Palomar Holdings, Inc. 10-K

Item 8: Financial Statements Palomar Holdings, Inc. and Subsidiaries INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ​ Index to Audited Consolidated Financial Statements of Palomar Holdings, Inc. and Subsidiaries as of December 31, 2022 and 2021 and for each of the Three Years Ended December 31, 2022, 2021 and 2020 ​ Report of Independent Registered Public Accounting Firm (PCAOB ID 42 ) 90 Consolidated Financial Statements ​ Consolidated Balance Sheets as of December 31, 2022 and 202 1 93 Consolidated Statements of Income and Comprehensive Income for the three years ended December 31, 2022, 202 1 and 2020 94 Consolidated Statements of Stockholders’ Equity for the three years ended December 31, 2022, 2021 and 202 0 95 Consolidated Statements of Cash Flows for the three years ended December 31, 2022, 2021 and 202 0 96 Notes to Consolidated Financial Statements 98 Schedule II—Condensed Financial Information of Registrant—Parent Company only 129 Schedule V—Valuation and Qualifying Accounts 133 ​ Schedules other than those listed are omitted for the reason that they are not required, are not applicable or that equivalent information has been included in the financial statements or notes thereto or elsewhere herein. ​ 89 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ​ To the Stockholders and the Board of Directors of Palomar Holdings, Inc. and Subsidiaries Opinion on Internal Control Over Financial Reporting ​ We have audited Palomar Holdings, Inc. and Subsidiaries' internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Palomar Holdings, Inc. and Subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria. ​ We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of income and comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and financial statement schedules listed in the Index at Item 15(a) and our report dated March 1, 2023 expressed an unqualified opinion thereon. ​ Basis for Opinion ​ The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. ​ We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. ​ Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. ​ Definition and Limitations of Internal Control Over Financial Reporting ​ A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. ​ Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP San Francisco, California March 1, 2023 ​ 90 Table of Contents ​ ​ ​ ​ ​ Report of Independent Registered Public Accounting Firm ​ To the Stockholders and the Board of Directors of Palomar Holdings, Inc. and Subsidiaries ​ ​ Opinion on the Financial Statements ​ We have audited the accompanying consolidated balance sheets of Palomar Holdings, Inc. and Subsidiaries (the Company) as of December 31, 2022, and 2021, the related consolidated statements of income and comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and financial statement schedules listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles. ​ We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 1, 2023 expressed an unqualified opinion thereon. ​ Basis for Opinion ​ These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. ​ We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. ​ Critical Audit Matter ​ The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. ​ ​ ​ ​ ​ ​ ​ ​ ​ Valuation of Reserve for Losses and Loss Adjustment Expenses 91 Table of Contents ​ Description of the Matter At December 31, 2022, the reserve for losses and loss adjustment expenses (LAE) is $231,415 (in thousands). As explained in Notes 2 and 9 to the consolidated financial statements, the reserve for losses and LAE represents management's best estimate for unpaid claims and claim adjustment expenses on reported losses and estimates of losses incurred but not reported (IBNR), net of salvage and subrogation recoveries. The liability is based on individual claims, case reserves and other estimates reported by policyholders, as well as management estimates of ultimate losses and loss adjustment expenses. Inherent in the estimates of ultimate losses and loss adjustment expenses are expected trends in claims severity and frequency and other factors that could vary significantly as claims are settled. IBNR reserves include an estimate for future loss payments on incurred claims not yet reported and for expected development on reported claims. There is significant uncertainty inherent in determining management’s best estimate of IBNR, which is sensitive to significant assumptions including the selection of actuarial methods and reported and paid loss emergence patterns. ​ Auditing management’s best estimate of IBNR reserves was complex due to the highly judgmental nature of the assumptions, including selection of actuarial methods and reported and paid loss emergence patterns, used in the valuation process. These assumptions have a significant effect on the valuation of reserves for IBNR claims. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s controls over the process for estimating IBNR reserves. This included, among other procedures, testing management review controls in place over the review and approval of methods and assumptions used in estimating IBNR reserves. ​ To test IBNR reserves, our audit procedures included, among others, testing the completeness and accuracy of the data used in the calculation by testing reconciliations of the underlying claims and policyholder data recorded in the source systems to the actuarial reserving calculations and comparing a sample of incurred and paid claims to source documentation. With the assistance of our actuarial specialists, we evaluated the Company’s selection and weighting of actuarial methods compared to methods used in prior periods and in the industry for the specific types of insurance. To evaluate the significant assumptions used by management, we compared the assumptions to current and historical claims trends and to current industry benchmarks. We compared the Company’s recorded reserves to a range of reasonable reserve estimates developed by our actuarial specialists based on independently selected methods and assumptions. We also compared the results of the reserve study prepared by a third-party actuarial firm to management’s recorded reserve. Additionally, we performed a hindsight analysis of the prior period estimates using subsequent claims development. ​ ​ ​ ​ /s/ Ernst & Young LLP We have served as the Company’s auditor since 2016 San Francisco, California March 1, 2023 ​ ​ ​ ​ 92 Table of Contents Palomar Holdings, Inc. and Subsidiaries Consolidated Balance Sheets (in thousands, except shares and par value data) ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, December 31, ​ ​ 2022 ​ 2021 Assets ​ ​ Investments: ​ ​ Fixed maturity securities available for sale, at fair value (amortized cost: $ 561,580 in 2022; $ 426,122 in 2021) ​ $ 515,064 ​ $ 432,682 Equity securities, at fair value (cost: $ 42,352 in 2022; $ 31,834 in 2021) ​ 38,576 ​ 33,261 Total investments ​ 553,640 ​ 465,943 Cash and cash equivalents ​ 68,108 ​ 50,284 Restricted cash ​ 56 ​ 87 Accrued investment income ​ 3,777 ​ 2,725 Premium receivable ​ 162,858 ​ 88,012 Deferred policy acquisition costs ​ 56,740 ​ 55,953 Reinsurance recoverable on paid losses and loss adjustment expenses ​ 39,718 ​ 29,368 Reinsurance recoverable on unpaid losses and loss adjustment expenses ​ 153,895 ​ 127,947 Ceded unearned premiums ​ 204,084 ​ 58,315 Prepaid expenses and other assets ​ 44,088 ​ 37,072 Deferred tax assets, net ​ ​ 10,622 ​ ​ — Property and equipment, net ​ 603 ​ 527 Intangible assets, net ​ 8,261 ​ 9,501 Total assets ​ $ 1,306,450 ​ $ 925,734 Liabilities and stockholders' equity ​ ​ Liabilities: ​ ​ Accounts payable and other accrued liabilities ​ $ 25,760 ​ $ 21,284 Reserve for losses and loss adjustment expenses ​ 231,415 ​ 173,366 Unearned premiums ​ 471,314 ​ 284,665 Ceded premium payable ​ 146,127 ​ 37,460 Funds held under reinsurance treaty ​ 10,680 ​ 10,882 Deferred tax liabilities, net ​ ​ — ​ ​ 3,908 Borrowings from credit agreements ​ ​ 36,400 ​ ​ — Total liabilities ​ 921,696 ​ 531,565 Stockholders' equity: ​ ​ Preferred stock, $ 0.0001 par value, 5,000,000 shares authorized as of December 31, 2022 and December 31, 2021, 0 shares issued and outstanding as of December 31, 2022 and December 31, 2021 ​ ​ — ​ ​ — Common stock, $ 0.0001 par value, 500,000,000 shares authorized, 25,027,467 and 25,428,929 shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively ​ 3 ​ 3 Additional paid-in capital ​ 333,558 ​ 318,902 Accumulated other comprehensive income (loss) ​ ( 36,515 ) ​ 5,312 Retained earnings ​ 87,708 ​ 69,952 Total stockholders' equity ​ 384,754 ​ 394,169 Total liabilities and stockholders' equity ​ $ 1,306,450 ​ $ 925,734 ​ See accompanying notes. 93 Table of Contents Palomar Holdings, Inc. and Subsidiaries Consolidated Statements of Income and Comprehensive Income (in thousands, except shares and per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2022 2021 2020 Revenues: ​ ​ ​ ​ Gross written premiums ​ $ 881,868 ​ $ 535,175 ​ $ 354,360 Ceded written premiums ​ ( 524,575 ) ​ ( 223,443 ) ​ ( 155,102 ) Net written premiums ​ 357,293 ​ 311,732 ​ 199,258 Change in unearned premiums ​ ( 40,827 ) ​ ​ ( 77,906 ) ​ ​ ( 44,190 ) Net earned premiums ​ 316,466 ​ 233,826 ​ 155,068 Net investment income ​ 13,877 ​ ​ 9,080 ​ ​ 8,612 Net realized and unrealized (losses) gains on investments ​ ( 7,529 ) ​ ​ 1,277 ​ ​ 1,488 Commission and other income ​ 4,272 ​ ​ 3,608 ​ ​ 3,295 Total revenues ​ 327,086 ​ 247,791 ​ 168,463 Expenses: ​ ​ ​ Losses and loss adjustment expenses ​ ​ 78,672 ​ ​ 41,457 ​ ​ 64,115 Acquisition expenses ​ ​ 110,771 ​ ​ 95,433 ​ ​ 64,041 Other underwriting expenses ​ ​ 69,219 ​ ​ 53,723 ​ ​ 34,084 Interest expense ​ ​ 873 ​ ​ 40 ​ ​ — Total expenses ​ 259,535 ​ 190,653 ​ 162,240 Income before income taxes ​ 67,551 ​ 57,138 ​ 6,223 Income tax expense (benefit) ​ ​ 15,381 ​ ​ 11,291 ​ ​ ( 34 ) Net income ​ 52,170 ​ 45,847 ​ 6,257 Other comprehensive income, net: ​ ​ ​ Net unrealized (losses) gains on securities available for sale ​ ​ ( 41,827 ) ​ ​ ( 7,934 ) ​ ​ 8,560 Total comprehensive income ​ $ 10,343 ​ $ 37,913 ​ $ 14,817 Per Share Data: ​ ​ ​ Basic earnings per share ​ $ 2.07 ​ $ 1.80 ​ $ 0.25 Diluted earnings per share ​ $ 2.02 ​ $ 1.76 ​ $ 0.24 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average common shares outstanding: ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ 25,243,397 ​ 25,459,514 ​ 24,872,251 Diluted ​ ​ 25,796,008 ​ ​ 26,111,904 ​ ​ 25,598,647 ​ See accompanying notes. ​ 94 Table of Contents Palomar Holdings, Inc. and Subsidiaries Consolidated Statements of Stockholders’ Equity (in thousands, except share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ Common ​ ​ ​ ​ Additional ​ Other ​ ​ ​ ​ Total ​ ​ Shares ​ Common ​ Paid-In ​ Comprehensive ​ Retained ​ Stockholders' ​ ​ Outstanding ​ Stock ​ Capital ​ Income (Loss) ​ Earnings ​ Equity Balance at December 31, 2019 23,468,750 ​ $ 2 ​ $ 180,012 ​ $ 4,686 ​ $ 33,856 ​ $ 218,556 Cumulative effect of adopting ASU 2016-13 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 156 ) ​ ​ ( 156 ) Other comprehensive income, net of tax ​ — ​ — ​ — ​ 8,560 ​ — ​ ​ 8,560 Stock-based compensation — ​ — ​ 2,167 ​ — ​ ​ ​ ​ 2,167 Issuance of common stock in January 2020 stock offering, net of offering costs 750,000 ​ ​ — ​ ​ 35,464 ​ ​ — ​ ​ — ​ ​ 35,464 Issuance of common stock in June 2020 stock offering, net of offering costs ​ 1,150,000 ​ ​ 1 ​ ​ 90,082 ​ ​ — ​ ​ — ​ ​ 90,083 Issuance of common stock via employee stock purchase plan ​ 28,367 ​ — ​ 741 ​ — ​ — ​ ​ 741 Issuance of common stock via equity incentive plan ​ 128,679 ​ ​ — ​ ​ 2,041 ​ ​ — ​ ​ — ​ ​ 2,041 Net income — ​ — ​ — ​ — ​ 6,257 ​ 6,257 Balance at December 31, 2020 25,525,796 ​ $ 3 ​ $ 310,507 ​ $ 13,246 ​ $ 39,957 ​ $ 363,713 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive loss, net of tax ​ — ​ — ​ — ​ ( 7,934 ) ​ — ​ ​ ( 7,934 ) Stock-based compensation — ​ — ​ 5,584 ​ — ​ ​ ​ ​ 5,584 Issuance of common stock via employee stock purchase plan 9,793 ​ — ​ 719 ​ — ​ — ​ 719 Issuance of common stock via equity incentive plan ​ 132,436 ​ ​ — ​ ​ 2,092 ​ ​ — ​ ​ — ​ 2,092 Repurchases of common stock ​ ( 239,096 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 15,852 ) ​ ​ ( 15,852 ) Net income — ​ — ​ — ​ — ​ 45,847 ​ 45,847 Balance at December 31, 2021 25,428,929 ​ $ 3 ​ $ 318,902 ​ $ 5,312 ​ $ 69,952 ​ $ 394,169 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive loss, net of tax ​ — ​ — ​ — ​ ( 41,827 ) ​ — ​ ( 41,827 ) Stock-based compensation — ​ — ​ 11,624 ​ — ​ — ​ 11,624 Issuance of common stock via employee stock purchase plan 13,990 ​ — ​ 760 ​ — ​ — ​ 760 Issuance of common stock via equity incentive plan ​ 205,963 ​ ​ — ​ ​ 2,272 ​ ​ — ​ ​ — ​ ​ 2,272 Repurchases of common stock ​ ( 621,415 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 34,414 ) ​ ​ ( 34,414 ) Net income — ​ — ​ — ​ — ​ 52,170 ​ 52,170 Balance at December 31, 2022 25,027,467 ​ $ 3 ​ $ 333,558 ​ $ ( 36,515 ) ​ $ 87,708 ​ $ 384,754 ​ See accompanying notes. ​ 95 Table of Contents Palomar Holdings, Inc. and Subsidiaries Consolidated Statements of Cash Flows (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2022 2021 2020 Operating activities ​ ​ ​ ​ Net income ​ $ 52,170 ​ $ 45,847 ​ $ 6,257 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Stock-based compensation expense ​ ​ 11,624 ​ ​ 5,584 ​ ​ 2,167 Depreciation and amortization expense ​ ​ 4,115 ​ ​ 3,544 ​ ​ 1,336 Allowance for credit loss on fixed maturity securities ​ ​ 236 ​ ​ 106 ​ ​ — Net realized and unrealized losses (gains) on investments ​ ​ 7,529 ​ ​ ( 1,277 ) ​ ​ ( 1,488 ) Amortization of premium on fixed maturity securities ​ ​ 1,607 ​ ​ 2,317 ​ ​ 1,214 Deferred income tax expense ​ ​ ( 3,519 ) ​ ​ 641 ​ ​ 1,094 Changes in operating assets and liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Accrued investment income ​ ​ ( 1,052 ) ​ ​ ( 180 ) ​ ​ ( 1,159 ) Premium receivable ​ ​ ( 74,846 ) ​ ​ ( 39,170 ) ​ ​ ( 12,754 ) Deferred policy acquisition costs ​ ​ ( 787 ) ​ ​ ( 20,472 ) ​ ​ ( 10,280 ) Reinsurance recoverables ​ ​ ( 36,298 ) ​ ​ ( 52,587 ) ​ ​ ( 87,473 ) Ceded unearned premiums ​ ​ ( 145,768 ) ​ ​ ( 23,284 ) ​ ​ ( 8,926 ) Prepaid expenses and other assets ​ ​ ( 4,017 ) ​ ​ 591 ​ ​ ( 16,414 ) Accounts payable and other accrued liabilities ​ ​ 5,426 ​ ​ ( 946 ) ​ ​ 5,998 Reserve for losses and loss adjustment expenses ​ ​ 58,049 ​ ​ 44,330 ​ ​ 112,215 Unearned premiums ​ ​ 186,649 ​ ​ 101,176 ​ ​ 53,116 Ceded premiums payable ​ ​ 108,667 ​ ​ 15,227 ​ ​ 10,850 Funds held under reinsurance treaty ​ ​ ( 202 ) ​ ​ 6,367 ​ ​ 2,857 Income taxes payable ​ ​ — ​ ​ — ​ ​ ( 1,117 ) Net cash provided by operating activities ​ ​ 169,583 ​ ​ 87,814 ​ ​ 57,493 Investing activities ​ ​ ​ ​ ​ ​ Purchases of property and equipment ​ ( 313 ) ​ ( 18 ) ​ ( 132 ) Capitalized software costs ​ ​ ( 5,623 ) ​ ​ ( 4,836 ) ​ ​ ( 3,942 ) Purchases of fixed maturity securities ​ ( 382,114 ) ​ ( 166,894 ) ​ ( 295,002 ) Purchases of equity securities ​ ( 10,518 ) ​ ( 49,680 ) ​ ( 46,944 ) Sales and maturities of fixed maturity securities ​ 242,726 ​ 120,198 ​ 124,243 Sales of equity securities ​ — ​ 41,553 ​ 45,983 Securities receivable or payable, net ​ ​ ( 950 ) ​ ​ 1,500 ​ ​ ( 2,523 ) Purchase of policy renewal rights ​ ​ ( 15 ) ​ ​ ( 11 ) ​ ​ ( 7,068 ) Net cash used in investing activities ​ ( 156,807 ) ​ ( 58,188 ) ​ ( 185,385 ) Financing activities ​ ​ ​ Proceeds from Line of Credit ​ ​ 36,400 ​ ​ — ​ ​ — Proceeds from January 2020 stock offering, net of offering costs ​ ​ — ​ ​ — ​ ​ 35,464 Proceeds from June 2020 stock offering, net of offering costs ​ ​ — ​ ​ — ​ ​ 90,083 Proceeds from common stock issued via employee stock purchase plan ​ ​ 760 ​ ​ 719 ​ ​ 741 Proceeds from common stock issued via stock option exercises ​ ​ 2,272 ​ ​ 2,092 ​ ​ 2,041 Repurchase of common stock ​ ​ ( 34,415 ) ​ ​ ( 15,852 ) ​ ​ — Net cash provided by (used in) financing activities ​ 5,017 ​ ( 13,041 ) ​ 128,329 Net increase in cash, cash equivalents and restricted cash ​ 17,793 ​ 16,585 ​ 437 Cash, cash equivalents and restricted cash at beginning of period ​ 50,371 ​ 33,786 ​ 33,349 Cash, cash equivalents and restricted cash at end of period ​ $ 68,164 ​ $ 50,371 ​ $ 33,786 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Supplementary cash flow information: ​ ​ ​ Cash paid for income taxes ​ $ 18,890 ​ $ 2,104 ​ $ 7,182 Cash paid for interest ​ $ 704 ​ $ — ​ $ — ​ ​ 96 Table of Contents The following table summarizes our cash and cash equivalents and restricted cash within the consolidated balance sheets (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ ​ 2022 ​ 2021 Cash and cash equivalents ​ $ 68,108 ​ $ 50,284 Restricted cash ​ 56 ​ 87 Cash and cash equivalents and restricted cash ​ $ 68,164 ​ $ 50,371 See accompanying notes. ​ 97 Table of Contents Palomar Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements ​ ​ 1. Summary of Operations and Basis of Presentation Summary of Operations Palomar Holdings, Inc. (“the Company”) is a Delaware incorporated insurance holding company that was founded in 2014. The Company has several wholly owned subsidiaries including an Oregon domiciled insurance company, Palomar Specialty Insurance Company (“PSIC”), a Bermuda based reinsurance company, Palomar Specialty Reinsurance Company Bermuda Ltd. (“PSRE”), an Arizona domiciled surplus lines insurance company, Palomar Excess and Surplus Insurance Company (“PESIC”), and a California domiciled property and casualty insurance agency, Palomar Insurance Agency, DBA Palomar General Insurance Agency (“PGIA”). PSIC is a property and casualty insurance company domiciled in the state of Oregon. The Company’s core focus is on the residential and commercial earthquake markets in earthquake-exposed states such as California, Oregon, Washington, and states with exposure to the New Madrid Seismic Zone. The Company also offers products tailored to broader geographic regions and perils, including Fronting Products, Inland Marine, Hawaii residential hurricane, Specialty Homeowners, Casualty, and Flood products. PSIC is licensed to underwrite insurance on an admitted basis in 37 states in the United States, as of December 31, 2022, mainly through managing general insurance agencies, wholesale brokers, and independent agents. PSRE is a Bermuda captive reinsurance company that has historically been used to reinsure certain premiums on a quota share basis exclusively for PSIC. PESIC is an Arizona domiciled surplus lines insurance company. PESIC is licensed in Arizona to write surplus lines policies across all the Company’s lines of business and was formed and began writing policies in 2020. PGIA is a property and casualty general insurance agency for PSIC, PESIC, and unaffiliated insurance carriers. As a general insurance agency, PGIA assists in developing insurance products, underwriting insurance policies, and receiving and disbursing funds from premium and loss transactions under contracts on behalf of insurance companies. PGIA earns commissions from the product development, marketing, and servicing of the insurance companies’ programs. PGIA also earns fee income from policyholder transactions. The Company operates as an insurance holding company system and is subject to the insurance holding company laws of the States of Oregon and Arizona, the states in which PSIC and PESIC are domiciled. The Company is also commercially domiciled in California, making it subject to California insurance holding company laws. These statutes require that each insurance company in the system register with the insurance department of its state of domicile and furnish information concerning the operations of companies within the holding company system that may materially affect the operations, management or financial condition of the insurers within the system and domiciled in that state. The Company has a single operating segment, the property and casualty insurance business. While the Company’s chief operating decision-maker reviews the revenue streams attributable to individual products, operations are managed, resources are allocated, and financial performance is evaluated on a consolidated basis. Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. 98 Table of Contents Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported in the consolidated financial statements and accompanying notes. Such estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported and disclosed herein. All revisions to accounting estimates are recognized in the period in which the estimates are revised. Significant estimates reflected in the Company’s consolidated financial statements include, but are not limited to, reserves for losses and loss adjustment expenses, reinsurance recoverables on unpaid losses, and the fair values of investments. 2. Significant Accounting Policies Cash and Cash Equivalents Cash and cash equivalents include time deposits and marketable securities with original maturities of three months or less at acquisition and are stated at cost, which approximates fair value. The Company maintains cash balances in federally insured financial institutions. Restricted Cash Restricted cash includes cash on deposit with reinsurance carriers. Restricted cash also includes cash held in a fiduciary capacity for the benefit of third-party insurance carriers. Investments All of the Company’s investments in fixed maturity securities are classified as available-for-sale and are carried at fair value. Investment income consists primarily of interest and dividends. Interest income is recognized on an accrual basis. Premiums and discounts on mortgage-backed securities and asset-backed securities are amortized or accrued using the prospective method which considers anticipated prepayments at the date of purchase. To the extent that the estimated lives of such securities change as a result of changes in estimated prepayment rates, the adjustments are included in net investment income using the prospective method. Dividend income is recognized on the ex-dividend date. Net investment income represents investment income, net of expenses. Unrealized gains and losses related to fixed maturity securities are included in accumulated other comprehensive income as a separate component of stockholders’ equity. Equity securities are carried at fair value with unrealized gains and losses included as a component of net income on the Company’s consolidated statement of income and comprehensive income. The Company uses the specific-identification method to determine the cost of fixed maturity securities sold and the first-in, first-out method for lots of equity securities sold. The Company reviews all securities with unrealized losses on a quarterly basis to assess whether the decline in the securities fair value necessitates the recognition of an allowance for credit losses. Factors considered in the review include the extent to which the fair value has been less than amortized cost, and current market interest rates and whether the unrealized loss is credit- driven or a result of changes in market interest rates. The Company also considers factors specific to the issuer including the general financial condition of the issuer, the issuers industry and future business prospects, any past failure of issuer to make scheduled interest or principal payments, and the payment structure of the investment and the issuers ability to make contractual payments on the investment. The Company also considers whether it intends to sell the security or if it is more likely than not that it will be required to sell the security before recovery of its amortized cost. When assessing whether it intends to sell a fixed-maturity security or if it is likely to be required to sell a fixed-maturity security before recovery of its amortized cost, the Company evaluates facts and circumstances including, but not limited to, decisions to reposition the investment 99 Table of Contents portfolio, potential sales of investments to meet cash flow needs, and potential sales of investments to capitalize on favorable pricing. For fixed-maturity securities where a decline in fair value is below the amortized cost basis and the Company intends to sell the security, or it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost, a credit-loss charge is recognized in net income based on the fair value of the security at the time of assessment. For fixed-maturity securities that the Company has the intent and ability to hold, the Company compares the estimated present value of the cash flows expected to be collected to the amortized cost of the security. The extent to which the estimated present value of the cash flows expected to be collected is less than the amortized cost of the security represents the credit-related portion of the impairment, which is recognized in net income through an allowance for credit losses. Any remaining decline in fair value represents the noncredit portion of the impairment, which is recognized in other comprehensive income. The Company reports accrued interest receivable as a component of accrued investment income on its consolidated balance sheet which is presented separately from available-for-sale securities. The Company does not measure an allowance for credit losses on accrued interest receivable and instead would write off accrued interest receivable at the time an issuer defaults or is expected to default on payments. The Company’s allowance for credit losses related to its available-for-sale securities was immaterial as of December 31, 2022 and December 31, 2021. Fair Value Fair value is defined as the price that the Company would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. The three-tier hierarchy of inputs is summarized in the three broad levels listed below: Level 1—Unadjusted quoted prices are available in active markets for identical investments as of the reporting date. Level 2—Pricing inputs are quoted prices for similar investments in active markets; quoted prices for identical or similar investments in inactive markets; or valuation based on models where the significant inputs are observable or can be corroborated by observable market data. Level 3—Pricing inputs into models are unobservable for the investment. The unobservable inputs require significant management judgment or estimation. To measure fair value, the Company obtains quoted market prices for its investment securities from its outside investment managers. If a quoted market price is not available, the Company uses prices of similar securities. The fair values obtained from the outside investment managers are reviewed for reasonableness and any discrepancies are investigated for final valuation. The fair value of the Company’s investments in fixed maturity securities is estimated using relevant inputs, including available market information, benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing. An Option Adjusted Spread model is also used to develop prepayment and interest rate scenarios. Industry standard models are used to analyze and value securities with embedded options or prepayment sensitivities. These fair value measurements are estimated based on observable, objectively verifiable market information rather than market quotes; therefore, these investments are classified and disclosed in Level 2 of the hierarchy. The fair value of the Company’s investments in equity securities is based on quoted prices available in active markets and classified and disclosed in Level 1 of the hierarchy. 100 Table of Contents Concentration of Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, fixed maturity securities and reinsurance recoverables. The Company places its cash and cash equivalents with high credit quality financial institutions and its fixed maturity securities in securities of the U.S. government, U.S. government agencies, and high credit quality issuers of debt securities. The Company evaluates the financial condition of its reinsurers and reinsures its business with highly rated reinsurers and sometimes requires letters of credit or retains funds from reinsurers (see Note 10). Premiums Receivable Premiums receivable represent amounts due from policyholders, insurance agents, or program administrators for policies written. Generally, premiums are collected prior to providing risk coverage, minimizing the Company’s exposure to credit risk. Premiums receivable are short-term in nature and due within a year. The Company has established an allowance for uncollectable premiums related to its credit risk, which it reviews on a quarterly basis and adjusts as appropriate. The company considers the current economic environment, specific regulatory developments, and historic payment and cancelation trends by line of business and location when determining whether to record an allowance for uncollectable premiums. The Company recorded an allowance for uncollectable premiums of $ 0.1 million and $ 0.3 million as of December 31, 2022 and December 31, 2021, respectively, and believes that all other amounts are collectable. Earned Premiums Gross premiums written are recorded at policy inception and are earned as revenue ratably over the term of the respective policies. Premiums written not yet recognized as revenue are reflected as unearned premiums on the balance sheet, or as advanced premiums if received prior to the policy effective date. Premiums written where cash is not yet received are recognized as premiums receivable. A premium deficiency is recognized if the sum of expected losses and loss adjustment expenses, unamortized acquisition costs, and policy maintenance costs exceeds the remaining unearned premiums. A premium deficiency would first be recognized by charging any unamortized acquisition costs to expense to the extent required to eliminate the deficiency. If the premium deficiency were greater than unamortized acquisition costs, a liability would be accrued for the excess deficiency. The Company does not consider anticipated investment income when determining if a premium deficiency exists. There was no premium deficiency at December 31, 2022 or 2021. Deferred Policy Acquisition Costs The costs of successfully acquiring new business, principally commission expense and premium taxes, are deferred and amortized over the terms of the policies in force, net of any ceding commissions or fronting fees and are shown as acquisition expenses in the accompanying consolidated statements of income and comprehensive income. Commission and Other Income Commission and other income is comprised of commissions earned on policies where the Company has no exposure to underlying risk and fees earned in conjunction with underwriting policies. Commission and fee income is earned at the time the policy is written. Property and Equipment Property and equipment are capitalized and carried at cost less accumulated depreciation. Depreciation for property and equipment is calculated on a straight-line basis using useful lives of 3 to 5 years . Leasehold improvements and other fixed assets are capitalized and depreciated over the useful lives of the properties and equipment. Expenditures 101 Table of Contents for maintenance and repairs are charged to operations as incurred. Upon disposition, the asset cost and related depreciation are removed from the accounts and the resulting gain or loss is included in the Company’s results of operations. Capitalized Software Costs associated with the implementation of certain internal systems are capitalized and carried at capitalized cost less accumulated amortization and are included as a component of prepaid expenses and other assets on the Company’s consolidated balance sheet. Costs capitalized include internal personnel costs, external developer costs, and interest. The implementation costs relate to systems built on software which the Company purchases under a cloud computing arrangement and accounts for as a service contract. As such, capitalized costs are amortized over the term of the service contract, which currently ends in December 2028. Intangible Assets Intangible assets consist of both finite and indefinite lived assets. Finite lived intangible assets consist of customer relationships acquired from another insurer during 2020 which the Company is amortizing over a period of 8 years . Indefinite lived intangible assets consist of state licenses acquired upon formation of the Company. Intangible assets are initially recognized and measured at fair value and are subsequently evaluated for impairment annually or more frequently if circumstances warrant. No impairments of intangible assets were recognized for the years ended December 31, 2022, 2021 or 2020. Impairment of Long-Lived Assets Long-lived assets with finite lives are tested for impairment whenever recognized events or changes in circumstances indicate the carrying value of these assets may not be recoverable. If indicators of impairment are present, the fair value is calculated using estimated future cash flows expected to be generated from the use of those assets. An impairment loss is recognized only if the carrying amount of a long-lived asset or asset group is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset or asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group. This assessment is based on the carrying amount of the asset or asset group at the date it is tested for recoverability. An impairment loss is measured as the amount by which the carrying amount of a long-lived asset or asset group exceeds its fair value. No impairments of long-lived assets were recognized for the years ended December 31, 2022, 2021 or 2020. Reserve for Losses and Loss Adjustment Expenses The reserve for unpaid losses and loss adjustment expenses includes estimates for unpaid claims and claim adjustment expenses on reported losses and estimates of losses incurred but not reported (“IBNR”), net of salvage and subrogation recoveries. The liability is based on individual claims, case reserves and other estimates reported by policyholders, as well as management estimates of ultimate losses and loss adjustment expenses. Inherent in the estimates of ultimate losses and loss adjustment expenses are expected trends in claims severity and frequency and other factors that could vary significantly as claims are settled. The Company’s estimates of ultimate losses and loss adjustment expenses are based in part upon the estimation of claims resulting from natural disasters such as hurricanes and earthquakes. Estimation by management of the ultimate losses and loss adjustment expenses resulting from catastrophic events is inherently difficult because of the potential severity of property catastrophe claims. Therefore, the Company uses both proprietary and commercially available models, as well as historic claims experience, for purposes of providing an estimate of ultimate losses and loss adjustment expenses. Reserves for IBNR are established in accordance with industry practice to provide for (i) the estimated amount of future loss payments on incurred claims not yet reported, and (ii) potential development on reported claims. IBNR 102 Table of Contents reserves are estimated based on generally accepted actuarial reserving techniques that consider quantitative loss experience data and, where appropriate, qualitative factors. Ultimate losses and loss adjustment expenses may vary materially from the amounts provided in the consolidated financial statements. Estimates of unpaid losses and loss adjustment expenses are reviewed regularly and, as experience develops and new information becomes known, the liabilities are adjusted as necessary. Such adjustments, if any, are reflected in operations in the period in which they become known and are accounted for as changes in estimates. The Company does not discount its liability for unpaid losses and loss adjustment expenses. The Company does not write insurance policies covering toxic clean-up, asbestos-related illness or other environmental remediation exposures. Reinsurance The Company purchases excess of loss and quota share reinsurance to protect it against the impact of losses. The Company also writes premiums under fronting agreements where it cedes the majority of premium and risk to reinsurers in exchange for a fronting fee. Reinsurance premiums, commissions, and ceded unearned premiums are accounted for on bases consistent with the underlying terms of the reinsurance contracts and in proportion to the amount of insurance protection provided. The Company receives ceding commissions and fronting fees in connection with quota share and fronting reinsurance contracts. The ceding commissions and fronting fees are capitalized and amortized as a reduction of acquisition expenses. Amounts applicable to ceded unearned premiums are reported as assets in the accompanying consolidated balance sheets. Premiums earned and losses and loss adjustment expenses incurred are stated in the accompanying consolidated statements of income and comprehensive income net of amounts ceded to reinsurers. Reinsurance recoverables represent balances due to the Company from its reinsurers for paid and unpaid losses and loss adjustment expenses. The Company is exposed to credit losses from reinsurers being unable to meet their obligations. The Company evaluates the financial condition of potential reinsurers and reinsures its business only with highly rated reinsurers with a rating of “A-“ (Excellent) (Outlook Stable) or better from A.M. Best. Reinsurers who do not meet the Company’s rating criteria are required to post collateral. The Company reviews credit quality of its reinsurers on a quarterly basis. The Company’s reinsurance contracts also include special termination provisions that allow the Company to cancel and replace any participating reinsurer that is downgraded below a rating of “A−” from A.M. Best, or whose surplus drops by more than 20%. Historically, the Company has not experienced any credit losses from reinsurance recoverables and did not have an allowance for uncollectable reinsurance recoverables as of December 31, 2022 or December 31, 2021. Stock Based Compensation Expense Stock-based compensation expense is recognized on a straight-line basis over the vesting period of awards. The Company does not apply a forfeiture rate to unvested awards and accounts for forfeitures as they occur. For stock option grants, the fair value of awards is estimated using the Black Scholes Model. The fair value of restricted stock units is determined using the closing price of the Company's common stock on the grant date. The fair value of performance stock units containing employee service or company financial performance based conditions is determined using the closing price of the Company's common stock on the grant date. The fair value of performance stock units containing conditions based on performance of the Company’s stock is determined using a Monte Carlo simulation. All stock-based compensation is included in other underwriting expenses in the Company’s consolidated statements of income and comprehensive income. ​ Income Taxes The Company is taxed as a property/casualty insurer for federal income tax purposes. Deferred income tax assets and liabilities are determined based on the difference between the financial statement and the tax bases of assets and liabilities, using enacted tax rates expected to be in effect during the year in which the basis differences reverse. The 103 Table of Contents effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company recognizes the tax benefit of uncertain tax positions where the position is more likely than not to be sustained assuming examination by taxing authorities. Based on its evaluation for the tax years ended December 31, 2022 and 2021, the Company has concluded that there are no significant uncertain tax positions requiring recognition in its financial statements. The Company recognizes interest and penalties related to uncertain tax positions, if any, as a component of income tax expense. The Company has not been assessed interest or penalties by any major tax jurisdictions for the respective tax years ended December 31, 2022, 2021, or 2020. Earnings Per Share Basic earnings per share is calculated by dividing net income by the weighted-average common shares outstanding for the period. Diluted earnings per share reflects the dilution which could occur if equity-based awards are converted into common share equivalents as calculated using the treasury stock method. When inclusion of additional common share equivalents increases the earnings per share or reduces the loss per share, the effect on earnings per share is anti-dilutive, and the diluted net earnings or net loss per share is computed excluding these common share equivalents. Recently adopted accounting pronouncements The Company has not adopted any new accounting guidance during the year ended December 31, 2022. ​ Recently issued accounting pronouncements not yet adopted To date, there have been no recent accounting pronouncements not yet effective that have significance, or potential significance, to the Company’s consolidated financial statements. 3. Investments The Company’s available-for-sale investments are summarized as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross Gross ​ ​ ​ ​ Amortized ​ Unrealized ​ Unrealized ​ Fair December 31, 2022 ​ Cost or Cost ​ Gains ​ Losses ​ Value ​ (in thousands) Fixed maturities: ​ ​ ​ ​ ​ U.S. Governments ​ $ 50,802 ​ $ 2 ​ $ ( 2,253 ) ​ $ 48,551 States, territories, and possessions ​ 5,857 ​ 49 ​ ​ ( 552 ) ​ 5,354 Political subdivisions ​ 4,919 ​ — ​ ( 621 ) ​ 4,298 Special revenue excluding mortgage/asset-backed securities ​ 37,260 ​ 26 ​ ( 4,487 ) ​ 32,799 Industrial and miscellaneous ​ 278,164 ​ 79 ​ ​ ( 24,148 ) ​ 254,095 Mortgage/asset-backed securities ​ 184,578 ​ 251 ​ ( 14,862 ) ​ 169,967 Total available-for-sale investments ​ $ 561,580 ​ $ 407 ​ $ ( 46,923 ) ​ $ 515,064 ​ 104 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross Gross ​ ​ ​ ​ Amortized ​ Unrealized ​ Unrealized ​ Fair December 31, 2021 ​ Cost or Cost ​ Gains ​ Losses ​ Value ​ (in thousands) Fixed maturities: ​ ​ ​ ​ U.S. Governments ​ $ 16,713 ​ $ 347 ​ $ ( 190 ) ​ $ 16,870 States, territories, and possessions ​ 3,789 ​ 288 ​ ( 63 ) ​ 4,014 Political subdivisions ​ 6,295 ​ 107 ​ ( 22 ) ​ 6,380 Special revenue excluding mortgage/asset-backed securities ​ 43,301 ​ 1,273 ​ ( 76 ) ​ 44,498 Industrial and miscellaneous ​ 245,064 ​ 5,873 ​ ​ ( 1,891 ) ​ 249,046 Mortgage/asset-backed securities ​ 110,960 ​ 1,377 ​ ( 463 ) ​ 111,874 Total available-for-sale investments ​ $ 426,122 ​ $ 9,265 ​ $ ( 2,705 ) ​ $ 432,682 ​ Security holdings in an unrealized loss position As of December 31, 2022, the Company held 543 fixed maturity securities in an unrealized loss position with a total estimated fair value of $ 484.7 million and total gross unrealized losses of $ 46.9 million. None of the fixed maturity securities with unrealized losses has ever missed, or been delinquent on, a scheduled principal or interest payment. As of December 31, 2021, the Company held 231 fixed maturity securities in an unrealized loss position with a total estimated fair value of $ 170.1 million and total gross unrealized losses of $ 2.7 million. None of the fixed maturity securities with unrealized losses has ever missed, or been delinquent on, a scheduled principal or interest payment. The aggregate fair value and gross unrealized losses of the Company’s investments aggregated by investment category and the length of time these individual securities have been in a continuous unrealized loss position as of December 31, 2022 and 2021, are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Less Than 12 Months ​ More Than 12 Months ​ Total ​ Fair Unrealized Fair Unrealized Fair Unrealized December 31, 2022 ​ Value ​ Losses ​ Value ​ Losses ​ Value ​ Losses ​ ​ (in thousands) Fixed maturity securities: ​ ​ ​ ​ ​ ​ U.S. Governments $ 41,077 ​ $ ( 1,523 ) ​ $ 6,853 ​ $ ( 730 ) ​ $ 47,930 ​ $ ( 2,253 ) States, territories, and possessions ​ 3,227 ​ ​ ( 552 ) ​ — ​ — ​ 3,227 ​ ( 552 ) Political subdivisions ​ 4,298 ​ ​ ( 621 ) ​ — ​ — ​ 4,298 ​ ( 621 ) Special revenue excluding mortgage/asset-backed securities ​ 25,091 ​ ​ ( 3,287 ) ​ 5,080 ​ ( 1,200 ) ​ 30,171 ​ ( 4,487 ) Industrial and miscellaneous ​ 192,185 ​ ​ ( 15,667 ) ​ 55,605 ​ ( 8,481 ) ​ 247,790 ​ ( 24,148 ) Mortgage/asset-backed securities ​ 118,815 ​ ​ ( 9,908 ) ​ 32,448 ​ ( 4,954 ) ​ 151,263 ​ ( 14,862 ) Total ​ $ 384,693 ​ $ ( 31,558 ) ​ $ 99,986 ​ $ ( 15,365 ) ​ $ 484,679 ​ $ ( 46,923 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Less Than 12 Months ​ More Than 12 Months ​ Total ​ Fair Unrealized Fair Unrealized Fair Unrealized December 31, 2021 ​ Value ​ Losses ​ Value ​ Losses ​ Value ​ Losses ​ ​ (in thousands) Fixed maturity securities: ​ ​ ​ ​ ​ ​ U.S. Governments ​ $ 5,968 ​ $ ( 147 ) ​ $ 1,457 ​ $ ( 43 ) ​ $ 7,425 ​ $ ( 190 ) States, territories, and possessions ​ 1,444 ​ ​ ( 63 ) ​ — ​ — ​ 1,444 ​ ( 63 ) Political subdivisions ​ 1,815 ​ ​ ( 22 ) ​ — ​ — ​ 1,815 ​ ( 22 ) Special revenue excluding mortgage/asset-backed securities ​ 6,280 ​ ​ ( 76 ) ​ — ​ — ​ 6,280 ​ ( 76 ) Industrial and miscellaneous ​ 94,020 ​ ​ ( 1,468 ) ​ 5,570 ​ ( 423 ) ​ 99,590 ​ ( 1,891 ) Mortgage/asset-backed securities ​ 51,246 ​ ​ ( 412 ) ​ 2,319 ​ ( 51 ) ​ 53,565 ​ ( 463 ) Total ​ $ 160,773 ​ $ ( 2,188 ) ​ $ 9,346 ​ $ ( 517 ) ​ $ 170,119 ​ $ ( 2,705 ) ​ ​ 105 Table of Contents The Company reviewed the above securities at each balance sheet date to consider whether it was necessary to recognize a credit loss related to any of these securities. An immaterial allowance for credit losses was recorded pertaining to one investment security as of December 31, 2022 and 2021. For the remaining securities, the Company determined that the fixed maturity securities’ unrealized losses were primarily the result of the interest rate environment and not the credit quality of the issuers. The Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before the recovery of their amortized cost basis. Contractual maturities of available-for-sale fixed maturity securities The amortized cost and fair value of fixed maturity securities at December 31, 2022, by contractual maturity, are shown below. ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortized Fair ​ ​ Cost ​ Value ​ (in thousands) Due within one year ​ $ 41,686 ​ $ 41,106 Due after one year through five years ​ 182,785 ​ 170,399 Due after five years through ten years ​ 126,990 ​ 112,822 Due after ten years ​ 25,541 ​ 20,770 Mortgage and asset-backed securities ​ 184,578 ​ 169,967 ​ ​ $ 561,580 ​ $ 515,064 ​ Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations. Change in unrealized gains (losses) of investments The following table presents the change in available-for-sale gross unrealized gains or losses by investment type: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2022 2021 2020 ​ ​ (in thousands) Change in net unrealized gains (losses) ​ ​ ​ ​ ​ ​ Fixed maturities ​ $ ( 53,076 ) ​ $ ( 10,148 ) ​ $ 10,835 Net increase (decrease) ​ $ ( 53,076 ) ​ $ ( 10,148 ) ​ $ 10,835 ​ Net investment income summary Net investment income is summarized as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2022 2021 2020 ​ (in thousands) Interest income ​ $ 13,631 ​ $ 9,119 ​ $ 8,554 Dividend income ​ 739 ​ 461 ​ 489 Investment management fees and expenses ​ ( 493 ) ​ ( 500 ) ​ ( 431 ) Net investment income ​ $ 13,877 ​ $ 9,080 ​ $ 8,612 ​ 106 Table of Contents Net realized and unrealized investment gains and losses The following table presents net realized and unrealized investment gains and losses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ 2022 2021 2020 ​ ​ (in thousands) Realized gains: ​ ​ ​ Gains on sales of fixed maturity securities ​ $ 14 ​ $ 466 ​ $ 501 Gains on sales of equity securities ​ — ​ 1,416 ​ 62 Total realized gains ​ 14 ​ 1,882 ​ 563 Realized losses: ​ ​ ​ Losses on sales of fixed maturity securities ​ ( 2,340 ) ​ ​ ( 1 ) ​ ​ ( 46 ) Losses on sales of equity securities ​ — ​ ​ — ​ ​ ( 68 ) Total realized losses ​ ( 2,340 ) ​ ( 1 ) ​ ( 114 ) Net realized investment gains (losses) ​ ( 2,326 ) ​ 1,881 ​ 449 Net unrealized gains (losses) on equity securities ​ ( 5,203 ) ​ ( 604 ) ​ 1,039 Net realized and unrealized gains (losses) on investments ​ $ ( 7,529 ) ​ $ 1,277 ​ $ 1,488 ​ Proceeds from the sale of fixed maturity securities were $ 19.7 million, $ 17.4 million and $ 39.8 million for the years ended December 31, 2022, 2021 and 2020, respectively. The Company places securities on statutory deposit with certain state agencies to retain the right to do business in those states. These securities are included in available-for-sale investments on the consolidated balance sheets. At December 31, 2022 and 2021, the carrying value of securities on deposit with state regulatory authorities was $ 8.5 million and $ 7.5 million, respectively. 4. Fair value measurements The following tables present the Company’s fair value hierarchy for financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2022 and 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 Level 1 Level 2 Level 3 Total ​ (in thousands) Assets: ​ ​ ​ ​ Fixed maturity securities ​ ​ ​ ​ U.S. Governments ​ $ — ​ $ 48,551 ​ $ — ​ $ 48,551 States, territories, and possessions ​ — ​ 5,354 ​ — ​ 5,354 Political subdivisions ​ — ​ 4,298 ​ — ​ 4,298 Special revenue excluding mortgage/asset-backed securities ​ — ​ 32,799 ​ — ​ 32,799 Industrial and miscellaneous ​ — ​ 254,095 ​ — ​ 254,095 Mortgage/asset-backed securities ​ — ​ 169,967 ​ — ​ 169,967 Equity securities ​ 38,576 ​ — ​ — ​ 38,576 Cash, cash equivalents, and restricted cash ​ 68,164 ​ — ​ — ​ 68,164 Total assets ​ $ 106,740 ​ $ 515,064 ​ $ — ​ $ 621,804 ​ 107 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 Level 1 Level 2 Level 3 Total ​ (in thousands) Assets: ​ ​ ​ ​ Fixed maturity securities ​ ​ ​ ​ U.S. Governments ​ $ — ​ $ 16,870 ​ $ — ​ $ 16,870 States, territories, and possessions ​ — ​ 4,014 ​ — ​ 4,014 Political subdivisions ​ — ​ 6,380 ​ — ​ 6,380 Special revenue excluding mortgage/asset-backed securities ​ — ​ 44,498 ​ — ​ 44,498 Industrial and miscellaneous ​ — ​ 249,046 ​ — ​ 249,046 Mortgage/asset-backed securities ​ — ​ 110,374 ​ 1,500 ​ 111,874 Equity securities ​ 33,261 ​ — ​ — ​ 33,261 Cash, cash equivalents, and restricted cash ​ 50,371 ​ — ​ — ​ 50,371 Total assets ​ $ 83,632 ​ $ 431,182 ​ $ 1,500 ​ $ 516,314 ​ The carrying amounts of financial assets and liabilities reported in the accompanying condensed consolidated balance sheet including cash and cash equivalents, restricted cash, receivables, reinsurance recoverable, and accounts payable and other accrued liabilities approximate fair value due to their short term-maturity. The carrying amount of the Company’s borrowings under the Federal Home Loan Bank (“FHLB”) line of credit approximates fair value as the Company is currently borrowing at the overnight rate, which is adjusted daily. Transfers between Level 3 and Level 2 securities result from changes in the availability of observable market inputs and are recorded at the beginning of the reporting period. As of December 31, 2022, the Company had no fixed income securities classified as Level 3. As of December 31, 2021, the Company had $ 1.5 million of fixed income securities classified as Level 3 due to the lack of availability of observable market inputs for recently purchased securities. 5. Policy Acquisition Costs The following tables present the policy acquisition costs deferred and amortized over the terms of the policies in force: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2022 2021 2020 ​ ​ (in thousands) Deferred Policy Acquisition Costs: ​ ​ ​ Balance, beginning of year ​ $ 55,953 ​ $ 35,481 ​ $ 25,201 Additions to deferred balance: ​ ​ ​ ​ ​ ​ Direct commissions ​ 209,061 ​ 133,242 ​ 82,786 Ceding commissions and fronting fees ​ ( 109,302 ) ​ ( 32,249 ) ​ ( 19,371 ) Premium taxes ​ 10,166 ​ 8,209 ​ 7,024 Total net additions ​ 109,925 ​ 109,202 ​ 70,439 Amortization of net policy acquisition costs ​ ( 109,138 ) ​ ( 88,730 ) ​ ( 60,159 ) Balance, end of year ​ $ 56,740 ​ $ 55,953 ​ $ 35,481 Acquisition expenses: ​ ​ ​ Amortization of net policy acquisition costs ​ $ 109,138 ​ $ 88,730 ​ $ 60,159 Period costs ​ 1,633 ​ 6,703 ​ 3,882 Total Acquisition expenses ​ $ 110,771 ​ $ 95,433 ​ $ 64,041 ​ ​ ​ ​ 108 Table of Contents 6. Intangible Assets Intangible assets consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2022 2021 ​ ​ (in thousands) Indefinite-lived intangibles: ​ ​ ​ ​ ​ ​ State insurance licenses ​ $ 744 ​ $ 744 Finite-lived intangibles: ​ ​ ​ ​ ​ ​ Customer relationships ​ ​ 10,023 ​ ​ 10,008 Accumulated amortization on finite-lived intangibles ​ ​ ( 2,506 ) ​ ​ ( 1,251 ) Total intangible assets ​ $ 8,261 ​ $ 9,501 ​ ​ ​ State insurance licenses consist of licenses acquired at the inception of PSIC. ​ Customer relationships represents the fair value of acquired policy renewal rights. The Company began amortizing this intangible asset on a straight line basis in 2021 and is amortizing it over a period of 8 years . Amortization expense for the years ended December 31, 2022 and 2021 was $ 1.3 million during each year. ​ ​ 7. Capitalized Assets Capitalized software is included as a component of prepaid expenses and other assets in the Company’s consolidated balance sheet. The balances are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ Net December 31, 2022 Cost ​ Amortization Book Value ​ ​ (in thousands) Capitalized Software $ 18,622 $ ( 6,303 ) $ 12,319 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ Net December 31, 2021 Cost Amortization Book Value ​ ​ (in thousands) Capitalized Software $ 13,205 $ ( 3,831 ) $ 9,374 ​ ​ Amortization expense relating to capitalized software for the years ended December 31, 2022, 2021 and 2020 was $ 2.6 million, $ 2.1 million, and $ 1.1 million, respectively. ​ Property and Equipment consists of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ Net December 31, 2022 Cost ​ Depreciation Book Value ​ ​ (in thousands) Leasehold improvements ​ $ 879 $ ( 694 ) ​ $ 185 Computer hardware ​ 402 ​ ( 205 ) ​ 197 Office equipment and furniture ​ 724 ​ ( 503 ) ​ 221 Total ​ $ 2,005 ​ $ ( 1,402 ) ​ $ 603 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ Net December 31, 2021 Cost Depreciation Book Value ​ ​ (in thousands) Leasehold improvements ​ $ 879 $ ( 576 ) ​ $ 303 Computer hardware ​ 294 ​ ( 148 ) ​ 146 Office equipment and furniture ​ 519 ​ ( 441 ) ​ 78 Total ​ $ 1,692 ​ $ ( 1,165 ) ​ $ 527 ​ 109 Table of Contents ​ Depreciation expense for the years ended December 31, 2022, 2021 and 2020 was $ 0.2 million, $ 0.2 million, and $ 0.2 million respectively. ​ 8. Leases ​ The Company has operating leases for office space used to conduct its insurance operations and administration activities. Operating lease right-of-use (“ROU”) assets are a component of prepaid expenses and other assets and operating lease liabilities are included in accounts payable and other accrued liabilities in the Company's consolidated balance sheets. ​ The Company determines whether an arrangement is a lease at its inception. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. To determine the present value of lease payments, the Company uses its incremental borrowing rate, which it calculates based on information available at the lease commencement date. For certain leases that contain options to extend, the options are included in lease liabilities only if the company is reasonably certain the option will be exercised. Variable lease costs such as parking are expensed in the period the obligation is incurred and are not included in the Company’s operating lease liability. The Company's lease agreements do not contain any residual value guarantees. ​ Operating lease costs for the years ended December 31, 2022, 2021 and 2020 were $ 0.8 million, $ 0.7 million and $ 0.7 million, respectively. Operating lease costs are comprised of rental expense for operating leases. Lease expense is recognized on a straight-line basis over the lease term and is included as a component of other underwriting expenses in the Company’s consolidated statements of income and comprehensive income. ​ The following tables provide supplementary information about the Company’s leases: ​ ​ ​ ​ ​ ​ Year ended December 31, 2022 ​ (in thousands) ​ Operating cash outflows from operating leases ​ $ 922 ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ ($ in thousands) ​ Operating lease ROU assets ​ $ 1,688 ​ Operating lease liabilities ​ $ 2,066 ​ Weighted-average remaining lease term on operating leases ​ ​ 2.7 years Weighted-average discount rate on operating leases ​ ​ 1.4 % ​ ​ Future minimum lease payments as of December 31, 2022 are as follows: ​ ​ ​ ​ ​ ​ Years ending December 31, ​ (in thousands) ​ 2023 ​ ​ 966 ​ 2024 ​ ​ 640 ​ 2025 ​ ​ 168 ​ 2026 ​ ​ 173 ​ 2027 ​ ​ 240 ​ 2028 ​ ​ — ​ Total future minimum lease payments ​ $ 2,187 ​ Less: imputed interest ​ ​ ( 121 ) ​ Total operating lease liability ​ $ 2,066 ​ ​ ​ ​ ​ 110 Table of Contents 9. Reserve for Losses and Loss Adjustment Expenses Loss and loss adjustment expenses reserves represent management’s best estimate of the ultimate cost of all reported and unreported losses incurred for the years ended December 31, 2022, 2021, and 2020. The Company does not discount loss and loss adjustment expense reserves. The reserves for unpaid losses and loss adjustment expenses are estimated using individual case-basis valuations and statistical analyses. Those estimates are subject to the effects of trends in loss severity and frequency. In addition to case reserves, which are generally based on reported claims, the Company establishes reserves for incurred but not reported claims (“IBNR”). IBNR reserves are developed to provide for (i) the estimated amount of future loss payments on incurred claims not yet reported, and (ii) potential development on reported claims. IBNR reserves are estimated based on generally accepted actuarial reserving techniques that consider quantitative loss experience data and, where appropriate, qualitative factors. With the assistance of an independent, actuarial firm, the Company uses statistical analysis to estimate the cost of losses and loss adjustment expenses related to IBNR. Those estimates are based on historical information, industry information and practices, and estimates of trends that may affect the ultimate frequency of incurred but not reported claims and changes in ultimate claims severity. The Company regularly reviews its reserve estimates and adjusts them as necessary as experience develops or as new information becomes known. Such adjustments are included in current operations. During the loss settlement period, if there are indications that claims frequency or severity exceeds initial expectations, the Company generally increases its reserves for losses and loss adjustment expenses. Conversely, when claims frequency and severity trends are more favorable than initially anticipated, the Company generally reduces its reserves for losses and loss adjustment expenses once it has sufficient data to confirm the validity of the favorable trends. Even after such adjustments, the ultimate liability may exceed or be less than the revised estimates. Accordingly, the ultimate settlement of losses and the related loss adjustment expenses may vary significantly from the estimate included in the Company’s consolidated financial statements. Although considerable variability is inherent in such estimates, management believes the reserves for losses and loss adjustment expenses are adequate. The estimates are continually reviewed and adjusted as necessary as experience develops or new information becomes known. Any adjustments to estimates are recorded in the current period. 111 Table of Contents The following table provides a reconciliation of the beginning and ending reserve balances for losses and LAE on a net of reinsurance basis to the gross amounts reported in the accompanying consolidated balance sheets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2022 2021 2020 ​ ​ (in thousands) Reserve for losses and loss adjustment expenses net of reinsurance recoverables at beginning of period ​ $ 45,419 ​ $ 34,470 ​ $ 3,869 Add: Incurred losses and loss adjustment expenses, net of reinsurance, related to: ​ ​ ​ ​ ​ ​ ​ ​ ​ Current year ​ 76,289 ​ ​ 45,042 ​ ​ 64,179 Prior years ​ 2,383 ​ ​ ( 3,585 ) ​ ​ ( 64 ) Total incurred ​ 78,672 ​ 41,457 ​ 64,115 Deduct: Loss and loss adjustment expense payments, net of reinsurance, related to: ​ ​ ​ Current year ​ ​ 21,802 ​ ​ 12,063 ​ ​ 31,879 Prior years ​ ​ 24,769 ​ ​ 18,445 ​ ​ 1,635 Total payments ​ 46,571 ​ 30,508 ​ 33,514 Reserve for losses and loss adjustment expense net of reinsurance recoverables at end of period ​ 77,520 ​ 45,419 ​ 34,470 Add: Reinsurance recoverables on unpaid losses and loss adjustment expenses at end of period ​ ​ 153,895 ​ ​ 127,947 ​ ​ 94,566 Reserve for losses and loss adjustment expenses gross of reinsurance recoverables on unpaid losses and loss adjustment expenses at end of period ​ $ 231,415 ​ $ 173,366 ​ $ 129,036 ​ The foregoing reconciliation shows a loss and loss adjustment expense deficiency of $ 2.4 million developed in 2022 and loss and loss adjustment expense reserve redundancies of $ 3.6 million and $ 0.1 million developed in 2021 and 2020, respectively. During 2022, the net unfavorable reserve development was primarily attributable to prior year catastrophe events including certain 2020 Hurricanes, offset by favorable development related to 2021 attritional and catastrophe losses. ​ During 2021, this net favorable reserve development was primarily due to the effect of ceding gross unfavorable development under our reinsurance program and lower than anticipated severity of catastrophe losses associated with certain hurricanes that occurred during the second half of 2020. During 2020, this favorable reserve development related to lower than anticipated frequency and severity of claims in our homeowners and special property lines of business offset by higher than anticipated frequency and severity of claims in our assumed reinsurance line. The Company compiles and aggregates its claims data by grouping the claims according to the year in which the claim occurred (“Accident Year”) when analyzing claim payment and emergence patterns and trends over time. For the purpose of defining claims frequency, the number of reported claims is by loss occurrence and includes claims that do not result in a liability or payment associated with them. The Company analyzed the usefulness of disaggregation of its results and determined the characteristics associated with the policies and the related unpaid loss reserves, incurred losses, and payment patterns are similar in nature. The Company separates its special property and other claim experience from its homeowner claim experience when analyzing losses and allocated loss adjustment expenses incurred and paid development and claim count triangles, as there are distinct differences in the development and claim count emergence patterns as well as methods of IBNR projection. The Special Property classification includes fire, allied lines, inland marine, and earthquake claims. As such, the following tables show the Company’s historical homeowner and special property incurred and cumulative paid losses and LAE development, net of reinsurance, as well as IBNR loss reserves and the number of reported claims on an aggregate basis as of December 31, 2022 and for previous accident years. The information provided herein about incurred and paid accident year claims development for the years ended December 31, 2022 and prior is presented as unaudited supplementary information. 112 Table of Contents Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance Homeowners’ Insurance (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Incurred but ​ Cumulative ​ ​ Year Ended December 31, ​ Not Reported ​ Number of Accident Year 2015(1) 2016(1) 2017(1) 2018(1) 2019(1) 2020(1) 2021(1) 2022 Liabilities Claims 2015 ​ $ 2,048 ​ $ 1,785 ​ $ 1,658 ​ $ 1,636 ​ $ 1,642 ​ $ 1,636 ​ $ 1,643 ​ $ 1,612 ​ $ — ​ 567 2016 ​ ​ ​ ​ ​ 6,069 ​ ​ 5,878 ​ ​ 5,721 ​ ​ 5,636 ​ ​ 5,622 ​ ​ 5,609 ​ ​ 5,604 ​ ​ — ​ 1,357 2017 ​ ​ ​ 9,354 ​ 7,418 ​ 6,630 ​ 6,388 ​ 5,587 ​ 5,681 ​ 11 ​ 3,516 2018 ​ ​ ​ ​ 2,193 ​ 2,008 ​ 1,930 ​ 1,929 ​ 1,529 ​ — ​ 1,017 2019 ​ ​ ​ ​ ​ 914 ​ 838 ​ 807 ​ 676 ​ 36 ​ 1,386 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 19,100 ​ ​ 15,088 ​ ​ 13,715 ​ ​ 106 ​ 4,451 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 8,453 ​ ​ 5,765 ​ ​ — ​ 4,081 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 7,237 ​ ​ 1,000 ​ 2,149 Total ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 41,819 ​ $ 1,153 18,524 ​ Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance Homeowners’ Insurance (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, Accident Year 2015(1) 2016(1) 2017(1) 2018(1) 2019(1) 2020(1) 2021(1) 2022 2015 ​ $ 860 ​ $ 1,379 ​ $ 1,523 ​ $ 1,615 ​ $ 1,634 ​ $ 1,636 ​ $ 1,643 ​ $ 1,612 2016 ​ ​ ​ ​ ​ 4,120 ​ ​ 5,356 ​ ​ 5,585 ​ ​ 5,607 ​ ​ 5,619 ​ ​ 5,609 ​ ​ 5,604 2017 ​ ​ ​ 7,135 ​ 7,375 ​ 6,628 ​ 6,371 ​ 5,586 ​ 5,649 2018 ​ ​ ​ ​ 1,550 ​ 1,853 ​ 1,922 ​ 1,922 ​ 1,529 2019 ​ ​ ​ ​ ​ 546 ​ 685 ​ 685 ​ 704 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 13,588 ​ ​ 13,095 ​ ​ 13,161 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 4,351 ​ ​ 5,472 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 5,310 Total ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 39,041 Reserve for losses and loss adjustment expense, net of reinsurance ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 2,778 (1) Data presented for these calendar years is required supplementary information, which is unaudited. Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance Homeowners’ Insurance (unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year 1 Year 2 Year 3 Year 4 Year 5 (2) Year 6 Year 7 Year 8 (2) ​ Payout percentage 85.32 % 16.39 % 0.81 % 0.88 % ( 9.53 ) % 0.35 % 0.17 % ( 1.92 ) ​ ​ (2) Negative payout percentages are due to timing of reinsurance payments, allocations of reinsurance between different lines of business based on actual results, and allocation of reinsurance to different periods for reinsurance treaties in effect for multiple periods. These are primarily associated with larger recoveries from catastrophe events in earlier years of operation. ​ ​ 113 Table of Contents Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance Special Property Insurance (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Incurred but ​ Cumulative ​ ​ Year Ended December 31, ​ Not Reported ​ Number of Accident Year 2015(1) 2016(1) 2017(1) 2018(1) 2019(1) 2020(1) 2021(1) 2022 Liabilities Claims 2015 ​ $ 630 ​ $ 719 ​ $ 671 ​ $ 671 ​ $ 678 ​ $ 677 ​ $ 673 ​ $ 692 ​ $ — ​ 6 2016 ​ ​ ​ ​ ​ 1,381 ​ ​ 1,249 ​ ​ 1,251 ​ ​ 1,454 ​ ​ 1,453 ​ ​ 1,453 ​ ​ 1,521 ​ ​ — ​ 26 2017 ​ ​ ​ 3,071 ​ 3,475 ​ 4,014 ​ 4,264 ​ 4,974 ​ 4,987 ​ — ​ 110 2018 ​ ​ ​ ​ 5,970 ​ 6,095 ​ 6,009 ​ 6,021 ​ 6,412 ​ — ​ 176 2019 ​ ​ ​ ​ ​ 3,661 ​ 3,385 ​ 3,140 ​ 3,617 ​ 62 ​ 294 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 42,334 ​ ​ 42,160 ​ ​ 45,850 ​ ​ 2,263 ​ 960 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 21,383 ​ ​ 19,393 ​ ​ 758 ​ 1386 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 35,650 ​ ​ 10,515 ​ 1,425 Total ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 118,122 ​ $ 13,598 4,383 ​ Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance Special Property Insurance (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accident Year 2015(1) 2016(1) 2017(1) 2018(1) 2019(1) 2020(1) 2021(1) 2022 2015 ​ $ 265 ​ $ 438 ​ $ 586 ​ $ 626 ​ $ 666 ​ $ 673 ​ $ 673 ​ $ 692 2016 ​ ​ ​ ​ ​ 703 ​ ​ 1,064 ​ ​ 1,216 ​ ​ 1,444 ​ ​ 1,453 ​ ​ 1,453 ​ ​ 1,521 2017 ​ ​ ​ 1,967 ​ 3,344 ​ 4,011 ​ 4,269 ​ 4,974 ​ 4,987 2018 ​ ​ ​ ​ 2,859 ​ 6,036 ​ 6,009 ​ 6,021 ​ 6,414 2019 ​ ​ ​ ​ ​ 1,633 ​ 2,825 ​ 3,072 ​ 3,466 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 18,274 ​ ​ 36,127 ​ ​ 42,343 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 7,004 ​ ​ 17,028 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 7,337 Total ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 83,788 Reserve for losses and loss adjustment expense, net of reinsurance ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 34,334 ​ (1) Data presented for these calendar years is required supplementary information, which is unaudited. Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance Special Property Insurance (unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Payout percentage 38.78 % 35.64 % 10.79 % 7.40 % 6.66 % 0.42 % 2.24 % 2.70 % ​ 114 Table of Contents The reconciliation of the net incurred and paid claims development tables to the liability for claims and claim adjustment expenses in the consolidated balance sheets is as follows: ​ ​ ​ ​ ​ ​ 2022 ​ ​ (in thousands) Net outstanding liabilities: ​ Homeowners’ insurance ​ $ 2,778 Special property ​ ​ 34,334 Reinsurance- Nonproportional assumed property(1) ​ 8,568 Other ​ ​ 31,840 Reserve for losses and loss adjustment expense, net of reinsurance ​ 77,520 Reinsurance recoverable on unpaid claims: ​ Homeowners’ insurance ​ $ 11,339 Special property ​ ​ 97,231 Other ​ 45,325 Total reinsurance recoverable on unpaid claims ​ 153,895 Total reserve for losses and loss adjustment expenses ​ $ 231,415 ​ (1) Reflects the Company’s share of Loss and Loss Adjustment Expense related to non-proportional assumed reinsurance business. This amount reflects gross and net reserves related to this treaty and the ultimate incurred amount reflects IBNR only. The Company does not have direct access to individual claim information underlying the assumed quota arrangement. The Company does not use claim frequency information in the determination of loss reserves or for other internal purposes. Based on these considerations, the Company does not believe providing claims frequency information is practicable as it relates to this line of business . 10. Reinsurance The Company utilizes reinsurance in order to limit its exposure to losses and enable it to underwrite policies with sufficient limits to meet policyholder needs. The Company primarily utilizes excess of loss (XOL) and quota share reinsurance to protect against catastrophe and attritional losses. The Company also writes premiums under fronting agreements, whereby the majority of premium and risk is ceded to reinsurers and the Company receives a fronting fee. In an XOL treaty, the Company retains losses for any occurrence up to a specified amount (its “retention”) and reinsurers assume any losses above that amount. Historically, the Company has had a retention of between $ 5 million and $ 15 million for hurricane and earthquake events. As of December 31, 2022, the Company’s catastrophe event retention is $ 12.5 million for all perils. As of December 31, 2022, the Company’s XOL reinsurance structure provides protection up to $ 2.11 billion for earthquake events, $ 1.01 billion for Hawaii hurricane events, and $ 250 million for continental U.S. hurricane events. In a quota share agreement, the Company transfers, or cedes, a portion of its premiums to reinsurers and, in return, the reinsurer must share an agreed upon portion of losses and pay a ceding commission to the Company. In a fronting agreement, the Company writes premium and then cedes the majority of the premium and risk in exchange for a fronting fee, which is the primary source of profit in the arrangement. The following table shows ceded written premiums under fronting and quota share arrangements by line of business for the years ended December 31, 2022, 2021 and 2020: ​ The following table shows ceded written premiums under fronting and quota share arrangements by line of business for the years ended December 31, 2022, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2022 2021 2020 ​ (in thousands) Fronting ​ $ 237,285 ​ $ 11,001 ​ $ — Inland Marine ​ ​ 63,627 ​ ​ 28,389 ​ ​ 5,339 Specialty Homeowners ​ 4,946 ​ 27,394 ​ 22,295 Commercial Earthquake ​ ​ 20,467 ​ ​ 14,447 ​ ​ 6,929 Commercial All Risk ​ 6,260 ​ 3,948 ​ 19,218 Others ​ ​ 32,609 ​ ​ 10,822 ​ ​ 5,495 Total ​ $ 365,193 ​ $ 96,001 ​ $ 59,276 ​ 115 Table of Contents The Company recognizes ceded unearned premiums related to quota share agreements as an asset on its consolidated balance sheets. As of December 31, 2022 and 2021, ceded unearned premiums totaled $ 204.1 million and $ 58.3 million, respectively. The increase was driven primarily by premium growth in lines subject to fronting agreements or quota shares. As part of its reinsurance program, in May 2017, the Company obtained catastrophe protection through a reinsurance agreement with Torrey Pines Re Ltd. (“TPRe”). In connection with the reinsurance agreement, TPRe issued notes to unrelated investors in an amount equal to the full $ 166 million of coverage provided under the reinsurance agreement covering a three-year period, ending May 31, 2020. During the first quarter of 2021, the Company closed a $ 400 million 144A catastrophe bond which became effective June 1, 2021. The catastrophe bond was completed through Torrey Pines Re Pte. Ltd. (“Torrey Pines Re”). 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. Written premiums ceded under these catastrophe bond agreements were $ 28.3 million, $ 11.7 million and $ 5.0 million for the years ended December 31, 2022, 2021 and 2020, respectively. The effect of reinsurance on premiums written and earned and on losses and LAE incurred for the years ended December 31, 2022, 2021 and 2020, is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 ​ 2021 ​ 2020 ​ Written Earned Written Earned Written Earned ​ ​ (in thousands) Premiums Written and Earned: ​ ​ ​ ​ ​ ​ Direct ​ $ 816,387 ​ $ 628,973 ​ $ 467,424 ​ $ 384,463 ​ $ 324,253 ​ $ 271,887 Assumed ​ 65,481 ​ 66,299 ​ 67,751 ​ 49,535 ​ 30,107 ​ 29,569 Ceded ​ ( 524,575 ) ​ ( 378,806 ) ​ ( 223,443 ) ​ ( 200,172 ) ​ ( 155,102 ) ​ ( 146,388 ) Net ​ $ 357,293 ​ $ 316,466 ​ $ 311,732 ​ $ 233,826 ​ $ 199,258 ​ $ 155,068 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 ​ Losses LAE Total ​ ​ (in thousands) Losses and LAE Incurred: ​ ​ ​ Direct ​ $ 133,517 ​ $ 38,004 ​ $ 171,521 Assumed ​ 23,574 ​ 5,998 ​ 29,572 Ceded ​ ( 91,261 ) ​ ( 31,159 ) ​ ( 122,421 ) Net ​ $ 65,829 ​ $ 12,843 ​ $ 78,672 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 ​ Losses LAE Total ​ ​ (in thousands) Losses and LAE Incurred: ​ ​ ​ Direct ​ $ 168,292 ​ $ 13,295 ​ $ 181,587 Assumed ​ 17,184 ​ 1,926 ​ 19,110 Ceded ​ ( 148,106 ) ​ ( 11,134 ) ​ ( 159,240 ) Net ​ $ 37,370 ​ $ 4,087 ​ $ 41,457 ​ 116 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2020 ​ Losses LAE Total ​ ​ (in thousands) Losses and LAE Incurred: ​ ​ ​ Direct ​ $ 145,774 ​ $ 18,777 ​ $ 164,551 Assumed ​ 3,485 ​ 159 ​ 3,644 Ceded ​ ( 91,969 ) ​ ( 12,111 ) ​ ( 104,080 ) Net ​ $ 57,290 ​ $ 6,825 ​ $ 64,115 ​ The ceding of insurance does not legally discharge the Company from its primary liability for the full amount of the policy coverage, and therefore the Company will be required to pay the loss and bear collection risk if the reinsurer fails to meet its obligations under the reinsurance agreement. To minimize exposure to significant losses from reinsurance insolvencies, the Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk. To reduce credit exposure to reinsurance recoverable balances, the Company obtains letters of credit from certain reinsurers that are not authorized as reinsurers under U.S. state insurance regulations. In addition, under the terms of its reinsurance contracts, the Company may retain funds due from reinsurers as security for those recoverable balances. As of December 31, 2022 and 2021, the Company had retained $ 10.7 million and $ 10.9 million in funds from reinsurers, respectively. The Company is able to use the funds in the ordinary course of its business. The funds are held in cash and cash equivalents and investments with an offsetting liability on the accompanying consolidated balance sheets. For the year ended December 31, 2022, reinsurance premiums ceded to the Company’s three largest reinsurers totaled $ 24.7 million, $ 22.9 million and $ 18.4 million, representing 23.9 % of the total balance. For the year ended December 31, 2021, reinsurance premiums ceded to the Company’s three largest reinsurers totaled $ 24.7 million, $ 11.7 million and $ 10.4 million, representing 20.9 % of the total balance. For the year ended December 31, 2020, reinsurance premiums ceded to the Company’s three largest reinsurers totaled $ 9.7 million, $ 8.6 million and $ 6.0 million, representing 22.4 % of the total balance. At December 31, 2022 reinsurance recoverable on unpaid losses by the Company’s three largest reinsurers were $ 60.6 million, $ 53.9 million and $ 50.6 million representing 31.5 % of the total balance. At December 31, 2021 reinsurance recoverable on unpaid losses by the Company’s three largest reinsurers were $ 21.9 million, $ 10.5 million and $ 9.2 million representing 19.3 % of the total balance. All of the Company’s reinsurers are required to have an A.M. best rating of A− (excellent) or better or post collateral. 11. Credit Agreements U.S. Bank Credit Agreement ​ In December 2021, the Company entered into a Credit Agreement (the “Credit Agreement”) with certain lenders which provides a revolving credit facility of up to $ 100.0 million (the “Revolving Loan”). The maturity of the facility is December 8, 2026. The Revolving Loan may be either a SOFR rate loan or a base rate loan, at the Company’s discretion. The Revolving Loan may be prepaid in full or in part at any time with no prepayment premium and may be reduced in full or in part at any time upon prior notice. Interest on the Revolving Loan accrues on each SOFR rate loan at the applicable SOFR (as defined in the Credit Agreement) plus 1.75 % and on each base rate loan at the applicable Alternate Base Rate (as defined in the Credit Agreement) plus (ii) 0.75 % . In addition, the Company paid a commitment fee of $ 0.3 million upon closing of the Credit Agreement and must pay an unused line fee of 0.25 % per annum on any unborrowed amount under the Credit Agreement. ​ The Company’s obligations under the Credit Agreement are unsecured with a negative pledge against all assets of Palomar and its subsidiaries as described in the Credit Agreement. The Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants, including, among other things, 117 Table of Contents 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. As of December 31, 2022, the Company was in compliance with all covenants. ​ The Credit Agreement provides for events of default customary for revolving loans of this type, including but not limited to non-payment, breaches, or defaults in the performance of covenants, insolvency, bankruptcy and the occurrence of a material adverse effect on Palomar. During the existence of an event of default, all outstanding amounts of the Revolving Loan shall bear interest at a rate per annum equal to the rate otherwise applicable thereto plus 2.00 %. ​ As of December 31, 2022 and 2021, there were no outstanding borrowings under this Credit Agreement. For the year ended December 31, 2022, the Company incurred $ 0.4 million of interest related to amortization of the commitment fee and unused line fee paid on the Credit Agreement. FHLB Line of Credit ​ The Company’s PSIC subsidiary is a member of the Federal Home Loan Bank of San Francisco (“FHLB”). Membership in the FHLB provides PSIC access to collateralized advances, which can be drawn for general corporate purposes and used to enhance liquidity management. All borrowings are fully secured by a pledge of specific investment securities of PSIC and the borrowing capacity is currently equal to 10 % of PSIC’s statutory admitted assets. All advances have a predetermined term and the interest rate varies based on the term of the advance. As of December 31, 2022, the Company had $ 36.4 million of borrowings outstanding through the FHLB at the overnight rate of 4.65 %. Interest expense on the FHLB Line of Credit was $ 0.5 million for the year ended December 31, 2022. There were no borrowings outstanding at December 31, 2021. ​ 12. Stockholders’ Equity As of December 31, 2022 and December 31, 2021, the Company has 5,000,000 preferred shares authorized with a par value of $ 0.0001 and no preferred shares issued and outstanding. As of December 31, 2022 and December 31, 2021, the Company has 500,000,000 common shares authorized and 25,027,467 and 25,428,929 common shares issued and outstanding, respectively, with a par value of $ 0.0001 . Additional paid in capital is $ 333.6 million as of December 31, 2022 and $ 318.9 million as of December 31, 2021. ​ 118 Table of Contents Common stock reserved for future issuance consists of the following as of December 31, 2022: ​ ​ ​ Stock options outstanding under 2019 Equity Incentive Plan 882,892 Restricted stock units outstanding under 2019 Equity Incentive Plan 271,951 Performance stock units outstanding under 2019 Equity Incentive Plan 383,103 Shares authorized for future issuance under 2019 Equity Incentive Plan 2,594,587 Shares authorized for future issuance under 2019 Employee Stock Purchase Plan 907,850 Total 5,040,383 ​ The below table summarizes the Company’s stock-based compensation expense for each period presented: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2022 2021 2020 ​ (in thousands) Stock-Based Compensation Expense $ 11,624 ​ $ 5,584 ​ $ 2,167 ​ Stock-based compensation expense is recognized on a straight-line basis over the vesting period of awards. The Company does not apply a forfeiture rate to unvested awards and accounts for forfeitures as they occur. All stock-based compensation is included in other underwriting expenses in the Company’s consolidated statements of income and comprehensive income. 2019 Equity Incentive Plan On April 16, 2019, the Company’s 2019 Equity Incentive Plan (the “2019 Plan”) became effective. The 2019 Plan provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), performance shares and units, and other cash-based or share-based awards. In addition, the 2019 Plan contains a mechanism through which the Company may adopt a deferred compensation arrangement in the future. A total of 2,400,000 shares of common stock were initially authorized and reserved for issuance under the 2019 Plan. This reserve increases on January 1 of each year through 2029, by an amount equal to the smaller of: 3 % of the number of shares of common stock issued and outstanding on the immediately preceding December 31, or an amount determined by the board of directors. Stock Options Recipients of stock options can purchase shares of the Company’s common stock at a price equal to the stock’s fair market value on the grant date, determined by the closing price of the Company's common stock on the grant date. Stock options vest over a period between two and four years with between 25 % and 50 % vesting on the first anniversary of the grant date and the remainder vesting monthly over the remaining period , subject to continued service to the Company. Stock options expire ten years after the grant date. 119 Table of Contents The following table summarizes stock option transactions for the year ended December 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average ​ ​ ​ ​ ​ ​ ​ ​ ​ remaining ​ Aggregate ​ ​ Number of ​ Weighted-average ​ contractual term ​ intrinsic value ​ shares exercise price (in years) (in thousands) Outstanding at January 1, 2022 ​ 933,051 ​ $ 29.41 ​ 7.59 ​ $ 36,679 Options granted ​ 122,539 ​ ​ 51.99 ​ ​ ​ ​ ​ Options exercised ​ ( 148,427 ) ​ ​ 15.31 ​ ​ ​ ​ ​ Options canceled ​ ( 24,271 ) ​ ​ 68.13 ​ ​ ​ ​ ​ Outstanding at December 31, 2022 ​ 882,892 ​ $ 33.85 ​ 6.92 ​ $ 16,990 Vested and Exercisable at December 31, 2022 ​ 658,858 ​ $ 26.33 ​ 6.48 ​ $ 16,001 ​ The total intrinsic value of stock options exercised during the years ended December 31, 2022 and December 31, 2021 was $ 7.1 million and $ 8.5 million, respectively. No options were exercised prior to 2020. As of December 31, 2022, the Company had approximately $ 3.6 million of total unrecognized stock-based compensation expense related to stock options expected to be recognized over a weighted-average period of 1.58 years. The fair value of each option granted was estimated on the grant date using the Black-Scholes option pricing model with the following assumptions in each year presented: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2022 2021 2020 ​ (in thousands) Risk free rate of return (1) ​ 1.69 % - 4.23 % ​ ​ 0.57 % - 1.35 % ​ ​ 0.32 % - 1.52 % Expected share price volatility (2) ​ 39.73 % - 43.03 % ​ ​ 26.06 % - 39.41 % ​ ​ 18.13 % - 25.67 % Expected life in years (3) ​ 5.89 ​ ​ 5.89 ​ ​ 5.63 - 6.08 Dividend yield (4) ​ 0 % ​ ​ 0 % ​ ​ 0 % (1) Determined based on the U.S. Treasury yield in effect at the time of the grant for zero-coupon U.S. Treasury notes with remaining terms similar to the expected term of the options. (2) Determined based on a blend of the Company’s historic stock price volatility and the historic volatility of a peer group of publicly traded companies. (3) Determined using the “simplified method” for estimating the expected option life, which is the average of the weighted-average vesting period and contractual term of the option as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time its common stock has been publicly traded. (4) Determined to be zero as the Company does not currently plan to issue dividends. ​ Restricted Stock Units Restricted stock units are valued on their grant date and generally vest either on the first anniversary of the grant date or over a three-year period with one third vesting on each anniversary date, subject to continued service with the Company. The fair value of RSUs is determined using the closing price of the Company's common stock on the grant date. 120 Table of Contents The following table summarizes RSU transactions for the year ended December 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average ​ ​ Number of ​ grant date ​ shares fair value Non vested outstanding at January 1, 2022 ​ 235,696 ​ $ 79.33 Granted ​ 100,106 ​ ​ 51.53 Vested ​ ( 57,536 ) ​ ​ 80.60 Forfeited ​ ( 6,315 ) ​ ​ 76.30 Non vested outstanding at December 31, 2022 ​ 271,951 ​ $ 68.90 ​ As of December 31, 2022, the Company had approximately $ 15.4 million of total unrecognized stock-based compensation expense related to RSUs expected to be recognized over a weighted-average period of 2.87 years. Performance Stock Units (“PSUs”) ​ The Company issues PSUs to employees with a combination of service, performance, and market conditions. ​ The majority of PSUs were issued pursuant to the 2021 Executive Stock Grants, as described below. For other PSU grants, vesting of PSUs requires a period of future service and the number of shares that vest depends on performance relative to predetermined targets of the Company’s Gross Written Premiums and Adjusted Return on Equity as set by the Compensation Committee. The PSU’s performance period is the fiscal year of the grant. At the end of the performance period, the actual results will be measured against the predetermined targets to determine the number of PSUs to be earned as compensation. The earned PSUs are then subject to a required service period of approximately three years from the grant date before vesting and being issued as common stock. The following table summarizes PSU transactions for the year ended December 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average ​ ​ Number of ​ grant date ​ shares fair value Non vested outstanding at January 1, 2022 ​ 358,401 ​ $ 36.87 Granted ​ 26,165 ​ ​ 50.36 Vested ​ — ​ ​ — Forfeited ​ ( 1,463 ) ​ ​ 80.69 Non vested outstanding at December 31, 2022 ​ 383,103 ​ $ 37.62 ​ The PSU grants above represent the number of shares that would vest based on achievement of all stock price milestones in the executive stock grants and the 100 % achievement of the predetermined company performance conditions for the other PSU grants. The actual number of PSUs which will vest is subject to adjustment based on the Company’s actual stock price performance and financial performance relative to the predetermined targets and subject to recipient service requirements. As of December 31, 2022, the Company had approximately $ 10.5 million of total unrecognized stock-based compensation expense related to PSUs expected to be recognized over a weighted-average period of 3.54 years. 2021 Executive Stock Grants ​ During the year ended December 31, 2021, the Company granted 192,307 RSUs and 350,000 PSUs to various executives, including the Company’s CEO. The RSUs vest over a period of five years with one fifth vesting upon the first, second and third anniversary of the grants and the remainder vesting monthly thereafter. ​ The PSUs are earned based on the achievement of stock price milestones. If the Company’s stock price reaches and remains at certain milestones for 30 days, the PSUs shall become earned units and will vest upon completion of a requisite service period. The Company’s CEO must remain as an employee through December 31, 2025, or as an 121 Table of Contents employee and/or director through the fifth anniversary of the grant date the PSUs to vest. Other executives must remain as employees through December 31, 2026 for the PSUs to vest. As of December 31, 2022, none of the stock price milestones have been achieved. ​ The RSUs were valued based on the closing price of the Company’s stock on the grant date. The PSUs were valued using a Monte Carlo simulation to account for the market condition within the award. The Company expects to recognize $ 14.6 million of expense relating to the RSUs and $ 12.4 million relating to the PSUs. The expense shall be recognized straight-line over the requisite service period of approximately five years . Should these executives leave prior to the requisite service period, any recognized compensation expense related to unvested RSUs and PSUs will be reversed. ​ 2019 Employee Stock Purchase Plan On April 16, 2019, the Company's 2019 Employee Stock Purchase Plan (“the 2019 ESPP”) became effective. A total of 240,000 shares of common stock are initially authorized and reserved for issuance under the 2019 ESPP. In addition, the 2019 ESPP provides for annual increases in the number of shares available for issuance on January 1 of each year through 2029, equal to the smaller of 240,000 shares of the Company’s common stock or such other amount as may be determined by the board of directors. Under the 2019 ESPP, employees can purchase Company stock at a discount via payroll withholdings. The 2019 ESPP is administered through employee participation in discrete offering periods. During each discrete offering period employee funds are withheld, and the stock purchase occurs upon the conclusion of the offering period. The Company issued 13,990 and 9,793 shares pursuant to the ESPP during the years ended December 31, 2022 and December 31, 2021, respectively. Share repurchases ​ During the year ended December 31, 2021, the Company’s Board of Directors authorized a $ 40 million share repurchase program and the Company repurchased $ 15.9 million of shares under this program in 2021. On January 24, 2022, the Board of Directors approved a new share repurchase program, replacing the existing program and authorizing the repurchase by the Company of up to $ 100 million of its outstanding shares of common stock over the period ending on March 31, 2024. The Company purchased 621,415 shares for $ 34.4 million under this program during the year ended December 31, 2022. The Company accounts for share repurchases by charging the excess of repurchase price over the common stock’s par value entirely to retained earnings. All repurchased shares are retired and become authorized but unissued shares. 13. Accumulated Other Comprehensive Income Changes in accumulated other comprehensive income (loss) (“AOCI”) are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2022 2021 2020 ​ ​ (in thousands) Balance as of January 1 ​ $ 5,312 ​ $ 13,246 ​ $ 4,686 ​ Other comprehensive income (loss) before reclassification ​ ( 55,270 ) ​ ​ ( 9,579 ) ​ ​ 11,292 ​ Federal income tax (expense) benefit ​ 11,607 ​ ​ 2,012 ​ ​ ( 2,371 ) ​ Other comprehensive income (loss) before reclassification, net of tax ​ ( 43,663 ) ​ ( 7,567 ) ​ 8,921 ​ Amounts reclassified from AOCI ​ 2,325 ​ ​ ( 464 ) ​ ​ ( 456 ) ​ Federal income tax expense (benefit) ​ ( 489 ) ​ ​ 97 ​ ​ 95 ​ Amounts reclassified from AOCI, net of tax ​ 1,836 ​ ( 367 ) ​ ( 361 ) ​ Other comprehensive income (loss) ​ ( 41,827 ) ​ ( 7,934 ) ​ 8,560 ​ Balance at end of period ​ $ ( 36,515 ) ​ $ 5,312 ​ $ 13,246 ​ ​ 122 Table of Contents ​ 14. Underwriting Information The Company has a single reportable segment and offers primarily earthquake, fronting, inland marine, wind, casualty, and flood insurance products. Gross written premiums (“GWP”) by product are presented below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2022 ​ 2021 2020 ​ ​ ($ in thousands) ​ ​ ​ ​ ​ % of ​ ​ ​ ​ % of ​ ​ ​ % of ​ ​ Amount ​ GWP ​ Amount ​ GWP Amount ​ GWP Product ​ ​ ​ ​ ​ Fronting ​ $ 223,249 ​ 25.3 % $ 11,459 ​ 2.2 % $ - ​ NM ​ Residential Earthquake ​ ​ 213,803 ​ 24.2 % ​ 171,048 ​ 32.0 % ​ 140,934 ​ 39.8 % Commercial Earthquake ​ 131,677 ​ 14.9 % 90,552 ​ 16.9 % 58,890 ​ 16.6 % Inland Marine ​ 105,068 ​ 11.9 % 57,124 ​ 10.7 % 15,423 ​ 4.3 % Commercial All Risk ​ ​ 51,671 ​ 5.9 % ​ 38,640 ​ 7.2 % ​ 53,933 ​ 15.2 % Casualty ​ ​ 35,791 ​ 4.1 % ​ 9,584 ​ 1.9 % ​ — ​ NM ​ Hawaii Hurricane ​ 32,967 ​ 3.7 % 30,298 ​ 5.6 % 13,824 ​ 3.9 % Specialty Homeowners ​ 29,959 ​ 3.4 % 67,894 ​ 12.7 % 49,849 ​ 14.1 % Residential Flood ​ 14,539 ​ 1.7 % 11,652 ​ 2.2 % 8,176 ​ 2.3 % Other ​ ​ 43,144 ​ 4.9 % ​ 46,924 ​ 8.6 % ​ 13,331 ​ 3.8 % Total Gross Written Premiums ​ $ 881,868 100.0 % $ 535,175 100.0 % $ 354,360 100.0 % NM-Not Meaningful ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross written premiums by state are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2022 ​ 2021 2020 ​ ​ ($ in thousands) ​ ​ ​ ​ ​ % of ​ ​ ​ ​ % of ​ ​ ​ % of ​ ​ Amount ​ GWP ​ Amount ​ GWP Amount ​ GWP State ​ ​ ​ ​ ​ California ​ $ 418,809 ​ 47.5 % $ 244,416 ​ 45.6 % $ 172,765 ​ 48.8 % Texas ​ ​ 90,459 ​ 10.3 % ​ 62,893 ​ 11.8 % ​ 67,974 ​ 19.2 % Washington ​ 41,827 ​ 4.7 % 23,608 ​ 4.4 % 14,328 ​ 4.0 % Hawaii ​ ​ 40,157 ​ 4.5 % ​ 34,993 ​ 6.5 % ​ 16,398 ​ 4.6 % Florida ​ ​ 38,715 ​ 4.4 % ​ 27,386 ​ 5.1 % 5,795 ​ 1.7 % Oregon ​ 24,108 ​ 2.7 % 13,677 ​ 2.6 % 10,038 ​ 2.8 % Illinois ​ 17,368 ​ 2.0 % 12,133 ​ 2.3 % ​ 6,133 ​ 1.7 % North Carolina ​ ​ 12,776 ​ 1.5 % ​ 15,271 ​ 2.9 % 11,143 ​ 3.1 % Other ​ 197,649 ​ 22.4 % 100,798 ​ 18.8 % 49,786 ​ 14.1 % Total Gross Written Premiums ​ $ 881,868 100.0 % $ 535,175 100.0 % $ 354,360 100.0 % ​ Gross written premiums by insurance subsidiary are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2022 ​ 2021 2020 ​ ​ ($ in thousands) ​ ​ ​ ​ ​ % of ​ ​ ​ ​ % of ​ ​ ​ % of ​ ​ Amount ​ GWP ​ Amount ​ GWP Amount ​ GWP Subsidiary ​ ​ ​ ​ ​ PSIC ​ $ 489,720 ​ 55.5 % $ 383,064 ​ 71.6 % $ 324,870 ​ 91.7 % PESIC ​ 392,148 ​ 44.5 % 152,111 ​ 28.4 % 29,490 ​ 8.3 % Total Gross Written Premiums ​ $ 881,868 100.0 % $ 535,175 100.0 % $ 354,360 100.0 % 123 Table of Contents ​ The Company distributes a significant portion of its Fronting, Residential Earthquake, Commercial Earthquake, and Hawaii Hurricane products through two program administrators. Each of the 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 men provisions, economics and exclusivity. These programs also feature separate managerial oversight and leadership, policy administration systems and retail agents originating policies. In total, these products accounted for $ 417.5 million or 47.3 % of the Company’s gross written premiums for the year ended December 31, 2022, $ 255.8 million or 48.2 % of the Company’s gross written premiums for the year ended December 31, 2021, and $ 191.3 million or 54.0 % of the Company’s gross written premiums for the year ended December 31, 2020. 15. Retirement and Post-Employment Retirement Plans For employees meeting certain eligibility requirements, the Company provides a defined contribution retirement plan under IRC Section 401(k). Under a safe-harbor plan, the Company contributes 3 % of each participant’s gross wages regardless of the employee’s contribution. For the years ended December 31, 2022, 2021 and 2020 the Company’s contributions to the plan were $ 0.7 million, $ 0.7 million and $ 0.3 million, respectively. 16. Income Taxes The components of the Company’s income tax expense (benefit) are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2022 2021 2020 ​ ​ (in thousands) Current ​ $ 18,842 ​ $ 10,650 ​ $ ( 1,128 ) Deferred ​ ( 3,461 ) ​ 641 ​ 1,094 Income tax expense (benefit) ​ $ 15,381 ​ $ 11,291 ​ $ ( 34 ) ​ 124 Table of Contents As of December 31, 2022 and 2021, significant components of the Company’s deferred tax assets and liabilities were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2022 2021 ​ ​ (in thousands) Deferred tax assets: ​ ​ Losses and LAE reserve discount ​ $ 680 ​ $ 279 State tax net operating losses ​ 3,070 ​ 2,879 Deferred Intercompany ​ ​ 656 ​ ​ — Unearned premiums ​ 11,258 ​ 9,569 Capitalized organizational costs ​ 184 ​ 214 Unrealized losses on investments ​ ​ 9,891 ​ ​ — Deferred compensation ​ 1,585 ​ 997 Other ​ 1,544 ​ 1,285 Total deferred tax assets ​ $ 28,868 ​ $ 15,223 Deferred tax liabilities: ​ ​ Deferred acquisition costs ​ $ ( 11,922 ) ​ $ ( 11,754 ) Unrealized gains on investments ​ — ​ ( 1,612 ) Internally developed software ​ ​ ( 1,520 ) ​ ​ ( 1,969 ) Other ​ ( 1,734 ) ​ ( 919 ) Total deferred tax liabilities ​ ( 15,176 ) ​ ( 16,254 ) Net deferred tax asset (liability) before valuation allowance ​ 13,692 ​ ( 1,031 ) Valuation allowance ​ ( 3,070 ) ​ ( 2,879 ) Total net deferred tax assets (liabilities) ​ $ 10,622 ​ $ ( 3,910 ) ​ The valuation allowance shown above relates to deferred tax assets associated with state net operating loss carryforwards. These carryforwards do not meet the “more likely than not” criteria under ASC 740, Income Taxes due to the limited carryforward period and the Company will continue to maintain a valuation allowance on the associated deferred tax assets as of December 31, 2022. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period change or if objective negative evidence in the form of cumulative losses is no longer present. As of December 31, 2022, there are no federal net operating losses or tax credit carryforwards. The following is a reconciliation of the statutory federal income tax rate to the Company’s effective tax rate for the tax years ended December 31, 2022, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ ​ 2022 ​ 2021 ​ 2020 ​ ​ ($ in thousands) Expense computed at federal tax rate $ 14,186 ​ 21.00 % $ 11,999 ​ 21.00 % $ 1,321 ​ 21.00 % Stock-based compensation ​ 153 ​ 0.23 % ( 1,067 ) ​ ( 1.87 ) % ( 1,538 ) ​ ( 24.44 ) % Dividend received deduction and tax‑exempt interest ​ ( 101 ) ​ ( 0.15 ) % ( 81 ) ​ ( 0.14 ) % ( 67 ) ​ ( 1.06 ) % Valuation allowance ​ 191 ​ 0.28 % 2,199 ​ 3.85 % 606 ​ 9.63 % Other ​ 952 ​ 1.41 % ( 1,759 ) ​ ( 3.08 ) % ( 356 ) ​ ( 5.67 ) % Income tax expense (benefit) ​ $ 15,381 22.77 % $ 11,291 19.76 % $ ( 34 ) ( 0.54 ) % ​ For the year ended December 31, 2022, the difference relates primarily to non-deductible executive compensation expense and state taxes. For the year ended December 31, 2021, the difference relates primarily to a benefit from the permanent component of employee stock option exercises and state taxes. For the year ended December 31, 2020, the difference relates primarily the permanent component of employee stock option exercises. For the years ended December 31, 2021 and Decembers 31, 2020, the Company increased its valuation allowance relating to deferred tax assets associated with state net operating losses. 125 Table of Contents As of December 31, 2022 and 2021, the Company had no uncertain tax positions that required either recognition or disclosure in the consolidated financial statements. This is not expected to change significantly during the next twelve months. The Company classifies interest and penalties, if any, related to the liability for unrecognized tax benefits as a component of the provision for income taxes. The Company’s income tax returns for 2019 through 2021 remain subject to examination by the tax authorities. 17 . Earnings Per Share ​ The following table sets forth the computation of earnings per share of common stock: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2022 2021 2020 ​ (in thousands, except shares and per share data) Net income ​ $ 52,170 ​ $ 45,847 ​ $ 6,257 Weighted average common shares outstanding: ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ 25,243,397 ​ 25,459,514 ​ 24,872,251 Common Share equivalents ​ ​ 552,611 ​ ​ 652,390 ​ ​ 726,396 Diluted ​ ​ 25,796,008 ​ ​ 26,111,904 ​ ​ 25,598,647 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Earnings per share: ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ $ 2.07 ​ $ 1.80 ​ $ 0.25 Diluted ​ $ 2.02 ​ $ 1.76 ​ $ 0.24 ​ Common share equivalents relate to outstanding stock options, RSUs, and PSUs under the 2019 Plan and unpurchased shares under the 2019 ESPP and are calculated using the treasury stock method. ​ ​ ​ 18. Statutory financial information U.S. U.S. state insurance laws and regulations prescribe accounting practices for determining statutory net income and capital and surplus for insurance companies. In addition, state regulators may permit statutory accounting practices that differ from prescribed practices. Statutory accounting practices (“SAP”) prescribed or permitted by regulatory authorities for the Company’s insurance subsidiaries differ from U.S. GAAP. The principal differences between SAP and GAAP as they relate to the financial statements of the Company’s insurance subsidiaries are (a) policy acquisition costs are expensed as incurred under SAP, whereas they are deferred and amortized under GAAP, (b) certain assets are not admitted for purposes of determining surplus under SAP, (c) investments in fixed income securities are carried at fair value under GAAP whereas such securities are carried at amortized cost under SAP, and (d) the criteria for recognizing net DTAs and the methodologies used to determine such amounts are different under SAP and GAAP. Combined statutory net income and statutory capital surplus for the U.S. insurance subsidiaries, PSIC and PESIC as of December 31, 2022, 2021 and 2020 and for the years then ended are summarized as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2022 2021 2020 ​ ​ (in thousands) Statutory net income (loss) ​ $ 76,222 ​ $ 51,410 ​ $ 1,753 Statutory capital and surplus ​ 314,508 ​ 271,977 ​ 213,721 ​ Risk-Based Capital (“RBC”) requirements promulgated by the NAIC require property/casualty insurers to maintain minimum capitalization levels determined based on formulas incorporating various business risks of the 126 Table of Contents insurance subsidiaries. As of December 31, 2022 and 2021, the company’s capital and surplus exceeds its authorized control level. Bermuda Under the Bermuda Insurance Act, 1978 and related regulations, PSRE is required to maintain certain solvency and liquidity levels. The minimum statutory solvency margin required at December 31, 2022 and 2021 was approximately $ 1.2 million and $ 1.2 million, respectively. Actual statutory capital and surplus at December 31, 2022 and 2021 was $ 15.6 million and $ 15.7 million, respectively. PSRE had statutory net income of $ .2 million, $ 1.4 million and $ 0.9 million for 2022, 2021 and 2020, respectively. PSRE had stockholders’ equity of $ 15.5 million and $ 17.0 million on a GAAP basis at December 31, 2022 and 2021, respectively. The principal difference between statutory capital and surplus and stockholders’ equity presented in accordance with GAAP are prepaid expenses, which are non-admitted assets for Bermuda statutory purposes. In the third and fourth quarter of 2021, PSRE distributed $ 15.0 million and $ 10.0 million in dividends to the Company. No dividends were paid in 2022. PSRE maintains a Class 3A license and thus must maintain a minimum liquidity ratio in which the value of its relevant assets is not less than 75.0 % of the amount of its relevant liabilities for general business. Relevant assets include cash and cash equivalents, fixed maturity securities, accrued interest income, premiums receivable, losses recoverable from reinsurers, and funds withheld. The relevant liabilities include total general business insurance reserves and total other liabilities, less sundry liabilities. As of December 31, 2022 and 2021, the Company met the minimum liquidity ratio requirement. 19. Dividend Restrictions U.S. The Company’s U.S. insurance company subsidiaries, PSIC and PESIC are restricted by the statutes as to the amount of dividends that they may pay without prior approval by state insurance commissioners. Under California and Oregon statute which govern PSIC, dividends paid in a consecutive twelve month period cannot exceed the greater of (i) 10% of an insurance company’s statutory policyholders’ surplus as of December 31 of the preceding year or (ii) 100% of its statutory net income for the preceding calendar year. Any dividends or distributions in excess of these amounts would require regulatory approval. In addition, under Oregon statute, PSIC may only declare a dividend from earned surplus, which does not include contributed capital. Surplus arising from unrealized capital gains or revaluation of assets is not considered part of earned surplus. Based on the above restrictions, PSIC may pay a dividend or distribution of no greater than $ 78.2 million in 2023 without approval by the California and Oregon Insurance Commissioners. Under Arizona statute which governs PESIC, dividends paid in a consecutive twelve month period cannot exceed the lesser of (i) 10% of an insurance company’s statutory policyholders’ surplus as of December 31 of the preceding year or (ii) 100% of its statutory net income for the preceding calendar year. Based on the above restrictions, PESIC may not pay a dividend or distribution in 2023 without approval of the Arizona Insurance Commissioner due to incurring a statutory net loss in 2022. In addition to the above limitations, any dividend or distribution declared is also subject to state regulatory approval prior to payment. In the future, state insurance regulatory authorities may adopt statutory provisions and dividend limitations more restrictive than those currently in effect. 127 Table of Contents Bermuda Bermuda regulations limit the amount of dividends and return of capital paid by a regulated entity. A Class 3A insurer is prohibited from declaring or paying a dividend if it is in breach of its minimum solvency margin, its enhanced capital requirement, or its minimum liquidity ratio, or if the declaration or payment of such dividend would cause such a breach, or if there are reasonable grounds for believing there has been such a breach. Pursuant to Bermuda regulations, the maximum amount of dividends and return of capital available to be paid by a reinsurer is determined pursuant to a formula. Under this formula, the maximum amount of dividends and return of capital available to the Company from PSRE during 2023 is calculated to be approximately $ 3.9 million. However, this dividend amount is subject to annual enhanced solvency requirement calculations. 20. Commitments and Contingencies Litigation The Company is subject to legal proceedings arising from the normal conduct of its business. In the opinion of management, any ultimate liability that may arise from these proceedings will not have a material effect on the Company’s financial position. Letters of Credit As of December 31, 2022, the Company has six irrevocable standby letters of credit for the benefit of ceding insurance companies to secure the unearned premium assumed by PSIC. The bank letters of credit amount to a total of $ 5.7 million and may renew if the Company continues to assume premium from these insurance companies. The letters of credit are collateralized by either the Company’s available-for-sale investments or the Credit Agreement. ​ In addition, the Company established a Regulation 114 Trust account for the benefit of ceding insurance companies to secure the unearned premium assumed by PSIC. As of December 31, 2022 the trust had a market value of $ 37.2 million. ​ ​ 128 Table of Contents Schedule II Palomar Holdings, Inc. and Subsidiaries Balance Sheets (Parent Company) (In Thousands, except shares and par value data) ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, December 31, ​ ​ 2022 ​ 2021 Assets ​ ​ Investments: ​ ​ ​ ​ ​ ​ Fixed maturity securities available for sale, at fair value (amortized cost: $ 51,993 in 2022, $ 50,916 in 2021) ​ $ 45,511 ​ $ 49,221 Equity securities, at fair value: (cost: $ 1,725 in 2022, $ 1,725 in 2021) ​ 1,626 ​ 1,839 Total investments ​ 47,136 ​ 51,060 Cash and cash equivalents ​ 781 ​ 4,437 Accrued investment income ​ 320 ​ 313 Prepaid expenses and other assets ​ ​ 2,267 ​ ​ 966 Receivables from subsidiaries ​ ​ 3,689 ​ ​ 2,322 Investment in subsidiaries ​ 405,524 ​ 365,018 Total assets ​ $ 459,718 ​ $ 424,116 Liabilities and Stockholders' equity ​ ​ Liabilities: ​ ​ ​ ​ ​ ​ Accounts payable and other liabilities ​ $ 7,359 ​ $ 4,672 Payables to subsidiaries ​ ​ 57,324 ​ ​ 11,102 Federal income tax payable ​ ​ 10,282 ​ ​ 10,265 Deferred tax liabilities ​ ​ — ​ ​ 3,908 Total liabilities ​ 74,965 ​ 29,947 Stockholders' equity: ​ ​ Preferred stock, $ 0.0001 par value, 5,000,000 shares authorized as of December 31, 2022 and December 31, 2021, 0 shares issued and outstanding as of December 31, 2022 and December 31, 2021 ​ ​ — ​ ​ — Common stock, $ 0.0001 par value, 500,000,000 shares authorized, 25,027,467 and 25,428,929 shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively ​ ​ 3 ​ ​ 3 Additional paid‑in capital ​ 333,557 ​ 318,902 Accumulated other comprehensive income (loss) ​ ( 36,514 ) ​ 5,312 Retained earnings ​ 87,708 ​ 69,952 Total stockholders' equity ​ 384,753 ​ 394,169 Total liabilities and stockholders' equity ​ $ 459,718 ​ $ 424,116 ​ See accompanying notes. ​ 129 Table of Contents Schedule II Palomar Holdings, Inc. and Subsidiaries Statements of Income (Parent Company) (In Thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2022 2021 2020 Revenues: ​ ​ ​ ​ ​ ​ ​ ​ ​ Net investment income ​ $ 1,048 $ 555 $ 939 Net realized and unrealized gains (losses) on investments ​ ( 320 ) ​ 217 ​ 63 Total revenues ​ ​ 728 ​ ​ 772 ​ ​ 1,002 Expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ Other operating expenses ​ ​ 33,292 ​ ​ 19,480 ​ ​ 8,696 Income (loss) before income taxes ​ ​ ( 32,564 ) ​ ​ ( 18,708 ) ​ ​ ( 7,694 ) Income tax expense (benefit) ​ ​ ( 8,464 ) ​ ​ 11,039 ​ ​ ( 34 ) Loss before equity in net income of subsidiaries ​ ( 24,100 ) ​ ( 29,747 ) ​ ( 7,660 ) Equity in net income of subsidiaries ​ 76,270 ​ 75,594 ​ 13,917 Net income ​ ​ 52,170 ​ 45,847 ​ 6,257 Other comprehensive income: ​ ​ ​ Net unrealized gains (losses) on securities available for sale ​ ( 3,997 ) ​ 580 ​ 1,075 Equity in other comprehensive income (loss) of subsidiaries, net of taxes ​ ( 37,830 ) ​ ( 8,514 ) ​ 7,485 Total comprehensive income ​ $ 10,343 ​ $ 37,913 ​ $ 14,817 ​ See accompanying notes. ​ 130 Table of Contents Schedule II Palomar Holdings, Inc. and Subsidiaries Statements of Cash Flows (Parent Company) (In Thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2022 ​ 2021 2020 Operating activities ​ ​ ​ Net income ​ $ 52,170 ​ $ 45,847 ​ $ 6,257 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ ​ Equity in undistributed earnings of subsidiaries ​ ( 76,270 ) ​ ( 75,594 ) ​ ( 13,917 ) Stock-based compensation expense ​ ​ 8,820 ​ ​ 4,755 ​ — Net realized and unrealized losses on investments ​ 320 ​ ( 217 ) ​ ( 63 ) Amortization of premium on fixed maturity securities ​ ​ 347 ​ ​ 443 ​ ​ 350 Deferred income tax expense ​ ​ 7,210 ​ ​ 634 ​ ​ 1,094 Changes in operating assets and liabilities: ​ 36,449 ​ 13,596 ​ 7,772 Net cash provided by (used in) operating activities ​ 29,046 ​ ( 10,536 ) ​ 1,493 Investing activities ​ ​ ​ Purchases of fixed maturity securities ​ ​ ( 9,807 ) ​ ​ ( 2,177 ) ​ ​ ( 71,048 ) Sales and maturities of fixed maturity securities ​ 8,488 ​ ​ 11,396 ​ ​ 6,651 Cash paid to subsidiaries ​ ​ — ​ ​ ( 15,595 ) ​ ​ ( 59,789 ) Cash received from subsidiaries ​ ​ — ​ ​ 27,100 ​ ​ — Net cash provided by (used in) investing activities ​ ( 1,319 ) ​ 20,724 ​ ( 124,186 ) Financing activities ​ ​ ​ Proceeds from January 2020 stock offering, net of offering costs ​ ​ — ​ ​ — ​ ​ 35,464 Proceeds from June 2020 stock offering, net of offering costs ​ ​ — ​ ​ — ​ ​ 90,083 Proceeds from common stock issued via equity incentive plans ​ ​ 3,032 ​ ​ 2,811 ​ ​ 2,782 Repurchase of common stock ​ ​ ( 34,415 ) ​ ​ ( 15,852 ) ​ ​ — Net cash provided by (used in) financing activities ​ ( 31,383 ) ​ ( 13,041 ) ​ 128,329 Net (decrease) increase in cash and cash equivalents ​ ( 3,656 ) ​ ( 2,853 ) ​ 5,636 Cash and cash equivalents at beginning of period ​ 4,437 ​ 7,290 ​ 1,654 Cash and cash equivalents at end of period ​ $ 781 ​ $ 4,437 ​ $ 7,290 Supplementary cash flow information: ​ ​ ​ Cash paid for income taxes ​ $ 18,890 ​ $ 2,104 ​ $ 7,182 Cash paid for interest ​ $ 704 ​ $ — ​ $ — ​ See accompanying notes. ​ 131 Table of Contents Schedule II 1. Accounting Policies Organization Palomar Holdings, Inc. (“the Company”), is an insurance holding company that domesticated in Delaware in March 2019. Prior to domestication in Delaware, the Company was known as GC Palomar Holdings (“GCPH”), which was a Cayman Islands incorporated insurance holding company formed on October 4, 2013 when GC Palomar Investor LP (“GCPI”) acquired control of GCPH. Basis of Presentation The accompanying condensed financial statements have been prepared using the equity method. Under the equity method, the investment in consolidated subsidiaries is stated at cost plus equity in undistributed earnings of consolidated subsidiaries since the date of acquisition. These condensed financial statements should be read in conjunction with the Company’s consolidated financial statements. Estimates and Assumptions Preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures. Those estimates are inherently subject to change, and actual results may ultimately differ from those estimates. ​ 132 Table of Contents Schedule V Palomar Holdings, Inc. and Subsidiaries Valuation and Qualifying Accounts ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additions ​ Deductions ​ ​ ​ ​ Balance at ​ Amounts ​ Amounts ​ Balance at ​ ​ Beginning ​ Charged to ​ Written ​ End of (in thousands) of Period Expense Off Period Year Ended December 31, 2022 ​ ​ ​ ​ Valuation Allowance for deferred tax assets ​ $ 2,879 ​ $ 191 ​ $ — ​ $ 3,070 Valuation Allowance for premium receivable ​ $ 315 ​ $ 188 ​ ​ 407 ​ $ 96 Year Ended December 31, 2021 ​ ​ ​ ​ Valuation Allowance for deferred tax assets ​ $ 680 ​ $ 2,199 ​ $ — ​ $ 2879 Valuation Allowance for premium receivable ​ $ 203 ​ $ 285 ​ ​ 173 ​ $ 315 ​ ​ ​ ​ 133 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ​ None. ​ ​