Palomar Holdings, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing; the supplied text does not provide standalone fourth-quarter results.
Business context
Palomar is a specialty property and casualty insurer writing admitted business through PSIC and excess and surplus (E&S) business through PESIC. Its principal lines include earthquake, specialty homeowners, inland marine, commercial property and flood. It distributes through agents, brokers, program administrators and carrier partners, and uses reinsurance to manage catastrophe exposure.
Financial and operating performance
| Metric | 2021 | 2020 |
|---|---|---|
| Gross written premiums | $535.2 million | $354.4 million |
| Net earned premiums | $233.8 million | $155.1 million |
| Total revenue | $247.8 million | $168.5 million |
| Net income | $45.8 million | $6.3 million |
| Diluted EPS | $1.76 | $0.24 |
| Operating cash flow | $87.8 million | $57.5 million |
| Combined ratio | 80.0% | 102.5% |
| Adjusted combined ratio | 76.1% | 100.4% |
Gross written premiums rose 51.0%, reflecting new business, renewals, broader distribution and geographic reach, and commercial rate increases. Net income improved as catastrophe losses declined to $5.0 million from $51.0 million. The loss ratio fell to 17.7% from 41.3%; the expense ratio increased to 62.2% from 61.2%. Adjusted net income was $53.4 million versus $8.9 million, and adjusted ROE was 14.1% versus 3.0%.
At year-end, total assets were $925.7 million, liabilities $531.6 million and stockholders’ equity $394.2 million. Cash and cash equivalents were $50.3 million; investments were $465.9 million, for $516.3 million in cash and investment securities. The company reported no borrowings under its new $100 million revolving credit facility, which matures in 2026. Operating cash flow was positive; investing activities used $58.2 million and financing activities used $13.0 million, including $15.9 million of share repurchases.
Material changes versus 2020
- E&S premiums grew to $152.1 million, or 28.6% of gross written premiums, from $29.5 million, or 8.3%; PESIC materially expanded its contribution.
- Product mix shifted: inland marine premiums increased 270.4%; earthquake premiums also grew, while commercial all-risk premiums declined 28.4% after the company exited admitted commercial all-risk writing.
- California remained the largest state exposure at 45.6% of gross written premiums, down from 48.8%; Texas represented 11.8%, down from 19.2%.
- Non-catastrophe losses rose to $36.4 million from $13.1 million, and the adjusted combined ratio excluding catastrophe losses increased to 73.9% from 67.5%.
- Unrealized losses on available-for-sale fixed maturities reduced other comprehensive income by $7.9 million; year-end accumulated other comprehensive income was $5.3 million, down from $13.2 million.
Outlook, risks and unusual items
- No specific financial guidance or quantified earnings outlook is provided. Management says it expects operating cash flows and available liquidity to meet needs for at least the next 12 months and beyond, while identifying catastrophe frequency and severity as key uncertainties.
- The catastrophe program had a $12.5 million event retention, with stated limits of $1.68 billion for earthquake and $700 million for hurricane. A $400 million earthquake catastrophe bond became effective June 1, 2021. These protections do not eliminate exposure: Palomar remains primarily liable to policyholders if reinsurers fail to pay, and coverage is subject to terms and exclusions.
- Winter Storm Uri generated $7.9 million of additional reinsurance reinstatement expense. 2021 catastrophe losses included Uri and Hurricanes Ida and Nicholas. Gross prior-year reserve development was unfavorable by $28.7 million, largely from higher-than-expected severity on 2020 hurricanes; net development was favorable by $3.6 million after reinsurance.
- Key risks include catastrophe and climate-related losses, model and reserve uncertainty, reinsurance availability and collectability, concentration in California and Texas, and reliance on two program administrators that represented 48.2% of 2021 gross written premiums. COVID-19, inflation and investment-market volatility remain uncertainties.
- The company launched casualty and fronting operations in 2021. It repurchased $15.9 million of shares under a $40 million authorization and, after year-end, approved a replacement program authorizing up to $100 million through March 31, 2024.
- The filing reports no material legal proceedings. The independent auditor gave unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Assess the adequacy and development of loss reserves, especially given the $28.7 million gross unfavorable prior-year development and the subjectivity of catastrophe estimates.
- Review reinsurance terms, exclusions, counterparty exposure and renewal pricing; compare catastrophe limits with current portfolio exposures.
- Track geographic and distribution concentration, including California/Texas exposure and the two major program-administrator relationships.
- Reconcile the filing’s differing stated 2022 PESIC dividend capacity: $4.1 million in the liquidity discussion versus $1.2 million in Note 19.
- Monitor growth and underwriting performance in E&S, casualty and fronting, as well as capital effects of the expanded share-repurchase authorization.