8-K
Palomar Holdings, Inc. (PLMR)
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): February 16, 2022
Palomar Holdings, Inc.
(Exact name of registrant as specified in its charter)
Commission File Number: 001-38873
| | | |
|---|---|---|
| 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 2.02 Results of Operations and Financial Condition
On February 16, 2022, Palomar Holdings, Inc. (the "Company") issued a press release announcing its financial results for the fiscal quarter and year ended December 31, 2021. A copy of the press release is attached hereto as Exhibit 99.1.
The information contained under this Item 2.02, including Exhibit 99.1 attached hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or under the Exchange Act, regardless of any general incorporation language in any such filing, unless the Company expressly sets forth in such filing that such information is to be considered “filed” or incorporated by reference therein
Item 9.01. Financial Statements and Exhibits
(d)Exhibits
| 9 | |
|---|---|
| Exhibit No. | Description |
| 99.1 | Press release, dated February 16, 2022 |
| 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.
| | | |
|---|---|---|
| | ||
| | | |
| | | PALOMAR HOLDINGS, INC. |
| | | |
| Date: | February 16, 2022 | /s/ T. Christopher Uchida |
| | | T. Christopher Uchida |
| | | Chief Financial Officer |
| | | (Principal Financial and Accounting Officer) |
Exhibit 99.1
Palomar Holdings, Inc. Reports Fourth Quarter & Full Year 2021 Results
LA JOLLA, Calif. (February 16, 2022) — Palomar Holdings, Inc. (NASDAQ:PLMR) (“Palomar” or “Company”) reported net income of $16.6 million, or $0.64 per diluted share, for the fourth quarter of 2021 compared to a net loss of $1.8 million, or $0.07 per diluted share, for the fourth quarter of 2020. Adjusted net income^(1)^ was $19.2 million, or $0.74 per diluted share, for the fourth quarter of 2021 as compared to an adjusted net loss of $1.3 million, or $0.05 per diluted share, for the fourth quarter of 2020.
Fourth Quarter 2021 Highlights
| ● | Gross written premiums increased by 56.0% to $149.9 million compared to $96.1 million in the fourth quarter of 2020 |
|---|---|
| ● | Net income of $16.6 million, compared to a net loss of $1.8 million in the fourth quarter of 2020 |
| --- | --- |
| ● | Adjusted net income^(1)^of $19.2 million, compared to an adjusted net loss of $1.3 million in the fourth quarter of 2020 |
| --- | --- |
| ● | Total loss ratio of 15.0% compared to 44.2% in the fourth quarter of 2020 |
| --- | --- |
| ● | Combined ratio of 75.0% compared to 112.8% in the fourth quarter of 2020 |
| --- | --- |
| ● | Adjusted combined ratio ^(1)^ of 70.7%, compared to 111.0% in the fourth quarter of 2020 |
| --- | --- |
| ● | Annualized return on equity of 17.2%, compared to negative 2.0% in the fourth quarter of 2020 |
| --- | --- |
| ● | Annualized adjusted return on equity^(1)^ of 19.9%, compared to negative 1.4% in the fourth quarter of 2020 |
| --- | --- |
Full Year 2021 Highlights
| ● | Gross written premiums increased by 51.0% to $535.2 million compared to $354.4 million in 2020 |
|---|---|
| ● | Net income of $45.8 million, compared to $6.3 million in 2020 |
| --- | --- |
| ● | Adjusted net income^(1)^ of $53.4 million, compared to $8.9 million in 2020 |
| --- | --- |
| ● | Total loss ratio of 17.7%, compared to 41.3% in 2020 |
| --- | --- |
| ● | Combined ratio of 80.0%, compared to 102.5% in 2020 |
| --- | --- |
| ● | Adjusted combined ratio^(1)^ of 76.1%, compared to 100.4% in 2020 |
| --- | --- |
| ● | Return on equity of 12.1%, compared to 2.1% in 2020 |
| --- | --- |
| ● | Adjusted return on equity^(1)^ of 14.1%, compared to 3.0% in 2020 |
| --- | --- |
*(1)*See discussion of “Non-GAAP and Key Performance Indicators” below.
Mac Armstrong, Chairman and Chief Executive Officer, commented, “At the onset of 2021, Palomar announced four key strategic initiatives that it intended to implement over the course of the year. First, we would grow our core book of business at a level similar to that of 2020; next, we would build our newly launched E&S company, Palomar Excess & Surplus Insurance Company (“PESIC”); additionally, we would launch several new initiatives that would position Palomar for sustained long-term, profitable growth; and lastly, we would reduce the volatility of our operating results through the exit of unprofitable business segments, underwriting enhancements and conservative risk transfer solutions. I am pleased to report that our results in 2021 reflect the significant progress made on each of these initiatives.”
“Our gross written premium grew 51.0% for the year and at an even more impressive 56.0% in the fourth quarter. PESIC wrote $152.1 million of premium in 2021, its first full year of operation and exited the year on an over $200 million annual run rate. We also made investments in our business that plant the seeds for future growth, including the expansion of our casualty underwriting team and the launch of PLMR-FRONT, that we expect to contribute meaningful net income in the years ahead. While expanding our business is important, we remained acutely focused on delivering predictable results over time. To accomplish this, during the year we successfully ran-off our Admitted All Risk business, took meaningful rate increases across the portfolio, made enhancements to our underwriting guidelines and purchased an aggregate reinsurance cover which not only protects our business from losses generated from multiple severe catastrophic events but also put a floor on our 2021 adjusted ROE.”
Mr. Armstrong continued, “Our strong fourth quarter results, most notably the 19.9% adjusted ROE and the aforementioned top line growth of 56%, demonstrate the momentum in our business and the confidence we have in our ability to profitably grow Palomar in 2022 and beyond.”
Underwriting Results
Gross written premiums increased 56.0% to $149.9 million compared to $96.1 million in the fourth quarter of 2020, while net earned premiums increased 74.3% compared to the prior year’s fourth quarter.
Losses and loss adjustment expenses for the fourth quarter were $10.2 million including $11.9 million of non-catastrophe attritional losses, offset by $1.7 million of favorable development on catastrophe losses from prior periods. The loss ratio for the quarter was 1
15.0%, comprised of a catastrophe loss ratio of negative 2.5%^(1)^ and an attritional loss ratio of 17.5%, compared to a loss ratio of 44.2% during the same period last year comprised of a catastrophe loss ratio of 37.2% and attritional loss ratio of 7.0%. Underwriting income^(1)^ was $17.0 million resulting in a combined ratio of 75.0% compared to underwriting loss of $5.0 million and a combined ratio of 112.8% during the same period last year. Excluding expenses related to transactions, stock-based compensation, amortization of intangibles, and catastrophe bonds, the Company’s adjusted combined ratio^(1)^ was 70.7% in the fourth quarter compared to 111.0% during the same period last year. Non-catastrophe losses and loss ratio increased mainly due to the growth of lines of business subject to attritional losses, such as Specialty Homeowners, Flood, and Inland Marine.
Investment Results
Net investment income increased by 4.6% to $2.4 million compared to $2.3 million in the prior year’s fourth quarter. The year over year increase was primarily due to a higher average balance of investments held during the three months ended December 31, 2021 due to cash generated from operations, offset by lower yields on invested assets. Funds are generally invested conservatively in high quality securities, including government agency, asset and mortgage-backed securities, municipal and corporate bonds with an average credit quality of "A1/A". The weighted average duration of the fixed-maturity investment portfolio, including cash equivalents, was 3.99 years at December 31, 2021. Cash and invested assets totaled $516.3 million at December 31, 2021. During the fourth quarter, the Company recorded realized and unrealized gains of $2.0 million related to its investment portfolio as compared to realized and unrealized gains of $245 thousand in last year’s fourth quarter.
Tax Rate
The effective tax rate for the three months ended December 31, 2021 was 22.3% compared to 23.1% for the three months ended December 31, 2020. For the current quarter, the Company’s income tax rate differed from the statutory rate due primarily to non-deductible executive compensation expense. The 2020 fourth quarter tax rate differed from the statutory rate due to the tax impact of the permanent component of employee stock option exercises.
Stockholders’ Equity and Returns
Stockholders' equity was $394.2 million at December 31, 2021, compared to $363.7 million at December 31, 2020. For the three months ended December 31, 2021, the Company’s annualized return on equity was 17.2% compared to negative 2.0% for the same period in the prior year while adjusted return on equity^(1)^ was 19.9% compared to negative 1.4% for the same period in the prior year.
Full Year 2022 Outlook
For the full year 2022, the Company expects to achieve adjusted net income of $80 million to $85 million.
Conference Call
As previously announced, Palomar will host a conference call Thursday February 17, 2022, to discuss its fourth quarter and full year 2021 results at 12:00 p.m. (Eastern Time). The conference call can be accessed by dialing 1-877-423-9813 (domestic) or 1-201-689-8573 (international) and asking for the Palomar Fourth Quarter and Full Year 2021 Earnings Call. A telephonic replay will be available approximately two hours after the call and can be accessed by dialing 1-844-512-2921, or for international callers 1-412-317-6671 and providing the access code 13726650. The telephonic replay will be available until 11:59 pm (Eastern Time) on February 24, 2022.
Interested investors and other parties may also listen to a simultaneous webcast of the conference call by logging onto the investor relations section of the Company’s website at http://ir.palomarspecialty.com/. The online replay will remain available for a limited time beginning immediately following the call.
About Palomar Holdings, Inc.
Palomar Holdings, Inc. is the holding company of subsidiaries Palomar Specialty Insurance Company (“PSIC”), Palomar Specialty Reinsurance Company Bermuda Ltd., Palomar Insurance Agency, Inc. and Palomar Excess and Surplus Insurance Company (“PESIC”). Palomar is an innovative insurer that focuses on the provision of specialty insurance for residential and commercial clients. Palomar’s underwriting and analytical expertise allow it to concentrate on certain markets that it believes are underserved by other insurance companies, such as the markets for earthquake, hurricane and flood insurance. Palomar’s insurance subsidiaries, Palomar Specialty Insurance Company, Palomar Specialty Reinsurance Company Bermuda Ltd., and Palomar Excess and Surplus Insurance Company, have a financial strength rating of “A-” (Excellent) from A.M. Best.
To learn more, visit PLMR.com.
Follow Palomar on Facebook, LinkedIn and Twitter: @PLMRInsurance
Non-GAAP and Key Performance Indicators
Palomar discusses certain key performance indicators, described below, which provide useful information about the Company’s business and the operational factors underlying the Company’s financial performance.
2
Underwriting revenue is a non-GAAP financial measure defined as total revenue, excluding net investment income and net realized and unrealized gains and losses on investments. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of total revenue calculated in accordance with GAAP to underwriting revenue.
Underwriting income is a non-GAAP financial measure defined as income before income taxes excluding net investment income and net realized and unrealized gains and losses on investments. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of income before income taxes calculated in accordance with GAAP to underwriting income.
Adjusted net incomeis a non-GAAP financial measure defined as net income excluding the impact of certain items that may not be indicative of underlying business trends, operating results, or future outlook, net of tax impact. Palomar calculates the tax impact only on adjustments which would be included in calculating the Company’s income tax expense using the estimated tax rate at which the company received a deduction for these adjustments. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of net income calculated in accordance with GAAP to adjusted net income.
Return on equity is net income expressed on an annualized basis as a percentage of average beginning and ending stockholders’ equity during the period.
Adjusted return on equity is a non-GAAP financial measure defined as adjusted net income expressed on an annualized basis as a percentage of average beginning and ending stockholders’ equity during the period. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of return on equity calculated using unadjusted GAAP numbers to adjusted return on equity.
Loss ratio, expressed as a percentage, is the ratio of losses and loss adjustment expenses, to net earned premiums.
Expense ratio, expressed as a percentage, is the ratio of acquisition and other underwriting expenses, net of commission and other income to net earned premiums.
Combined ratio is defined as the sum of the loss ratio and the expense ratio. A combined ratio under 100% generally indicates an underwriting profit. A combined ratio over 100% generally indicates an underwriting loss.
Adjusted combined ratio is a non-GAAP financial measure defined as the sum of the loss ratio and the expense ratio calculated excluding the impact of certain items that may not be indicative of underlying business trends, operating results, or future outlook. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of combined ratio calculated using unadjusted GAAP numbers to adjusted combined ratio.
Diluted adjusted earnings per shareis a non-GAAP financial measure defined as adjusted net income divided by the weighted-average common shares outstanding for the period, reflecting the dilution which could occur if equity-based awards are converted into common share equivalents as calculated using the treasury stock method. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of diluted earnings per share calculated in accordance with GAAP to diluted adjusted earnings per share.
Catastrophe loss ratio is a non-GAAP financial measure defined as the ratio of catastrophe losses to net earned premiums. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of loss ratio calculated using unadjusted GAAP numbers to catastrophe loss ratio.
Adjusted combined ratio excluding catastrophe losses is a non-GAAP financial measure defined as adjusted combined ratio excluding the impact of catastrophe losses. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of combined ratio calculated using unadjusted GAAP numbers to adjusted combined ratio excluding catastrophe losses.
Tangible stockholders’ equity is a non-GAAP financial measure defined as stockholders’ equity less intangible assets. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of stockholders’ equity calculated in accordance with GAAP to tangible stockholders’ equity.
Safe Harbor Statement
Palomar cautions you that statements contained in this press release may regard matters that are not historical facts but are forward-looking statements. These statements are based on the company’s current beliefs and expectations. The inclusion of forward-looking statements should not be regarded as a representation by Palomar that any of its plans will be achieved. Actual results may differ from those set forth in this press release due to the risks and uncertainties inherent in the Company’s business. The forward-looking statements are typically, but not always, identified through use of the words "believe," "expect," "enable," "may," "will," "could," "intends," "estimate," "anticipate," "plan," "predict," "probable," "potential," "possible," "should," "continue," and other words of similar meaning. Actual results could differ materially from the expectations contained in forward-looking statements as a result of several factors, including unexpected expenditures and costs, unexpected results or delays in development and regulatory review, regulatory approval requirements, the frequency and severity of adverse events and competitive conditions. These and other factors that may result in 3
differences are discussed in greater detail in the Company's filings with the Securities and Exchange Commission. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof, and the Company undertakes no obligation to update such statements to reflect events that occur or circumstances that exist after the date hereof. All forward-looking statements are qualified in their entirety by this cautionary statement, which is made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Contact
Media Inquiries
Bill Bold
1-619-890-5972
bbold@plmr.com
Investor Relations
Jamie Lillis
1-203-428-3223
investors@plmr.com
Source: Palomar Holdings, Inc.
Summary of Operating Results
The following table summarizes the Company’s results for the three months ended December 31, 2021 and 2020:
| | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Three months ended | | | | | | ||||
| | | December 31, | | | | | Percent | ||||
| | 2021 | 2020 | Change | Change | |||||||
| | | ( in thousands, except per share data) | |||||||||
| Gross written premiums | | | $ | 96,092 | $ | 53,816 | 56.0 | % | |||
| Ceded written premiums | | | | (53,839) | | (16,598) | 30.8 | % | |||
| Net written premiums | | | 42,253 | | 37,218 | 88.1 | % | ||||
| Net earned premiums | | | 38,922 | | 28,918 | 74.3 | % | ||||
| Commission and other income | | | | 803 | | 69 | 8.6 | % | |||
| Total underwriting revenue (1) | | | 39,725 | | 28,987 | 73.0 | % | ||||
| Losses and loss adjustment expenses | | | | 17,214 | | (7,045) | (40.9) | % | |||
| Acquisition expenses | | | | 18,131 | | 9,153 | 50.5 | % | |||
| Other underwriting expenses | | | | 9,356 | | 4,929 | 52.7 | % | |||
| Underwriting income (loss) (1) | | | (4,976) | | 21,950 | (441.1) | % | ||||
| Interest expense | | | | — | | (40) | NM | | |||
| Net investment income | | | | 2,325 | | 106 | 4.6 | % | |||
| Net realized and unrealized gains on investments | | | | 245 | | 1,784 | NM | | |||
| Income (loss) before income taxes | | | (2,406) | | 23,800 | NM | | ||||
| Income tax expense (benefit) | | | | (557) | | 5,319 | NM | | |||
| Net income (loss) | | | $ | (1,849) | $ | 18,481 | NM | | |||
| Adjustments: | | | | | | ||||||
| Expenses associated with transactions and stock offerings | | | — | | 153 | NM | | ||||
| Stock-based compensation expense | | | | | 710 | | 1,504 | | 211.8 | % | |
| Amortization of intangibles | | | | | — | | | 547 | | NM | |
| Expenses associated with catastrophe bond | | | | | — | | 5 | | NM | | |
| Tax impact | | | | | (130) | | | (220) | | 169.2 | % |
| Adjusted net income (loss) (1) | | | $ | (1,269) | $ | 20,470 | NM | | |||
| Key Financial and Operating Metrics | | | | | |||||||
| Annualized return on equity | | % | (2.0) | % | | | |||||
| Annualized adjusted return on equity (1) | | % | (1.4) | % | | | |||||
| Loss ratio | | % | 44.2 | % | | | |||||
| Expense ratio | | % | 68.6 | % | | | |||||
| Combined ratio | | % | 112.8 | % | | | |||||
| Adjusted combined ratio (1) | | | % | | 111.0 | % | | | | | |
| Diluted earnings (loss) per share | | | $ | (0.07) | | | | | | | |
| Diluted adjusted earnings (loss) per share (1) | | | $ | (0.05) | | | | | | | |
| Catastrophe losses | | | $ | 14,474 | | | | | | | |
| Catastrophe loss ratio (1) | | | % | | 37.2 | % | | | | | |
| Adjusted combined ratio excluding catastrophe losses (1) | | | % | | 73.8 | % | | | | | |
All values are in US Dollars. 4
| NM-Not Meaningful | | | | | | | | | | | | |
|---|
(1)- Indicates Non-GAAP financial measure- see above for definition of Non-GAAP financial measures and see below for reconciliation of Non-GAAP financial measures to their most directly comparable measures prepared in accordance with GAAP.
The following table summarizes the Company’s results for the year ended December 31, 2021 and 2020:
| | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Year ended | | | | | | ||||
| | | December 31, | | | | | Percent | ||||
| | 2021 | 2020 | Change | Change | |||||||
| | | ( in thousands, except per share data) | |||||||||
| Gross written premiums | | | $ | 354,360 | $ | 180,815 | 51.0 | % | |||
| Ceded written premiums | | | (155,102) | | (68,341) | 44.1 | % | ||||
| Net written premiums | | | 199,258 | | 112,474 | 56.4 | % | ||||
| Net earned premiums | | | 155,068 | | 78,758 | 50.8 | % | ||||
| Commission and other income | | | 3,295 | | 313 | 9.5 | % | ||||
| Total underwriting revenue (1) | | | 158,363 | | 79,071 | 49.9 | % | ||||
| Losses and loss adjustment expenses | | | | 64,115 | | (22,658) | (35.3) | % | |||
| Acquisition expenses | | | | 64,041 | | 31,392 | 49.0 | % | |||
| Other underwriting expenses | | | | 34,084 | | 19,639 | 57.6 | % | |||
| Underwriting income (loss) (1) | | | (3,877) | | 50,698 | NM | | ||||
| Interest expense | | | | — | | (40) | NM | | |||
| Net investment income | | | | 8,612 | | 468 | 5.4 | % | |||
| Net realized and unrealized gains on investments | | | | 1,488 | | (211) | (14.2) | % | |||
| Income before income taxes | | | 6,223 | | 50,915 | NM | | ||||
| Income tax expense (benefit) | | | | (34) | | 11,325 | NM | | |||
| Net income | | | $ | 6,257 | $ | 39,590 | NM | | |||
| Adjustments: | | | | | | ||||||
| Expenses associated with transactions and stock offerings | | | | 708 | | (145) | (20.5) | % | |||
| Stock-based compensation expense | | | | 2,167 | | 3,417 | 157.7 | % | |||
| Amortization of intangibles | | | | | — | | | 1,251 | | NM | |
| Expenses associated with catastrophe bond | | | | | 399 | | | 1,305 | | 327.1 | % |
| Tax impact | | | | | (664) | | | (842) | | 126.8 | % |
| Adjusted net income (1) | | | $ | 8,867 | $ | 44,576 | 502.7 | % | |||
| Key Financial and Operating Metrics | | | | | |||||||
| Return on equity | | % | 2.1 | % | | | |||||
| Adjusted return on equity (1) | | % | 3.0 | % | | | |||||
| Loss ratio | | % | 41.3 | % | | | |||||
| Expense ratio | | % | 61.2 | % | | | |||||
| Combined ratio | | % | 102.5 | % | | | |||||
| Adjusted combined ratio (1) | | | % | | 100.4 | % | | | | | |
| Diluted earnings per share | | | $ | 0.24 | | | | | | | |
| Diluted adjusted earnings per share (1) | | | $ | 0.35 | | | | | | | |
| Catastrophe losses | | | $ | 50,986 | | | | | | | |
| Catastrophe loss ratio (1) | | | % | | 32.9 | % | | | | | |
| Adjusted combined ratio excluding catastrophe losses (1) | | | % | | 67.5 | % | | | | | |
| NM-Not Meaningful | | | | | | | | | | | |
All values are in US Dollars.
(1)- Indicates Non-GAAP financial measure- see above for definition of Non-GAAP financial measures and see below for reconciliation of Non-GAAP financial measures to their most directly comparable measures prepared in accordance with GAAP.
5
Condensed Consolidated Balance sheets
Palomar Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (unaudited)
(in thousands, except shares and par value data)
| | | | | | | |
|---|---|---|---|---|---|---|
| | **** | December 31, | **** | December 31, | ||
| | | 2021 | | 2020 | ||
| Assets | | | ||||
| Investments: | | | ||||
| Fixed maturity securities available for sale, at fair value (amortized cost: $426,122 in 2021; $381,279 in 2020) | | $ | 432,682 | | $ | 397,987 |
| Equity securities, at fair value (cost: $31,834 in 2021; $22,291 in 2020) | | 33,261 | | 24,322 | ||
| Total investments | | 465,943 | | 422,309 | ||
| Cash and cash equivalents | | 50,284 | | 33,538 | ||
| Restricted cash | | 87 | | 248 | ||
| Accrued investment income | | 2,725 | | 2,545 | ||
| Premium receivable | | 88,012 | | 48,842 | ||
| Deferred policy acquisition costs | | 55,953 | | 35,481 | ||
| Reinsurance recoverable on paid losses and loss adjustment expenses | | 29,368 | | 10,162 | ||
| Reinsurance recoverable on unpaid losses and loss adjustment expenses | | 127,947 | | 94,566 | ||
| Ceded unearned premiums | | 58,315 | | 35,031 | ||
| Prepaid expenses and other assets | | 37,072 | | 34,119 | ||
| Property and equipment, net | | 527 | | 739 | ||
| Intangible assets, net | | 9,501 | | 11,512 | ||
| Total assets | | $ | 925,734 | | $ | 729,092 |
| Liabilities and stockholders' equity | | | ||||
| Liabilities: | | | ||||
| Accounts payable and other accrued liabilities | | $ | 21,284 | | $ | 20,730 |
| Reserve for losses and loss adjustment expenses | | 173,366 | | 129,036 | ||
| Unearned premiums | | 284,665 | | 183,489 | ||
| Ceded premium payable | | 37,460 | | 22,233 | ||
| Funds held under reinsurance treaty | | 10,882 | | 4,515 | ||
| Deferred tax liabilities, net | | | 3,908 | | | 5,376 |
| Total liabilities | | 531,565 | | 365,379 | ||
| Stockholders' equity: | | | ||||
| Preferred stock, $0.0001 par value, 5,000,000 shares authorized as of December 31, 2021 and December 31, 2020, 0 shares issued and outstanding as of December 31, 2021 and December 31, 2020 | | | — | | | — |
| Common stock, $0.0001 par value, 500,000,000 shares authorized, 25,428,929 and 25,525,796 shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectively | | 3 | | 3 | ||
| Additional paid-in capital | | 318,902 | | 310,507 | ||
| Accumulated other comprehensive income | | 5,312 | | 13,246 | ||
| Retained earnings | | 69,952 | | 39,957 | ||
| Total stockholders' equity | | 394,169 | | 363,713 | ||
| Total liabilities and stockholders' equity | | $ | 925,734 | | $ | 729,092 |
6
Condensed Consolidated Income Statement
Palomar Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited)
(in thousands, except shares and per share data)
| | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Three Months Ended | | Year Ended | ||||||||
| | | December 31, | | December 31, | ||||||||
| | 2021 | 2020 | 2021 | 2020 | ||||||||
| Revenues: | | | | | ||||||||
| Gross written premiums | | $ | 149,908 | | $ | 96,092 | | $ | 535,175 | | $ | 354,360 |
| Ceded written premiums | | (70,437) | | (53,839) | | (223,443) | | (155,102) | ||||
| Net written premiums | | 79,471 | | 42,253 | | 311,732 | | 199,258 | ||||
| Change in unearned premiums | | (11,631) | | | (3,331) | | (77,906) | | | (44,190) | ||
| Net earned premiums | | 67,840 | | 38,922 | | 233,826 | | 155,068 | ||||
| Net investment income | | 2,431 | | | 2,325 | | 9,080 | | | 8,612 | ||
| Net realized and unrealized gains on investments | | 2,029 | | | 245 | | 1,277 | | | 1,488 | ||
| Commission and other income | | 872 | | | 803 | | 3,608 | | | 3,295 | ||
| Total revenues | | 73,172 | | 42,295 | | 247,791 | | 168,463 | ||||
| Expenses: | | | | | ||||||||
| Losses and loss adjustment expenses | | 10,169 | | | 17,214 | | | 41,457 | | | 64,115 | |
| Acquisition expenses | | 27,284 | | | 18,131 | | | 95,433 | | | 64,041 | |
| Other underwriting expenses | | 14,285 | | | 9,356 | | | 53,723 | | | 34,084 | |
| Interest expense | | 40 | | | — | | | 40 | | | — | |
| Total expenses | | 51,778 | | 44,701 | | 190,653 | | 162,240 | ||||
| Income (loss) before income taxes | | 21,394 | | (2,406) | | 57,138 | | 6,223 | ||||
| Income tax expense (benefit) | | 4,762 | | | (557) | | | 11,291 | | | (34) | |
| Net income (loss) | | 16,632 | | (1,849) | | 45,847 | | 6,257 | ||||
| Other comprehensive income, net: | | | | | ||||||||
| Net unrealized (losses) gains on securities available for sale for the three months and years ended December 31, 2021 and 2020, respectively | | (2,790) | | | 2,808 | | | (7,934) | | | 8,560 | |
| Net comprehensive income | | $ | 13,842 | | $ | 959 | | $ | 37,913 | | $ | 14,817 |
| Per Share Data: | | | | | ||||||||
| Basic earnings (loss) per share | | $ | 0.65 | | $ | (0.07) | | $ | 1.80 | | $ | 0.25 |
| Diluted earnings (loss) per share | | $ | 0.64 | | $ | (0.07) | | $ | 1.76 | | $ | 0.24 |
| | | | | | | | | | | | | |
| Weighted-average common shares outstanding: | | | | | | | | | | | | |
| Basic | | 25,419,477 | | 25,520,111 | | 25,459,514 | | 24,872,251 | ||||
| Diluted | | | 26,045,213 | | | 25,520,111 | | | 26,111,904 | | | 25,598,647 |
7
Underwriting Segment Data
The Company has a single reportable segment and offers primarily earthquake, wind, inland marine, and flood insurance products. Gross written premiums (GWP) by product and location are presented below:
| | | | | | | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Three Months Ended December 31, | | Year Ended December 31, | ||||||||||||||||
| | | 2021 | | 2020 | | 2021 | | 2020 | ||||||||||||
| | | ( in thousands) | | ( in thousands) | ||||||||||||||||
| | | | | % of | | | | | % of | | | | % of | | | | | % of | ||
| | | Amount | | GWP | | Amount | | GWP | | Amount | | GWP | | Amount | | GWP | ||||
| Product | | | | | | | ||||||||||||||
| Residential Earthquake | | | 28.6 | % | $ | 37,432 | | 39.0 | % | | | 32.0 | % | $ | 140,934 | | 39.8 | % | ||
| Commercial Earthquake | | | 16.3 | % | 18,163 | | 18.9 | % | | | 16.9 | % | 58,890 | | 16.6 | % | ||||
| Inland Marine | | | 12.1 | % | 5,676 | | 5.9 | % | | | 10.7 | % | 15,423 | | 4.3 | % | ||||
| Specialty Homeowners | | | 9.9 | % | 11,388 | | 11.9 | % | | | 12.7 | % | 49,849 | | 14.1 | % | ||||
| Commercial All Risk | | | | 5.7 | % | | 14,185 | | 14.8 | % | | | | 7.2 | % | | 53,933 | | 15.2 | % |
| Hawaii Hurricane | | | 4.9 | % | 3,528 | | 3.7 | % | | | 5.6 | % | 13,824 | | 3.9 | % | ||||
| Residential Flood | | | 2.2 | % | 2,448 | | 2.5 | % | | | 2.2 | % | 8,176 | | 2.3 | % | ||||
| Other | | | 20.3 | % | | 3,272 | | 3.3 | % | | | | 12.7 | % | | 13,331 | | 3.8 | % | |
| Total Gross Written Premiums | | 100.0 | % | $ | 96,092 | 100.0 | % | | 100.0 | % | $ | 354,360 | 100.0 | % |
All values are in US Dollars.
| | | | | | | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Three Months Ended December 31, | | Year Ended December 31, | ||||||||||||||||
| | | 2021 | | 2020 | | 2021 | | 2020 | ||||||||||||
| | | ( in thousands) | | ( in thousands) | ||||||||||||||||
| | | | | % of | | | | | % of | | | | % of | | | | | % of | ||
| | | Amount | | GWP | | Amount | | GWP | | Amount | | GWP | | Amount | | GWP | ||||
| State | | | | | | | ||||||||||||||
| California | | | 42.7 | % | $ | 48,857 | | 50.8 | % | | | 45.7 | % | $ | 172,765 | | 48.8 | % | ||
| Texas | | | 9.8 | % | 12,927 | | 13.5 | % | | | 11.7 | % | 67,974 | | 19.2 | % | ||||
| Hawaii | | | 5.8 | % | 4,408 | | 4.6 | % | | | 6.5 | % | 16,398 | | 4.6 | % | ||||
| Florida | | | | 5.6 | % | | 5,110 | | 5.3 | % | | | | 5.1 | % | | 5,795 | | 1.7 | % |
| Washington | | | | 5.1 | % | | 4,326 | | 4.5 | % | | | | 4.4 | % | | 14,328 | | 4.0 | % |
| Oregon | | | 2.7 | % | 2,740 | | 2.9 | % | | | 2.6 | % | 10,038 | | 2.8 | % | ||||
| Illinois | | | 2.3 | % | 1,717 | | 1.8 | % | | | 2.3 | % | 6,133 | | 1.7 | % | ||||
| North Carolina | | | 2.2 | % | 4,011 | | 4.2 | % | | | 2.9 | % | 11,143 | | 3.1 | % | ||||
| Other | | | 23.8 | % | | 11,996 | | 12.4 | % | | | | 18.8 | % | | 49,786 | | 14.1 | % | |
| Total Gross Written Premiums | | 100.0 | % | $ | 96,092 | 100.0 | % | | 100.0 | % | $ | 354,360 | 100.0 | % |
All values are in US Dollars.
During the three months ended December 31, 2021, PSIC accounted for $97.1 million or approximately 64.7% of our gross written premiums and PESIC accounted for $52.8 million or approximately 35.3% of our gross written premiums.
During the year ended December 31, 2021, PSIC accounted for $383.1 million or approximately 71.6% of our gross written premiums and PESIC accounted for $152.1 million or approximately 28.4% of our gross written premiums.
Gross and net earned premiums
The table below shows the amount of premiums the Company earned on a gross and net basis and the Company’s net earned premiums as a percentage of gross earned premiums for each period presented:
| | | | | | | | | | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Three Months Ended | | | | | | | | Year Ended | | | | | | | |||||||
| | | December 31, | | | | | | | | December 31, | | | | | | | |||||||
| | 2021 | 2020 | Change | % Change | | | 2021 | 2020 | Change | % Change | |||||||||||||
| | ( in thousands) | | | ( in thousands) | |||||||||||||||||||
| Gross earned premiums | | | $ | 86,191 | | $ | 36,719 | 42.6 | % | | | | $ | 301,457 | | $ | 132,542 | 44.0 | % | ||||
| Ceded earned premiums | | | (47,269) | | (7,801) | 16.5 | % | | | | (146,389) | | (53,784) | 36.7 | % | ||||||||
| Net earned premiums | | | $ | 38,922 | | $ | 28,918 | 74.3 | % | | | | $ | 155,068 | | $ | 78,758 | 50.8 | % | ||||
| | | | | | | | | | | | | | | | | | | | | | | | |
| Net earned premium ratio | | | | | 45.2% | | | | | | | | | | | | 51.4% | | | | | | |
All values are in US Dollars.
8
Loss detail
| | | | | | | | | | | | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Three Months Ended | | | | | | | | Year Ended | | | | | | | |||||||
| | | December 31, | | | | | | | | December 31, | | | | | | | |||||||
| | 2021 | 2020 | Change | % Change | | | 2021 | 2020 | Change | % Change | |||||||||||||
| | ( in thousands) | | | ( in thousands) | |||||||||||||||||||
| Catastrophe losses | | | $ | 14,474 | | $ | (16,178) | NM | | | | | $ | 50,986 | | $ | (45,971) | NM | | ||||
| Non-catastrophe losses | | | 2,740 | | 9,133 | 333.3 | % | | | | 13,129 | | 23,313 | 177.6 | % | ||||||||
| Total losses and loss adjustment expenses | | | $ | 17,214 | | $ | (7,045) | (40.9) | % | | | | $ | 64,115 | | $ | (22,658) | (35.3) | % | ||||
| NM- not meaningful | | | | | | | | | | | | | | | | | | | | | | | |
All values are in US Dollars.
| | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Three Months Ended December 31, | Year ended December 31, | |||||||||
| | 2021 | 2020 | 2021 | 2020 | ||||||||
| | | | (in thousands) | | (in thousands) | |||||||
| Reserve for losses and loss adjustment expenses net of reinsurance recoverables at beginning of period | | $ | 46,643 | | $ | 39,540 | | $ | 34,470 | | $ | 3,869 |
| Add: Incurred losses and loss adjustment expenses, net of reinsurance, related to: | | | | | | | | | — | | | — |
| Current year | | 10,840 | | 17,312 | | 45,042 | | | 64,179 | |||
| Prior years | | (671) | | (98) | | (3,585) | | | (64) | |||
| Total incurred | | 10,169 | | 17,214 | | 41,457 | | 64,115 | ||||
| Deduct: Loss and loss adjustment expense payments, net of reinsurance, related to: | | | | | ||||||||
| Current year | | 8,656 | | | 22,125 | | | 12,063 | | | 31,879 | |
| Prior years | | 2,737 | | | 159 | | | 18,445 | | | 1,635 | |
| Total payments | | 11,393 | | 22,284 | | 30,508 | | 33,514 | ||||
| Reserve for losses and loss adjustment expense net of reinsurance recoverables at end of period | | 45,419 | | 34,470 | | 45,419 | | 34,470 | ||||
| Add: Reinsurance recoverables on unpaid losses and loss adjustment expenses at end of period | | 127,947 | | | 94,566 | | | 127,947 | | | 94,566 | |
| Reserve for losses and loss adjustment expenses gross of reinsurance recoverables on unpaid losses and loss adjustment expenses at end of period | | $ | 173,366 | | $ | 129,036 | | $ | 173,366 | | $ | 129,036 |
Reconciliation of Non-GAAP Financial Measures
For the three months and year ended December 31, 2021 and 2020, the Non-GAAP financial measures discussed above reconcile to their most comparable GAAP measures as follows:
Underwriting revenue
| | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Three Months Ended | | Year Ended | |||||||||
| | | December 31, | | December 31, | |||||||||
| | 2021 | 2020 | 2021 | 2020 | |||||||||
| | (in thousands) | | (in thousands) | ||||||||||
| Total revenue | | $ | 73,172 | | $ | 42,295 | | | $ | 247,791 | | $ | 168,463 |
| Net investment income | | (2,431) | | | (2,325) | | | (9,080) | | (8,612) | |||
| Net realized and unrealized gains on investments | | (2,029) | | | (245) | | | (1,277) | | (1,488) | |||
| Underwriting revenue | | $ | 68,712 | | $ | 39,725 | | | $ | 237,434 | | $ | 158,363 |
9
Underwriting income (loss)
| | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Three Months Ended | | Year Ended | |||||||||
| | | December 31, | | December 31, | |||||||||
| | 2021 | 2020 | 2021 | 2020 | |||||||||
| | (in thousands) | | (in thousands) | ||||||||||
| Income (loss) before income taxes | | $ | 21,394 | | $ | (2,406) | | | $ | 57,138 | | $ | 6,223 |
| Net investment income | | (2,431) | | | (2,325) | | | | (9,080) | | | (8,612) | |
| Net realized and unrealized gains on investments | | (2,029) | | | (245) | | | | (1,277) | | | (1,488) | |
| Interest expense | | 40 | | | — | | | | 40 | | | — | |
| Underwriting income (loss) | | $ | 16,974 | | $ | (4,976) | | | $ | 46,821 | | $ | (3,877) |
Adjusted net income (loss)
| | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Three Months Ended | | Year Ended | |||||||||
| | | December 31, | | December 31, | |||||||||
| | 2021 | 2020 | 2021 | 2020 | |||||||||
| | | (in thousands) | | (in thousands) | |||||||||
| Net income (loss) | | $ | 16,632 | $ | (1,849) | | | $ | 45,847 | $ | 6,257 | ||
| Adjustments: | | | | | | ||||||||
| Expenses associated with transactions and stock offerings | | 153 | | | — | | | 563 | | | 708 | ||
| Stock-based compensation expense | | 2,214 | | | 710 | | | 5,584 | | | 2,167 | ||
| Amortization of intangibles | | | 547 | | | — | | | | 1,251 | | | — |
| Expenses associated with catastrophe bond | | | 5 | | | — | | | | 1,704 | | | 399 |
| Tax impact | | | (350) | | | (130) | | | | (1,506) | | | (664) |
| Adjusted net income (loss) | | $ | 19,201 | | $ | (1,269) | | | $ | 53,443 | | $ | 8,867 |
Annualized adjusted return on equity
| | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Three Months Ended | | Year Ended | ||||||||
| | | December 31, | | December 31, | ||||||||
| | 2021 | 2020 | 2021 | 2020 | ||||||||
| | ( in thousands) | | ( in thousands) | | ||||||||
| | | | | | | | ||||||
| Annualized adjusted net income (loss) | $ | (5,076) | $ | 8,867 | ||||||||
| Average stockholders' equity | | | $ | 362,804 | | | | $ | 291,135 | | ||
| Annualized adjusted return on equity | | % | (1.4) | % | | % | 3.0 | % |
All values are in US Dollars.
Adjusted combined ratio
| | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Three Months Ended | | | Year Ended | | ||||||
| | | December 31, | | | December 31, | | ||||||
| | | 2021 | 2020 | | | 2021 | 2020 | | ||||
| | | ( in thousands) | | | ( in thousands) | | ||||||
| Numerator: Sum of losses, loss adjustment expenses, underwriting, acquisition and other underwriting expenses, net of commission and other income | | | $ | 43,898 | | | | $ | 158,945 | | ||
| Denominator: Net earned premiums | | | $ | 38,922 | | | | $ | 155,068 | | ||
| Combined ratio | | % | 112.8 | % | | % | 102.5 | % | ||||
| Adjustments to numerator: | | | | | | | | | | | | |
| Expenses associated with transactions and stock offerings | | | $ | — | | | | $ | (708) | | ||
| Stock-based compensation expense | | | | | (710) | | | | | | (2,167) | |
| Amortization of intangibles | | | | | — | | | | | | — | |
| Expenses associated with catastrophe bond | | | | | — | | | | | | (399) | |
| Adjusted combined ratio | | | % | | 111.0 | % | | | % | | 100.4 | % |
All values are in US Dollars.
10
Diluted adjusted earnings per share
| | | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Three Months Ended | | Year Ended | |||||||||
| | | December 31, | | December 31, | |||||||||
| | 2021 | 2020 | 2021 | 2020 | |||||||||
| | ( in thousands, except shares and per share data) | | ( in thousands, except shares and per share data) | ||||||||||
| | | | | | | ||||||||
| Adjusted net income (loss) | $ | 19,201 | $ | (1,269) | $ | 53,443 | $ | 8,867 | |||||
| Weighted-average common shares outstanding, diluted | | | 26,045,213 | | | 25,520,111 | | | | 26,111,904 | | | 25,598,647 |
| Diluted adjusted earnings per share | | $ | 0.74 | | $ | (0.05) | | | $ | 2.05 | | $ | 0.35 |
Catastrophe loss ratio
| | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Three Months Ended | | | Year Ended | | ||||||
| | | December 31, | | | December 31, | | ||||||
| | | 2021 | 2020 | | | 2021 | 2020 | | ||||
| | | ( in thousands) | | | ( in thousands) | | ||||||
| Numerator: Losses and loss adjustment expenses | | | $ | 17,214 | | | | $ | 64,115 | | ||
| Denominator: Net earned premiums | | | $ | 38,922 | | | | $ | 155,068 | | ||
| Loss ratio | | % | 44.2 | % | | % | 41.3 | % | ||||
| | | | | | | | | | | | | |
| Numerator: Catastrophe losses | | | $ | 14,474 | | | | $ | 50,986 | | ||
| Denominator: Net earned premiums | | | $ | 38,922 | | | | $ | 155,068 | | ||
| Catastrophe loss ratio | | | % | | 37.2 | % | | | % | | 32.9 | % |
All values are in US Dollars.
Adjusted combined ratio excluding catastrophe losses
| | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Three Months Ended | | | Year ended | | ||||||
| | | December 31, | | | December 31, | | ||||||
| | | 2021 | 2020 | | | 2021 | 2020 | | ||||
| | | ( in thousands) | | | ( in thousands) | | ||||||
| Numerator: Sum of losses and loss adjustment expenses, acquisition expenses, and other underwriting expenses, net of commission and other income | | | $ | 43,898 | | | | $ | 158,945 | | ||
| Denominator: Net earned premiums | | | $ | 38,922 | | | | $ | 155,068 | | ||
| Combined ratio | | % | 112.8 | % | | % | 102.5 | % | ||||
| Adjustments to numerator: | | | | | | | | | | | | |
| Expenses associated with transactions and stock offerings | | | $ | — | | | | $ | (708) | | ||
| Stock-based compensation expense | | | | | (710) | | | | | | (2,167) | |
| Amortization of intangibles | | | | | — | | | | | | — | |
| Expenses associated with catastrophe bond | | | | | — | | | | | | (399) | |
| Catastrophe losses | | | | | (14,474) | | | | | | (50,986) | |
| Adjusted combined ratio excluding catastrophe losses | | | % | | 73.8 | % | | | % | | 67.5 | % |
All values are in US Dollars.
Tangible Stockholders’ equity
| | | | | | | |
|---|---|---|---|---|---|---|
| | | December 31, | ||||
| | | 2021 | **** | 2020 | ||
| | | (in thousands) | ||||
| Stockholders’ equity | | $ | 394,169 | | $ | 363,713 |
| Intangible assets | | (9,501) | | (11,512) | ||
| Tangible stockholders’ equity | | $ | 384,668 | | $ | 352,201 |
11