Palomar Holdings, Inc. 2022 Form 10-K Summary
Business context and reporting period
Palomar is a specialty property and casualty insurer focused on earthquake and other specialty markets, using admitted and excess-and-surplus products, analytics, and reinsurance. This 10-K covers the fiscal year ended December 31, 2022; it does not provide standalone fourth-quarter results. Its insurance subsidiaries PSIC and PESIC each held an A.M. Best A- rating with stable outlook.
Financial and operating highlights
| Metric | 2022 | 2021 |
|---|---|---|
| Gross written premiums | $881.9 million | $535.2 million |
| Net earned premiums | $316.5 million | $233.8 million |
| Total revenue | $327.1 million | $247.8 million |
| Net income | $52.2 million | $45.8 million |
| Diluted EPS | $2.02 | $1.76 |
| Operating cash flow | $169.6 million | $87.8 million |
| Combined ratio | 80.4% | 80.0% |
| Stockholders’ equity | $384.8 million | $394.2 million |
Gross written premiums rose 64.8%, while net earned premiums rose 35.3%. Net income increased 13.8%; adjusted net income, a non-GAAP measure, rose 36.0% to $71.3 million. Adjusted combined ratio was 75.6%, compared with 76.1%. The reported loss ratio increased to 24.9% from 17.7%, while the expense ratio improved to 55.5% from 62.2%.
Growth reflected new and expanded partnerships, premium retention, broader distribution, and commercial rate increases. Fronting premiums reached $223.2 million (25.3% of GWP), up from $11.5 million in 2021. Earthquake premiums were 39% of GWP. California remained the largest state exposure at 47.5% of GWP; commercial business represented 63% of GWP.
Material changes, liquidity, and debt
Ceded written premiums increased 134.8% to $524.6 million, reaching 59.5% of GWP, primarily due to increased fronting and quota-share cessions and higher excess-of-loss reinsurance costs. Net written premiums rose more moderately, by 14.6%. Catastrophe losses increased to $15.4 million from $5.0 million, mainly from Hurricane Ian; catastrophe loss ratio rose to 4.9% from 2.1%. Non-catastrophe losses also increased, reflecting growth in attritional lines.
Net investment income increased 52.8% to $13.9 million, but net realized and unrealized investment losses were $7.5 million versus a $1.3 million gain in 2021. Fixed-maturity unrealized losses drove a $41.8 million other-comprehensive loss and contributed to lower equity. Cash and investments totaled approximately $621.8 million at year-end; cash from operations was positive. Palomar had $36.4 million outstanding on its collateralized FHLB line, while its separate $100 million revolving credit facility had no borrowings. The company reported compliance with credit covenants.
Outlook, risks, and unusual items
Management expects to continue writing fronting premiums, though volume may vary with partnership starts and terminations. It states that available liquidity and expected cash flows should meet requirements for the foreseeable future, and intends to pursue growth while maintaining underwriting discipline and reinsurance protection. No specific earnings or premium guidance is provided.
Key risks include catastrophe severity and frequency, climate-related exposure, California and Texas concentration, reinsurance cost, availability and counterparty collectability, reserve estimation, investment-market and interest-rate losses, and reliance on a small number of brokers and program administrators. Reinsurance recoverables were $193.6 million. The company ceased Specialty Homeowners outside Texas and converted Texas business to a fronting arrangement; it does not plan to write that product going forward. It repurchased 621,415 shares for $34.4 million in 2022, with $65.6 million remaining under its authorization through March 2024. Auditors issued unqualified opinions on the financial statements and internal controls; loss reserves were identified as a critical audit matter.
Investor verification priorities
- Track whether fronting growth produces sustainable fee income and underwriting economics as cessions and partnership volumes change.
- Review catastrophe exposure, reinsurance renewals, recoverables, and any further development of prior-year claims.
- Assess California/Texas concentration and whether geographic and product diversification is reducing risk.
- Monitor investment portfolio fair-value losses, yields, and the effect of interest rates on equity and liquidity.
- Verify statutory capital, dividend capacity, FHLB borrowings, and the pace and price of future share repurchases.