8-K
Palomar Holdings, Inc. (PLMR)
8-K
2022-06-15
For: 2022-06-15
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April 04, 2026
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 15, 2022
Palomar Holdings, Inc.
(Exact name of registrant as specified in its charter)
Commission File Number: 001-38873
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|---|---|---|
| Delaware | | 83-3972551 |
| (State or other jurisdiction<br><br>of incorporation) | | (I.R.S. Employer<br><br>Identification No.) |
7979 Ivanhoe Avenue , Suite 500
La Jolla , California **** 92037
(Address of principal executive offices, including zip code)
( 619 ) 567-5290
(Registrant’s telephone number, including area code)
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| |
|---|
| ☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common Stock, par value $0.0001 per share | PLMR | Nasdaq Global Select Market |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR 230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR 240.12b-2).
Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Selection 13(a) of the Exchange Act. ☐
Item 7.01. Regulation FD Disclosure.
Palomar Holdings, Inc. (the “Company”) prepared an investor day presentation it intends to use at its investor day held on June 15, 2022. A copy of the Company’s presentation is attached as Exhibit 99.1 and incorporated herein by reference.
Item 9.01. Financial Statements and Exhibits
(d)Exhibits
| Exhibit No. | Description |
|---|---|
| 99.1 | Investor Day Presentation |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized.
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| | | PALOMAR HOLDINGS, INC. |
| | | |
| Date: | June 15, 2022 | /s/ T. Christopher Uchida |
| | | T. Christopher Uchida |
| | | Chief Financial Officer |
| | | (Principal Financial and Accounting Officer) |
Exhibit 99.1
| Palomar Holdings, Inc.<br>Investor Day<br>June 15, 2022 | |||||||||||||||||||||||||||||
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| Disclaimer<br>This<br>presentation<br>contains<br>forward<br>-<br>looking<br>statements<br>about<br>Palomar<br>Holdings,<br>Inc<br>..<br>(the<br>“Company”)<br>..<br>These<br>statements<br>involve<br>known<br>and<br>unknown<br>risks<br>that<br>relate<br>to<br>the<br>Company’s<br>future<br>events<br>or<br>future<br>financial<br>performance<br>and<br>the<br>actual<br>results<br>could<br>differ<br>materially<br>from<br>those<br>discussed<br>in<br>this<br>presentation<br>..<br>This<br>presentation<br>also<br>includes<br>financial<br>measures<br>which<br>are<br>not<br>prepared<br>in<br>accordance<br>with<br>generally<br>accepted<br>accounting<br>principles<br>(“GAAP”)<br>..<br>For<br>a<br>description<br>of<br>these<br>non<br>-<br>GAAP<br>financial<br>measures<br>and<br>reconciliations<br>of<br>these<br>non<br>-<br>GAAP<br>financial<br>measures<br>to<br>the<br>most<br>directly<br>comparable<br>financial<br>measures<br>prepared<br>in<br>accordance<br>with<br>GAAP,<br>please<br>see<br>the<br>appendix<br>to<br>this<br>present<br>..<br>Forward<br>-<br>looking<br>statements<br>generally<br>relate<br>to<br>future<br>events<br>or<br>the<br>Company’s<br>future<br>financial<br>or<br>operating<br>performance<br>..<br>In<br>some<br>cases,<br>you<br>can<br>identify<br>forward<br>-<br>looking<br>statements<br>because<br>they<br>contain<br>words<br>such<br>as<br>‘‘may’’,<br>‘‘will’’,<br>‘‘should’’,<br>‘‘expects’’,<br>‘‘plans’’,<br>‘‘anticipates’’,<br>‘‘could’’,<br>‘‘intends’’,<br>‘‘target’’,<br>‘‘projects’’,<br>‘‘contemplates’’,<br>‘‘believes’’,<br>‘‘estimates’’,<br>‘‘predicts’’,<br>‘‘would’’,<br>‘‘potential’’<br>or<br>‘‘continue’’<br>or<br>the<br>negative<br>of<br>these<br>words<br>or<br>other<br>similar<br>terms<br>or<br>expressions<br>that<br>concern<br>the<br>Company’s<br>expectations,<br>strategy,<br>plans<br>or<br>intentions<br>..<br>These<br>forward<br>-<br>looking<br>statements<br>include,<br>among<br>others,<br>statements<br>relating<br>to<br>our<br>future<br>financial<br>performance,<br>our<br>business<br>prospects<br>and<br>strategy,<br>anticipated<br>financial<br>position,<br>liquidity<br>and<br>capital<br>needs<br>and<br>other<br>similar<br>matters<br>..<br>These<br>forward<br>-<br>looking<br>statements<br>are<br>based<br>on<br>management’s<br>current<br>expectations<br>and<br>assumptions<br>about<br>future<br>events,<br>which<br>are<br>inherently<br>subject<br>to<br>uncertainties,<br>risks<br>and<br>changes<br>in<br>circumstances<br>that<br>are<br>difficult<br>to<br>predict<br>..<br>Such<br>risks<br>and<br>uncertainties<br>include,<br>among<br>others,<br>future<br>results<br>of<br>operations<br>;<br>financial<br>position<br>;<br>the<br>impact<br>of<br>the<br>ongoing<br>and<br>global<br>COVID<br>-<br>19<br>pandemic<br>;<br>general<br>economic,<br>political<br>and<br>other<br>risks,<br>including<br>currency<br>and<br>stock<br>market<br>fluctuations<br>and<br>uncertain<br>economic<br>environment<br>;<br>the<br>volatility<br>of<br>the<br>trading<br>price<br>of<br>our<br>common<br>stock<br>;<br>and<br>our<br>expectations<br>about<br>market<br>trends<br>..<br>The<br>Company<br>may<br>not<br>actually<br>achieve<br>the<br>plans,<br>intentions<br>or<br>expectations<br>disclosed<br>in<br>its<br>forward<br>-<br>looking<br>statements,<br>and<br>you<br>should<br>not<br>place<br>undue<br>reliance<br>on<br>the<br>Company’s<br>forward<br>-<br>looking<br>statements<br>..<br>Actual<br>results<br>or<br>events<br>could<br>differ<br>materially<br>from<br>the<br>plans,<br>intentions<br>and<br>expectations<br>disclosed<br>in<br>the<br>forward<br>-<br>looking<br>statements<br>the<br>Company<br>makes<br>..<br>While<br>the<br>Company<br>may<br>elect<br>to<br>update<br>these<br>forward<br>-<br>looking<br>statements<br>at<br>some<br>point<br>in<br>the<br>future,<br>the<br>Company<br>has<br>no<br>current<br>intention<br>of<br>doing<br>so<br>except<br>to<br>the<br>extent<br>required<br>by<br>applicable<br>law<br>..<br>You<br>should,<br>therefore,<br>not<br>rely<br>on<br>these<br>forward<br>-<br>looking<br>statements<br>as<br>representing<br>the<br>Company’s<br>views<br>as<br>of<br>any<br>date<br>subsequent<br>to<br>the<br>date<br>of<br>this<br>presentation<br>..<br>Additional<br>risks<br>and<br>uncertainties<br>relating<br>to<br>the<br>Company<br>and<br>its<br>business<br>can<br>be<br>found<br>in<br>the<br>"Risk<br>Factors"<br>section<br>of<br>Palomar<br>Holdings,<br>Inc<br>..<br>’s<br>most<br>recent<br>Annual<br>Report<br>on<br>Form<br>10<br>-<br>K,<br>Quarterly<br>Report<br>on<br>Form<br>10<br>-<br>Q,<br>and<br>other<br>filings<br>with<br>the<br>United<br>States<br>Securities<br>and<br>Exchange<br>Commission<br>..<br>2 | |||||||||||||||||||||||||||||
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| Today’s Speakers<br>Mac Armstrong<br>Chief Executive Officer<br>Chris Uchida<br>Chief Financial Officer<br>Jon Christianson<br>President<br>Angela Grant<br>Chief Legal Officer<br>Michelle Johnson<br>Chief Talent & Diversity Officer<br>Robert Beyerle<br>Chief Underwriting Officer<br>Jon Knutzen<br>Chief Risk Officer<br>3 | |||||||||||||||||||||||||||||
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| Today’s Agenda<br>TIME<br>SECTION<br>SPEAKER<br>8:00am<br>–<br>8:10am<br>Overview<br>Mac Armstrong<br>8:10am<br>–<br>8:25am<br>What Makes Palomar A<br>Specialty Insurance Leader?<br>Mac Armstrong<br>8:25am<br>–<br>8:30am<br>Long Term Plan: Palomar 2X<br>Mac Armstrong<br>8:30am<br>–<br>8:40am<br>Q&A Session<br>Palomar Deep Dive<br>8:40am<br>–<br>8:50am<br>Culture And Talent<br>Michelle Johnson<br>8:50am<br>–<br>9:20am<br>Specialty Product Expertise<br>Jon Christianson and Robert Beyerle<br>9:20am<br>–<br>9:35am<br>Break<br>9:35am<br>–<br>10:05am<br>Reinsurance And Analytics<br>Jon Knutzen<br>10:05am<br>–<br>10:20am<br>Operations And Technology<br>Jon Christianson<br>10:20am<br>–<br>10:40am<br>Q&A Session<br>10:40am<br>–<br>10:50am<br>Break<br>10:50am<br>–<br>11:00am<br>Commitment To ESG<br>Angela Grant<br>11:00am<br>–<br>11:30am<br>Path to 2X<br>–<br>Financials<br>Chris Uchida<br>11:30am<br>–<br>11:35am<br>Closing Remarks<br>Mac Armstrong<br>11:35am<br>–<br>12:00pm<br>Q&A Session<br>4 | |||||||||||||||||||||||||||||
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| Overview | |||||||||||||||||||||||||||||
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| PLMR 5.0<br>Palomar Investor Day<br>–<br>What We Want to Accomplish<br>6<br>Strategic Objectives<br>:<br>•<br>Introduction of Palomar 2X<br>strategic framework<br>•<br>Comprehensive review of business<br>•<br>Near term strategic initiatives<br>•<br>Introduce extended talent and expertise<br>Highlights and Takeaways<br>:<br>•<br>Significant runway for organic growth<br>•<br>Best in<br>class approach to talent attraction and retention<br>•<br>A proven, flexible operational model that applies to new market segments and products<br>•<br>Continuous innovation in underwriting helps to identify new opportunities<br>•<br>A conservative approach to risk transfer minimizes losses and enhances profitability<br>•<br>A reputation as a partner of choice for industry leaders<br>PROFITABLE GROWTH | EARNINGS PREDICTABILITY | LIMITED VOLATILITY | |||||||||||||||||||||||||||
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| Company Profile<br>TRACK RECORD OF DELIVERING STRONG GROWTH AND CONTINUED PROFITABILITY<br>Specialty insurer using data analytics and underwriting acumen to capitalize on market dislocations and provide<br>disruptive products that resonate with producers, other insurers and reinsurers<br>Leading Earthquake insurer in the United States<br>Admitted and E&S offerings with nationwide scope<br>A.M. Best “A<br>-<br>(Excellent)” FSC group rating<br>Risk transfer strategy limits exposure to<br>major events and reduces earnings volatility<br>Multi<br>-<br>channel distribution serving residential and commercial clients<br>Committed to environmental, social, governance, diversity<br>and inclusion initiatives<br>7 | |||||||||||||||||||||||||||||
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| Recognizing How Far We Have Come<br>8<br>EXPANSION SINCE INCEPTION (GWP)<br>•<br>A small team addressing a single line of business...<br>•<br>....Adding hurricane exposure and the associated analytics and risk transfer required...<br>•<br>....Adding attritional loss exposure and the actuarial, claims and legal resources required...<br>•<br>....Launching an affiliated MGA and an affiliated reinsurer...<br>•<br>....Building an internal technology system to support in<br>-<br>house underwriting...<br>•<br>....Completing an IPO and transitioning to life as a public company...<br>•<br>....Expanding from a single office to a multi<br>-<br>state, hybrid work footprint...<br>•<br>....Entering the E&S market and standing up several new products...<br>•<br>....Entering the Casualty and Fronting markets...<br>18<br>26<br>Team Size:<br>42<br>44<br>58<br>77<br>122<br>151<br>168<br>(1)<br>$7<br>$4<br>$20<br>$38<br>$9<br>$53<br>Adjusted Net Income:<br>$52<br>2014<br>2015<br>2016<br>2017<br>2018<br>2019<br>2020<br>2021<br>LTM Q1'22<br>$120M<br>$82M<br>$55M<br>$17M<br>$<br>252<br>M<br>$155M<br>$<br>354<br>M<br>$535M<br>$<br>603<br>M<br>1.<br>As of June 1, 2022<br>2.<br>This slide contains non<br>-<br>GAAP metrics. See GAAP reconciliation and definitions in the Appendix. | |||||||||||||||||||||||||||||
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| Our Strategy<br>9<br>MARKETS<br>•<br>Markets with attractive long term returns but fragmented competition<br>•<br>Straightforward risks, legal environments and claims processes<br>•<br>Willingness to enter dislocated markets<br>•<br>Scalable underwriting approach combining data analysis with human expertise<br>•<br>Lines of business that can leverage automation and improved risk selection at scale<br>•<br>Straightforward risks that can be quoted efficiently and perform homogenously<br>•<br>Open architecture model that leverages multiple distribution channels<br>•<br>Opportunities to solve a clear market need for producers<br>•<br>Inside Sales team extends agency reach and offers personalized service<br>•<br>Comprehensive risk transfer program utilizing excess of loss, quota share and property per risk coverages<br>•<br>Accumulate risks with attractive returns that are hard for reinsurers to access or aggregate<br>•<br>Flexibility to modify risk appetite and strategy to suit market conditions and maturity of programs<br>•<br>Products that are A.M. Best rated and clearly differentiated from alternatives<br>•<br>Flexible coverages compared to alternatives with rigid forms or limited options<br>•<br>Personal and commercial products available on an admitted and E&S basis<br>PRODUCTS<br>DISTRIBUTION<br>UNDERWRITING<br>RISK TRANSFER<br>COMBINING DATA ANALYTICS, UNDERWRITING ACUMEN AND TECHNOLOGY TO CREATE FLEXIBLE PRODUCTS THAT<br>DELIVER VALUE FOR POLICYHOLDERS, PRODUCERS, REINSURERS AND INSURANCE COMPANY PARTNERS | |||||||||||||||||||||||||||||
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| 2021 Strategic Initiatives Check<br>-<br>In<br>10<br>•<br>Complement existing property<br>insurance footprint and enhance<br>economics<br>•<br>Limited incremental investment<br>and new sources of fee income<br>•<br>Hired Casualty veterans that bring<br>industry experience, expertise and<br>relationships<br>•<br>Initial focus on lines with a low<br>claims frequency and severity that<br>can enhance overall ROE<br>•<br>Utilize reinsurance to manage net<br>exposure and minimize volatility<br>•<br>Leverage existing technology<br>infrastructure<br>•<br>Launched Commercial General<br>Liability and Professional Liability<br>products<br>•<br>Completed quota share placements<br>•<br>Continued distribution network<br>buildout<br>•<br>Serve certain risks that our<br>admitted products cannot satisfy<br>•<br>React quickly to changes in market<br>conditions<br>•<br>More efficient path to a national<br>footprint and ability to service<br>national business<br>•<br>Write business on a direct basis<br>and via trusted and proven<br>program administrators to scale<br>quickly<br>•<br>Leverage our analytically driven<br>underwriting framework to write<br>business on a national scale<br>•<br>$67 million of Q1 2022 GWP<br>•<br>39% of overall Q1 2022 GWP<br>•<br>182% year<br>-<br>over<br>-<br>year growth<br>E&S COMPANY<br>•<br>Compelling risk<br>-<br>adjusted returns and<br>reliable, fee<br>-<br>based income stream<br>•<br>Enter new markets as a non<br>-<br>risk bearing<br>insurance entity with the flexibility to<br>selectively participate in risk over time<br>•<br>Strong MGA sector momentum with<br>increasing demand for capacity and<br>minimal market penetration<br>•<br>Leverage existing talent and expertise<br>within our Programs team<br>•<br>Fully reinsured and collateralized model<br>•<br>Target specialty MGAs, insurance<br>carriers and reinsurers seeking an A.M.<br>Best rated issuing carrier<br>•<br>Several announced deals and strong<br>pipeline of qualified opportunities<br>•<br>$30 million of Q1 2022 GWP<br>•<br>Targeting $80 to $100 million of<br>managed Fronting GWP for YE 2022<br>PLMR<br>-<br>FRONT<br>CASUALTY DIVISION<br>PROGRESS<br>HOW<br>WHY<br>•<br>Reduced capacity has created<br>attractive market conditions<br>•<br>An opportunity to write property<br>business that is less susceptible to<br>attritional losses<br>•<br>Further diversify our property<br>offering<br>•<br>Hired 30<br>-<br>Year Property veteran<br>with proven track record of growth<br>and profitability<br>•<br>Identifying the proper attachment<br>point for each opportunity<br>•<br>Combined approach of using<br>reinsurance and 3<br>rd<br>party capacity<br>to limit our net line, reduce<br>volatility and maximize revenue<br>•<br>Late Q2<br>-<br>2022 launch utilizing<br>facultative reinsurance<br>•<br>Expect to complete quota share<br>reinsurance treaty and 3<br>rd<br>party<br>capacity agreement in Q3<br>-<br>2022<br>EXCESS PROPERTY | |||||||||||||||||||||||||||||
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| 2022 Strategic Initiatives<br>SCALE THE<br>ORGANIZATION<br>11<br>SUSTAIN STRONG<br>GROWTH<br>MONETIZE RECENT<br>INVESTMENTS<br>•<br>Generate strong top line growth<br>within both heritage and newer<br>lines of business<br>•<br>Record new business sales for<br>Residential Earthquake in Q1<br>•<br>Additional product growth within<br>Inland Marine, Commercial All Risk<br>and Residential Flood<br>•<br>Scale PESIC to represent nearly<br>50% of total GWP<br>•<br>Affirmed target of $80 to $100<br>million<br>(1)<br>of managed Fronting<br>GWP for YE 2022<br>•<br>Continued progress within<br>Commercial General Liability,<br>Professional Liability and Excess<br>Property development<br>•<br>Prioritized quota share reinsurance,<br>distribution network buildout and<br>development of systems, forms and<br>filings for new products<br>ENHANCE EARNINGS<br>PREDICTABILITY<br>•<br>Concerted effort to mitigate<br>earnings volatility<br>•<br>Aggregate reinsurance protects<br>against event frequency<br>and<br>establishes an adjusted ROE<br>floor of approximately 14%<br>•<br>Successfully placed quota share<br>reinsurance for our new Casualty<br>products<br>•<br>Continued reduction of continental<br>wind exposure:<br>•<br>Admitted Commercial All Risk<br>run<br>-<br>off completed<br>during<br>2021<br>•<br>Specialty Homeowners<br>transition to fronting<br>arrangement in Texas and<br>run<br>-<br>off elsewhere (Louisiana<br>completed during 2021)<br>•<br>Using technology and process<br>optimization to reduce<br>organizational costs enabling<br>future scale and margin<br>expansion<br>•<br>Hired talent and expertise within<br>actuarial, analytics, operations and<br>technology departments to support<br>growth<br>•<br>New hires leverage existing<br>technology and infrastructure<br>platforms to scale new initiatives<br>efficiently<br>1.<br>Premium target excludes the transition of Texas Specialty Homeowners moving to a fronting arrangement | |||||||||||||||||||||||||||||
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| What Makes Palomar A<br>Specialty Insurance Leader? | |||||||||||||||||||||||||||||
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| Entrepreneurial and Experienced Management Team<br>13<br>NAME<br>EXPERIENCE<br>(YRS)<br>PRIOR PROFESSIONAL EXPERIENCE<br>Mac Armstrong<br> | <br>Chairman & Chief Executive Officer<br>25+<br>Arrowhead General Insurance Agency<br> | <br>Spectrum Equity<br> | <br>Alex. Brown & Sons<br>Jon Christianson<br> | <br>President<br>20+<br>Holborn Corporation<br> | <br>John B. Collins Associates<br> | <br>Guy Carpenter<br>Chris Uchida<br> | <br>Chief Financial Officer<br>25+<br>Arrowhead General Insurance Agency<br> | <br>PwC<br>Jon Knutzen<br> | <br>Chief Risk Officer<br>25+<br>TigerRisk Partners<br> | <br>Holborn Corporation<br> | <br>Guy Carpenter<br>Michelle Johnson<br> | <br>Chief Talent & Diversity Officer<br>20+<br>Option One Mortgage<br> | <br>AMN Healthcare<br> | <br>Panasonic Avionics Corporation<br>Angela Grant<br> | <br>Chief Legal Officer<br>30+<br>CSE Insurance Group<br> | <br>Hippo<br> | <br>Esurance<br> | <br>Kemper<br> | <br>GEICO<br>Robert<br>Beyerle<br> | <br>Chief Underwriting Officer<br>20+<br>Great American Insurance Company | Acordia Southeast<br>Bill Bold<br> | <br>Chief Strategy Officer<br>30+<br>U.C. San Diego School of Global Policy & Strategy<br> | <br>Qualcomm<br>Mark Brose<br> | <br>Chief Technology Officer<br>25+<br>Agosto Inc. | Gravie | Best Buy<br>Greg Tupper<br> | <br>Chief Information Security Officer<br>25+<br>UnitedHealth Group | Mocon | WellBeats<br>LEADING SPECIALTY INSURANCE TALENT CONTINUES TO EXECUTE AND ADD DEPTH TO THE ORGANIZATION |
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| Analytically Driven, Disciplined Underwriting<br>Scale with Technology<br>Regulatory Considerations<br>Third Party Utilization<br>Avoid Complex Exposures<br>Transferrable Model<br>Adherence to Guidelines<br>Financial Modeling<br>Catastrophe/Loss Analytics<br>Data<br>-<br>Driven Pricing<br>Identify Market Need<br>Risk Transfer<br>Distribution Architecture<br>ABILITY TO EXECUTE<br>QUANTIFIABLE SUPPORT<br>“WRITE WHAT WE KNOW”<br>OPERATIONAL LONGEVITY<br>14 | |||||||||||||||||||||||||||||
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| Comprehensive Risk Transfer Program<br>15<br>•<br>XOL reinsurance coverage up to $2.08 billion for earthquake events and $900 million for<br>hurricane events<br>•<br>Panel includes over 100 highly rated reinsurers and cat bond investors<br>•<br>Event retention of $12.5 million represents 3% of stockholders’ equity as of 3/31/22<br>•<br>$25 million excess $30 million of catastrophe aggregate limit effective 4/1/2022<br>•<br>Established<br>an<br>adjusted ROE floor of approximately 14% for 2022 based on the mid<br>-<br>point of the<br>previously announced adjusted net income range of $80<br>-<br>$85 million<br>•<br>Covered<br>perils<br>include<br>but<br>are not<br>limited to earthquake, hurricane, convective<br>storms and floods above a qualifying level of $2 million in ultimate gross loss<br>•<br>Quota share reinsurance used to further mitigate the impact of losses<br>•<br>Cede majority of exposure for attritional lines of business and earn attractive ceding<br>commission<br>•<br>Utilize quota share and per risk<br>coverage<br>to manage net exposure to any single risk<br>EARTHQUAKE ONLY<br>EARTHQUAKE + HAWAII HURRICANE<br>RETENTION<br>$900M<br>$12.5M<br>$2.08B | |||||||||||||||||||||||||||||
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| Flexible Distribution Network<br>16<br>•<br>Predominant channel<br>for commercial property<br>and casualty insurance<br>•<br>Much higher average<br>premium than retail<br>business<br>•<br>Rapid scale via<br>utilization of existing<br>distribution<br>infrastructures<br>•<br>Products ultimately sold<br>by retailers and<br>wholesalers<br>•<br>Companion offers<br>•<br>Direct appointments<br>with captive agents<br>•<br>Reinsurance for<br>existing and new risks<br>RETAIL<br>AGENTS<br>WHOLESALE<br>BROKERS<br>PROGRAM<br>ADMINISTRATORS<br>CARRIER<br>PARTNERSHIPS<br>•<br>Primarily distribute<br>personal lines products<br>•<br>High retention rates and<br>rate stability<br>•<br>Cross<br>-<br>selling potential<br>•<br>Direct access to PASS,<br>our agency portal<br>MULTIPLE SOURCES OF GROWTH AND THE FLEXIBILITY TO RAPIDLY CAPITALIZE ON CHANGING MARKET CONDITIONS<br>UNIQUE DISTRIBUTION MODEL LEVERAGES SCALABILITY AND ACCESS TO DIFFERENT MARKETS | |||||||||||||||||||||||||||||
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| Innovative Technology Platform<br>17<br>•<br>Technology systems built for automation and efficiency<br>•<br>Integration between pricing models, policy administration and<br>analytics<br>•<br>Ability to rapidly quote and bind policies for producers<br>•<br>API development for partners with Palomar Automated Submission<br>System (PASS)<br>•<br>Real<br>-<br>time data and event reporting<br>•<br>Seamless communication with partner carriers and reinsurers<br>•<br>Scalable platform reduces operating costs and improves efficiency<br>API Capabilities<br>Customized API integration providing a streamlined transaction<br>process to satisfy partner needs<br>EMPHASIS ON THE USE OF TECHNOLOGY AND ANALYTICS ACROSS OUR BUSINESS | |||||||||||||||||||||||||||||
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| Numerous Growth Vectors<br>•<br>AVENUES<br>•<br>CONTINUED OPPORTUNITY<br>NEW PRODUCTS<br>•<br>Monetize investments in new lines<br>including General Casualty, Excess<br>Property and<br>Professional Liability<br>•<br>Scale Fronting business to $80<br>-<br>$100M<br>of GWP during 2022<br>NEW GEOGRAPHIC<br>MARKETS<br>•<br>Scale nationwide via E&S vehicle<br>•<br>Expand existing admitted market share<br>in 34 current states and enter new states<br>NEW DISTRIBUTION<br>OPPORTUNITIES<br>•<br>Emerging distribution channels<br>•<br>Increasing cross<br>-<br>sell opportunities<br>•<br>National E&S partnerships<br>•<br>Fronting partnerships<br>ENHANCED REVENUE<br>STREAMS<br>•<br>Attract and transform risk<br>•<br>Generate fee and commission income<br>GROSS WRITTEN PREMIUM ($M)<br>$155<br>$252<br>$354<br>$535<br>$386<br>$603<br>2018<br>2019<br>2020<br>2021<br>LTM<br>Q1'21<br>LTM<br>Q1'22<br>+56%<br>18 | |||||||||||||||||||||||||||||
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| LEARNING<br>IDENTIFY<br>MARKETS<br>LEVERAGE<br>TALENT<br>SYSTEMS &<br>ANALYTICS<br>RISK TRANSFER<br>DISTRIBUTION<br>DIVERSIFY<br>The Palomar Approach<br>19<br>PREDICTABLE<br>EARNINGS<br>GROWTH<br>CASUALTY<br>EXCESS PROPERTY<br>FRONTING<br>TX SPECIALTY<br>HOMEOWNERS<br>RESIDENTIAL FLOOD<br>E&S COMMERCIAL ALL<br>RISK<br>RESIDENTIAL<br>EARTHQUAKE<br>ADMITTED COMMERCIAL<br>ALL RISK<br>HAWAII HURRICANE<br>COMMERCIAL<br>EARTHQUAKE<br>INLAND MARINE<br>NON<br>-<br>TX SPECIALTY<br>HOMEOWNERS<br>ESTABLISHED<br>EMERGING<br>RUN<br>-<br>OFF / EXITED<br>TRANSITIONING | |||||||||||||||||||||||||||||
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| Long Term Plan: Palomar 2X | |||||||||||||||||||||||||||||
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| Introducing PLMR 2X<br>FUNDAMENTAL PRINCIPLES<br>KEY COMPONENTS<br>•<br>Organic growth<br>•<br>A<br>nchored by non<br>-<br>attritional loss<br>business (<br>Earthquake<br>and<br>Hawaii<br>Hurricane<br>)<br>•<br>Entry into new markets driven by<br>replicable, analytics<br>-<br>driven process<br>•<br>Continued reduction in non<br>-<br>earthquake<br>catastrophic exposure<br>•<br>Conservative and comprehensive risk<br>transfer strategy<br>•<br>Fee income as a complementary and<br>diversifying income stream<br>•<br>Investments in people, processes<br>and<br>systems to effectively scale the business<br>•<br>Commitment to ESG<br>•<br>Earthquake<br>•<br>Inland Marine: Builders Risk<br>•<br>Excess Property<br>•<br>General Casualty<br>•<br>Professional Liability<br>•<br>Flood<br>•<br>Fronting<br>FINANCIAL OBJECTIVES<br>•<br>Continually doubling<br>Underwriting<br>Income over<br>an intermediate timeframe<br>through organic growth<br>•<br>Adjusted ROE greater than 20%<br>•<br>Maintain<br>industry leading<br>profit margins<br>21<br>PHILOSOPHY<br>: AN ORGANIC BUSINESS STRATEGY DESIGNED TO DOUBLE UNDERWRITING INCOME<br>IN A PREDICTABLE MANNER OVER AN INTERMEDIATE TIMEFRAME | |||||||||||||||||||||||||||||
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| Palomar Deep Dive | |||||||||||||||||||||||||||||
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| Culture And Talent | |||||||||||||||||||||||||||||
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| Culture And Talent<br>AUTHENTIC<br>& AGILE<br>ENVIRONMENT<br>PROMOTABLE & ENGAGED<br>WORKFORCE<br>ENTREPRENEURIAL &<br>PASSIONATE SPIRIT<br>DIVERSITY, INCLUSION, COMMUNITY<br>ENGAGEMENT & EQUALITY (<br>DICE)<br>HYBRID<br>& ACCOUNTABLE<br>STRATEGIC RECRUITING<br>•<br>Underwriting, Tech, Analytics<br>•<br>Internship Program<br>LEADERSHIP & TEAM MEMBER<br>DEVELOPMENT<br>•<br>Succession Planning<br>•<br>Career Pathing<br>TOTAL REWARDS<br>•<br>Pay for Performance<br>•<br>Short<br>-<br>term incentive and<br>L<br>ong<br>-<br>term incentive<br>plans<br>for all team members<br>RETENTION & ENGAGEMENT<br>•<br>Engagement and Communication Strategy<br>•<br>Operational Efficiency<br>25 | |||||||||||||||||||||||||||||
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| Workforce Overview<br>26<br>49<br>60<br>59<br>3+ Years<br>1-3 Years<br>Less than 1 Year<br>CURRENT TEAM TENURE<br>(1)<br>2019<br>77<br>2020<br>122<br>2021<br>151<br>YTD<br>(1)<br>168<br>HEADCOUNT<br>61%<br>TOTAL WORKFORCE 2021<br>46%<br>34%<br>16%<br>4%<br>Milennials<br>Generation X<br>Generation Z<br>Baby Boomers<br>38%<br>62%<br>Female<br>Male<br>39%<br>Non<br>-<br>white / One<br>or more races<br>White<br>61%<br>1.<br>As of June 1, 2022 | |||||||||||||||||||||||||||||
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| •<br>1:1’s<br>•<br>Goal Setting<br>•<br>Coaching & Feedback<br>Compensation<br>Work Life<br>Benefits<br>Career<br>Development<br>Performance<br>&<br>Recognition<br>•<br>Base Salary<br>•<br>Annual Bonus<br>•<br>L<br>ong<br>-<br>term Incentive<br>P<br>lans<br>for Everyone<br>•<br>Paid Time Off<br>•<br>Diverse Work Environment<br>•<br>Hybrid Work Environment<br>•<br>Health & Welfare<br>•<br>Retirement Planning<br>•<br>Wellness Programs<br>•<br>Internal Career Mobility<br>•<br>Leadership & Team Member Development<br>•<br>Professional Development Reimbursement<br>27<br>Team Member Experience | |||||||||||||||||||||||||||||
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| Specialty Product Expertise | |||||||||||||||||||||||||||||
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| Product Development<br>PROVEN ROADMAP OF SUCCESSFUL SPECIALTY PRODUCT DEVELOPMENT AND DEPLOYMENT<br>29<br>LAUNCH<br>UNDERSERVED<br>MARKET<br>BUSINESS<br>CASE<br>FINANCIAL<br>AND<br>STATISTICAL<br>MODELING<br>ENGAGE WITH<br>PARTNERS<br>POLICY FORMS<br>AND PRODUCT<br>FILINGS<br>REGULATORY<br>APPROVAL<br>MARKETING<br>OUTREACH<br>CAMPAIGN<br>TECHNOLOGY AND EXPERTISE | |||||||||||||||||||||||||||||
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| Analytical Underwriting<br>30<br>•<br>Technology<br>-<br>enabled platform<br>•<br>Experienced entrepreneurial underwriters<br>•<br>Optimized balance of in<br>-<br>house and delegated authority<br>IDENTIFY COMMON ATTRIBUTES TO REPLICATE ACROSS PRODUCTS AND MARKETS<br>RESIDENTIAL<br>EARTHQUAKE<br>HAWAII HURRICANE<br>RESIDENTIAL FLOOD<br>COMMERCIAL<br>EARTHQUAKE<br>INLAND MARINE<br>CASUALTY<br>EMPHASIS ON INCORPORATING DATA ACROSS ALL PALOMAR PRODUCTS ALIKE<br>•<br>Analytically supported feedback loop<br>•<br>On<br>-<br>going training and technology progression<br>•<br>Risk<br>-<br>level profitability assessment | |||||||||||||||||||||||||||||
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| Deep Dive: Earthquake<br>31<br>•<br>Jon Christianson<br>–<br>President and Founding Member, 20+ Years<br>•<br>Evan Kuhn<br>–<br>Vice President of Underwriting, 15+ Years<br>LEADERSHIP<br>•<br>Retail Agents, Wholesale Brokers<br>•<br>Program Administrators<br>•<br>Strategic Partners<br>DISTRIBUTION<br>•<br>$2.08 billion of total earthquake limit, including:<br>•<br>$675 million of catastrophe bonds placed across four tranches<br>•<br>$135 million of per occurrence protection through a 20% quota share treaty renewed on 1/1/22<br>UNDERWRITING<br>APPROACH<br>•<br>Continued organic growth via both residential and commercial products<br>•<br>Capitalize on residential market dislocation and CEA disruption<br>LONG TERM<br>OBJECTIVE<br>•<br>Product designed to address historical market shortcomings to increase overall take<br>-<br>up rate<br>•<br>Priced at a granular level with flexible product features, delivered via a technologically efficient platform<br>•<br>Ability to serve admitted and E&S markets<br>REINSURANCE | |||||||||||||||||||||||||||||
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| Residential Earthquake Market Opportunity<br>32<br>•<br>On<br>December<br>15<br>,<br>2021<br>,<br>the<br>CEA<br>released<br>a<br>circular<br>(OPS<br>-<br>21<br>-<br>04<br>)<br>to<br>all<br>participating<br>insurers<br>addressing<br>the<br>CEA’s<br>willingness<br>to<br>permit<br>–<br>and<br>to<br>an<br>extent<br>encourage<br>–<br>CEA<br>participating<br>insurers<br>to<br>offer<br>non<br>-<br>CEA<br>residential<br>earthquake<br>insurance<br>options<br>•<br>CEA<br>Participating<br>Insurers<br>comprise<br>nearly<br>80<br>%<br>of<br>the<br>residential<br>property<br>market<br>in<br>California<br>DISLOCATION WITHIN THE RESIDENTIAL EARTHQUAKE MARKET<br>NEW RESIDENTIAL EARTHQUAKE BUSINESS: VALUE SELECT GROWTH<br>•<br>Independent of changes to the CEA, residential earthquake production is exhibiting a strong trend<br>(Value Select Production below)<br>Jan<br>Feb<br>March<br>April<br>May<br>June<br>July<br>Aug<br>Sept<br>Oct<br>Nov<br>Dec<br>CY20<br>CY21<br>Linear (CY21)<br>Linear<br>Trend<br>+40%<br>•<br>CEA<br>Governing<br>Board<br>reduced<br>Claims<br>Paying<br>Capacity<br>in<br>March<br>2022<br>;<br>downgraded<br>by<br>Fitch<br>•<br>Dislocation<br>due<br>to<br>wildfire<br>risk<br>results<br>in<br>the<br>remarketing<br>of<br>policies<br>;<br>opportunity<br>to<br>sell<br>earthquake<br>•<br>E&S<br>capacity<br>becoming<br>more<br>widely<br>accepted<br>in<br>California<br>personal<br>lines<br>;<br>freedom<br>of<br>rate<br>and<br>form | |||||||||||||||||||||||||||||
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| Business Development: Inside Sales Team<br>33<br>WHY<br>HOW<br>CURRENT STATUS<br>•<br>20%+ of contacted agents become<br>producers<br>•<br>Impactful LTV:CAC generation<br>•<br>Proactive outreach to insurance<br>agents<br>•<br>Develop and nurture relationships<br>•<br>Demo PASS and encourage quoting<br>•<br>Pursue concrete written premium<br>targets<br>•<br>Accelerate appointment of new<br>agents<br>•<br>Deepen relationships with existing<br>agents<br>•<br>Grow personal lines distribution<br>•<br>Analyze results to improve model<br>EXCEPTIONAL OPERATIONAL EFFORT FOR BUSINESS AND PRODUCT DEVELOPMENT | |||||||||||||||||||||||||||||
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| Development of Business Mix<br>34<br>Residential Earthquake<br>Fronting<br>Commercial Earthquake<br>Inland Marine<br>Specialty Homeowners<br>Commercial All Risk<br>Hawaii Hurricane<br>Residential Flood<br>Other<br>AS OUR<br>BUSINESS<br>EVOLVES<br>, LINES WITH NO NET ATTRITIONAL LOSS ARE A FOCUS FOR PALOMAR<br>$46<br>$25<br>$7<br>$30<br>$18<br>$16<br>$11<br>$3<br>$14<br>Q1 2022 GWP:<br>$171M<br>$29<br>$7<br>$2<br>$8<br>$8<br>$1<br>Q1 2019 GWP:<br>$54M | |||||||||||||||||||||||||||||
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| Differentiated Products for Underserved Markets<br>1.<br>Percentages are as of Q1 2022 GWP for each product<br>35<br>•<br>Many insurers avoid coastal regions due to windstorm exposure<br>•<br>Coverage is required for homeowners that carry a mortgage for their<br>homes in the state of Hawaii<br>•<br>The layered and shared commercial property market currently has a high<br>level of market dislocation<br>•<br>Offered in markets that we identified through detailed analysis of pricing<br>dynamics and historical loss ratios<br>•<br>Preferred by local retail agents due to our “A<br>-<br>” rating and our easy<br>-<br>to<br>-<br>use<br>technology platform<br>•<br>Offered on a national E&S basis to address certain risks which our<br>admitted products previously could not satisfy<br>Commercial Earthquake<br>15%<br>Residential Flood<br>2%<br>Fronting<br>17%<br>Specialty Homeowners<br>10%<br>Hawaii Hurricane<br>4%<br>Residential Earthquake<br>27%<br>Commercial All Risk<br>6%<br>Inland Marine<br>11%<br>•<br>Competitors’ products have limited options and are priced in broad<br>territorial zones<br>•<br>An optional coverage that many property owners choose not to purchase<br>due to high price and limited coverage options<br>•<br>Products are priced at a granular level and offer flexible product features<br>•<br>Seek to expand the earthquake insurance market by attracting buyers who<br>may not otherwise acquire protection<br>•<br>Capture highly structured, very low leverage fee business using existing<br>capabilities, infrastructure and talent<br>•<br>"A<br>-<br>Excellent"<br>rated admitted and E&S insurance companies and<br>experienced team to manage any inherent execution risk<br>•<br>Many admitted inland marine carriers avoid markets with perceived<br>exposure to windstorms and earthquakes<br>•<br>U<br>tilize a technical risk pricing methodology that enables us to select and<br>price risk appropriately<br>•<br>The current private market flood product offerings are scarce and outdated<br>•<br>B<br>roader coverage than the NFIP and more streamlined approval process<br>with no required elevation certificate or waiting period<br>Palomar Offering<br>Opportunity<br>Other<br>8%<br>•<br>Additional market segments within the P&C industry with the potential to<br>generate attractive risk adjusted returns<br>•<br>Admitted and E&S offerings that harness existing strengths and<br>complement our current product suite | |||||||||||||||||||||||||||||
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| Deep Dive: Inland Marine<br>36<br>•<br>Robert Beyerle<br>–<br>Chief Underwriting Officer, 20+ Years<br>•<br>Paul Kim<br>–<br>Vice President of Underwriting, 15+ Years<br>•<br>Cecil Wilson<br>–<br>Vice President of Underwriting, 30+ Years<br>LEADERSHIP<br>•<br>Retail Agents, Wholesale Brokers and Program Administrators<br>•<br>Long<br>-<br>term relationships between Palomar underwriters and top distribution partners<br>DISTRIBUTION<br>•<br>Quota Share coverage with a max net line of $3 million<br>•<br>Quota Share generates fee income via ceding commission<br>UNDERWRITING<br>APPROACH<br>•<br>Target profitable, well underwritten business sourced internally and from expert program managers<br>•<br>Increase participation in each line of business over time to maximize net income<br>LONG TERM<br>OBJECTIVE<br>•<br>Experienced underwriters with authority to make decisions to meet the time sensitive nature of the business<br>•<br>Flexibility with capacity allows underwriters to provide solutions to complex risks<br>•<br>Comprehensive product suite includes both admitted and E&S offering<br>REINSURANCE | |||||||||||||||||||||||||||||
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| Deep Dive: Casualty<br>37<br>•<br>Ty Robben<br>–<br>Senior Vice President of Underwriting, 14+ Years<br>•<br>Gerrit VandeKemp<br>–<br>Vice President of Underwriting, 12+ Years<br>LEADERSHIP<br>•<br>Wholesale Brokers<br>•<br>Program Administrators<br>DISTRIBUTION<br>•<br>Quota Share coverage with a max net line of $2 million<br>•<br>Quota Share generates fee income via ceding commission<br>UNDERWRITING<br>APPROACH<br>•<br>Build a profitable operation utilizing existing infrastructure, expertise and product development<br>•<br>Increase and maintain market share<br>LONG TERM<br>OBJECTIVE<br>•<br>Targeting low limit, low frequency and low severity business<br>•<br>Modern technology infrastructure enables quicker response times and data<br>-<br>informed underwriting<br>•<br>Experience and relationships enable rapid path to market and reinsurance support<br>REINSURANCE | |||||||||||||||||||||||||||||
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| Deep Dive: PLMR<br>-<br>FRONT<br>38<br>•<br>Jason Sears<br>–<br>Executive Vice President and Head of Programs, 20+ Years<br>•<br>Brandon Loyd<br>–<br>Assistant Vice President of Programs, 15+ Years<br>•<br>Kent Watson<br>–<br>Assistant Vice President of Programs, 14+ Years<br>LEADERSHIP<br>•<br>Insurance carriers with inadequate licensing (state or E&S) or lower rating<br>•<br>Reinsurer or reinsurers supporting and managing general agents (“MGAs”)<br>DISTRIBUTION<br>•<br>Heavily protected with quota share reinsurance<br>UNDERWRITING<br>APPROACH<br>•<br>Compelling risk<br>-<br>adjusted returns and reliable, fee<br>-<br>based income stream<br>•<br>Enhancing ROE stability<br>•<br>Targeting $80<br>-<br>$100 million<br>(1)<br>of GWP in 2022<br>LONG TERM<br>OBJECTIVE<br>•<br>Currently take no risk positions with significant fee income from (re)insurance placement<br>•<br>Require collateral in excess of<br>Statutory Accounting requirements<br>•<br>Oversee partners via underwriting, claims and financial audits<br>REINSURANCE<br>1.<br>Premium target excludes the transition of Texas Specialty Homeowners moving to a fronting arrangement | |||||||||||||||||||||||||||||
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| PLMR<br>-<br>FRONT Model<br>39<br>Quota Share Attributes<br>PLMR<br>-<br>FRONT<br>Current PLMR Retention<br>0%<br>PLMR Gross Limit<br>Exposed<br>N/A<br>PLMR Net Limit Exposed<br>N/A<br>PLMR Fee Income<br>1<br>5<br>-<br>8%<br>•<br>Fully reinsured and collateralized model to satisfy<br>claims payment obligations<br>•<br>Risk is transferred to reinsurer(s)<br>•<br>Target 5<br>-<br>8% Fee Income and a contractual minimum<br>fee<br>•<br>Collateral requirement of 100%<br>-<br>150% of unearned<br>premium and ultimate loss pick<br>1.<br>Fee Income is defined as override received by Palomar from reinsurers in excess of the cost of acquisition<br>PALOMAR<br>INSURED<br>REINSURER<br>PREMIUM<br>PREMIUM<br>RISK<br>RISK<br>COLLATERAL<br>FEE INCOME | |||||||||||||||||||||||||||||
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| Product Case Studies<br>40<br>PRODUCT<br>OVERVIEW<br>TARGET<br>STRATEGY<br>PARTNERSHIP<br>OVERVIEW<br>PERFORMANCE<br>BUILDER’S RISK<br>REAL ESTATE E&O<br>COWBELL<br>•<br>Launched in January 2019<br>•<br>Targeting the mid market Builder’s Risk<br>segment<br>•<br>Accessing business via in<br>-<br>house<br>underwriting and industry leading partners<br>•<br>Residential and commercial availability<br>•<br>Capacity varies by construction and project<br>type<br>•<br>Ability to serve Admitted and E&S markets<br>•<br>Currently offered in 40 states<br>•<br>Inland Marine grew GWP 133% YoY<br>•<br>Builder’s Risk loss ratio of 25% for 2021<br>•<br>5% average QoQ rate increase<br>•<br>Valuations incorporate real<br>-<br>time labor and<br>materials costs<br>•<br>Wholesale brokers (internal business)<br>•<br>Program administrators: TRU and PURE<br>(external business)<br>•<br>Retail construction specialists<br>•<br>Launched in September 2020<br>•<br>Admitted California Real Estate Agents<br>Errors & Omissions Program<br>•<br>Management experience and expertise<br>within this market<br>•<br>Limits up to $2M per Occurrence / $2M<br>general aggregate<br>•<br>Enter market with known and proven<br>underwriting in a niche market<br>•<br>Quota share terms allow for fee income via<br>ceding commissions<br>•<br>GWP increased 150% YoY during 2021<br>•<br>Assessing state and distribution expansion<br>•<br>Program administrator<br>•<br>Launched in October 2021<br>•<br>Cowbell is one of the leading Cyber MGAs<br>•<br>Renowned reinsurance partners involved<br>•<br>Focus on small and mid<br>-<br>sized business<br>segment<br>•<br>Allows for entry into Cyber market with<br>strong expertise and risk transfer support<br>•<br>No conflict with existing internal initiatives<br>•<br>Quota share terms allow for above market<br>override/fee<br>•<br>100% quota share coverage<br>•<br>Current treaty period has a premium<br>income cap<br>INLAND MARINE<br>CASUALTY<br>FRONTING<br>•<br>Fee income stream<br>•<br>Strong traction and attractive market<br>conditions<br>•<br>Attracting new reinsurers despite a severely<br>constrained market<br>•<br>Rates exceeding initial expectations | |||||||||||||||||||||||||||||
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| Palomar Reinsurance Overview<br>43<br>•<br>Catastrophe per occurrence XOL reinsurance protects against severity of an event loss<br>•<br>Hold an event loss to less than one quarter of earnings and less than 5% of stockholders’ equity<br>•<br>Reinsurance coverage in excess of the 1:250<br>-<br>year Peak Zone Probable Maximum Loss (“PML”)<br>•<br>99.6% modeled probability that an event loss does not exceed the top of the reinsurance program<br>•<br>Catastrophe per occurrence reinsurance effectively manages high severity / low frequency risk of an EQ<br>-<br>driven portfolio<br>•<br>Historically, the per occurrence XOL reinsurance program has responded as designed<br>•<br>Aggregate catastrophe XOL reinsurance protects against the accumulation of multiple event losses<br>•<br>Introduced in 2021, the aggregate treaty collars the potential cumulative impact of multiple catastrophe events<br>•<br>Current treaty attaches at $30 million and provides $25 million of coverage, equivalent to two full $12.5 million losses<br>•<br>Coverage applies across all perils including but not limited to earthquake, hurricane, severe convective storm and flood<br>for all qualifying event losses of $2 million or greater up to a maximum of $12.5 million per event<br>•<br>Quota share reinsurance used to further mitigate the impact of losses | |||||||||||||||||||||||||||||
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| 6/1 Market Update<br>•<br>Secured $430 million<br>of incremental limit to support growth; maintained per event retention at<br>$12.5 million<br>•<br>Successfully issued $275 million of collateralized capacity through Torrey Pines Re 144A Catastrophe Bond, increasing<br>the total Catastrophe Bond capacity to $675 million and further diversifying the reinsurance panel by accessing ILS<br>investors on a multi<br>-<br>year basis<br>•<br>Maintained prepaid reinstatements for all layers excluding portions of the first $17.5 million layer<br>•<br>First layer would incur additional premium of up to $3.1 million after a non<br>-<br>EQ loss or $1.4 million after an EQ loss<br>•<br>Risk adjusted rate change of approximately 9%<br>•<br>Renewed Attritional and Business Unit specific Quota Share placements at 5/1 and 6/1 within expectations<br>SUCCESSFUL 6/1 EXECUTION WITHIN HARDEST REINSURANCE MARKET IN RECENT HISTORY<br>44 | |||||||||||||||||||||||||||||
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| Current Cat Program<br>Core Catastrophe Tower<br>•<br>Coverage to a conservative level based on projected PMLs<br>•<br>$2.08 billion ground up coverage for Earthquake<br>•<br>$900 million ground up coverage for Hawaii Hurricane<br>•<br>Layer 1 ($17.5 million<br>xs $12.5 million) includes four limits<br>•<br>Two each for earthquake and all other perils (“AOP”)<br>Inuring Catastrophe Reinsurance<br>•<br>Commercial Earthquake Quota Share (renewed at 1/1/22)<br>•<br>$675 million of fully collateralized, multi<br>-<br>year catastrophe<br>bond<br>coverage<br>•<br>$200 million of additional traditional reinsurance capacity<br>Catastrophe<br>Aggregate<br>•<br>$25 million of protection after a $30 million retention<br>•<br>Subject to maximum $12.5 million per event contribution after<br>application of $2.0 million franchise deductible<br>45<br>$900M HAWAII HURRICANE<br>*INURES TO BENEFIT OF CORE XOL TOWER<br>$25M LIMIT<br>$30M<br>RETENTION<br>EARTHQUAKE ONLY<br>$12.5M RETENTION<br>ALL PERILS<br>$250M<br>RETENTION<br>EARTHQUAKE<br>-<br>ONLY LAYERS*<br>($875Mx250M, No<br>Reinstatement)<br>CAT AGG<br>CORE CAT XOL TOWER<br>80%<br>RETENTION<br>20% CESSION<br>CA COMMERCIAL<br>EARTHQUAKE<br>QUOTA SHARE*<br>$1.07B EARTHQUAKE<br>$250M ALL PERILS<br>EARTHQUAKE + HAWAII<br>HURRICANE<br>$17.5x12.5M SPLIT EQ<br>-<br>ONLY & AOP<br>TRADITIONAL<br>CAT BOND<br>CAT BOND<br>CAT BOND<br>TRADITIONAL<br>CAT BOND | |||||||||||||||||||||||||||||
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| •<br>In<br>-<br>depth portfolio analytics conducted<br>on a monthly basis utilizing multiple catastrophe models, deterministic loss scenarios an<br>d exposure profiles to<br>assess risk to catastrophe losses and evaluate reinsurance coverage needs<br>•<br>The current program, effective June 1, 2022, provides ground up coverage to $2.08 billion for earthquake events and $900 mill<br>ion<br>for Hawaii<br>hurricane<br>events, substantially in excess of the modeled loss anticipated with the recurrence of the most severe historically significa<br>nt<br>catastrophes<br>Current Cat Retention<br>2022E Adjusted Net Income<br>$80.0<br>$85.0<br>$12.5<br>(1)<br>CATASTROPHE RETENTION COMPARED<br>TO ADJUSTED NET INCOME<br>(2)<br>($M)<br>REINSURANCE COVERAGE WELL IN EXCESS OF MODELED HISTORICAL EVENTS ($M)<br>Reinsurance Program Designed to Minimize Earnings Volatility<br>1.<br>Reinstatement premium required in addition to $12.5M retention<br>2.<br>2022 YE Adjusted Net Income guidance range<br>3.<br>Based on exposure as of 3/31/2022<br>46<br>$2,080<br>$1,402<br>$1,043<br>$535<br>$511<br>$443<br>$292<br>$285<br>$279<br>$414<br>$900<br>Total PLMR<br>EQ Limit<br>CA 1906<br>San<br>Francisco M<br>7.8<br>CA 1994<br>Northridge M<br>6.7<br>CA 1971<br>San Fernado<br>M 6.7<br>NM 1811-12<br>Sequence M<br>7.8<br>CA 1868<br>Hayward M<br>7.0<br>NW 1949<br>Puget Sound<br>M 6.5<br>CA 1857<br>Fort Tejon M<br>7.9<br>CA 1933<br>Long Beach<br>M 6.4<br>HI 1992 HU<br>Iniki<br>Total PLMR<br>HI HU Limit<br>HISTORICAL EVENTS<br>(3) | |||||||||||||||||||||||||||||
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| Highly<br>-<br>Rated Reinsurance Partners<br>Reinsurance Panel as of June 1, 2022<br>Catastrophe<br>XOL Limit<br>Top 10 Reinsurance Partners<br>($M)<br>% of<br>Total<br>A.M. Best<br>Rating<br>Torrey Pines Re Pte<br>1<br>400<br>19.9<br>Collateralized<br>Torrey Pines Re<br>2<br>275<br>13.7<br>Collateralized<br>Houston Casualty Company<br>103<br>5.1<br>A++<br>Ariel Re Bda Limited obo Syndicate 1910<br>69<br>3.4<br>A<br>MS Amlin AG<br>57<br>2.9<br>A<br>Elementum Re Ltd. obo Allianz Risk Transfer AG<br>50<br>2.5<br>A+<br>Lancashire Insurance Company, Ltd.<br>50<br>2.5<br>A<br>Lloyd's # 1947<br>–<br>GIC Re<br>45<br>2.2<br>A<br>Lloyd's # 1301<br>–<br>Inigo Insurance<br>43<br>2.1<br>A<br>Vermeer Reinsurance, Ltd.<br>38<br>1.9<br>A<br>•<br>Highly diversified and robust reinsurance panel with over 100<br>highly rated reinsurers and catastrophe bond investors<br>•<br>Reinsurance partners either have an “A<br>-<br>” or better A.M. Best<br>and/or S&P rating or post collateral<br>•<br>Over 94% of reinsurance limit is rated “A” or better<br>•<br>Reinsurance contract enables the replacement of<br>reinsurers<br>that are downgraded or experience a 20% decline in<br>Stockholders’ Equity<br>47<br>1.<br>$400 million Torrey Pines Re Pte., issued March 2021, is scheduled to mature June 2024<br>2.<br>$275 million Torrey Pines Re, issued May 2022, is scheduled to mature June 2025 | |||||||||||||||||||||||||||||
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| Catastrophe Aggregate Recovery Example<br>48<br>•<br>$25 million of ‘sideways’ reinsurance protection once cumulative net retained losses exceed $30 million<br>•<br>Treaty subject to $12.5 million per event limit, aligned with occurrence tower retention | attaches on a 3rd+ event basis<br>Reinsurance Limit<br>Cat Agg<br>Retention<br>$30M<br>$55M<br>Event 1<br>Event 3<br>Event 2<br>Event 4<br>Cat Agg XOL<br>Reinsurance Limit<br>Core<br>Retention<br>$12.5M<br>$2.08B<br>Event 1<br>Event 2<br>Event 3<br>Event 4<br>Core Cat XOL Tower<br>1<br>Losses in excess of $12.5M retention ceded to Cat XOL Tower<br>2<br>Cumulative subject losses in excess of $30M ceded to Cat Agg<br>3<br>Cat Agg recoveries supplement XOL Tower to establish ROE floor<br>Event #<br>1<br>-<br>EQ<br>2<br>-<br>CS<br>3<br>-<br>NS<br>4<br>-<br>NS<br>Total<br>Gross Loss ($000s)<br>100,000<br>10,000<br>30,000<br>8,000<br>148,000<br>Ceded to XOL<br>87,500<br>-<br>17,500<br>-<br>105,000<br>Retained Loss / Event<br>12,500<br>10,000<br>12,500<br>8,000<br>43,000<br>Cat Agg Recovery<br>1<br>-<br>EQ<br>2<br>-<br>CS<br>3<br>-<br>NS<br>4<br>-<br>NS<br>Loss Subject to Cat Agg<br>12,500<br>10,000<br>12,500<br>8,000<br>Cumulative Subject Loss<br>12,500<br>22,500<br>35,000<br>43,000<br>Cat Agg Recovery / Event<br>-<br>-<br>5,000<br>8,000<br>Cumulative Recovery<br>-<br>-<br>5,000<br>13,000<br>Summary<br>1<br>-<br>EQ<br>2<br>-<br>CS<br>3<br>-<br>NS<br>4<br>-<br>NS<br>Total<br>Gross Loss ($000s)<br>100,000<br>10,000<br>30,000<br>8,000<br>148,000<br>Ceded to XOL<br>87,500<br>-<br>17,500<br>-<br>105,000<br>Ceded to Cat Agg<br>-<br>-<br>5,000<br>8,000<br>13,000<br>PLMR Net Retained Loss<br>12,500<br>10,000<br>7,500<br>-<br>30,000 | ||||||||||||||||||||||||||||
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| Earthquake Loss Example<br>49<br>•<br>$100 million Gross Loss<br>•<br>$87.5 million ceded to Core XOL Tower<br>•<br>$12.5 million retained<br>•<br>Reinstatement Premium Due: $1.4 million<br>1<br>•<br>Pre<br>-<br>tax loss = $13.9 million<br>•<br>Post<br>-<br>tax loss = $10.8 million<br>•<br>ROE drops from 19% to 17%<br>1.<br>Maximum $1.4 million reinstatement premium due from an earthquake on a first event basis<br>Event #1<br>–<br>Earthquake<br>($000s)<br>Gross Loss<br>100,000<br>Ceded to XOL<br>(87,500)<br>Loss Net of XOL<br>12,500<br>Reinstatement Premium<br>1,400<br>Pre<br>-<br>tax Net Loss<br>13,900<br>Post<br>-<br>tax Net Loss<br>10,842<br>ROE %<br>17% | |||||||||||||||||||||||||||||
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| Convective Storm Loss Example<br>50<br>•<br>$10 million Gross Loss fully retained<br>•<br>Pre<br>-<br>tax loss = $10 million<br>•<br>Post<br>-<br>tax loss = $7.8 million<br>•<br>ROE drops from 19% to 18%<br>1<br>1.<br>Considers impact to ROE from CS event in isolation (i.e., not including EQ event on previous page)<br>Event #2<br>–<br>Convective Storm(“CS”)<br>($000s)<br>Gross Loss<br>10,000<br>Ceded to XOL<br>-<br>Loss Net of XOL<br>10,000<br>Reinstatement Premium<br>-<br>Pre<br>-<br>tax Net Loss<br>10,000<br>Post<br>-<br>tax Net Loss<br>7,800<br>ROE %<br>18% | |||||||||||||||||||||||||||||
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| Hawaii Hurricane Loss Example<br>51<br>•<br>$30 million Gross Loss<br>•<br>$17.5 million ceded to Core XOL Tower<br>•<br>$12.5 million retained<br>•<br>Reinstatement Premium Due: $3.1 million<br>1<br>•<br>Pre<br>-<br>tax loss = $15.6 million<br>•<br>Post<br>-<br>tax loss = $12.2 million<br>•<br>ROE drops from 19% to 17%<br>2<br>1.<br>Maximum $3.1 million reinstatement premium due from a non<br>-<br>earthquake on a first event basis<br>2.<br>Considers impact to ROE from HI Hurricane event in isolation (i.e., not including EQ event or SCS event on previous pages)<br>Event #3<br>–<br>Hawaii Hurricane<br>($000s)<br>Gross Loss<br>30,000<br>Ceded to XOL<br>(17,500)<br>Loss Net of XOL<br>12,500<br>Reinstatement Premium<br>3,081<br>Pre<br>-<br>tax Net Loss<br>15,581<br>Post<br>-<br>tax Net Loss<br>12,153<br>ROE %<br>17% | |||||||||||||||||||||||||||||
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| Earthquake, CS and HI Hurricane Loss Example<br>52<br>•<br>Catastrophe aggregate protection activates once<br>cumulative subject losses exceed $30 million<br>1<br>•<br>$5 million Cat Agg recovery supplements XOL<br>recoveries to limit an accumulation of retained losses<br>•<br>Pre<br>-<br>tax financial impact of $34.5 million<br>•<br>Post<br>-<br>tax impact of $26.9 million<br>ROE floor of approximately 14%<br>•<br>ROE would drop below 14% floor without<br>protection afforded by the catastrophe aggregate<br>XOL coverage<br>1.<br>Loss Net of XOL = Subject Loss for purposes of illustration<br>Events #1<br>-<br>3 Combined<br>($000s)<br>Gross Loss<br>140,000<br>Ceded to XOL<br>(105,000)<br>Loss Net of XOL<br>35,000<br>Ceded to Cat Agg<br>(5,000)<br>Loss Net of Reinsurance<br>30,000<br>Reinstatement Premium<br>4,481<br>Pre<br>-<br>tax Net Loss<br>34,481<br>Post<br>-<br>tax Net Loss<br>26,895<br>ROE % excluding Cat Agg<br>13%<br>ROE % inclusive of Cat Agg<br>14% | |||||||||||||||||||||||||||||
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| Quota Share Reinsurance<br>53<br>•<br>Quota share reinsurance utilized to mitigate<br>volatility from unexpected attritional losses<br>•<br>Reduce the net limit exposed to any given risk<br>•<br>Augment underwriting income with fee<br>income<br>generated through ceding commissions<br>1.<br>Applies to the majority of our direct business with attritional loss exposure<br>2.<br>Binary lines are excluded from the gross and net line exposed<br>3.<br>Fee Income is defined as override received by Palomar from reinsurers in excess of the cost of acquisition<br>Quota Share Attributes<br>PROPERTY<br>CASUALTY<br>Current PLMR<br>Retention<br>1<br>15<br>-<br>70%<br>23<br>-<br>50%<br>PLMR Gross Limit<br>Exposed<br>$5<br>-<br>20M<br>$1<br>-<br>5M<br>PLMR Net Limit<br>Exposed<br>2<br>$1.0<br>-<br>3.4M<br>$0.3<br>-<br>2.0M<br>PLMR Fee Income<br>3<br>4<br>-<br>6%<br>4<br>-<br>8%<br>PALOMAR<br>INSURED<br>REINSURER<br>PREMIUM<br>PREMIUM<br>RISK<br>RISK<br>FEE INCOME | |||||||||||||||||||||||||||||
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| Actuarial Overview<br>54<br>EXPERTISE<br>•<br>Incorporate feedback from in<br>-<br>house experts ranging from claims, underwriting and senior management<br>•<br>Streamline and implement liability analysis via models that implement actuarial standards of practice<br>•<br>Analyze different loss types to fully recognize company specific seasonality, demand surge and trends<br>RESERVING<br>PHILOSOPHY<br>•<br>Frequency/Severity tracking for real<br>-<br>time decision<br>-<br>making capability<br>•<br>Establish plan loss ratios and as<br>-<br>if storm scenarios supported by historical data and quantification of UW initiatives<br>•<br>Monitor profitability of on<br>-<br>going segments<br>•<br>Performance relative to margin targets guides decisions to enter or exit market segments<br>PROPERTY<br>•<br>Risk<br>-<br>adjusted rate monitoring on bespoke exposures<br>•<br>New product support through filings, rating tools and pricing<br>•<br>Support the review and evaluation of new business opportunities<br>•<br>Design and advise on data capture and analysis to ensure the ability to make data<br>-<br>driven decisions<br>CASUALTY<br>•<br>Ethan Genteman<br>–<br>Senior<br>Vice President, 10+ Years, FCAS MAAA, Fellow of the Casualty Actuarial Society (CAS)<br>•<br>Ben Markowski<br>–<br>Assistant Vice President, 9+ Years, FCAS, Fellow of the Casualty Actuarial Society (CAS)<br>RESPONSIBLE FOR ESTABLISHING, MAINTAINING AND LAUNCHING UNDERWRITING AND PRODUCT DEVELOPMENT | |||||||||||||||||||||||||||||
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| Exposure and Catastrophe Analytics<br>55<br>•<br>Jon Knutzen<br>–<br>Chief Risk Officer, 25+ Years<br>•<br>Eric Hennen<br>–<br>Senior Vice President of Analytics, 15+ Years<br>•<br>George Dobrev<br>–<br>Senior Vice President of Analytics, 15+ Years<br>EXPERTISE<br>•<br>Employ internally developed applications for the evaluation of portfolio KPIs such as PML, AAL, PML to Premium<br>and AAL to Premium to track progress toward target metrics<br>•<br>Proprietary exposure management platform integrates detailed exposure data with modeled loss output from<br>catastrophe models such as AIR Touchstone and RMS RiskLink and a dynamic simulation<br>-<br>based reinsurance model<br>•<br>Exposure is also monitored using geospatial and visual analytics applications including SpatialKey and Tableau<br>•<br>Monthly analyses quantify exposure to catastrophes including earthquakes, hurricanes, flood and severe<br>convective storms<br>PROCESS<br>•<br>Data Quality<br>•<br>Conservative View of Risk<br>•<br>Multiple model view to protect against bias<br>•<br>Consider deterministic loss scenarios in addition to modeled losses to stress test reinsurance program<br>APPROACH<br>•<br>Inflation initiatives: enhancing insurance to value assessments and validation processes<br>•<br>Integrating new lines of business into exposure management platform and expanding the data science capabilities<br>•<br>Working with underwriting to improve risk profile, enhance expected margin, identify strategies to reduce volatility<br>CURRENT<br>INITIATIVES | |||||||||||||||||||||||||||||
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| Case Study: Wind Exposure Management<br>•<br>Exited Admitted Commercial All Risk and Specialty Homeowners in Louisiana during 2020; run<br>-<br>off completed in December 2021<br>•<br>Announced the<br>exit of Specialty Homeowners business outside of the state of Texas in Q1 2022 and the conversion of Texas Homeowners to a Fr<br>ont<br>ed<br>Program effective June 1, 2022 to further reduce continental hurricane and convective storm exposure<br>56<br>CONTINENTAL US HURRICANE METRICS<br>MODELED CAT LOSS COMPOSITION<br>* Wind AAL = Average Annual Loss from hurricanes and severe convective storms gross of<br>reinsurance; our estimated net retained AAL from hurricanes and severe convective storms at<br>September 30, 2022 is ~$6 million<br>* Continental US Wind = Ceded Average Annual Loss from hurricanes and severe convective storms<br>545<br>361<br>223<br>2020 Q3<br>2021 Q3<br>2022 Q3 Projected<br>250<br>-<br>yr PML (in $Millions)<br>Continental US HU Gross 250<br>-<br>yr PML<br>250<br>-<br>yr PML to Prem<br>5.83<br>3.21<br>2.75<br>Wind AAL to Prem*<br>30.8%<br>23.0%<br>17.4%<br>Subject Premium ($M)<br>93.51<br>112.25<br>81.18<br>29.4%<br>20.6%<br>9.6%<br>8.4%<br>13.2%<br>16.0%<br>62.2%<br>66.1%<br>74.4%<br>2020 Q3<br>2021 Q3<br>2022 Q3 Projected<br>Composition of Ceded AAL: Losses in excess of $12.5M<br>Continental US Wind*<br>Hawaii HU<br>Earthquake<br>ACTIONS TO IMPROVE EXPECTED PROFITABILITY AND REDUCE VOLATILITY FROM CONTINENTAL US WIND EXPOSURE | |||||||||||||||||||||||||||||
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| Technology Operations<br>58<br>•<br>Mark Brose<br>–<br>Chief Technology Officer, 25+ Years<br>•<br>Greg Tupper<br>–<br>Chief Information Security Officer, 25+ Years<br>EXPERTISE<br>•<br>Scalable platform reduces operating costs and improves efficiency<br>•<br>Ability to rapidly quote and bind policies<br>•<br>Technology systems built for automation and efficiency<br>•<br>Integration between pricing models, policy administration and analytics<br>•<br>Real<br>-<br>time event reporting and data delivery<br>PROCESS<br>•<br>Better service to policyholders and producers<br>•<br>API development for partners<br>•<br>No burden of legacy IT systems<br>•<br>Technology platform utilized to drive competitive advantage<br>APPROACH<br>•<br>Ongoing development of systems to support new product lines<br>•<br>Delivery of producer<br>-<br>targeted enhancements to support customer satisfaction<br>•<br>Behind<br>-<br>the<br>-<br>scenes infrastructure evolution to facilitate operational scale<br>•<br>Continued strengthening of cyber posture<br>CURRENT<br>INITIATIVES | |||||||||||||||||||||||||||||
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| Technology at the Point of Sale<br>•<br>PASS, the policy administration system integrates submission<br>gathering, policy issuance, underwriting, billing and portfolio<br>analytics<br>•<br>Enables the effective use of predefined underwriting guidelines<br>•<br>Provides efficient real<br>-<br>time transparency to production partners<br>•<br>Dedicated team currently building APIs to integrate PASS into the<br>point<br>-<br>of<br>-<br>sale systems of partner carriers and distribution partners<br>•<br>For certain residential products, agents can quote, bind and issue<br>policies within minutes<br>59<br>THE BROWSER<br>-<br>BASED PALOMAR AUTOMATED SUBMISSION SYSTEM (“PASS”) ACTS AS<br>THE INTERFACE WITH RETAIL AGENTS AND WHOLESALE BROKERS | |||||||||||||||||||||||||||||
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| Case Study: Underwriting & Product<br>60<br>Residential Earthquake<br>•<br>Advanced modeling on the RMS platform to develop admitted rates for<br>Residential Earthquake, a driver of market<br>-<br>leading margin for the business<br>•<br>E&S Residential Earthquake uses a proprietary algorithm that contemplates<br>catastrophe model marginal impact and costs of risk transfer<br>Residential Flood<br>•<br>Developed a variable resolution grid that afforded 23 million unique rating<br>territories in the state of California | Grid expanded into 14 additional admitted<br>states<br>•<br>Integrating with data analytics firms to further refine underwriting granularity and<br>exposure management. As agents quote within PASS, exposure and model<br>detail are passed behind the scenes via API<br>Excess Property<br>•<br>The underwriting platform integrates with third party modeling vendors to<br>empower underwriters to select risks that are accretive to the overall portfolio,<br>thereby maintaining or improving reinsurance costs<br>INNOVATIVE ANALYTICS AND TECHNOLOGY HELP DEVELOP PRODUCTS AND ADVANCE UNDERWRITING CAPABILITIES<br>100 Anonymous Avenue<br>100 Anonymous Avenue<br>XXXXXX YYYYYY | ||||||||||||||||||||||||||||
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| Case Study: Disaster Response<br>•<br>Rigorous, analytical focus on real<br>-<br>time dissemination of Event<br>Reports to internal and external constituents<br>•<br>Real<br>-<br>time event reports shape the posture of the organization’s<br>response in the critical early moments in and around an event<br>•<br>Reporting is shared with the appropriate internal stakeholders,<br>TPAs, rating agencies and reinsurance providers<br>•<br>Hurricane event reporting initiates when the Cone of<br>Uncertainty envelopes a geographic area that contains Palomar<br>insureds<br>•<br>Earthquake event reporting initiates immediately following a<br>material shake, with detailed reporting typically within 24 hours<br>Ridgecrest Earthquake<br>Magnitude 7.1<br>July 5, 2019 | |||||||||||||||||||||||||||||
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| Claims Operations<br>62<br>EXTERNAL CLAIMS<br>HANDLING<br>•<br>Angela Grant<br>–<br>Chief Legal Officer,<br>30<br>+ Years<br>•<br>Teresa Urban<br>–<br>Vice President of<br>Claims<br>, 25+ Years<br>•<br>Jeff Lim<br>–<br>Associate General Counsel<br>, 25+ Years<br>EXPERTISE<br>INTERNAL CLAIMS<br>MANAGEMENT<br>REPORTING PROCESS<br>MANAGING<br>CATASTROPHE EVENTS<br>•<br>Claims handling is outsourced to third parties to optimize costs given the low frequency nature of insured risks<br>•<br>Contract with multiple third<br>-<br>party administrators ("TPAs") to reduce reliance on any single TPA and to benefit<br>from expertise of individual vendors in specific lines of business<br>•<br>Vice President of Claims is responsible for TPA oversight, which includes:<br>•<br>Management of loss reserves<br>, pending reviews, catastrophe event<br>preparation<br>, negotiation and settlement<br>•<br>Files audited to ensure timely TPA reporting, accurate loss reserves, compliance and excellent service levels<br>•<br>Managerial requirements for TPAs include first notice of loss ("FNOL"), reserve and payment approvals,<br>pending management, correspondence with insureds and regular reporting on<br>all large loss claims<br>•<br>Claims are reported directly to internal team and the applicable TPA<br>•<br>Use of cloud<br>-<br>based reporting creates efficient monitoring and management of open claims<br>•<br>Technology infrastructure and data analytics enable swift identification of potentially impacted policies,<br>assistance for customers through notifying TPAs and the mobilization of claims adjusters and appraisers<br>•<br>Perform simulations and work closely with TPAs to prepare for catastrophe events and ensure there are<br>dedicated desk and field adjusters to handle the expected volume of claims<br>•<br>Insulates from “demand surge” following a catastrophe event | |||||||||||||||||||||||||||||
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| Commitment To ESG | |||||||||||||||||||||||||||||
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| Commitment To ESG<br>66<br>•<br>Commitment to Environmental, Social<br>and Governance (“ESG”) matters are<br>fundamental to the business strategy<br>and mission<br>•<br>Values<br>-<br>driven workplace<br>that<br>integrates<br>ESG considerations into<br>strategy, operations, capital allocation<br>and investment<br>decisions<br>•<br>Continue to take steps to reduce overall<br>carbon footprint<br>OVERVIEW<br>TRANSPARENCY<br>ESG PRIORITIES<br>Access the ESG Portal and 2022 Sustainability & Citizenship Report Here:<br>https://plmr.com/esg/<br>Reporting Aligned with Following<br>Frameworks<br>Climate<br>Strategy<br>Safety &<br>Health<br>Disaster Preparedness &<br>Response<br>Human<br>Rights<br>Diversity &<br>Inclusion<br>Community & Team<br>Member Well<br>-<br>being<br>Investment<br>Management<br>Governance<br>Practices<br>Data Privacy &<br>Cybersecurity<br>ENVIRONMENTAL<br>1<br>SOCIAL<br>2<br>GOVERNANCE<br>3<br>Human Capital<br>Management<br>As Asset Owners, Public Commitments /<br>Signatories to Responsible Investment<br>Initiatives | |||||||||||||||||||||||||||||
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| TOPIC<br>APPROACH<br>SELECT HIGHLIGHTS<br>•<br>Assess climate change<br>-<br>related risks, opportunities and<br>potential impacts on business<br>•<br>Pledged to conduct first third<br>-<br>party assessment of the<br>business’ carbon footprint in 2022<br>•<br>Assessed<br>climate<br>-<br>related risks and opportunities by aligning<br>with the recommendations of<br>the Task Force Climate<br>-<br>Related<br>Financial Disclosures ("TCFD")<br>•<br>Provide sustainable solutions that help to enable resilient<br>communities<br>•<br>Proactively manage the business to ensure the financial<br>security and support each customer needs when a natural<br>disaster occurs<br>•<br>Climate change<br>-<br>related products and services enable existing<br>and prospective customers to better understand and manage<br>their exposure to climate risks<br>Environmental Priorities<br>67<br>Climate<br>Strategy<br>Disaster<br>Preparedness &<br>Response<br>AS LEADERS IN RISK MANAGEMENT SOLUTIONS FOR EARTHQUAKES, HURRICANES AND OTHER CATASTROPHES,<br>WE SEE FIRSTHAND THE IMPACT OF CLIMATE CHANGE ON THE LIVES OF AMERICANS | |||||||||||||||||||||||||||||
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| TOPIC<br>APPROACH<br>SELECT HIGHLIGHTS<br>•<br>Striving to create a diverse, inclusive and supportive workplace with<br>opportunities for each team member to develop in their careers helps<br>to attract and retain talent<br>•<br>Offering fair, competitive compensation and benefits to support our<br>team members overall well<br>-<br>being<br>•<br>Employee<br>-<br>led DICE Council (Diversity, Inclusion, Community<br>Engagement, and Equality), leads efforts that advise leadership on<br>initiatives and best practices relating to diversity and inclusion<br>•<br>D&I yields greater organizational creativity and productivity, helping<br>better serve customers and partners<br>•<br>Disclosing workforce diversity statistics<br>for gender and ethnicity<br>for new hires, total workforce and leadership<br>•<br>L<br>aunched an initiative to measure and improve the diversity of<br>our suppliers<br>•<br>Board diversity and independence<br>; 86% are independent of<br>management and 71% are women or members of underrepresented<br>communities<br>•<br>Committed to promoting a safe, health and productive work<br>environment<br>•<br>Make continuous improvements by regularly assessing health and<br>safety risks arising from business activities<br>•<br>Implemented hybrid work environment with established protocols to<br>ensure operational reliability and employee safety<br>•<br>Provide comprehensive and leading benefits for all team members to<br>ensure access to health and wellness programs<br>•<br>Promote a culture of civil engagement and partner with organizations<br>to drive action and positive change within our communities<br>•<br>Continue to maintain minority depository institution (“MDI”)<br>commitment<br>•<br>Launched Palomar Protects<br>™<br>with Team Rubicon engagement<br>•<br>Committed to human and labor rights principles outlined in standards<br>like the United Nations “Universal Declaration of Human Rights”<br>•<br>Policies and trainings in place to identify and prevent discrimination<br>bullying, harassment and other forms of workplace behavior<br>•<br>Formal Human Right Statement in place<br>•<br>Signatory of the United Nations Global Compact<br>Social Priorities<br>68<br>Safety & Health<br>Human Rights<br>Community & Team<br>Member Well<br>-<br>being<br>Diversity & Inclusion (“D&I”)<br>Human Capital Management | |||||||||||||||||||||||||||||
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| TOPIC<br>APPROACH<br>SELECT HIGHLIGHT<br>•<br>Standalone ESG committee oversees environmental, health and<br>safety, corporate social responsibility, corporate governance,<br>sustainability and other public policy matters relevant to the Company<br>•<br>President and Chief Risk Officer oversee enterprise risk management<br>policies and practices, including climate<br>-<br>related risk<br>•<br>Chief Strategy Officer, Chief Legal Officer and Chief Talent & Diversity<br>officer oversee ESG topics in their respective areas<br>•<br>Published new Sustainability and Citizenship Report aligned with<br>TCFD and Sustainability Accounting Standards Board ("SASB")<br>•<br>Approved the adoption of declassifying our Board of Directors<br>and annual election of directors via 5<br>-<br>year sunset provision<br>•<br>Approved the removal of the supermajority requirement for<br>certain amendments via 5<br>-<br>year sunset provision<br>•<br>Launched Enterprise Risk Management Sub<br>-<br>Committee with Board<br>and executive oversight<br>•<br>Our investment committee thoroughly reviews the ESG implications of<br>investment decisions<br>•<br>At least quarterly, senior management reviews entire investment<br>portfolio; ESG considerations are a primary component of the overall<br>credit review of the individual holdings<br>•<br>Allocating 1% of investment portfolio into climate or green bonds<br>•<br>Signatory of the UN Principles for Responsible Investment<br>•<br>Signatory of the Principles for Sustainable Insurance<br>•<br>Formal responsible investment policy<br>•<br>Created a multi<br>-<br>layered security posture leveraging people, processes<br>and technology<br>•<br>Maintain safeguards designed to help prevent unauthorized use,<br>access and disclosure of personal information<br>•<br>Formal cybersecurity and data privacy policies in place<br>69<br>Investment<br>Management<br>Governance<br>Practices<br>Data Privacy &<br>Cybersecurity<br>PALOMAR CONTINUES TO PROACTIVELY MANAGE ESG RISKS TO PROVIDE THE FINANCIAL SECURITY AND SUPPORT<br>THAT OUR CUSTOMERS EXPECT WHEN A NATURAL DISASTER OCCURS<br>Governance Priorities | |||||||||||||||||||||||||||||
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| Palomar Protects<br>™<br>70<br>•<br>Entered a new partnership with Team Rubicon during 2021, a veteran<br>-<br>led nonprofit<br>organization<br>devoted to international disaster response<br>•<br>Team Rubicon deploys in the immediate aftermath of an event, before government aid reaches<br>the affected community<br>•<br>Palomar team members will volunteer for front<br>-<br>line duty as part of Team Rubicon’s ‘grayshirt’<br>initiative<br>•<br>As natural disasters grow in intensity and frequency, Palomar Protects will help strengthen the<br>resilience of the communities affected | |||||||||||||||||||||||||||||
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| Path To 2X<br>-<br>Financials | |||||||||||||||||||||||||||||
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| PLMR 5.0<br>Palomar Financials<br>–<br>The Path To 2X<br>72<br>Strategic Objectives<br>:<br>•<br>Illustrative view of how our premium contributes to the bottom line<br>•<br>What is Palomar 2X?<br>•<br>What Palomar may look like at 2X, an illustrative “what if”<br>–<br>with our current products<br>•<br>Capital adequacy to facilitate Palomar 2X<br>•<br>Review Guidance<br>Highlights and Takeaways<br>:<br>•<br>We believe we can achieve Palomar 2X organically with our current product suite and will share:<br>•<br>An illustrative case study demonstrating how different lines of business impact financial metrics and overall results<br>•<br>What we mean when we say Binary, Fee, and Underwriting income<br>•<br>Sufficient capital base to facilitate long term growth | |||||||||||||||||||||||||||||
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| Financials<br>–<br>Illustration Definitions<br>Underlying concepts presented in the financial statements<br>1. Ceded Premium<br>•<br>Made up of quota share and XOL reinsurance<br>•<br>Generally, quota share reinsurance is used as protection on<br>attritional lines and generates a ceding commission that covers<br>acquisition costs plus an override margin<br>•<br>Generally, XOL reinsurance protects against large catastrophic<br>losses with an underlying retention to the Company.<br>XOL also<br>includes the Aggregate reinsurance expense that protects the<br>business from multiple large events<br>2. Acquisition Expense<br>•<br>Made up of the amount paid to producers to generate the business offset<br>by the ceding commission received from quota share reinsurers<br>3. Losses<br>•<br>Made up of the gross losses from claims offset by the losses ceded to<br>reinsurers<br>4. Underwriting Income<br>Before Overhead<br>•<br>Sum of 1, 2 and 3<br>•<br>Internally defined as Underwriting Income before Other Underwriting<br>Expenses (“OUE”). This allows for underwriting contribution margin before<br>internal operating expenses to be analyzed for each product<br>73<br>Binary Products<br>•<br>Residential Earthquake, Commercial Earthquake, Hawaii Hurricane<br>•<br>High margin business with potential for larger events<br>•<br>Does not cover attritional losses, typical loss ratio is zero<br>•<br>XOL reinsurance is purchased to cover large catastrophic events<br>•<br>Ceded XOL distorts the combined ratio<br>Fee and Underwriting Income<br>•<br>Property business includes Inland Marine Builders Risk, Excess<br>Property, Commercial All Risk and Flood.<br>•<br>Non<br>-<br>property business without catastrophe exposure but with attritional<br>loss exposure includes General Casualty, Professional Liability and other<br>selected lines.<br>•<br>Historically this also included Specialty<br>Homeowners<br>•<br>XOL reinsurance is required for property business to cover potential<br>large catastrophic events, even though exposure is limited<br>•<br>Quota share reinsurance primarily covers proportional attritional<br>exposure and generates fee income without volatility<br>•<br>Attritional losses are shared proportionally with quota share reinsurers<br>Fronting Fee Income<br>•<br>Includes the new fronting lines as well as Texas Specialty Homeowners<br>(in 2X illustrative example)<br>•<br>XOL reinsurance coverage is not required<br>•<br>Quota share reinsurance transfers all loss exposure and generates fee<br>income without volatility<br>•<br>Attritional losses are shared proportionally with quota share reinsurers | |||||||||||||||||||||||||||||
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| Financials<br>–<br>2021 Illustrative Example<br>•<br>This is an illustrative reconstitution of 2021 written premium showing some internal concepts<br>used when looking at<br>existing and new lines of business<br>•<br>The rows highlighted in light blue and the Total column represent the information disclosed in<br>typical financials<br>and r<br>atios are based on net premium and gross premium<br>•<br>2021 Palomar written premium of $535 million at scale, assuming all premium is earned,<br>with<br>Underwriting Income before Overhead of $110 million<br>•<br>Binary Income<br>represents lines only subject to catastrophes including Earthquake and Hawaii<br>Hurricane.<br>•<br>represents 56% of the premium and $100 million of Underwriting Income before<br>Overhead and has no attritional losses<br>•<br>Fee Income, including Fronting,<br>represents portions of the business where underwriting risk<br>has been converted into fee income<br>through risk transfer. This is seen within Inland Marine,<br>Casualty, Fronting and other lines.<br>•<br>represents 22% of the premium and $5 million of Underwriting Income before<br>Overhead and has no attritional losses or catastrophe exposure<br>•<br>Underwriting Income<br>represents portions of the business where risk is taken from an attritional<br>loss standpoint.<br>This includes retained portions of Inland Marine, Casualty, Flood and other lines.<br>•<br>represents 22% of the premium and $6 million of Underwriting Income before<br>Overhead and has a 57% attritional loss ratio (net)<br>•<br>$110 million of total Underwriting Income before Overhead and a loss ratio that is<br>confined by the fact that<br>78% of premium is not exposed to attritional losses<br>•<br>The path to Palomar 2X starts with doubling Underwriting Income<br>before Overhead<br>74<br>Binary<br>Fee Income<br>UW<br>Total<br>Income<br>Fronting<br>UW<br>Income<br>Gross Premium<br>535<br>300<br>10<br>107<br>118<br>Ceded Premium<br>-<br>QS<br>(117)<br>0<br>(10)<br>(107)<br>0<br>Ceded Premium<br>-<br>XOL<br>(146)<br>(120)<br>0<br>0<br>(26)<br>Net Premium<br>272<br>180<br>0<br>0<br>92<br>Losses<br>(97)<br>0<br>(5)<br>(40)<br>(52)<br>Ceded Losses<br>45<br>0<br>5<br>40<br>0<br>Losses and LAE (net)<br>(52)<br>0<br>0<br>0<br>(52)<br>Acquisition Expense<br>(145)<br>(81)<br>(3)<br>(28)<br>(33)<br>Ceded Acquisition Expense<br>36<br>0<br>3<br>33<br>0<br>Acquisition Exp (net)<br>(109)<br>(81)<br>1<br>4<br>(33)<br>Underwriting Income Before OH<br>110<br>100<br>1<br>4<br>6<br>Net Premium Ratio<br>51%<br>60%<br>0%<br>0%<br>78%<br>Loss Ratio<br>19%<br>0%<br>-<br>-<br>57%<br>Acquisition Expense Ratio<br>40%<br>45%<br>-<br>-<br>37%<br>Combined Ratio Before OH<br>60%<br>45%<br>-<br>-<br>94%<br>Ratios on Gross Premium<br>Ceded Premium Ratio<br>49%<br>40%<br>100%<br>100%<br>22%<br>Loss Ratio<br>10%<br>0%<br>0%<br>0%<br>45%<br>Acquisition Expense Ratio<br>20%<br>27%<br>-<br>5%<br>-<br>4%<br>28%<br>Combined Ratio Before OH<br>79%<br>67%<br>95%<br>96%<br>95%<br>**The information contained herein is provided for illustrative and discussion purposes only** | |||||||||||||||||||||||||||||
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| Palomar 2X Illustrative Example<br>75<br>•<br>PALOMAR 2X Aims to:<br>•<br>Double Underwriting Income, starting with Underwriting Income Before Overhead<br>•<br>Operating scale from Other Underwriting Expenses will further enhance Underwriting<br>Income growth<br>•<br>This target is achievable organically with current products and assumes a consistent approach<br>to risk transfer (excluding Specialty Homeowners)<br>•<br>Binary Income<br>represents 43% of premium and $180 million of Underwriting Income before Overhead<br>and has no attritional losses<br>•<br>Fee Income<br>,<br>including<br>Fronting<br>, represents 43% of premium and $26 million of<br>Underwriting Income<br>Before OH and has no attritional losses or catastrophe exposure<br>•<br>Underwriting Income<br>represents 14% of premium, $14 million of Underwriting Income before<br>Overhead and has a 57% attritional loss ratio (net), 47% gross<br>•<br>Performance of individual products does not have a dramatic impact on overall results<br>•<br>$220 million of Total Underwriting Income before Overhead and a loss ratio that is confined by<br>the fact that 86% of the premium is not exposed to attritional losses<br>•<br>Available Levers:<br>•<br>Modify participation on Binary, Fronting and/or Underwriting business<br>•<br>Capital Requirements and ROE<br>•<br>Net Premium: Capital target ratios of 1.0x for Binary and 1.5x for all other<br>premium<br>•<br>$452 million in illustrative net premium requires $408 million of capital, close to current levels<br>•<br>Growth in our capital base provides the flexibility to increase our risk participation over time<br>•<br>We believe we can achieve adjusted ROE in excess of 20% on the path to Palomar 2X<br>Binary<br>Fee Income<br>UW<br>Total<br>Income<br>Fronting<br>UW<br>Income<br>Gross Premium<br>1,195<br>515<br>260<br>258<br>162<br>Ceded Premium<br>-<br>QS<br>(518)<br>0<br>(260)<br>(258)<br>0<br>Ceded Premium<br>-<br>XOL<br>(226)<br>(196)<br>0<br>0<br>(29)<br>Net Premium<br>452<br>319<br>0<br>0<br>133<br>Losses<br>(311)<br>0<br>(121)<br>(115)<br>(76)<br>Ceded Losses<br>236<br>0<br>121<br>115<br>0<br>Losses and LAE (net)<br>(76)<br>0<br>0<br>0<br>(76)<br>Acquisition Expense<br>(311)<br>(138)<br>(66)<br>(63)<br>(43)<br>Ceded Acquisition Expense<br>155<br>0<br>79<br>76<br>0<br>Acquisition Exp (net)<br>(156)<br>(138)<br>13<br>13<br>(43)<br>Underwriting Income Before OH<br>220<br>180<br>13<br>13<br>14<br>Net Premium Ratio<br>38%<br>62%<br>0%<br>0%<br>82%<br>Loss Ratio<br>17%<br>0%<br>-<br>-<br>57%<br>Acquisition Expense Ratio<br>34%<br>43%<br>-<br>-<br>32%<br>Combined Ratio Before OH<br>51%<br>43%<br>-<br>-<br>89%<br>Ratios on Gross Premium<br>Ceded Premium Ratio<br>62%<br>38%<br>100%<br>100%<br>18%<br>Loss Ratio<br>6%<br>0%<br>0%<br>0%<br>47%<br>Acquisition Expense Ratio<br>13%<br>27%<br>-<br>5%<br>-<br>5%<br>26%<br>Combined Ratio Before OH<br>82%<br>65%<br>95%<br>95%<br>91%<br>**The information contained herein is provided for illustrative and discussion purposes only** | |||||||||||||||||||||||||||||
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| 2022 Guidance<br>76<br>FULL YEAR 2022 CURRENT OUTLOOK<br>Adjusted net income<br>$80 to $85 million<br>•<br>Revised guidance assumption, guidance excludes unrealized gains and losses from mark<br>-<br>to<br>-<br>market fluctuations<br>•<br>Guidance reflects the conversion of the Texas Specialty Homeowners book to a front, reducing overall catastrophe exposure<br>•<br>Guidance assumes no losses from a major catastrophe<br>•<br>Guidance reflects the updated reinsurance completed at the 6/1/2022 reinsurance renewal<br>•<br>Adjusted net income growth of 54% at the midpoint of the guidance range<br>•<br>Full year adjusted ROE of approximately 19% at the midpoint of the guidance range<br>•<br>Full year adjusted ROE floor of approximately 14% with renewed aggregate program effective 4/1/2022<br>•<br>Continental U.S. wind projected net average annual loss of approximately $6 million at 9/30/2022 | |||||||||||||||||||||||||||||
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| Closing Remarks<br>Highlights and Takeaways<br>:<br>•<br>Significant runway for organic growth<br>•<br>A proven, flexible operational model that applies to new market segments and products<br>•<br>Continuous innovation in underwriting helps us identify new opportunities and products<br>•<br>A conservative approach to risk transfer minimizes losses and enhances profitability<br>•<br>Best in class approach to talent attraction and retention<br>•<br>A reputation as a partner of choice for industry leaders<br>78<br>WE ARE HIGHLY CONFIDENT IN OUR ABILITY TO EXECUTE ON THE PLMR 2X STRATEGIC PLAN | |||||||||||||||||||||||||||||
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| Distribution: Strategic Partnerships<br>81<br>EIGHT YEARS OF PARTNERSHIPS CONTINUE WITH THE MOST DIVERSE PIPELINE IN THE COMPANY’S HISTORY<br>2022<br>2021<br>2020<br>2019<br>2018<br>2017<br>2016<br>2015<br>2014 | |||||||||||||||||||||||||||||
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| Reconciliation Of Non<br>-<br>GAAP Metrics Used In This<br>Presentation<br>82<br>In Thousands<br>Year Ended December 31<br>2016<br>2017<br>2018<br>2019<br>2020<br>2021<br>Net Income<br>$ 6,614<br>$ 3,783<br>$ 18,219<br>$ 10,621<br>$ 6,257<br>$ 45,847<br>Adjustments<br>Expenses Associated with IPO, tax restructuring, secondary offerings and one<br>-<br>time incentive cash<br>bonuses<br>-<br>-<br>1,110<br>3,007<br>708<br>563<br>Stock<br>-<br>based compensation expense<br>-<br>-<br>-<br>24,103<br>2,167<br>5,584<br>Expenses associated with retirement of debt<br>-<br>-<br>495<br>1,297<br>-<br>1,251<br>Expense associated with catastrophe bonds<br>-<br>-<br>-<br>-<br>399<br>1,704<br>Tax impact<br>-<br>-<br>-<br>(1,149)<br>(664)<br>(1,506)<br>Adjusted Net Income<br>$ 6,614<br>$ 3,783<br>$ 19,824<br>$ 37,879<br>$ 8,867<br>$ 53,443 | |||||||||||||||||||||||||||||
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| Non<br>-<br>GAAP Metric Definitions Used In This Presentation<br>83<br>Adjusted Net Income<br>is a non<br>-<br>GAAP financial measure defined as net income excluding the impact of certain items that may not be indicative of underl<br>ying<br>business trends, operating results, or future outlook, net of tax impact. We calculate the tax impact only on adjustments whi<br>ch<br>would be included in<br>calculating our income tax expense using the estimated tax rate at which the company received a deduction for these adjustmen<br>ts.<br>See “Reconciliation of<br>Non<br>-<br>GAAP<br>Metrics used in this presentation<br>” for a reconciliation of<br>historic<br>net income calculated in accordance with GAAP to<br>historic adjusted<br>net<br>income.<br>Adjusted ROE<br>is a non<br>-<br>GAAP financial measure defined as adjusted net income expressed on an annualized basis as a<br>percentage of average begin<br>ning<br>and ending stockholders’ equity during the period.<br>As we are<br>providing this metric<br>on a prospective basis only in this presentation, we are unable to<br>provide a reconciliation to the unadjusted GAAP measure.<br>Within our periodic SEC filings, we provide a reconciliation of return<br>on equity calculated using<br>unadjusted GAAP numbers to adjusted return on equity.<br>Underwriting Income<br>is a non<br>-<br>GAAP financial measure defined as income before income taxes excluding net investment income, net realized and unrealiz<br>ed<br>gains and losses on investments and interest expense.<br>As we are<br>providing this metric on a prospective basis only in this presentation, we are unable<br>to<br>provide a reconciliation to the unadjusted GAAP measure.<br>Within our<br>periodic SEC filings, we provide<br>a reconciliation of<br>income before income taxes<br>calculated<br>in accordance with<br>GAAP to<br>underwriting income<br>.. | |||||||||||||||||||||||||||||
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