy), operating performance and business profile.

Factors that could affect such analyses include, but are not limited to:

If we change our business practices from our organizational business plan in a manner that no longer supports A.M.

Best’s rating;

If unfavorable financial, regulatory or market trends affect us, including excess market capacity;

If our losses exceed our loss reserves;

If we have unresolved issues with government regulators;

If we are unable to retain our senior management or other key personnel;

If our investment portfolio incurs significant losses;

Best alters its capital adequacy assessment methodology in a manner that would adversely affect our rating.

These and other factors could result in a downgrade of our financial strength rating.

A downgrade or withdrawal of our rating could result in any of the following consequences, among others:

Causing our current and future distribution partners and insureds to choose other, more highly-rated competitors;

Increasing the cost or reducing the availability of reinsurance to us;

Severely limiting or preventing us from writing new and renewal insurance contracts;

Causing us to be out of compliance with the financial covenants in our credit agreement.

In addition, in view of the earnings and capital pressures experienced by many financial institutions, including insurance companies, it is possible that rating organizations will heighten the level of scrutiny that they apply to such institutions, will increase the frequency and scope of their credit reviews, will request additional information from the companies that they rate or will increase the capital and other requirements employed in the rating organizations’ models for maintenance of certain ratings levels.

If our credit rating were to be downgraded, or general market conditions were to ascribe higher risk to our rating levels, due to the Pandemic or otherwise, our access to capital markets and the cost of any equity or debt financing will be negatively impacted.

We can offer no assurance that our rating will remain at its current level.

It is possible that such reviews of us may result in adverse ratings consequences, which could have a material adverse effect on our financial condition and results of operations.

Our business is concentrated in California and Texas and, as a result, we are exposed more significantly to California and Texas loss activity and regulatory environments.

Our policyholders and insurance risks are currently concentrated in California and Texas, which generated 46% and 12% of our gross written premiums, respectively, for the year ended December 31, 2021.

We are exposed to business, economic, political, judicial and regulatory risks due to this concentration that are greater than the risks faced by insurance companies that conduct business over a more extensive geographic area.

Any single, major catastrophe

event, series of events or other condition causing significant losses in California or Texas could materially adversely affect our business, financial condition and results of operations.

Additionally, unfavorable business, economic or regulatory conditions in these states may result in a significant reduction of our premiums or increase our loss exposure.

Changes in California or Texas political climates could result in new or changed legislation affecting the property and casualty insurance industry in general which could have a negative impact on our business.

We could be adversely affected by the loss of one or more key executives or by an inability to attract and retain qualified personnel.

We depend on our ability to attract and retain experienced personnel and seasoned key executives who are knowledgeable about our business.

The pool of talent from which we actively recruit is limited and may fluctuate based on market dynamics specific to our industry and independent of overall economic conditions.

As such, higher demand for employees having the desired skills and expertise could lead to increased compensation expectations for existing and prospective personnel, making it difficult for us to retain and recruit key personnel and maintain labor costs at desired levels.

Since the onset of the Pandemic, companies have had issues with employee turnover and finding and hiring qualified employees.

These challenges may continue for the foreseeable future.

In particular, our future success is substantially dependent on the continued service of our Co-Founder, Chief Executive Officer and Chairman, Mac Armstrong, and our Chief Financial Officer, Christopher Uchida.

Should any of our key executives terminate their employment with us, or if we are unable to retain and attract talented personnel, we may be unable to maintain our current competitive position in the specialized markets in which we operate, which could adversely affect our results of operations.

We rely on a select group of brokers and program administrators, and such relationships may not continue.

The distribution networks of our products are multi-faceted and distinct to each line of business.

Our relationship with our brokers or program administrators may be discontinued at any time.

Even if the relationships do continue, they may not be on terms that are profitable for us.

We distribute a significant portion of our Residential Earthquake, Commercial Earthquake, Specialty Homeowners and Hawaii Hurricane products through longstanding relationships with two program administrators.

Each of the four products managed by the program administrators operates as a separate program that is governed by an independent, separately negotiated agreement with unique terms and conditions, including geographic scope, key person provisions, economics and exclusivity.

These programs also feature separate managerial oversight and leadership, policy administration systems and retail agents originating policies.

In total, these four products accounted for $255.8 million or 48% of our gross written premiums for the year ended December 31, 2021.

This amount includes our Value Select Residential Earthquake program, which represents the majority of our Residential Earthquake premium and is administered through a mutually exclusive program administrator agreement with Arrowhead General Insurance Agency for the states of California, Oregon and Washington.

The termination of a relationship with one or more significant brokers or program administrators could result in lower gross written premiums and could have a material adverse effect on our results of operations or business prospects.

Because we provide our program administrators with specific quoting and binding authority, if any of them fail to comply with pre-established guidelines, our results of operations could be adversely affected.

We market and distribute certain of our insurance products through program administrators that have limited quoting and binding authority and that in turn sell our insurance products to insureds through retail agents and wholesale brokers.

These program administrators can bind certain risks without our expressed approval.

If any of these program administrators fail to comply with our underwriting guidelines and the terms of their appointments, we could be bound on a particular risk or number of risks that were not anticipated when we developed the insurance products or estimated losses and loss adjustment expenses.

Such actions could adversely affect our results of operations.

Because our business depends on insurance brokers and program administrators, we are exposed to certain risks arising out of our reliance on these distribution channels that could adversely affect our results.

Certain premiums from policyholders, where the business is produced by brokers, are collected directly by the brokers and forwarded to our insurance subsidiaries.

In certain jurisdictions, when the insured pays its policy premium to its broker for payment to us, the premium might be considered to have been paid under applicable insurance laws and regulations.

Accordingly, the insured would no longer be liable to us for those amounts, whether or not we have actually received the premium from the broker.

Consequently, we assume a degree of credit risk associated with the brokers with which we work.

We review the financial condition of potential new brokers before we agree to transact business with them.

Although the failure by any of our brokers to remit premiums to us has not been material to date, there may be instances where our brokers collect premiums but do not remit them to us and we may be required under applicable law to provide the coverage set forth in the policy despite the related premiums not being paid to us.

Additionally, the loss or disruption of business from our agents and brokers or the failure or inability of these agents and brokers to successfully market our insurance products, including impacts related to the Pandemic, could have a material adverse effect on our business, financial condition, and results of operations.

Because the possibility of these events occurring depends in large part upon the financial condition and internal operations of our brokers, we regularly meet and communicate with our brokers, monitor broker behavior and review broker financial information on an as-needed basis.

If we are unable to collect premiums from our brokers in the future, our underwriting profits may decline, and our financial condition and results of operations could be materially and adversely affected.

Competition for business in our industry is intense.

We face competition from other specialty insurance companies, standard insurance companies and underwriting agencies that are larger than we are and that have greater financial, marketing, and other resources than we do.

Some of these competitors also have longer operating history and more market recognition than we do in certain lines of business.

In addition, we compete against state or other publicly managed enterprises including the California Earthquake Authority (“CEA”), the National Flood Insurance Program and the Texas Wind Insurance Association.

If the CEA decided to provide coverage to non-CEA member carriers or lessened the capital requirements for membership, we would face additional competition in our markets, and our operating results could be adversely affected.

Furthermore, it may be difficult or prohibitively expensive for us to implement technology systems and processes that are competitive with the systems and processes of these larger companies.

Competition in the insurance industry is based on many factors, including price of coverage, the general reputation and perceived financial strength of the company, relationships with brokers, terms and conditions of products offered, ratings assigned by independent rating agencies, speed of claims payment, and the experience and reputation of the members of our underwriting team in the particular lines of insurance and reinsurance we seek to underwrite.

In recent years, the insurance industry has undergone increasing consolidation, which may further increase competition.

Certain new, proposed or potential industry or legislative developments could further increase competition in our industry.

These developments include:

An increase in capital-raising by companies in our lines of business, which could result in new entrants to our markets and an excess of capital in the industry;

The deregulation of commercial insurance lines in certain states and the possibility of federal regulatory reform of the insurance industry, which could increase competition from standard carriers.

We may not be able to continue to compete successfully in the insurance markets.

Increased competition in these markets could result in a change in the supply and demand for insurance, affect our ability to price our products at risk-adequate rates and retain existing business, or underwrite new business on favorable terms.

If this increased competition so limits our ability to transact business, our operating results could be adversely affected.

If actual renewals of our existing policies do not meet expectations, our written premium in future years and our future results of operations could be materially adversely affected.

Most of our insurance policies are written for a one- year term.

In our financial forecasting process, we make assumptions about the rates of renewal of our prior year’s policies.

The insurance and reinsurance industries have historically been cyclical businesses with intense competition, often based on price.

If actual renewals do not meet expectations or if we choose not to write a renewal because of pricing conditions, our written premium in future years and our future operations would be materially adversely affected.

In addition, during the fourth quarter of 2020, we purchased the renewal rights of certain Hawaii Hurricane policies from another insurance company.

There is no guarantee that current policyholders will renew their Hurricane policies with the us and the ultimate impact of this purchase on our written premiums is uncertain and may be below our expectations.

Our failure to accurately and timely evaluate and pay claims could materially and adversely affect our business, financial condition, results of operations, and prospects.

We must accurately and timely evaluate and pay claims that are made under our policies.

Many factors affect our ability to pay claims accurately and timely, including the training and experience of our claims representatives, including our third party claims administrators (“TPAs”), the effectiveness of our management, and our ability to develop or select and implement appropriate procedures and systems to support our claims functions and other factors.

Our failure to pay claims accurately and timely could lead to regulatory and administrative actions or material litigation, undermine our reputation in the marketplace and materially and adversely affect our business, financial condition, results of operations, and prospects.

In addition, if we do not manage our TPAs effectively, or if our TPAs are unable to effectively handle our volume of claims, our ability to handle an increasing workload could be adversely affected.

In addition to potentially requiring that growth be slowed in the affected markets, our business could suffer from decreased quality of claims work which, in turn, could adversely affect our results of operations.

We may act based on inaccurate or incomplete information regarding the accounts we underwrite.

We rely on information provided by insureds or their representatives when underwriting insurance policies.

While we may make inquiries and take other steps to validate or supplement the information provided, we may make underwriting decisions based on incorrect or incomplete information.

It is possible that we will misunderstand the nature or extent of the activities or facilities and the corresponding extent of the risks that we insure because of our reliance on inadequate or inaccurate information.

We may change our underwriting guidelines or our strategy without stockholder approval.

Our management has the authority to change our underwriting guidelines or our strategy without notice to our stockholders and without stockholder approval.

As a result, we may make fundamental changes to our operations without stockholder approval, which could result in our pursuing a strategy or implementing underwriting guidelines that may be materially different from the strategy or underwriting guidelines described in our public filings.

Our employees could take excessive risks, which could negatively affect our financial condition and business.

As an insurance enterprise, we are in the business of binding certain risks.

The employees who conduct our business, including executive officers and other members of management, underwriters, product managers and other employees, do so in part by making decisions and choices that involve exposing us to risk.

These include decisions such as setting underwriting guidelines and standards, product design and pricing, determining which business opportunities to pursue, and other decisions.

We endeavor, in the design and implementation of our compensation programs and practices, to avoid giving our employees incentives to take excessive risks.

Employees may, however, take such risks regardless of the structure of our compensation programs and practices.

Similarly, although we employ controls and

procedures designed to monitor employees’ business decisions and prevent them from taking excessive risks, these controls and procedures may not be effective.

If our employees take excessive risks, the impact of those risks could have a material adverse effect on our financial condition and business operations.

We may require additional capital in the future, which may not be available or may only be available on unfavorable terms.

Our future capital requirements depend on many factors, including our ability to write new business successfully and to establish premium rates and reserves at levels sufficient to cover losses.

Many factors will affect the amount and timing of our capital needs, including our growth rate and profitability, our claims experience, the availability of reinsurance, market disruptions, and other unforeseeable developments.

If we need to raise additional capital, equity or debt financing may not be available at all or may be available only on terms that are not favorable to us.

In the case of equity financings, dilution to our stockholders could result.

In the case of debt financings, we may be subject to covenants that restrict our ability to freely operate our business.

In any case, such securities may have rights, preferences and privileges that are senior to those of the shares of common stock offered hereby.

If we cannot obtain adequate capital on favorable terms or at all, we may not have sufficient funds to implement our operating plans and our business, financial condition or results of operations could be materially adversely affected.

We may not be able to manage our growth effectively.

We intend to grow our business in the future, which could require additional capital, systems development, and skilled personnel.

However, we must be able to meet our capital needs, expand our systems and our internal controls effectively, allocate our human resources optimally, identify and hire qualified employees, and effectively incorporate the components of any businesses we may acquire in our effort to achieve growth.

The failure to manage our growth effectively could have a material adverse effect on our business, financial condition and results of operations.

If we are unable to successfully scale our excess and surplus insurance company, our business and future prospects may be harmed.

During the third quarter of 2020, we launched our excess and surplus lines (E&S) insurance product offerings via our surplus lines subsidiary, Palomar Excess and Surplus Insurance Company (‘‘PESIC’’).

The E&S market is highly competitive and many of our competitors are better capitalized and have a longer history in the market.

While we believe that the underwriting acumen and market expertise we have established through our admitted insurance company, PSIC, can be applied to the surplus lines market as well, there can be no assurances that we will be successful in accurately analyzing risks and scaling a profitable operation in the E&S market.

If we are unable to underwrite profitably in the E&S market, our business and future prospects may be adversely impacted.

Our operating results have in the past varied from quarter to quarter and may not be indicative of our long-term prospects.

Our operating results are subject to fluctuation and have historically varied from quarter to quarter.

We expect our quarterly results to continue to fluctuate in the future due to a number of factors, including the general economic conditions in the markets where we operate, the frequency of occurrence and severity of catastrophe or other insured events, fluctuating interest rates, claims exceeding our loss reserves, competition in our industry, deviations from expected premium retention rates of our existing policies and contracts, adverse investment performance, and the cost of reinsurance coverage.

Additionally, the future impact of the Pandemic on our business, operations, liquidity, financial condition, and results of operations remains uncertain.

We seek to underwrite products and make investments to achieve favorable returns on tangible stockholders’ equity over the long term.

Our opportunistic nature and focus on long-term growth in tangible equity may result in fluctuations in gross written premiums, loss expenses, and other underwriting expenses from period to period as we concentrate on underwriting contracts that we believe will generate better long-term, rather than short-term, results.

Accordingly, our short-term results of operations may not be indicative of our long-term prospects.

Our Credit Agreement contains restrictions and covenants that limit our flexibility in operating our business and any debt borrowed under our Credit Agreement exposes us to additional risk and may adversely affect our financial condition and future financial results.

In December 2021, we entered into a Credit Agreement (the “Credit Agreement”) with certain lenders which provides a revolving credit facility of up to $100.0 million.

Currently, we have no borrowings under the Credit Agreement.

If we make borrowings in the future, it may impact our business and financial condition by:

Requiring the dedication of a portion of our expected cash flows from operations to service our debt, thereby reducing the amount of expected cash flows available for other purposes, including investing, and paying claims and operating expenses and;

Exposing us to interest rate risk since the interest rate in the credit agreement is a variable rate

In addition, the Credit Agreement contains financial covenants, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of other indebtedness and dividends and other distributions.

The financial covenants in the Credit agreement require the Company not to exceed a maximum leverage ratio and maintain a minimum net worth at the end of each quarter.

The Company’s insurance subsidiaries are also required to maintain a minimum Risk Based Capital Ratio at the end of each year and must always maintain a minimum AM Best Financial Strength rating.

All of these covenants and restrictions impact how we operate our business and may limit our flexibility in planning for, or reacting to, changes in our business and industry.

Our ability to comply with these covenants may be affected by events beyond our control.

If we breach any of the covenants and do not obtain a waiver from the noteholders or lenders, then, subject to applicable cure periods, any outstanding debt may be declared immediately due and payable.

Risks related to the Economic Environment

The effects of the Pandemic have significantly affected the global and U.S.

economies and financial markets, and may further disrupt our operations and the operations of our insureds, agents, and third parties upon which we rely.

The current Pandemic has caused significant disruption in the global and U.S.

economies and financial markets.

COVID-19 and its variant strains have caused illness, quarantines, cancellation of events and travel, business and school closures, reduction in business activity, increased unemployment, supply chain interruptions, and overall economic and financial market instability.

There continue to be significant reported cases of infected individuals throughout the United States and globally.

Impacts to our business could be widespread and material impacts may result, including but not limited to, the following:

● employees contracting COVID-19 and/or related variants;

● reductions in our operating effectiveness as certain employees work from home;

● unavailability of key personnel necessary to conduct our business activities;

● volatility in financial markets that could materially affect our investment portfolio valuations and returns;

● government mandates and/or legislative changes, including premium grace periods and presumed Pandemic compensability for all or certain insured groups;

● increases in frequency and/or severity of compensable claims;

● increased credit risk;

● business disruption to independent insurance agents and brokers and/or our partners that market and sell our insurance products;

● business disruptions to third parties that we outsource certain business functions to and whose technology upon which we rely.

Since the beginning of the Pandemic, we have taken precautions to protect the safety and well-being of our employees while providing uninterrupted service to our policyholders and claimants.

However, no assurance can be given that these actions will be sufficient in the future.

Furthermore, the macroeconomic effects of the Pandemic may persist for an indefinite period, even after the pandemic has subsided, which could negatively impact demand for our insurance products in the future and result in a material adverse effect on our results of operations and financial condition.

Adverse economic factors, including recession, inflation, periods of high unemployment or lower economic activity could result in the sale of fewer policies than expected or an increase in the frequency of claims and premium defaults, and even the falsification of claims, or a combination of these effects, which, in turn, could affect our growth and profitability.

Factors, such as general economic conditions, the volatility and strength of the capital markets, and inflation can affect the business and economic environment.

These same factors affect our ability to generate revenue and profits.

In an economic downturn that is characterized by higher unemployment, declining spending, and reduced corporate revenue, the demand for insurance products is generally adversely affected, which directly affects our premium levels and profitability.

Negative economic factors may also affect our ability to receive the appropriate rate for the risk we insure with our policyholders and may adversely affect the number of policies we can write, and our opportunities to underwrite profitable business.

In an economic downturn, our customers may have less need for insurance coverage, cancel or cease payment on existing insurance policies, modify their coverage, or not renew the policies they hold with us.

Existing policyholders may exaggerate or even falsify claims to obtain higher claims payments.

These outcomes would reduce our underwriting profit to the extent these factors are not reflected in the rates we charge.

We underwrite a significant portion of our insurance in California and Texas.

Any economic downturn in either state could have an adverse effect on our financial condition and results of operations.

Performance of our investment portfolio is subject to a variety of investment risks that may adversely affect our financial results.

Our results of operations depend, in part, on the performance of our investment portfolio.

We seek to hold a diversified portfolio of investments that is managed by a professional investment advisory management firm in accordance with our investment policy and routinely reviewed by our Board of Directors.

Our investments are subject to general economic conditions and market risks as well as risks inherent to particular securities.

Our primary market risk exposures relate to changes in interest rates and credit quality considerations.

Future increases in interest rates could cause the values of our fixed maturity securities portfolios to decline, with the magnitude of the decline depending on the duration of securities included in our portfolio and the amount by which interest rates increase.

Some fixed maturity securities have call or prepayment options, which create possible reinvestment risk in declining rate environments.

Other fixed maturity securities, such as mortgage-backed and asset-backed securities, carry prepayment risk or, in a rising interest rate environment, may not prepay as quickly as expected.

The value of our investment portfolio is subject to the risk that certain investments may default or become impaired due to deterioration in the financial condition of one or more issuers of the securities we hold, or due to deterioration in the financial condition of an insurer that guarantees an issuer’s payments on such investments.

Downgrades in the credit ratings of fixed maturities also have a significant negative effect on the market valuation of such securities.

Such factors could reduce our net investment income and result in realized investment losses.

Our investment portfolio is subject to increased valuation uncertainties when investment markets are illiquid.

The valuation of investments is more subjective when markets are illiquid, thereby increasing the risk that the estimated fair value (i.e., the carrying amount) of the securities we hold in our portfolio does not reflect prices at which actual transactions would occur.

We also invest in marketable equity securities.

These securities are carried on the balance sheet at fair market value and are subject to potential losses and declines in market value based on the performance of equity markets.

Our equity invested assets totaled $33.3 million as of December 31, 2021.

Risks for all types of securities are managed through the application of our investment policy, which establishes investment parameters that include but are not limited to, maximum percentages of investment in certain types of securities and minimum levels of credit quality, which we believe are within applicable guidelines established by the National Association of Insurance Commissioners (“NAIC”), the Oregon Division of Financial Regulation and the California and Arizona Departments of Insurance.

Although we seek to preserve our capital, we cannot be certain that our investment objectives will be achieved, and results may vary substantially over time.

In addition, although we seek to employ investment strategies that are not correlated with our insurance and reinsurance exposures, losses in our investment portfolio may occur at the same time as underwriting losses and, therefore, exacerbate the adverse effect of the losses on us.

Our investment portfolio could also be adversely impacted by ratings downgrades, increased bankruptcies and credit spread widenings caused by economic downturns from pandemics or other events.

Severe economic downturns could cause impairments in our fixed income portfolio.

In addition, declines in fixed income yields would result in decreases in net investment income from future investment activity, including re-investments.

We could be forced to sell investments to meet our liquidity requirements.

We invest the premiums we receive from our insureds until they are needed to pay policyholder claims.

Consequently, we seek to manage the duration of our investment portfolio based on the duration of our losses and loss adjustment expense reserves to provide sufficient liquidity and avoid having to liquidate investments to fund claims.

Risks such as inadequate losses and loss adjustment reserves or unfavorable trends in litigation could potentially result in the need to sell investments to fund these liabilities.

We may not be able to sell our investments at favorable prices or at all.

Sales could result in significant realized losses depending on the conditions of the general market, interest rates, and credit issues with individual securities.

Risks related to Technology

We employ third-party licensed software for use in our business, and the inability to maintain these licenses, problems with the software we license, or increases to the cost of software licenses could adversely affect our business.

Multiple areas of our business rely on certain third-party software obtained under licenses from other companies.

We anticipate that we will continue to rely on such third- party software in the future.

Unforeseen issues may arise in third-party software platforms which may have an adverse impact on our operations.

Integration of new third-party software or modifications to our existing third-party software may require substantial investment of our time and resources.

The inability to integrate or operate third-party software successfully or the inadequacy of third-party software may have a material adverse impact on our operations.

In addition, the cost of third-party software is significant and we expect it to increase in the future.

If we have issues with the functionality or expense of third-party software, we may not be able to find acceptable alternatives in a timely manner or at all.

Many of the risks associated with the use of third-party software cannot be eliminated, and these risks could negatively affect our business.

Additionally, the software powering our technology systems incorporates software covered by open source licenses.

The terms of many open source licenses have not been interpreted by U.S.

courts, and there is a risk that the licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to operate our systems.

In the event that portions of our proprietary software are determined to be subject to an open source license, we could be required to publicly release the affected portions of our source code or re-engineer all or a portion of our technology systems, each of which could reduce or eliminate the value of our technology systems.

Such risk could be difficult or impossible to eliminate and could adversely affect our business, financial condition, and results of operations.

The failure of our information technology and telecommunications systems could adversely affect our business.

Our business is highly dependent upon our information technology and telecommunications systems, including our underwriting system.

We rely on these systems to interact with brokers and insureds, to underwrite business, to prepare policies and process premiums, to perform actuarial and other modeling functions, to process claims and make claims payments, and to prepare internal and external financial statements and information.

Some of these systems may include or rely on third-party systems not located on our premises or under our control.

Events such as natural catastrophes, pandemics (including the COVID-19 Pandemic), cyber-attacks, terrorist attacks, industrial accidents or computer viruses may cause our systems to fail or be inaccessible for extended periods of time.

While we have implemented business contingency plans and other reasonable plans to protect our systems, sustained or repeated system failures or service denials could severely limit our ability to write and process new and renewal business, provide customer service, pay claims in a timely manner or otherwise operate in the ordinary course of business.

A significant portion of our employees work remotely and outside of our primary offices on a regular basis.

We believe remote work increases the need for our information technology and telecommunications systems to work properly and creates additional operational risk and difficulty should these systems fail.

Security breaches or cyber-attacks could expose the Company to liability and damage its reputation and business.

Our operations depend on the reliable and secure processing, storage, and transmission of confidential and other data and information in our computer systems and networks.

Computer viruses, hackers, employee misconduct, and other external hazards could expose our systems to security breaches, cyber-attacks or other disruptions.

Cyberthreats are constantly evolving and becoming increasingly sophisticated and complex, making it increasingly difficult to detect and successfully defend against them.

In addition, cyber-attackers (which may include individuals or groups, as well as sophisticated groups such as nation-state and state-sponsored attackers, which can deploy significant resources to plan and carry out exploits) also develop and deploy viruses, worms, credential stuffing attack tools and other malicious software programs, some of which may be specifically designed to attack our products, information systems or networks.

Outside parties have in the past and may in the future attempt to fraudulently induce our employees or users of our products or services to disclose sensitive, personal or confidential information via illegal electronic spamming, phishing or other tactics.

While we have implemented security measures designed to protect against breaches of security and other interference with our systems and networks, our systems and networks may be, and at times are, subject to breaches or interference.

Any such event may result in operational disruptions as well as unauthorized access to or the disclosure or loss of our proprietary information or our customers’ data and information, which in turn may result in legal claims, regulatory scrutiny and liability, reputational damage, the incurrence of costs to eliminate or mitigate further exposure, the loss of customers or affiliated advisors, reputational harm or other damage to our business.

While we maintain insurance coverage that may, subject to policy terms and conditions, cover certain aspects of cyber risks, such insurance coverage may be insufficient to cover all losses.

In addition, the trend toward general public notification of such incidents could exacerbate the harm to our business, financial condition and results of operations.

Even if we successfully protect our technology infrastructure and the confidentiality of sensitive data, we could suffer harm to our business and reputation if attempted security breaches are publicized.

We cannot be certain that advances in criminal capabilities, discovery of new vulnerabilities, attempts to exploit vulnerabilities in our systems, data thefts, physical system or network break-ins or inappropriate access, or other developments will not compromise or breach the technology or other security measures protecting the networks and systems used in connection with our business.

Any cloud provider service failure or control weakness could adversely affect our business.

We employ cloud-based services to host our applications and intend to expand our use.

As we expand our use of cloud-based services, we will increasingly rely on third-party cloud providers to maintain appropriate controls and safeguards to protect confidential information we receive, including personal, personally identifiable, sensitive, confidential or

proprietary data, and the integrity and continuous operation of our proprietary technology platform.

While we conduct due diligence on these cloud providers with respect to their security and business controls, we may not have the visibility to effectively monitor the implementation and efficacy of these controls.

Outside parties may be able to circumvent controls or exploit vulnerabilities, resulting in operational disruption, data loss, defects or a security event.

Migrating to the cloud increases the risk of operational disruption should internet service be interrupted.

While we have implemented business contingency and other plans to facilitate continuous internet access, sustained or concurrent service denials or similar failures could limit our ability to write and process new and renewal business, provide customer service, pay claims in a timely manner or otherwise operate our business.

Any such event or failure could have a material adverse effect on our business, financial condition and results of operations.

Risks Related to Laws and Regulations

We are subject to extensive regulation, which may adversely affect our ability to achieve our business objectives.

In addition, if we fail to comply with these regulations, we may be subject to penalties, including fines and suspensions, which may adversely affect our financial condition and results of operations.

PSIC is subject to extensive regulation in Oregon, its state of domicile, California, where it is commercially domiciled, and to a lesser degree, the other states in which it operates.

PESIC is subject to extensive regulation in Arizona, its state of domicile, and to a lesser degree, the other states in which it writes business.

Our Bermuda based reinsurance subsidiary, Palomar Specialty Reinsurance Company Bermuda Ltd.

(“PSRE”), is subject to regulation in Bermuda.

Most insurance regulations are designed to protect the interests of insurance policyholders, as opposed to the interests of investors or stockholders.

These regulations generally are administered by a department of insurance in each state and relate to, among other things, capital and surplus requirements, investment and underwriting limitations, affiliate transactions, dividend limitations, changes in control, solvency and a variety of other financial and non-financial aspects of our business.

Significant changes in these laws and regulations could further limit our discretion or make it more expensive to conduct our business.

State insurance regulators and the Bermuda Monetary Authority (the “BMA”), also conduct periodic examinations of the affairs of insurance and reinsurance companies and require the filing of annual and other reports relating to financial condition, holding company issues and other matters.

These regulatory requirements may impose timing and expense constraints that could adversely affect our ability to achieve some or all our business objectives.

insurance subsidiaries are part of an “insurance holding company system” within the meaning of applicable California, Oregon and Arizona statutes and regulations.

As a result of such status, certain transactions between our U.S.

insurance subsidiaries and one or more of their affiliates, such as a tax sharing agreement or cost sharing arrangement, may not be effected unless the insurer has provided notice of that transaction to the California Department of Insurance, the Oregon Division of Financial Regulation, or the Arizona Department of Insurance, as applicable, at least 30 days prior to engaging in the transaction and the California Department of Insurance, the Oregon Division of Financial Regulation, or the Arizona Department of Insurance, as applicable, has not disapproved such transaction within the 30-day time period.

These prior notification requirements may result in business delays and additional business expenses.

If any of our U.S.

insurance subsidiaries fail to file a required notification or fail to comply with other applicable insurance regulations in California, Oregon or Arizona, as applicable, we may be subject to significant fines and penalties and our working relationship with the California Department of Insurance, the Oregon Division of Financial Regulation, or the Arizona Department of Insurance, as applicable, may be impaired.

In addition, state insurance regulators have broad discretion to deny, suspend, or revoke licenses for various reasons, including the violation of regulations.

In some instances, where there is uncertainty as to applicability, we follow practices based on our interpretations of regulations or practices that we believe generally to be followed by the industry.

These practices may turn out to be different from the interpretations of regulatory authorities.

If we do not have the requisite licenses and approvals or do not comply with applicable regulatory requirements, state insurance regulators could preclude or temporarily suspend us from carrying on some or all of our activities or could otherwise penalize us.

This could adversely affect our ability to operate our business.

Further, changes in the level of regulation of the insurance industry or changes in laws or regulations themselves or interpretations by regulatory authorities could

interfere with our operations and require us to bear additional costs of compliance, which could adversely affect our ability to operate our business.

insurance subsidiaries are subject to risk-based capital requirements, based upon the “risk based capital model” adopted by the NAIC, and other minimum capital and surplus restrictions imposed under Arizona, Oregon and California law.

These requirements establish the minimum amount of risk-based capital necessary for a company to support its overall business operations.

It identifies property and casualty insurers that may be inadequately capitalized by looking at certain inherent risks of each insurer’s assets and liabilities and its mix of net written premium.

Insurers falling below a calculated threshold may be subject to varying degrees of regulatory action, including supervision, rehabilitation or liquidation.

Failure by any of our U.S.

subsidiaries to maintain risk-based capital at the required levels could adversely affect their ability to maintain regulatory authority to conduct business.

PSRE is subject to regulation from the European Union.

The European Union adopted the Economic Substance Act 2018 and the Economic Substance Regulations 2018 (together, the “ES Requirements”).

As an insurance company, our Bermuda subsidiary conducts a relevant activity and will be subject to the ES Requirements.

As a result, our Bermuda subsidiary may be required to change or increase our business operations in Bermuda to meet the new requirements.

Compliance with the ES Requirements is required with effect from July 1, 2019.

Unexpected changes in the interpretation of our coverage or provisions, including loss limitations and exclusions, in our policies could have a material adverse effect on our financial condition and results of operations.

There can be no assurances that specifically negotiated loss limitations or exclusions in our policies will be enforceable in the manner we intend.

As industry practices and legal, judicial, social, and other conditions change, unexpected and unintended issues related to claims and coverage may emerge.

For example, many of our policies limit the period during which a policyholder may bring a claim, which may be shorter than the statutory period under which such claims can be brought against our policyholders.

While these limitations and exclusions help us assess and mitigate our loss exposure, it is possible that a court or regulatory authority or an executive action could nullify or void a limitation or exclusion, such as limitations on business interruption claims caused by pandemics or other crises, or legislation could be enacted modifying or barring the use of such limitations or exclusions.

These types of governmental actions could result in higher than anticipated losses and loss adjustment expenses, which could have a material adverse effect on our financial condition or results of operations.

In addition, court decisions, such as the 1995 Montrose decision in California could read policy exclusions narrowly so as to expand coverage, thereby requiring insurers to create and write new exclusions.

These issues may adversely affect our business by either broadening coverage beyond our underwriting intent or by increasing the frequency or severity of claims.

In some instances, these changes may not become apparent until sometime after we have issued insurance contracts that are affected by the changes.

As a result, the full extent of liability under our insurance contracts may not be known for many years after a contract is issued.

We may become subject to additional government or market regulation, including additional regulation around cyber-attacks, which may have a material adverse impact on our business.

Our business could be adversely affected by changes in state laws, including those relating to asset and reserve valuation requirements, surplus requirements, limitations on investments and dividends, enterprise risk and risk-based capital requirements, and, at the federal level, by laws and regulations that may affect certain aspects of the insurance industry, including proposals for preemptive federal regulation.

federal government generally has not directly regulated the insurance industry except for certain areas of the market, such as insurance for flood, nuclear and terrorism risks.

However, the federal government has undertaken initiatives or considered legislation in several areas that may affect the insurance industry, including tort reform, corporate governance and the taxation of reinsurance companies.

In addition, the Bermuda reinsurance regulatory framework has become subject to increased scrutiny in many jurisdictions.

As a result, the BMA has implemented and imposed additional requirements on the companies it regulates, which requirements could adversely impact the operations of PSRE.

Any government mandates and/or legislative changes related to the ongoing Pandemic, including mandated premium refunds or credits and extended premium grace periods, could have a material adverse effect on our results of operations and financial condition.

Premium grace periods could significantly increase our expenses while decreasing our short-term revenues which would adversely impact our liquidity.

Additionally, in response to the growing threat of cyber-attacks in the insurance industry, certain jurisdictions have begun to consider new cybersecurity measures, including the adoption of cybersecurity regulations which, among other things, would require insurance companies to establish and maintain a cybersecurity program and implement and maintain cybersecurity policies and procedures.

On October 24, 2017, the NAIC adopted its Insurance Data Security Model Law, intended to serve as model legislation for states to enact in order to govern cybersecurity and data protection practices of insurers, insurance agents, and other licensed entities registered under state insurance laws.

As we expand our insurance operations, we expect to be impacted by this legislation and be required to file compliance certifications pertaining to this legislation.

We routinely transmit and receive personal, confidential and proprietary data and information by electronic means and are subject to numerous data privacy laws and regulations enacted in the jurisdictions in which we do business, including recent laws in California whose impact on our business are difficult to predict.

While we have implemented cybersecurity policies and procedures, there is no guarantee our policies and procedures will protect our systems against all attacks or comply with all provisions of these evolving regulations.

Changes in tax laws as a result of the enactment of tax legislation could impact our operations and profitability.

Legislation commonly known as the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law on December 22, 2017.

The Tax Act made significant changes to the U.S.

federal income tax rules for taxation of individuals and corporations.

One of the associated changes which could impact us is a limitation on the deduction of state and local taxes and mortgage interest.

This limitation particularly affects taxpayers in states with relatively high home prices and state and local taxes, such as California, where a significant portion of our business is concentrated.

Any future tax legislation or changes to tax laws such as changing the corporate tax rate could have a negative impact on our results of operations and profitability.

If states increase the assessments that we are required to pay, our business, financial condition and results of operations would suffer.

Certain jurisdictions in which PSIC is admitted to transact business require property and casualty insurers doing business within that jurisdiction to participate in insurance guaranty associations.

These organizations pay contractual benefits owed pursuant to insurance policies issued by impaired, insolvent or failed insurers.

They levy assessments, up to prescribed limits, on all member insurers in a particular state based on the proportionate share of the premiums written by member insurers in the lines of business in which the impaired, insolvent or failed insurer is engaged.

States may also assess admitted companies to fund their respective department of insurance operations.

Some states permit member insurers to recover assessments paid through full or partial premium tax offset or in limited circumstances by surcharging policyholders.

PSIC is licensed to conduct insurance operations on an admitted basis in 34 states.

As PSIC grows, its share of any assessments in each state in which it underwrites business on an admitted basis may increase.

PSIC paid assessments of $0.1 million in 2021.

We cannot predict with certainty the amount of future assessments, because they depend on factors outside our control, such as insolvencies of other insurance companies as well as the occurrence of significant catastrophes.

Assessments are generally covered by our catastrophe XOL treaties and, to the extent we have experienced a net loss from an event in excess of our net retention, assessments would be recovered from our reinsurers with no additional expense to us.

Significant assessments could result in higher operating expenses and have a material adverse effect on our business, financial condition, or results of operations.

In addition, while some states permit member insurers to recover assessments paid

through full or partial premium tax offset or, in limited circumstances, by surcharging policyholders, there is no certainty that offsets or surcharges will be permitted in connection with any future assessments.

Because we are a holding company and substantially all our operations are conducted by our insurance subsidiaries, our ability to pay dividends depends on our ability to obtain cash dividends or other permitted payments from our insurance subsidiaries.

The continued operation and growth of our business will require substantial capital.

We do not intend to declare and pay cash dividends on shares of our common stock in the foreseeable future.

Because we are a holding company with no business operations of our own, our ability to pay dividends to stockholders largely depends on dividends and other distributions from our insurance subsidiaries, PSIC, PESIC and PSRE.

State insurance laws, including the laws of Oregon, California, Arizona, and the laws of Bermuda restrict the ability of our subsidiaries to declare stockholder dividends.

State insurance regulators require insurance companies to maintain specified levels of statutory capital and surplus.

The maximum dividend distribution absent the approval or non-disapproval of the insurance regulatory authority in Oregon, California and Arizona is limited by Oregon law at ORS 732.576, California law at Cal.

Code 1215.5(g) and Arizona Revised Statute 20-481.

Under Oregon statute, dividend payments from PSIC are further limited to that part of available policyholder surplus that is derived from net profits on our business.

State insurance regulators have broad powers to prevent the reduction of statutory surplus to inadequate levels, and there is no assurance that dividends up to the maximum amounts calculated under any applicable formula would be permitted.

Moreover, state insurance regulators that have jurisdiction over the payment of dividends by PSIC and PESIC may in the future adopt statutory provisions more restrictive than those currently in effect.

PSRE is highly regulated and is required to comply with various conditions before it is able to pay dividends or make distributions to us.

Bermuda law, including the Insurance Act 1978, as amended (“Insurance Act”) and the Companies Act 1981, as amended (“Companies Act”) impose restrictions on PSRE’s ability to pay dividends to us based on solvency margins and surplus and capital requirements.

These restrictions, and any other future restrictions adopted by the BMA, could have the effect, under certain circumstances, of significantly reducing dividends or other amounts payable to us by PSRE without affirmative approval of the BMA.

Any determination to pay dividends in the future will be at the discretion of our Board of Directors and will depend upon results of operations, financial condition, restrictions imposed by applicable law and other factors our Board of Directors deems relevant.

Consequently, investors may need to sell all or part of their holdings of our common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment.

Investors seeking immediate cash dividends should not purchase our common stock.

The effects of litigation on our business are uncertain and could have an adverse effect on our business.

As is typical in our industry, we continually face risks associated with litigation of various types, including disputes relating to insurance claims under our policies as well as other general commercial and corporate litigation.

Although we are not currently involved in any material litigation with our customers, other members of the insurance industry are the target of class action lawsuits and other types of litigation, some of which involve claims for substantial or indeterminate amounts, and the outcomes of which are unpredictable.

This litigation is based on a variety of issues, including insurance and claim settlement practices.

We cannot predict with any certainty whether we will be involved in such litigation in the future or what impact such litigation would have on our business.

We rely on the use of credit scoring in pricing and underwriting certain of our insurance policies and any legal or regulatory requirements that restrict our ability to access credit score information could decrease the accuracy of our pricing and underwriting process and thus decrease our ability to be profitable.

We use credit scoring as a factor in pricing and underwriting decisions where allowed by state law.

Consumer groups and regulators have questioned whether the use of credit scoring unfairly discriminates against some groups of people and are calling for laws and regulations to prohibit or restrict the use of credit scoring in underwriting and pricing.

Laws or regulations that significantly curtail or regulate the use of credit scoring, if enacted in states in which we operate, could impact the integrity of our pricing and underwriting processes, which could, in turn, materially and

adversely affect our business, financial condition, results of operations and prospects, and make it harder for us to be profitable over time.

Any failure to protect our intellectual property rights could impair our ability to protect our intellectual property, proprietary technology platform and brand, or we may be sued by third parties for alleged infringement of their proprietary rights.

Our success and ability to compete depend in part on our intellectual property, which includes our rights in our proprietary technology platform and our brand.

We primarily rely on copyright, trade secret and trademark laws, and confidentiality agreements with our employees, customers, service providers, partners and others to protect our intellectual property rights.

However, the steps we take to protect our intellectual property may be inadequate.

Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming and distracting to management and could result in the impairment or loss of portions of our intellectual property.

Additionally, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability and scope of our intellectual property rights.

Our failure to secure, protect and enforce our intellectual property rights could adversely affect our brand and adversely impact our business.

Our success also depends in part on us not infringing on the intellectual property rights of others.

Our competitors, as well as a number of other entities and individuals, may own or claim to own intellectual property relating to our industry.

In the future, third parties may claim that we are infringing on their intellectual property rights, and we may be found to be infringing on such rights.

Any claims or litigation could cause us to incur significant expenses and, if successfully asserted against us, could require that we pay substantial damages or ongoing royalty payments, prevent us from offering our services, or require that we comply with other unfavorable terms.

Even if we were to prevail in such a dispute, any litigation could be costly and time-consuming and divert the attention of our management and key personnel from our business operations.

Changes in accounting practices and future pronouncements may materially affect our reported financial results.

Developments in accounting practices may require us to incur considerable additional expenses to comply, particularly if we are required to prepare information relating to prior periods for comparative purposes or to apply the new requirements retroactively.

Our consolidated financial statements are prepared in accordance with Generally Accepted Accounting Principles (“GAAP”).

The impact of changes in GAAP cannot be predicted but may affect the calculation of net income, stockholders’ equity, and other relevant financial statement line items.

In addition to compliance with GAAP on a consolidated basis, PSIC, PESIC, and PSRE are required to comply with statutory accounting principles (“SAP”).

SAP and various components of SAP are subject to constant review by the NAIC and its task forces and committees, as well as state insurance departments to address emerging issues and otherwise improve financial reporting.

Various proposals are pending before committees and task forces of the NAIC, some of which, if enacted, could have negative effects on insurance industry participants.

The NAIC continuously examines existing laws and regulations.

We cannot predict whether or in what form such reforms will be enacted and, if so, whether the enacted reforms will positively or negatively affect us.

We incur significant costs as a public company, and our management is required to devote substantial time to complying with public company regulations.

As a public company, we incur certain legal, accounting, and other expenses that we would not incur as a private company.

We are subject to the reporting requirements of the Exchange Act, which require, among other things, that we file with the SEC annual, quarterly, and current reports with respect to our business and financial condition and therefore we need to have the ability to prepare financial statements that comply with all SEC reporting requirements on a timely basis.

In addition, we are subject to other reporting and corporate governance requirements, including certain requirements of and certain provisions of the Sarbanes-Oxley Act and the regulations promulgated thereunder, which impose significant compliance obligations upon us.

In particular, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting, as required by Section 404

of the Sarbanes-Oxley Act.

Our compliance with Section 404 requires that we incur substantial accounting expense and expend significant management efforts.

We must maintain accounting and financial staff and consultants with appropriate public company reporting, technical accounting, and internal control knowledge to satisfy the ongoing requirements of Section 404 and provide internal audit services.

The Sarbanes-Oxley Act and the Dodd-Frank Act, as well as new rules subsequently implemented by the SEC and Nasdaq, have increased regulation of, and imposed enhanced disclosure and corporate governance requirements on, public companies.

Our efforts to comply with these evolving laws, regulations and standards increases our operating costs and divert management’s time and attention from revenue-generating activities.

These requirements also place significant additional demands on our finance and accounting staff and on our financial accounting and information systems.

We must retain accounting and financial staff with appropriate public company reporting experience and technical accounting knowledge.

Other expenses associated with being a public company include increased auditing, accounting and legal fees and expenses, investor relations expenses, increased directors’ fees and director and officer liability insurance costs, registrar and transfer agent fees and listing fees, as well as other expenses.

As a public company, we are required, among other things, to:

prepare and file periodic reports and distribute other stockholder communications, in compliance with the federal securities laws and requirements of Nasdaq;

define and expand the roles and the duties of our Board of Directors and its committees;

institute comprehensive compliance and investor relations functions;

evaluate and maintain our system of internal control over financial reporting, and report on management’s assessment thereof, in compliance with rules and regulations of the SEC and the Public Company Accounting Oversight Board.

We may not be successful in complying with these requirements, and compliance with them could materially adversely affect our business.

These requirements increase our costs and may cause us to reduce costs in other areas of our business or increase the prices of our products or services.

For example, these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance.

We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements.

The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our Board of Directors, our Board committees or as executive officers.

In addition, if we fail to implement and maintain the required controls with respect to our internal accounting and audit functions, our ability to report our results of operations on a timely and accurate basis could be impaired.

If we do not implement the required controls in a timely manner or with adequate compliance, we may be subject to sanctions or investigation by regulatory authorities, such as the SEC or Nasdaq.

Any such action could harm our reputation and the confidence of our investors and customers and could negatively affect our business and cause the price of our shares of common stock to decline.

We are required by Section 404 of the Sarbanes-Oxley Act to evaluate the effectiveness of our internal control over financial reporting.

If we are unable to achieve and maintain effective internal controls, our operating results and financial condition could be harmed and the market price of our common stock may be negatively affected.

As a public company with SEC reporting obligations, we are required to document and test our internal control procedures to satisfy the requirements of Section 404(b) of the Sarbanes-Oxley Act, which requires annual assessments by management of the effectiveness of our internal control over financial reporting.

We must implement and maintain substantial internal control systems and procedures to satisfy the reporting requirements under the Exchange Act.

During our assessments, we may identify deficiencies that we are unable to remediate in a timely manner.

Testing and maintaining our internal control over financial reporting may also divert management’s attention from other matters that are important to the operation of our business.

We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404(b) of Sarbanes-Oxley.

If we conclude that our internal control over financial reporting is not effective, the cost and scope of remediation actions and

their effect on our operations may be significant.

Moreover, any material weaknesses or other deficiencies in our internal control over financial reporting may impede our ability to file timely and accurate reports with the SEC.

Any of the above could cause investors to lose confidence in our reported financial information or our common stock listing on Nasdaq to be suspended or terminated, which could have a negative effect on the trading price of our common stock.

Applicable insurance laws may make it difficult to effect a change of control.

Under applicable Oregon, California and Arizona insurance laws and regulations, no person may acquire control of a domestic insurer until written approval is obtained from the state insurance commissioner following a public hearing on the proposed acquisition.

Such approval would be contingent upon the state insurance commissioner’s consideration of a number of factors including, among others, the financial strength of the proposed acquiror, the acquiror’s plans for the future operations of the domestic insurer and any anti-competitive results that may arise from the consummation of the acquisition of control.

Oregon, California and Arizona insurance laws and regulations pertaining to changes of control apply to both the direct and indirect acquisition of ten percent or more of the voting stock of an insurer domiciled in that state.

Accordingly, the acquisition of ten percent or more of our common stock would be considered an indirect change of control of Palomar Holdings, Inc.

and would trigger the applicable change of control filing requirements under Oregon, California and Arizona insurance laws and regulations, absent a disclaimer of control filing and its acceptance by the Oregon, California and Arizona Insurance Departments.

These requirements may discourage potential acquisition proposals and may delay, deter or prevent a change of control of Palomar Holdings, Inc., including through transactions that some or all of the stockholders of Palomar Holdings, Inc.

might consider to be desirable.

Risks Related to Ownership of Our Common Stock

Future transactions where we raise capital may negatively affect our stock price.

We are currently a “Well-Known Seasoned Issuer” and may file automatic shelf registration statements at any time with the SEC.

Sales of substantial amounts of shares of our common stock or other securities under our current or future shelf registration statements could lower the market price of our common stock and impair our ability to raise capital through the sale of equity securities.

Our operating results and stock price may be volatile, or may decline regardless of our operating performance, and holders of our common stock could lose all or part of their investment.

Our quarterly operating results are likely to fluctuate in the future as a publicly traded company.

In addition, securities markets worldwide have experienced, and are likely to continue to experience, significant price and volume fluctuations.

This market volatility, as well as general economic, market or political conditions, could subject the market price of our shares to wide price fluctuations regardless of our operating performance.

Although we believe we have adequate sources of liquidity over the short- and long-term, the success of our operations, the global economic outlook, and the pace of sustainable growth in our markets, in each case, in light of the market volatility and uncertainty as a result of the Pandemic, among other factors, could impact our business and liquidity.

You should consider an investment in our common stock to be risky, and you should invest in our common stock only if you can withstand a significant loss and wide fluctuation in the market value of your investment.

The market price of our common stock is likely to continue to be subject to significant fluctuations in response to the factors described in this “Risk Factors” section and other factors, many of which are beyond our control.

Among the factors that could affect our stock price are:

market conditions in the broader stock market;

actual or anticipated fluctuations in our quarterly financial and operating results;

introduction of new products or services by us or our competitors;

issuance of new or changed securities analysts’ reports or recommendations;

results of operations that vary from expectations of securities analysis and investors;

short sales, hedging and other derivative transactions in our common stock;

guidance, if any, that we provide to the public, any changes in this guidance or our failure to meet this guidance;

strategic actions by us or our competitors;

announcement by us, our competitors or our acquisition targets;

sales, or anticipated sales, of large blocks of our stock, including by our directors, executive officers and principal stockholders;

additions or departures in our Board or Directors, senior management or other key personnel;

regulatory, legal or political developments;

public response to press releases or other public announcements by us or third parties, including our filings with the SEC;

litigation and governmental investigations;

changing economic conditions, including those caused by the Pandemic;

changes in accounting principles;

any indebtedness we may incur or securities we may issue in the future;

default under agreements governing our indebtedness;

exposure to capital and credit market risks that adversely affect our investment portfolio or our capital resources;

changes in our credit ratings;

changes in corporate tax rates;

exchange rate fluctuations;

other events or factors, including those from natural disasters, war, pandemics, acts of terrorism, or responses to these events.

The securities markets have from time to time experienced extreme price and volume fluctuations that often have been unrelated or disproportionate to the operating performance of particular companies.

As a result of these factors, investors in our common stock may not be able to resell their shares at or above the price at which they purchased their shares.

These broad market fluctuations, as well as general market, economic and political conditions, such as recessions, loss of investor confidence or interest rate changes, may negatively affect the market price of our common stock.

In addition, the stock markets, including Nasdaq, have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies.

If any of the foregoing occurs, it could cause our stock price to fall and may expose us to securities class action litigation that, even if unsuccessful, could be costly to defend, divert management’s attention and resources or harm our business.

Anti-takeover provisions in our organizational documents could delay a change in management and limit our share price.

Provisions of our certificate of incorporation and bylaws could make it more difficult for a third party to acquire control of us even if such a change in control would increase the value of our common stock and prevent attempts by our stockholders to replace or remove our current Board of Directors or management.

Our charter documents contain anti-takeover provisions that will hinder takeover attempts and could reduce the market value of our common stock or prevent sale at a premium.

Our anti-takeover provisions:

permit the Board of Directors to establish the number of directors and fill any vacancies and newly created directorships;

provide that our Board of Directors are classified into three classes with staggered, three year terms and that directors may only be removed for cause;

require super-majority voting to amend provisions in our certificate of incorporation and bylaws;

include blank-check preferred stock, the preference, rights and other terms of which may be set by the Board of Directors and could delay or prevent a transaction or a change in control that might involve a premium price for our common stock or otherwise benefit our stockholders;

eliminate the ability of our stockholders to call special meetings of stockholders;

specify that special meetings of our stockholders can be called only by our Board of Directors, the chairman of our Board of Directors, or our chief executive officer;

prohibit stockholder action by other than unanimous written consent;

provide that vacancies on our Board of Directors may be filled only by a majority of directors then in office, even though less than a quorum;

prohibit cumulative voting in the election of directors;

establish advance notice requirements for nominations for election to our Board of Directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.

In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law.

These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a period of time.

Our certificate of incorporation and bylaws provide that the Court of Chancery of the State of Delaware is the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our certificate of incorporation and bylaws provide that the Court of Chancery of the State of Delaware is the exclusive forum for the following civil actions:

any derivative action or proceeding brought on our behalf;

any action asserting a claim of breach of a fiduciary duty by any of our directors, officers, employees or agents or our stockholders;

any action asserting a claim arising pursuant to any provision of the DGCL or our certificate of incorporation or bylaws or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware;

any action to interpret, apply, enforce or determine the validity of our certificate of incorporation or our bylaws;

any action asserting a claim governed by the internal affairs doctrine.

However, this provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act.

Furthermore, this provision applies to Securities Act claims and Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder.

Accordingly, there is uncertainty as to whether a court would enforce such provision, and our stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder.

This choice of forum provision, if enforced, may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees, although our stockholders will not be deemed to have waived our compliance with federal securities laws and the rules and regulations thereunder.

Alternatively, if a court were to find the choice of forum provision contained in our certificate of incorporation and bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could have a material adverse effect on our business, financial condition or results of operations.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock depends, in part, on the research and reports that securities or industry analysts publish about us or our business and our industry.

If one or more of the analysts who cover us downgrades our common stock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline.

If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our common stock could decrease, which could cause our stock price and trading volume to decline.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties.

Forward-looking statements generally relate to future events or our future financial or operating performance.

In some cases, you can identify forward-looking statements because they contain words such as “may”, “will”, “should”, “expects”, “plans”, “anticipates”, “could”, “intends”, “target”, “projects”, “contemplates”, “believes”, “estimates”, “predicts”, “would”, “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions.

These forward-looking statements include, among others, statements relating to our future financial performance, our business prospects and strategy, anticipated financial position, liquidity and capital needs and other similar matters.

These forward-looking statements are based on management’s current expectations and assumptions about future events, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict.

Our actual results may differ materially from those expressed in, or implied by, the forward-looking statements included in this Annual Report on Form 10-K as a result of various factors, including, among others:

● claims arising from unpredictable and severe catastrophe events could reduce our earnings and stockholders’ equity and limit our ability to underwrite new insurance policies;

● the inability to purchase third-party reinsurance or otherwise expand our catastrophe coverage in amounts that are commercially acceptable to us or on terms that adequately protect us;

● the inherent uncertainty of models resulting in actual losses that are materially different than our estimates;

● we and our customers could be negatively and adversely impacted by the Pandemic;

● a decline in our financial strength rating adversely affecting the amount of business we write;

● reinsurance counterparty credit risk;

● the concentration of our business in California and Texas;

● the potential loss of one or more key executives or an inability to attract and retain qualified personnel adversely affecting our results of operations;

● our reliance on a select group of brokers;

● the failure of any of the loss limitations or exclusions we employ, or changes in other claims or coverage issues, having a material adverse effect on our financial condition or results of operations;

● unexpected changes in the interpretation of our coverage or provisions;

● adverse economic factors, including recession, inflation, periods of high unemployment or lower economic activity resulting in the sale of fewer policies than expected or an increase in frequency or severity of claims and premium defaults or both, affecting our growth and profitability;

● the performance of our investment portfolio adversely affecting our financial results;

● being forced to sell investments to meet our liquidity requirements;

● extensive regulation adversely affecting our ability to achieve our business objectives or the failure to comply with these regulations adversely affecting our financial condition and results of operations;

● we may become subject to additional government or market regulation;

● the possibility that states could increase the assessments that Palomar Specialty Insurance Company is required to pay;

● the ability to pay dividends being dependent on our ability to obtain cash dividends or other permitted payments from our insurance subsidiary;

● fluctuation and variance in our operating results;

● the possibility that we act based on inaccurate or incomplete information regarding the accounts we underwrite;

● our employees, underwriters and other associates taking excessive risks;

● our inability to obtain future additional capital or obtaining additional capital on unfavorable terms;

● the failure of our information technology and telecommunications systems;

● our inability to protect our trademarks or other intellectual property rights;

● our inability to maintain, or errors in, our third-party and open source licensed software;

● the inability to manage our growth effectively;

● the intense competition for business in our industry;

● the failure of renewals of our existing contracts to meet expectations could affect our written premiums in the future;

● our inability to underwrite risks accurately and charge competitive yet profitable rates to our policyholders;

● the effects of litigation having an adverse effect on our business;

● changes in accounting practices;

● our failure to accurately and timely pay claims;

● legal or regulatory requirements that restrict our ability to access credit score information for purposes of pricing and underwriting our insurance policies;

● increased costs as a result of being a public company;

● the failure to maintain effective internal controls in accordance with Sarbanes-Oxley.

We have based the forward-looking statements contained in this Annual Report on Form 10-K primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, prospects, business strategy and financial needs.

The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, assumptions and other factors described in the section captioned “Risk Factors” and elsewhere in this Annual Report on Form 10-K.

These risks are not exhaustive.

Other sections of this Annual Report on Form 10-K include additional factors that could adversely impact our business and financial performance.

Furthermore, new risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Annual Report on Form 10-K.

We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject.

These statements are based upon information available to us as of the date of this Annual Report on Form 10-K, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information.

These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

You should read this Annual Report on Form 10-K and the documents that we reference in this Annual Report on Form 10-K and have filed as exhibits to this Annual Report on Form 10-K with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect.

We qualify all of our forward-looking statements by these cautionary statements.

The forward-looking statements made in this Annual Report on Form 10-K relate only to events as of the date on which such statements are made.

We undertake no obligation to update any forward-looking statements after the date of this Annual Report on Form 10-K or to conform such statements to actual results or revised expectations, except as required by law.

Unresolved Staff Comments

During the third quarter of 2022, our team members completed an engagement survey, and we received a 75% response rate, and a 73% overall engagement rating.

W e are using the responses and learnings from this survey to inform our future talent management strategies.

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-K

Item 1. Business