What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-05-08 compared with 2022-11-03 · 84 added, 121 removed, 386 unchanged (35% of the section changed)

4 unchanged sentences

(in thousands, except shares and par value data)

September 30,

December 31 ,

Fixed maturity securities available for sale, at fair value (amortized cost:

8 unchanged sentences

Accrued investment income

Premiums receivable, net

Deferred policy acquisition costs, net of ceding commissions

Reinsurance recoverable on unpaid losses and loss adjustment expenses

Premiums receivable

Deferred policy acquisition costs, net of ceding commissions and fronting fees

Reinsurance recoverable on paid losses and loss adjustment expenses

Reinsurance recoverable on unpaid losses and loss adjustment expenses

Ceded unearned premiums

9 unchanged sentences

Funds held under reinsurance treaty

Deferred tax liabilities, net

Borrowings from credit agreements

1 unchanged sentence

Stockholders' equity:

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

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

Preferred stock, $ 0.0001 par value, 5,000,000 shares authorized, 0 shares issued and outstanding as of March 31, 2023 and December 31, 2022

Common stock, $ 0.0001 par value, 500,000,000 shares authorized, 24,942,196 and 25,027,467 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively

Additional paid-in capital

Accumulated other comprehensive income (loss)

Accumulated other comprehensive loss

Retained earnings

4 unchanged sentences

and Subsidiaries

Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) (Unaudited)

Condensed Consolidated Statements of Income and Comprehensive Income (Loss) (Unaudited)

(in thousands, except shares and per share data)

Three Months Ended

Nine Months Ended

September 30,

Gross written premiums

4 unchanged sentences

Net investment income

Net realized and unrealized losses on investments

Net realized and unrealized gains (losses) on investments

Commission and other income

1 unchanged sentence

Losses and loss adjustment expenses

Acquisition expenses

Acquisition expenses, net of ceding commissions and fronting fees

Other underwriting expenses

2 unchanged sentences

Income before income taxes

Income tax expense (benefit)

Income tax expense

Other comprehensive income (loss), net:

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

Net unrealized gains (losses) on securities available for sale

Net comprehensive income (loss)

17 unchanged sentences

Repurchases of common stock

Balance at September 30, 2021

Balance at March 31, 2022

Balance at December 31, 2022

Other comprehensive loss, net of tax

Other comprehensive income, net of tax

Stock-based compensation

2 unchanged sentences

Repurchases of common stock

Balance at September 30, 2022

Balance at March 31, 2023

See accompanying notes.

3 unchanged sentences

(in thousands)

Nine Months Ended

September 30,

Three Months Ended

Operating activities

6 unchanged sentences

Sales and maturities of fixed maturity securities

Sales of equity securities

Change in securities receivable or payable, net

6 unchanged sentences

Repurchases of common stock

Net cash provided by (used in) financing activities

Net decrease in cash, cash equivalents and restricted cash

Net cash provided by financing activities

Net increase (decrease) in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of period

2 unchanged sentences

Cash paid for income taxes

Cash paid for interest

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

September 30,

Cash and cash equivalents

16 unchanged sentences

GAAP for complete consolidated financial statements.

For a more complete description of the Company’s business and accounting policies, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 24, 2022 (the “2021 Annual Report on Form 10-K”).

For a more complete description of the Company’s business and accounting policies, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 1, 2023 (the “2022 Annual Report on Form 10-K”).

In the opinion of management, all adjustments necessary for a fair presentation of the condensed consolidated financial statements have been included.

9 unchanged sentences

Recently adopted accounting pronouncements

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

The Company has not adopted any new accounting guidance during the three months ended March 31, 2023.

Recently issued accounting pronouncements not yet adopted

1 unchanged sentence

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

September 30, 2022

March 31, 2023

Credit Losses

(in thousands)

7 unchanged sentences

December 31, 2022

Credit Losses

(in thousands)

7 unchanged sentences

Security holdings in an unrealized loss position

As of September 30, 2022, the Company held 380 fixed maturity securities in an unrealized loss position with a total estimated fair value of $ 475.8 million and total gross unrealized losses of $ 54.2 million.

As of March 31, 2023, the Company held 538 fixed maturity securities in an unrealized loss position with a total estimated fair value of $ 497.9 million and total gross unrealized losses of $ 40.4 million.

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.

The aggregate fair value and gross unrealized losses of the Company’s investments aggregated by investment category and the length of time these individual securities have been in a continuous unrealized loss position as of September 30, 2022 and December 31, 2021, are as follows:

The aggregate fair value and gross unrealized losses of the Company’s investments aggregated by investment category and the length of time these individual securities have been in a continuous unrealized loss position as of March 31, 2023 and December 31, 2022, are as follows:

Less Than 12 Months

More Than 12 Months

September 30, 2022

March 31, 2023

(in thousands)

17 unchanged sentences

The Company considers numerous factors in its review as described in Footnote 1 of the Notes to the Consolidated Financial Statements in the 2022 Annual Report on Form 10-K.

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

Based on the Company’s review as of September 30, 2022, for the remainder of securities, the Company determined that the fixed maturity securities’ unrealized losses were primarily the result of the interest rate environment and not the credit quality of the issuers.

The Company has recorded an allowance for credit losses for two investment securities.

Based on the Company’s review as of March 31, 2023, for the remainder of securities, the Company determined that the fixed maturity securities’ unrealized losses were primarily the result of the interest rate environment and not the credit quality of the issuers.

The Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before the recovery of their amortized cost basis.

Contractual maturities of available-for-sale fixed maturity securities

The amortized cost and fair value of fixed maturity securities at September 30, 2022, by contractual maturity, are shown below.

The amortized cost and fair value of fixed maturity securities at March 31, 2023, by contractual maturity, are shown below.

(in thousands)

8 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

Interest income

5 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

(in thousands)

Realized gains:

6 unchanged sentences

Total realized losses

Net realized investment gains (losses)

Net unrealized losses on equity securities

Net realized and unrealized losses on investments

Net realized investment gains

Change in allowance for credit losses

Net unrealized gains (losses) on equity securities

Net realized and unrealized gains (losses) on investments

Realized gains and losses on disposition of investments are based on specific identification of the investments sold on the settlement date.

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

Proceeds from the sale of fixed maturity securities were $ 5.8 million and $ 12.1 million for the nine months ended September 30, 2022 and 2021, respectively.

Proceeds from the sale of fixed maturity securities were $ 5.1 million and $ 4.8 million for the three months ended March 31, 2023 and 2022, respectively.

The Company places securities on statutory deposit with certain state agencies to retain the right to do business in those states.

These securities are included in available-for-sale investments on the balance sheet.

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

As of March 31, 2023 and December 31, 2022, the carrying value of securities on deposit with state regulatory authorities was $ 9.6 million and $ 8.5 million, respectively.

Fair Value Measurements

15 unchanged sentences

Therefore, these investments are classified and disclosed in Level 2 of the hierarchy.

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

September 30, 2022

The following tables present the hierarchy for financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022.

March 31, 2023

(in thousands)

18 unchanged sentences

The carrying amounts of financial assets and liabilities reported in the accompanying condensed consolidated balance sheet including cash and cash equivalents, restricted cash, receivables, reinsurance recoverable, and accounts payable and other accrued liabilities approximate fair value due to their short term- maturity.

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.

The carrying amount of the Company’s borrowings under the Federal Home Loan Bank (“FHLB”) line of credit and U.S.

Bank credit agreement (the “Credit Agreement”) approximate fair value as the Company is currently borrowing at a variable rate which frequently reprices at market rates.

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

As of September 30, 2022, the Company had no fixed income securities classified as Level 3.

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

As of March 31, 2023 and December 31, 2022, the Company had no fixed income securities classified as Level 3.

Reserve for Losses and Loss Adjustment Expenses

The following table represents a reconciliation of changes in the ending reserve balances for losses and loss adjustment expenses (“LAE”):

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

Three Months Ended March 31,

(in thousands)

9 unchanged sentences

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

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

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

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

Favorable prior year development during the nine months ended September 30, 2021 was primarily due to lower than anticipated severity of catastrophe losses associated with certain hurricanes which occurred during the second half of 2020 in the Company’s Commercial All Risk and Specialty Homeowners line of business.

The Company experienced adverse prior year development of $ 3.4 and $ 1.5 million during the three months ended March 31, 2023 and 2022, respectively.

Adverse prior year development during the three months ended March 31, 2023 was primarily due to higher than anticipated severity of attritional losses, offset by lower than anticipated severity of catastrophe losses.

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

Stockholders’ Equity

Common stock reserved for future issuance

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

Common stock reserved for future issuance consists of the following as of March 31, 2023:

Stock options outstanding under 2019 Equity Incentive Plan

5 unchanged sentences

The below table summarizes the Company’s stock-based compensation expense for each period presented:

Three months ended September 30,

Nine months ended September 30,

(in thousands)

Three months ended March 31,

(in thousands)

15 unchanged sentences

Stock options expire ten years after the grant date.

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

The following table summarizes stock option transactions for the three months ended March 31, 2023:

Number of shares

6 unchanged sentences

Options canceled

Outstanding at September 30, 2022

Vested and Exercisable at September 30, 2022

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

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

Risk free rate of return (1)

1.69 % - 4.02 %

Expected share price volatility (2)

39.73 % - 42.56 %

Expected life in years (3)

Dividend yield (4)

(1) Determined based on the U.S.

Treasury yield in effect at the time of the grant for zero-coupon U.S.

Treasury notes with remaining terms similar to the expected term of the options.

(2) Determined based on a blend of the Company’s historic stock price volatility and the historic volatility of a peer group of publicly traded companies.

(3) Determined using the “simplified method” for estimating the expected option life, which is the average of the weighted-average vesting period and contractual term of the option as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time its common stock has been publicly traded.

(4) Determined to be zero as the Company has not historically issued dividends.

Outstanding at March 31, 2023

Vested and Exercisable at March 31, 2023

As of March 31, 2023, the Company had approximately $ 2.9 million of total unrecognized stock-based compensation expense related to stock options expected to be recognized over a weighted-average period of 1.47 years.

Restricted Stock Units

2 unchanged sentences

All vesting is subject to continued service.

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

The following table summarizes RSU transactions for the three months ended March 31, 2023:

Number of shares

1 unchanged sentence

Outstanding at January 1, 2023

Non vested outstanding at September 30, 2022

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

Non-vested outstanding at March 31, 2023

As of March 31, 2023, the Company had approximately $ 19.7 million of total unrecognized stock-based compensation expense related to RSUs expected to be recognized over a weighted-average period of 2.8 years.

Performance Stock Units

3 unchanged sentences

If the Company’s stock price reaches and remains at certain milestones for 30 days, the PSUs shall become earned units and will vest upon completion of a requisite service period of approximately five years from the date of grant.

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

As of March 31, 2023, none of the stock price milestones have been achieved.

For other PSUs outstanding, vesting of PSUs requires a period of future service and the number of shares that vest depends on performance relative to predetermined targets of the Company’s Gross Written Premiums and Adjusted Return on Equity as set by the Compensation Committee.

The PSU’s performance period is the fiscal year of the grant.

Prior to 2023, the PSU’s performance period was the fiscal year of the grant.

Beginning in 2023, the PSU’s performance period is primarily a three-year period beginning with the grant date.

At the end of the performance period, the actual results are measured against the predetermined targets to determine the number of PSUs to be earned as compensation.

The earned PSUs are then subject to a required service period of approximately three years from the grant date before vesting and being issued as common stock.

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

The following table summarizes PSU transactions for the three months ended March 31, 2023:

Number of shares

1 unchanged sentence

Outstanding at January 1, 2023

Non vested outstanding at September 30, 2022

The PSU grants above represent the number of shares that would vest based on achievement of all stock price milestones in the 2021 executive stock grants and the 100 % achievement of the predetermined performance and market conditions for the other PSU grants.

Non-vested outstanding at March 31, 2023

The actual number of PSUs which will vest is subject to adjustment based on the Company’s actual stock price performance and financial performance relative to the predetermined targets.

As of September 30, 2022, the Company had approximately $ 11.3 million of total unrecognized stock-based compensation expense related to PSUs expected to be recognized over a weighted-average period of 3.79 years.

As of March 31, 2023,

the Company had approximately $ 12.5 million of total unrecognized stock-based compensation expense related to PSUs expected to be recognized over a weighted-average period of 3.23 years.

2019 Employee Stock Purchase Plan

5 unchanged sentences

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

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

The Company issued 7,724 shares pursuant to the ESPP during the three months ended March 31, 2023.

Share repurchases

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

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

The Company purchased 399,198 shares for $ 23.3 million during the nine months ended September 30, 2022.

In January 2022, the Board of Directors approved a new share repurchase program which replaced the existing program and authorized the repurchase of up to $ 100 million of outstanding shares of common stock over the period ending on March 31, 2024.

The Company purchased 134,680 shares for $ 6.8 million during the three months ended March 31, 2023.

The Company accounts for share repurchases by charging the excess of repurchase price over the common stock’s par value entirely to retained earnings.

2 unchanged sentences

Changes in accumulated other comprehensive income (loss) (“AOCI”) are as follows:

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands)

12 unchanged sentences

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

Three Months Ended September 30,

Nine Months Ended September 30,

($ in thousands)

Three Months Ended March 31,

($ in thousands)

3 unchanged sentences

Inland Marine

Hawaii Hurricane

Commercial All Risk

Hawaii Hurricane

Residential Flood

2 unchanged sentences

Gross written premiums by state are as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

($ in thousands)

Three Months Ended March 31,

($ in thousands)

1 unchanged sentence

Gross written premiums by insurance subsidiary are as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

($ in thousands)

Three Months Ended March 31,

($ in thousands)

1 unchanged sentence

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

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

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

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

During the three months ended March 31, 2023, the Company’s income tax rate of 23.5 % was higher than the statutory rate of 21 % due primarily to non-deductible executive compensation expense.

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

Earnings Per Share

The following table sets out earnings per share of common stock:

Three months ended September 30,

Nine months ended September 30,

(in thousands, except shares and per share data)

Three months ended March 31,

(in thousands, except shares and per share data)

5 unchanged sentences

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

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

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

As of March 31, 2023, the Company’s catastrophe event retention is $ 12.5 million for all perils.

As of March 31, 2023, the Company’s XOL reinsurance structure provides protection up to $ 2.15 billion for earthquake events, $ 1.01 billion for Hawaii hurricane events, and $ 250 million for continental U.S.

hurricane events.

9 unchanged sentences

Bank Credit Agreement

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

In December 2021, the Company entered into a Credit Agreement with U.S.

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

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

Interest on the credit facility

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

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

6 unchanged sentences

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

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

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

As of March 31, 2023, the Company was in compliance with all debt covenants.

As of March 31, 2023, the Company had $ 35.0 million of borrowings outstanding on the Credit Agreement at a rate of 6.55 %.

Interest expense on the Credit Agreement was $ 0.6 million for the three months ended March 31, 2023.

FHLB Line of Credit

1 unchanged sentence

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

All borrowings are fully secured by a pledge of specific investment securities of PSIC and the borrowing capacity is equal to 5 % of PSIC’s statutory admitted assets, approximately $ 26.8 M as of September 30, 2022.

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

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

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

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

There were no borrowings outstanding at December 31, 2021.

As of March 31, 2023, the Company had $ 36.4 million of borrowings outstanding through the FHLB at the overnight rate of 5.04 %.

Interest expense on the FHLB line of credit was $ 0.4 million for the three months ended March 31, 2023.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements