Palomar Holdings, Inc. [PLMR] Filings

10-Q 1 plmr20240630_10q.htm FORM 10-Q plmr20240630_10q.htm

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission File Number: 001-38873

Palomar Holdings, Inc.

(Exact name of registrant as specified in its charter)

Delaware		83-3972551
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

7979 Ivanhoe Avenue, Suite 500 La Jolla, California		92037
(Address of principal executive offices)		(Zip Code)

(619) 567-5290

Registrant’s telephone number, including area code)

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	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒	Accelerated filer ☐
Non-accelerated filer ☐	Smaller reporting company ☐
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 Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

Number of shares of the registrant’s common shares outstanding at August 1, 2024: 25,010,856

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PALOMAR HOLDINGS, INC.

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets at June 30, 2024 (Unaudited) and December 31, 2023	3
	Condensed Consolidated Statements of Income and Comprehensive Income (Loss) (Unaudited) for the Three and Six Months Ended June 30, 2024 and 2023	4
	Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the Three and Six Months Ended June 30, 2024 and 2023	5
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2024 and 2023	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	45
Item 4.	Controls and Procedures	46

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	47
Item 1A.	Risk Factors	47
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	70
Item 3.	Defaults Upon Senior Securities	70
Item 4.	Mine Safety Disclosures	70
Item 5.	Other Information	70
Item 6.	Exhibits	71
	Signatures	72

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Part I: FINANCIAL INFORMATION

Item 1: Financial Statements

Palomar Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except shares and par value data)

	*June 30,*			*December 31,*
	*2024*			*2023*
	(Unaudited)
Assets
Investments:
Fixed maturity securities available for sale, at fair value (amortized cost: $723,940 in 2024; $675,130 in 2023)	$	687,138		$	643,799
Equity securities, at fair value (cost: $32,987 in 2024; $43,003 in 2023)		37,761			43,160
Equity method investment		2,351			2,617
Other investments		2,641			—
Total investments		729,891			689,576
Cash and cash equivalents		47,840			51,546
Restricted cash		179			306
Accrued investment income		5,930			5,282
Premiums receivable		357,267			261,972
Deferred policy acquisition costs, net of ceding commissions and fronting fees		82,486			60,990
Reinsurance recoverable on paid losses and loss adjustment expenses		33,309			32,172
Reinsurance recoverable on unpaid losses and loss adjustment expenses		347,840			244,622
Ceded unearned premiums		303,477			265,808
Prepaid expenses and other assets		86,590			72,941
Deferred tax assets, net		9,450			10,119
Property and equipment, net		253			373
Goodwill and intangible assets, net		11,537			12,315
Total assets	$	2,016,049		$	1,708,022
Liabilities and stockholders' equity
Liabilities:
Accounts payable and other accrued liabilities	$	52,052		$	42,376
Reserve for losses and loss adjustment expenses		466,601			342,275
Unearned premiums		720,528			597,103
Ceded premium payable		231,182			181,742
Funds held under reinsurance treaty		13,080			13,419
Income taxes payable		—			7,255
Borrowings from credit agreements		—			52,600
Total liabilities		1,483,443			1,236,770
Stockholders' equity:
Preferred stock, $0.0001 par value, 5,000,000 shares authorized, 0 shares issued and outstanding as of June 30, 2024 and December 31, 2023		—			—
Common stock, $0.0001 par value, 500,000,000 shares authorized, 24,984,638 and 24,772,987 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively		3			3
Additional paid-in capital		363,904			350,597
Accumulated other comprehensive loss		(28,055	)		(23,991	)
Retained earnings		196,754			144,643
Total stockholders' equity		532,606			471,252
Total liabilities and stockholders' equity	$	2,016,049		$	1,708,022

See accompanying notes.

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Palomar Holdings, Inc. and Subsidiaries

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

(in thousands, except shares and per share data)

	*Three Months Ended*						*Six Months Ended*
	*June 30,*						*June 30,*
	*2024*			*2023*			*2024*			*2023*
Revenues:
Gross written premiums	$	385,184		$	274,296		$	753,262		$	524,407
Ceded written premiums		(209,181	)		(169,109	)		(437,352	)		(339,453	)
Net written premiums		176,003			105,187			315,910			184,954
Change in unearned premiums		(53,718	)		(22,080	)		(85,759	)		(18,607	)
Net earned premiums		122,285			83,107			230,151			166,347
Net investment income		7,960			5,541			15,098			10,661
Net realized and unrealized gains on investments		32			1,127			3,034			1,273
Commission and other income		792			621			1,320			1,316
Total revenues		131,069			90,396			249,603			179,597
Expenses:
Losses and loss adjustment expenses		30,431			17,905			57,268			38,557
Acquisition expenses, net of ceding commissions and fronting fees		35,806			26,057			67,604			51,736
Other underwriting expenses		31,233			22,350			56,036			41,572
Interest expense		225			1,064			965			2,084
Total expenses		97,695			67,376			181,873			133,949
Income before income taxes		33,374			23,020			67,730			45,648
Income tax expense		7,645			5,458			15,619			10,774
Net income	$	25,729		$	17,562		$	52,111		$	34,874
Other comprehensive income, net:
Net unrealized (losses) gains on securities available for sale		(1,550	)		(3,685	)		(4,064	)		1,789
Net comprehensive income	$	24,179		$	13,877		$	48,047		$	36,663
Per Share Data:
Basic earnings per share	$	1.03		$	0.71		$	2.09		$	1.40
Diluted earnings per share	$	1.00		$	0.69		$	2.04		$	1.37

Weighted-average common shares outstanding:
Basic		24,946,987			24,833,852			24,904,677			24,901,403
Diluted		25,617,916			25,309,526			25,554,445			25,384,409

See accompanying notes.

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Palomar Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

(in thousands, except share data)

	*Number of*							*Accumulated*
	*Common*					*Additional*		*Other*						*Total*
	*Shares*			*Common*		*Paid-In*		*Comprehensive*			*Retained*			*Stockholders'*
	*Outstanding*			*Stock*		*Capital*		*Income (Loss)*			*Earnings*			*Equity*
Balance at December 31, 2022		25,027,467		$	3	$	333,558	$	(36,515	)	$	87,708		$	384,754
Other comprehensive income, net of tax		—			—		—		1,789			—			1,789
Stock-based compensation		—			—		7,147		—			—			7,147
Issuance of common stock via employee stock purchase plan		7,724			—		394		—			—			394
Issuance of common stock via equity incentive plan		60,240			—		314		—			—			314
Repurchases of common stock		(301,162	)		—		—		—			(15,564	)		(15,564	)
Net income		—			—		—		—			34,874			34,874
Balance at June 30, 2023		24,794,269		$	3	$	341,413	$	(34,726	)	$	107,018		$	413,708

Balance at December 31, 2023		24,772,987		$	3	$	350,597	$	(23,991	)	$	144,643		$	471,252
Other comprehensive loss, net of tax		—			—		—		(4,064	)		—			(4,064	)
Stock-based compensation		—			—		7,789		—			—			7,789
Issuance of common stock via employee stock purchase plan		9,806			—		434		—			—			434
Issuance of common stock via equity incentive plan		201,845			—		3,968		—			—			3,968
Policyholder contribution to surplus		—			—		1,116		—			—			1,116
Net income		—			—		—		—			52,111			52,111
Balance at June 30, 2024		24,984,638		$	3	$	363,904	$	(28,055	)	$	196,754		$	532,606

See accompanying notes.

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Palomar Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

	*Six Months Ended*
	*June 30,*
	*2024*			*2023*
Operating activities
Net cash provided by operating activities	$	88,252		$	23,203
Investing activities
Purchases of property and equipment		—			(19	)
Capitalized software costs		(2,848	)		(3,809	)
Purchases of fixed maturity securities		(235,549	)		(120,203	)
Purchases of equity securities		(202	)		(945	)
Sales and maturities of fixed maturity securities		187,217			76,655
Sales of equity securities		9,014			—
Change in securities receivable or payable, net		6			950
Investments in limited partnerships		(2,641	)		—
Acquisitions, net of cash acquired		—			(5,536	)
Net cash used in investing activities		(45,003	)		(52,907	)
Financing activities
Net (payments on) proceeds from line of credit		(52,600	)		35,000
Proceeds from common stock issued via employee stock purchase plan		434			394
Proceeds from common stock issued via stock option exercises		3,968			314
Policy holder contribution to surplus		1,116			—
Repurchases of common stock		—			(15,564	)
Net cash (used in) provided by financing activities		(47,082	)		20,144
Net decrease in cash, cash equivalents and restricted cash		(3,833	)		(9,560	)
Cash, cash equivalents and restricted cash at beginning of period		51,852			68,164
Cash, cash equivalents and restricted cash at end of period	$	48,019		$	58,604
Supplementary cash flow information:
Cash paid for income taxes	$	23,728		$	15,652
Cash paid for interest	$	908		$	2,041

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

	*June 30,*		*December 31,*
	*2024*		*2023*
	(unaudited)
Cash and cash equivalents	$	47,840	$	51,546
Restricted cash		179		306
Cash and cash equivalents and restricted cash	$	48,019	$	51,852

See accompanying notes.

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Palomar Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Summary of Operations and Basis of Presentation

Summary of Operations

Palomar Holdings, Inc. (the “Company”) is a Delaware incorporated insurance holding company that was founded in 2014. The Company has several wholly owned subsidiaries including an Oregon domiciled insurance company, Palomar Specialty Insurance Company (“PSIC”), a Bermuda based reinsurance company, Palomar Specialty Reinsurance Company Bermuda Ltd. (“PSRE”), an Arizona domiciled surplus lines insurance company, Palomar Excess and Surplus Insurance Company (“PESIC”), a California domiciled property and casualty insurance agency, Palomar Insurance Agency, DBA Palomar General Insurance Agency (“PGIA”), and a Delaware incorporated management company, Palomar Underwriters Exchange Organization, Inc. ("PUEO"), that provides services to Laulima Exchange (“Laulima”), a Hawaii domiciled reciprocal exchange, as its attorney-in-fact.

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and include the accounts of the Company and its wholly‑owned subsidiaries. The condensed consolidated financial statements also include the accounts of Laulima, as Laulima is a variable interest entity ("VIE") for which the Company is the primary beneficiary. Within footnote 7, certain prior year amounts have been reclassified to conform to the current year presentation.

These condensed consolidated financial statements do not contain all information and footnotes required by U.S. GAAP for complete consolidated financial statements. For a more complete description of the Company’s business and accounting policies, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 23, 2024 (the “2023 Annual Report on Form 10-K”). In the opinion of management, all adjustments necessary for a fair presentation of the condensed consolidated financial statements have been included. Such adjustments consist only of normal recurring items. All intercompany balances and transactions have been eliminated in consolidation. Interim results are not necessarily indicative of results of operations for the full year.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported in the condensed consolidated financial statements and accompanying notes. Such estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported and disclosed herein. All revisions to accounting estimates are recognized in the period in which the estimates are revised. Significant estimates reflected in the Company’s condensed consolidated financial statements include, but are not limited to, reserves for losses and loss adjustment expenses, reinsurance recoverables on unpaid losses, and the fair values of investments.

Recent Accounting Pronouncements

Recently adopted accounting pronouncements

The Company has not adopted any new accounting guidance during the six months ended June 30, 2024.

Recently issued accounting pronouncements not yet adopted

Segment Reporting

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses, allowing financial statement users to better understand the components of a segment's profit or loss to assess potential future cash flows for each reportable segment and the entity as a whole. The amendments expand a public entity's segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker ("CODM"), clarifying when an entity may report one or more additional measures to assess segment performance, requiring enhanced interim disclosures, providing new disclosure requirements for entities with a single reportable segment, and requiring other new disclosures. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.

Income Taxes

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 requires public business entities to disclose additional information with respect to the reconciliation of the effective tax rate to the statutory rate. Additionally, public business entities will need to disaggregate federal, state and foreign taxes paid in their financial statements. ASU 2023-09 is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2024. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.

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2. Investments

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

			*Gross*		*Gross*			*Allowance*
	*Amortized*		*Unrealized*		*Unrealized*			*for*			*Fair*
June 30, 2024	*Cost or Cost*		*Gains*		*Losses*			*Credit Losses*			*Value*
	(in thousands)
Fixed maturities:
U.S. Governments	$	34,818	$	3	$	(1,204	)	$	—		$	33,617
U.S. States, Territories, and Political Subdivisions		10,624		28		(884	)		—			9,768
Special revenue excluding mortgage/asset-backed securities		30,941		127		(3,588	)		—			27,480
Corporate and other		357,193		884		(18,891	)		(1,230	)		337,956
Mortgage/asset-backed securities		290,364		1,247		(13,294	)		—			278,317
Total available-for-sale investments	$	723,940	$	2,289	$	(37,861	)	$	(1,230	)	$	687,138

			*Gross*		*Gross*			*Allowance*
	*Amortized*		*Unrealized*		*Unrealized*			*for*			*Fair*
December 31, 2023	*Cost or Cost*		*Gains*		*Losses*			*Credit Losses*			*Value*
	(in thousands)
Fixed maturities:
U.S. Governments	$	40,836	$	—	$	(1,416	)	$	—		$	39,420
U.S. States, Territories, and Political Subdivisions		10,641		100		(839	)		—			9,902
Special revenue excluding mortgage/asset-backed securities		32,513		147		(3,149	)		—			29,511
Corporate and other		316,590		1,750		(17,197	)		(904	)		300,239
Mortgage/asset-backed securities		274,550		1,879		(11,702	)		—			264,727
Total available-for-sale investments	$	675,130	$	3,876	$	(34,303	)	$	(904	)	$	643,799

Security holdings in an unrealized loss position

As of June 30, 2024, the Company held 574 fixed maturity securities in an unrealized loss position with a total estimated fair value of $524.7 million and total gross unrealized losses of $37.9 million. As of December 31, 2023, the Company held 483 fixed maturity securities in an unrealized loss position with a total estimated fair value of $451.0 million and total gross unrealized losses of $34.3 million.

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The aggregate fair value and gross unrealized losses of the Company’s investments aggregated by investment category and the length of time these individual securities have been in a continuous unrealized loss position as of June 30, 2024 and December 31, 2023, are as follows:

	*Less Than 12 Months*					*More Than 12 Months*					*Total*
	*Fair*		*Unrealized*			*Fair*		*Unrealized*			*Fair*		*Unrealized*
June 30, 2024	*Value*		*Losses*			*Value*		*Losses*			*Value*		*Losses*
	(in thousands)
Fixed maturity securities:
U.S. Governments	$	15,221	$	(187	)	$	17,992	$	(1,017	)	$	33,213	$	(1,204	)
U.S. States, Territories, and Political Subdivisions		1,518		(14	)		6,158		(870	)		7,676		(884	)
Special revenue excluding mortgage/asset-backed securities		544		(6	)		24,728		(3,582	)		25,272		(3,588	)
Corporate and other		78,901		(1,274	)		204,194		(17,617	)		283,095		(18,891	)
Mortgage/asset-backed securities		65,282		(1,091	)		110,184		(12,203	)		175,466		(13,294	)
Total available-for-sale investments	$	161,466	$	(2,572	)	$	363,256	$	(35,289	)	$	524,722	$	(37,861	)

	*Less Than 12 Months*					*More Than 12 Months*					*Total*
	*Fair*		*Unrealized*			*Fair*		*Unrealized*			*Fair*		*Unrealized*
December 31, 2023	*Value*		*Losses*			*Value*		*Losses*			*Value*		*Losses*
	(in thousands)
Fixed maturity securities:
U.S. Governments	$	738	$	(1	)	$	38,063	$	(1,415	)	$	38,801	$	(1,416	)
U.S. States, Territories, and Political Subdivisions		—		—			6,196		(839	)		6,196		(839	)
Special revenue excluding mortgage/asset-backed securities		—		—			26,736		(3,149	)		26,736		(3,149	)
Corporate and other		28,872		(480	)		204,034		(16,717	)		232,906		(17,197	)
Mortgage/asset-backed securities		29,334		(245	)		117,016		(11,457	)		146,350		(11,702	)
Total available-for-sale investments	$	58,944	$	(726	)	$	392,045	$	(33,577	)	$	450,989	$	(34,303	)

The Company reviews all securities with unrealized losses on a quarterly basis to assess whether the decline in the securities fair value necessitates the recognition of an allowance for credit losses. The Company considers numerous factors in its review as described in Footnote 1 of the Notes to the Consolidated Financial Statements in the 2023 Annual Report on Form 10-K.

The Company has recorded an immaterial allowance for credit losses for three investment securities. Based on the Company’s review as of June 30, 2024, for the remainder of securities, the Company determined that the fixed maturity securities’ unrealized losses were primarily the result of the interest rate environment and not the credit quality of the issuers. The Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before the recovery of their amortized cost basis.

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Contractual maturities of available‑for‑sale fixed maturity securities

The amortized cost and fair value of fixed maturity securities at June 30, 2024, by contractual maturity, are shown below.

	*Amortized*		*Fair*
	*Cost*		*Value*
	(in thousands)
Due within one year	$	67,474	$	65,042
Due after one year through five years		174,285		166,790
Due after five years through ten years		142,476		132,119
Due after ten years		49,341		44,870
Mortgage and asset-backed securities		290,364		278,317
	$	723,940	$	687,138

Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations.

Net investment income summary

Net investment income is summarized as follows:

	*Three Months Ended*					*Six Months Ended*
	*June 30,*					*June 30,*
	*2024*		*2023*			*2024*			*2023*
	(in thousands)					(in thousands)
Interest income	$	7,626	$	5,456		$	14,952		$	10,516
Dividend income		257		210			455			391
Investment income (expense)		77		(125	)		(309	)		(246	)
Net investment income	$	7,960	$	5,541		$	15,098		$	10,661

Net realized and unrealized investment gains and losses

The following table presents net realized and unrealized investment gains and losses:

	*Three Months Ended*						*Six Months Ended*
	*June 30,*						*June 30,*
	*2024*			*2023*			*2024*			*2023*
	(in thousands)						(in thousands)
Realized gains:
Gains on sales of fixed maturity securities	$	18		$	37		$	18		$	65
Total realized gains		18			37			18			65
Realized losses:
Losses on sales of fixed maturity securities		—			(29	)		(2	)		(32	)
Losses on sales of equity securities		—			—			(1,204	)		—
Total realized losses		—			(29	)		(1,206	)		(32	)
Net realized investment (losses) gains		18			8			(1,188	)		33
Change in allowance for credit losses		(327	)		(8	)		(327	)		(667	)
Net unrealized gains (losses) on equity securities		388			1,127			4,617			1,907
Net unrealized (losses) gains on equity method investment		(245	)		—			(266	)		—
Net unrealized (losses) gains on other investments		198			—			198			—
Net realized and unrealized gains on investments	$	32		$	1,127		$	3,034		$	1,273

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

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Proceeds from the sale of fixed maturity securities were insignificant and $1.9 million for the three months ended June 30, 2024 and 2023, respectively.

Proceeds from the sale of fixed maturity securities were $2.2 and $7.1 million for the six months ended June 30, 2024 and 2023, respectively.

The Company places securities on statutory deposit with certain state agencies to retain the right to do business in those states. These securities are included in available‑for‑sale investments on the balance sheet. As of June 30, 2024 and December 31, 2023, the carrying value of securities on deposit with state regulatory authorities was $7.8 million and $8.6 million, respectively.

The Company has investments in limited partnerships, recorded in the Other Investments line of the Unaudited Condensed Consolidated Balance Sheets. These investments are measured at estimated fair value utilizing a net asset value per share (or its equivalent) as a practical expedient. As of June 30, 2024, the Company had unfunded commitments to invest an additional $32.6 million in these limited partnerships.

3. Fair Value Measurements

Fair value is defined as the price that the Company would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment.

The three‑tier hierarchy of inputs is summarized in the three broad levels listed below:

Level 1—Unadjusted quoted prices are available in active markets for identical investments as of the reporting date.

Level 2—Pricing inputs are quoted prices for similar investments in active markets; quoted prices for identical or similar investments in inactive markets; or valuations based on models where the significant inputs are observable or can be corroborated by observable market data.

Level 3—Pricing inputs into models are unobservable for the investment. The unobservable inputs require significant management judgment or estimation.

To measure fair value, the Company obtains quoted market prices for its investment securities from its outside investment managers. If a quoted market price is not available, the Company uses prices of similar securities. The fair values obtained from the outside investment managers are reviewed for reasonableness and any discrepancies are investigated for final valuation.

The fair value of the Company’s investments in fixed maturity securities is estimated using relevant inputs, including available market information, benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing. An Option Adjusted Spread model is also used to develop prepayment and interest rate scenarios. Industry standard models are used to analyze and value securities with embedded options or prepayment sensitivities. These fair value measurements are estimated based on observable, objectively verifiable market information rather than market quotes. Therefore, these investments are classified and disclosed in Level 2 of the hierarchy.

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The following tables present the hierarchy for financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2024 and December 31, 2023.

June 30, 2024	*Level 1*		*Level 2*		*Level 3*		*Total*
	(in thousands)
Assets:
Fixed maturity securities
U.S. Governments	$	—	$	33,617	$	—	$	33,617
U.S. States, Territories, and Political Subdivisions		—		9,768		—		9,768
Special revenue excluding mortgage/asset-backed securities		—		27,480		—		27,480
Corporate and other		—		337,956		—		337,956
Mortgage/asset-backed securities		—		278,317		—		278,317
Equity securities		37,761		—		—		37,761
Cash, cash equivalents, and restricted cash		48,019		—		—		48,019
Total assets	$	85,780	$	687,138	$	—	$	772,918

December 31, 2023	*Level 1*		*Level 2*		*Level 3*		*Total*
	(in thousands)
Assets:
Fixed maturity securities
U.S. Governments	$	—	$	39,420	$	—	$	39,420
U.S. States, Territories, and Political Subdivisions		—		9,902		—		9,902
Special revenue excluding mortgage/asset-backed securities		—		29,511		—		29,511
Corporate and other		—		300,239		—		300,239
Mortgage/asset-backed securities		—		264,727		—		264,727
Equity securities		43,160		—		—		43,160
Cash, cash equivalents, and restricted cash		51,852		—		—		51,852
Total assets	$	95,012	$	643,799	$	—	$	738,811

The carrying amounts of financial assets and liabilities reported in the accompanying condensed consolidated balance sheet including cash and cash equivalents, restricted cash, receivables, reinsurance recoverable, and accounts payable and other accrued liabilities approximate fair value due to their short term‑maturity. The carrying amount of any borrowings under the Federal Home Loan Bank (“FHLB”) line of credit and U.S. Bank credit agreement (the “Credit Agreement”) approximate fair value as the credit agreements have variable rates which frequently reprices at market rates.

Transfers between Level 3 and Level 2 securities result from changes in the availability of observable market inputs and are recorded at the beginning of the reporting period. As of June 30, 2024 and December 31, 2023, the Company had no fixed income securities classified as Level 3.

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4. Reserve for Losses and Loss Adjustment Expenses

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

	*Three Months Ended June 30,*						*Six Months Ended June 30,*
	*2024*			*2023*			*2024*			*2023*
	(in thousands)						(in thousands)
Reserve for losses and LAE net of reinsurance recoverables at beginning of period	$	110,163		$	81,366		$	97,653		$	77,520
Add: Incurred losses and LAE, net of reinsurance, related to:
Current year		33,355			18,539			59,688			35,839
Prior years		(2,924	)		(634	)		(2,420	)		2,718
Total incurred		30,431			17,905			57,268			38,557
Deduct: Loss and LAE payments, net of reinsurance, related to:
Current year		6,861			6,176			11,756			7,569
Prior years		14,972			11,795			24,404			27,208
Total payments		21,833			17,971			36,160			34,777
Reserve for losses and LAE net of reinsurance recoverables at end of period		118,761			81,300			118,761			81,300
Add: Reinsurance recoverables on unpaid losses and LAE at end of period		347,840			216,783			347,840			216,783
Reserve for losses and LAE gross of reinsurance recoverables on unpaid losses and LAE at end of period	$	466,601		$	298,083		$	466,601		$	298,083

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

The Company experienced favorable prior year development of $2.9 million and $0.6 million during the three months ended June 30, 2024 and 2023, respectively.

The Company experienced favorable prior year development of $2.4 million and adverse prior year development of $2.7 million during the six months ended June 30, 2024 and 2023, respectively.

Favorable prior year development during the three months ended June 30, 2024 was primarily due to lower than anticipated severity of attritional losses. Favorable prior year development during the three months ended June 30, 2023 was primarily due to lower than anticipated severity of catastrophe losses, offset by higher than anticipated severity of attritional losses.

Favorable prior year development during the six months ended June 30, 2024 was primarily due to lower than anticipated severity of attritional losses. Adverse prior year development during the six months ended June 30, 2023 was primarily due to higher than anticipated severity of attritional losses, offset by lower than anticipated severity of catastrophe losses.

5. Stockholders’ Equity

Common stock reserved for future issuance

Common stock reserved for future issuance consists of the following as of June 30, 2024:

Stock options outstanding under 2019 Equity Incentive Plan			694,527
Restricted stock units outstanding under 2019 Equity Incentive Plan			358,607
Performance stock units outstanding under 2019 Equity Incentive Plan, at target			462,409
Shares authorized for future issuance under 2019 Equity Incentive Plan			3,682,511
Shares authorized for future issuance under 2019 Employee Stock Purchase Plan			1,360,964
Total			6,559,018

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Stock based compensation

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

	*Three Months Ended June 30,*				*Six Months Ended June 30,*
	*2024*		*2023*		*2024*		*2023*
	(in thousands)				(in thousands)
Stock-Based Compensation	$	3,968	$	3,697	$	7,789	$	7,147

Stock-based compensation expense is recognized on a straight-line basis over the vesting period of equity-based awards. For performance stock units (“PSUs”), any changes to expense resulting from differences in actual performance versus target are recognized over the remaining vesting period of the awards. The Company does not apply a forfeiture rate to unvested awards and accounts for forfeitures as they occur. All stock-based compensation is included in other underwriting expenses in the Company’s unaudited condensed consolidated statement of income and comprehensive income.

2019 Equity Incentive Plan

On April 16, 2019, the Company's 2019 Equity Incentive Plan (the “2019 Plan”) became effective. The 2019 Plan provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), performance shares and units, and other cash-based or share-based awards. In addition, the 2019 Plan contains a mechanism through which the Company may adopt a deferred compensation arrangement in the future.

A total of 2,400,000 shares of common stock were initially authorized and reserved for issuance under the 2019 Plan. This reserve increases on January 1 of each year through 2029 by an amount equal to the smaller of: 3% of the number of shares of common stock issued and outstanding on the immediately preceding December 31, or an amount determined by the board of directors.

Stock Options

Recipients of stock options can purchase shares of the Company’s common stock at a price equal to the stock's fair market value on the grant date, determined by the closing price of the Company's common stock on the grant date. Stock options vest over a period between two and four years with between 25% and 50% vesting on the first anniversary of the grant date and the remainder vesting monthly over the remaining period, subject to continued service to the Company. Stock options expire ten years after the grant date.

The following table summarizes stock option transactions for the six months ended June 30, 2024:

	*Number of shares*			*Weighted-average exercise price*		*Weighted-average remaining contractual term (in years)*		*Aggregate intrinsic value (in thousands)*
Outstanding at January 1, 2024		807,685		$	34.31		—	$	—
Options granted		—			—
Options exercised		(104,525	)		37.96
Options cancelled		(8,633	)		74.57
Outstanding at June 30, 2024		694,527		$	33.26		5.3	$	34,708
Vested and Exercisable at June 30, 2024		669,188		$	32.32		5.3	$	34,081

As of June 30, 2024, the Company had approximately $0.6 million of total unrecognized stock-based compensation expense related to stock options expected to be recognized over a weighted-average period of 0.6 years.

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Restricted Stock Units

RSUs are valued using the closing price of the Company’s common stock on their grant date. The Company has issued RSUs with vesting periods of one to five years. All vesting is subject to continued service.

The following table summarizes RSU transactions for the six months ended June 30, 2024:

	*Number of shares*			*Weighted-average grant date fair value*
Outstanding at January 1, 2024		332,077		$	61.07
Granted		121,556			65.10
Released		(84,675	)		55.43
Forfeited		(10,351	)		52.55
Non-vested outstanding at June 30, 2024		358,607		$	64.01

As of June 30, 2024, the Company had approximately $18.0 million of total unrecognized stock-based compensation expense related to RSUs expected to be recognized over a weighted-average period of 2.1 years.

Performance Stock Units

The Company issues PSUs with a combination of service, performance, and market conditions.

The majority of PSUs were issued via grants made to certain executives during 2021. These PSUs are earned based on the achievement of stock price milestones. If the Company’s stock price reaches and remains at certain milestones for 30 days, the PSUs shall become earned units and will vest upon completion of a requisite service period of approximately five years from the date of grant. As of June 30, 2024, none of the stock price milestones have been achieved.

For other PSUs outstanding, vesting of PSUs requires a period of future service and the number of shares that vest depends on performance relative to predetermined targets of the Company’s Gross Written Premiums and Adjusted Return on Equity as set by the Compensation Committee. Prior to 2023, the PSU’s performance period was the fiscal year of the grant. Beginning in 2023, the PSU’s performance period is primarily a three-year period beginning with the grant date. At the end of the performance period, the actual results are measured against the predetermined targets to determine the number of PSUs to be earned as compensation. The earned PSUs are also subject to a required service period of approximately three years from the grant date before vesting and being issued as common stock.

The following table summarizes PSU transactions for the six months ended June 30, 2024:

	*Number of shares*			*Weighted-average grant date fair value*
Outstanding at January 1, 2024		423,621		$	38.90
Granted		57,012			65.78
Vested		(12,645	)		96.74
Forfeited		(5,579	)		50.12
Non-vested outstanding at June 30, 2024		462,409		$	40.50

The PSU grants above represent the number of shares that would vest based on achievement of all stock price milestones in the 2021 executive stock grants and the 100% achievement of the predetermined performance conditions for the other PSU grants. The actual number of PSUs which will vest is subject to adjustment based on the Company’s actual stock price performance and financial performance relative to the predetermined targets. As of June 30, 2024, the Company had approximately $10.5 million of total unrecognized stock-based compensation expense related to PSUs expected to be recognized over a weighted-average period of 2.1 years.

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2019 Employee Stock Purchase Plan

On April 16, 2019, the Company's 2019 Employee Stock Purchase Plan (the “2019 ESPP”) became effective. A total of 240,000 shares of common stock are initially authorized and reserved for issuance under the 2019 ESPP. In addition, the 2019 ESPP provides for annual increases in the number of shares available for issuance on January 1 of each year through 2029, equal to the smaller of 240,000 shares of the Company’s common stock or such other amount as may be determined by the board of directors.

Under the 2019 ESPP, employees can purchase Company stock at a discount via payroll withholdings. The 2019 ESPP is administered through employee participation in discrete offering periods. During each discrete offering period employee funds are withheld, and the stock purchase occurs upon the conclusion of the offering period. The Company issued 9,806 shares pursuant to the ESPP during the six months ended June 30, 2024.

Share repurchases

In January 2022, Company's the Board of Directors approved a share repurchase program which replaced the existing program and authorized the repurchase of up to $100 million of outstanding shares of common stock. The program ended on March 31, 2024 and no shares have been repurchased in 2024. The Company accounts for share repurchases by charging the excess of repurchase price over the common stock’s par value entirely to retained earnings. All repurchased shares are retired and become authorized but unissued shares.

6. Accumulated Other Comprehensive Income

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

	*Six Months Ended June 30,*
	*2024*			*2023*
	(in thousands)
Beginning Balance	$	(23,991	)	$	(36,515	)

Other comprehensive (loss) income before reclassification		(5,129	)		2,300
Federal income tax expense (benefit)		1,078			(483	)
Other comprehensive (loss) income before reclassification, net of tax		(4,051	)		1,817

Amounts reclassified from AOCI		(16	)		(36	)
Federal income tax expense		3			8
Amounts reclassified from AOCI, net of tax		(13	)		(28	)

Other comprehensive (loss) income		(4,064	)		1,789
Balance at end of period	$	(28,055	)	$	(34,726	)

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7. Underwriting Information

The Company has a single reportable segment and offers specialty insurance products. Gross written premiums (“GWP”) by product are presented below:

	*Three Months Ended June 30,*										*Six Months Ended June 30,*
	*2024*					*2023*					*2024*					*2023*
	($ in thousands)										($ in thousands)
			*% of*					*% of*					*% of*					*% of*
	*Amount*		*GWP*			*Amount*		*GWP*			*Amount*		*GWP*			*Amount*		*GWP*
Product (1)
Earthquake	$	135,029		35.1	%	$	107,929		39.3	%	$	240,759		32.0	%	$	201,424		38.4	%
Fronting		95,896		24.9	%		79,724		29.1	%		190,727		25.3	%		171,479		32.7	%
Inland Marine and Other Property		93,453		24.3	%		69,779		25.4	%		170,329		22.6	%		122,484		23.4	%
Casualty		58,605		15.2	%		16,376		6.0	%		110,539		14.7	%		28,532		5.4	%
Crop		2,201		0.6	%		488		0.2	%		40,908		5.4	%		488		0.1	%
Total Gross Written Premiums	$	385,184		100.0	%	$	274,296		100.0	%	$	753,262		100.0	%	$	524,407		100.0	%

(1) - Beginning in 2024, the Company has updated the categorization of its products to align with management's current strategy and view of the business. Prior year amounts have been reclassified for comparability purposes. The recategorization is for presentation purposes only and does not impact overall gross written premiums.

Gross written premiums by state are as follows:

Three Months Ended June 30,

Six Months Ended June 30,

2024

2023

2024

2023

($ in thousands)

% of

Amount

GWP

Amount

GWP

Amount

GWP

Amount

GWP

State

California

Palomar Holdings, Inc. [PLMR] Filings
10-Q	[2024-08-06]
10-Q	[2024-05-03]
10-K	[2024-02-23]
10-Q	[2023-11-02]
10-Q	[2023-08-03]
10-Q	[2023-05-08]
10-K	[2023-03-01]
10-Q	[2022-11-03]
10-Q	[2022-08-04]
10-Q	[2022-05-05]
10-K	[2022-02-25]
10-Q	[2021-11-05]
10-Q	[2021-08-06]
10-Q	[2021-05-07]
10-K	[2021-03-09]
10-Q	[2020-11-13]
10-Q	[2020-08-05]
10-Q	[2020-05-06]
10-K	[2020-02-28]
S-1	[2020-01-07]
10-Q	[2019-11-05]
S-1	[2019-09-23]
10-Q	[2019-08-13]
10-Q	[2019-05-17]
S-1	[2019-03-15]