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What changed in Palomar Holdings, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Palomar Holdings, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+593 added−261 removedSource: 10-K (2024-02-23) vs 10-K (2023-03-01)

Top changes in Palomar Holdings, Inc.'s 2023 10-K

593 paragraphs added · 261 removed · 224 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

108 edited+356 added−24 removed116 unchanged
Biggest changeA reserve can be increased or decreased over time as claims move towards settlement, which can impact earnings in the form of either adverse development or reserve releases. 18 Table of Contents The following tables present the development of our loss reserves by accident year on a gross basis and net of reinsurance recoveries during each of the below calendar years: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross Ultimate Loss and LAE ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Development- (Favorable) Unfavorable ​ ​ Calendar Year ​ 2019 to ​ 2020 to ​ 2021 to Accident Year 2019 2020 2021 2022 2020 2021 2022 ​ ​ ​ (in thousands) Prior ​ $ 81,778 ​ $ 78,503 ​ $ 83,896 ​ $ 87,938 ​ $ (3,275) ​ $ 5,393 ​ $ 4,042 2020 ​ — ​ 171,470 ​ 194,752 ​ 206,532 ​ — ​ 23,282 ​ 11,780 2021 ​ — ​ — ​ 171,922 ​ 156,434 ​ — ​ — ​ (15,488) 2022 ​ — ​ — ​ — ​ 200,765 ​ — ​ — ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ (3,275) ​ $ 28,675 ​ $ 334 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net Ultimate Loss and LAE ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Development- (Favorable) Unfavorable ​ ​ Calendar Year ​ 2019 to ​ 2020 to ​ 2021 to Accident Year 2019 2020 2021 2022 2020 2021 2022 ​ ​ ​ (in thousands) Prior ​ $ 33,958 ​ $ 33,894 ​ $ 33,487 ​ $ 33,870 ​ $ (64) ​ $ (407) ​ $ 383 2020 ​ — ​ 64,179 ​ 61,001 ​ 64,171 ​ — ​ (3,178) ​ 3,170 2021 ​ — ​ — ​ 45,042 ​ 43,872 ​ — ​ — ​ (1,170) 2022 ​ — ​ — ​ — ​ 76,289 ​ — ​ — ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ (64) ​ $ (3,585) ​ $ 2,383 ​ Investments Investment income is an important component of our earnings.
Biggest changeA reserve can be increased or decreased over time as claims move towards settlement, which can impact earnings in the form of either adverse development or reserve releases. 18 Table of Contents The following tables present the development of our loss reserves by accident year on a gross basis and net of reinsurance recoveries during each of the below calendar years: Gross Ultimate Loss and LAE Development- (Favorable) Unfavorable Calendar Year 2020 to 2021 to 2022 to Accident Year 2020 2021 2022 2023 2021 2022 2023 (in thousands) Prior $ 249,973 $ 278,648 $ 294,470 $ 276,821 $ 28,675 $ 15,822 $ (17,649 ) 2021 — 171,922 156,434 140,413 — (15,488 ) (16,021 ) 2022 — — 200,765 198,635 — — (2,130 ) 2023 — — — 334,520 — — — $ 28,675 $ 334 $ (35,800 ) ​ Net Ultimate Loss and LAE Development- (Favorable) Unfavorable ​ Calendar Year 2020 to 2021 to 2022 to Accident Year 2020 2021 2022 2023 2021 2022 2023 (in thousands) Prior $ 98,073 $ 94,488 $ 98,041 $ 94,002 $ (3,585 ) $ 3,553 $ (4,039 ) 2021 — 45,042 43,872 43,403 — (1,170 ) (469 ) 2022 — — 76,289 83,026 — — 6,737 2023 — — — 70,346 — — — $ (3,585 ) $ 2,383 $ 2,229 ​ Investments Investment income is an important component of our earnings.
With our specialized knowledge of these risks and our customized products, pricing and risk management, we believe we can better serve these markets than our competitors. Furthermore, we can expand our markets by creating products that attract insureds who previously had not obtained coverage.
With our specialized knowledge of these risks and our customized products, pricing and risk management, we believe we can serve these markets better than our competitors. Furthermore, we can expand our markets by creating products that attract insureds who previously had not obtained coverage.
To protect against model bias, we perform probabilistic modeling as well as deterministic modeling using a variety of industry models including AIR Touchstone for all perils and regions and RMS RiskLink for all perils and regions. 16 Table of Contents We believe our current reinsurance program provides coverage well in excess of our theoretical losses from any recorded historical event.
To protect against model bias, we perform probabilistic modeling as well as deterministic modeling using a variety of industry models including AIR Touchstone and RMS RiskLink for all perils and regions. 16 Table of Contents We believe our current reinsurance program provides coverage well in excess of our theoretical losses from any recorded historical event.
Our open architecture distribution framework allows us to attract and underwrite business from multiple channels. We work with a wide variety of retail agents, program administrators, and wholesale brokers. We serve over 25 insurance companies as a specialty partner either by issuing companion policies or providing reinsurance for their in-force risks that fit our strict underwriting parameters.
Our open architecture distribution framework allows us to attract and underwrite business from multiple channels. We work with a wide variety of retail agents, program administrators, and wholesale brokers. We serve over 25 insurance companies as a specialty partner either by issuing companion policies or providing reinsurance for in-force risks that fit our strict underwriting parameters.
We issue insurance policies for other insurance companies which may not have the licensure, product suite or rating to serve their desired markets, or for programs supported by reinsurance or alternative capital providers. In addition, we enter fronting arrangements with program administrators that require a broadly licensed, highly rated carrier to conduct their business in certain states.
We issue insurance policies for other insurance companies that may not have the licensure, product suite or rating to serve their desired markets, or for programs supported by reinsurance or alternative capital providers. In addition, we enter fronting arrangements with program administrators that require a broadly licensed, highly rated carrier to conduct business in certain states.
Our platform enables us to rapidly quote and bind policies via automated processing, and also to run detailed risk-management analytics for internal and external constituents including distribution partners, carrier partners and reinsurers. We believe that this real-time access to data and analytics provides us with an advantage in distributing our products, managing our risk, and purchasing reinsurance.
Our platform enables us to rapidly quote and bind policies via automated processing, and to run detailed risk-management analytics for internal and external constituents including distribution partners, carrier partners and reinsurers. We believe that this real-time access to data and analytics provides us with an advantage in distributing our products, managing our risk, and purchasing reinsurance.
Furthermore, since our admitted products have been approved by individual state regulators and have been supported by proprietary pricing models since inception, we believe that these products are not easily replicable, particularly by existing carriers who would face the burden of gathering data, building new models, and revising existing rates and policy forms with regulators.
Furthermore, since our admitted products have been approved by individual state regulators and are supported by proprietary pricing models, we believe that these products are not easily replicable, particularly by existing carriers who would face the burden of gathering data, building new models, and revising existing rates and policy forms with regulators.
We believe that protecting our earnings and balance sheet through the use of reinsurance is critical to our business and supports our ability to meet obligations to our policyholders and other constituents, and generate strong returns for our stockholders. We plan to maintain a conservative, robust reinsurance program to provide protection against severe or frequent catastrophe losses.
We believe that protecting our earnings and balance sheet through the use of reinsurance is critical to our business and supports our ability to meet obligations to our policyholders and other constituents, and generate strong returns for our stockholders. We plan to maintain a conservative, robust reinsurance program to provide protection against severe or frequent losses.
In the event that multiple catastrophe events occur in a period, many of our contracts include the right to reinstate reinsurance limits for potential future recoveries during the same contract year and preserve our limit for subsequent events.
In the event that multiple catastrophe events occur during a treaty period, many of our contracts include the right to reinstate reinsurance limits for potential future recoveries during the same contract year and preserve our limit for subsequent events.
The following charts illustrate our business mix by product, residential versus commercial markets, state, and entity for the year ended December 31, 2022: ​ ​ ​ ​ We employ a highly granular and analytical underwriting process to assess each insurance policy that we write, and we ensure that the risk characteristics of business assumed through our channel partnerships or written by program administrator partners are consistent with our underwriting of direct business.
The following charts illustrate our business mix by product, residential versus commercial markets, state, and entity for the year ended December 31, 2023: We employ a highly granular and analytical underwriting process to assess each insurance policy that we write, and we ensure that the risk characteristics of business assumed through our channel partnerships or written by program administrator partners are consistent with our underwriting of direct business.
As of December 31, 2022, we had partnerships with over 25 insurance companies. Several carriers invite us to provide a companion offer for residential earthquake insurance alongside their homeowners’ insurance policy offerings. Other carriers will direct their captive agents to our online system so that they may quote, bind and issue policies directly.
As of December 31, 2023, we had partnerships with over 25 insurance companies. Several carriers invite us to provide a companion offer for residential earthquake insurance alongside their homeowners’ insurance policy offerings. Other carriers will direct their captive agents to our online system so that they may quote, bind and issue policies directly.
We believe that automated underwriting of personal lines policies improves efficiency, reduces errors, and enhances the customer experience. Since property and casualty commercial lines risks involve additional complexity and do not lend themselves to highly automated underwriting, we combine robust risk analysis and data collection with underwriter expertise to evaluate individual risk and to quote business efficiently.
We believe that automated underwriting of personal lines policies improves efficiency, reduces errors, and enhances the customer experience. Since commercial lines risks involve additional complexity and do not lend themselves to highly automated underwriting, we combine robust risk analysis and data collection with underwriter expertise to evaluate individual risks and to quote business efficiently.
In addition, we allocate at least 1% of our investment portfolio to investments in green bonds- or fixed income investments tailored towards environmental solutions such as renewable energy, clean transportation, green building, and wastewater treatment – a commitment that is consistent with both our investment objectives and our company values.
In addition, we allocate at least 2% of our investment portfolio to investments in green bonds- or fixed income investments tailored towards environmental solutions such as renewable energy, clean transportation, green building, and wastewater treatment – a commitment that is consistent with both our investment objectives and our company values.
Our systems enable us to underwrite all of our personal lines business automatically within minutes by leveraging our proprietary modeling techniques to analyze data at the geocode or ZIP code level. With our commercial products, we balance automation with human expertise and controls to underwrite more complex risks.
Our systems enable us to underwrite our personal lines business automatically within minutes by leveraging our proprietary modeling techniques to analyze data at the geocode or ZIP code level. With our commercial products, we balance automation with human expertise and controls to underwrite more complex risks.
Admitted products are backed by state guarantee funds and, as a result, are subject to more regulation, as admitted insurance companies must receive approval for rates and policy forms from individual state regulators. Our admitted insurance company subsidiary, PSIC, is licensed to write business in 37 states.
Admitted products are backed by state guarantee funds and, as a result, are subject to more regulation, as admitted insurance companies must receive approval for rates and policy forms from individual state regulators. Our admitted insurance company subsidiary, PSIC, is licensed to write business in 42 states.
Our fronting business offers an additional source of fee income that we earn from program administrators and reinsurers seeking to access our licensed insurance companies. Our multi-channel distribution model produces attractive business that we aim to translate into a balanced mix of underwriting and fee income.
Our Fronting and Crop businesses offers an additional source of fee income that we earn from program administrators and reinsurers seeking to access our licensed insurance companies. Our multi-channel distribution model produces attractive business that we aim to translate into a balanced mix of underwriting and fee income.
We believe these markets complement our existing product offerings and offer significant growth opportunity across both the admitted and E&S markets. We seek to have a diversified business mix, anchored by our core earthquake offerings and we have made substantial progress diversifying our business by product, market, and geography.
We believe these markets complement our existing product offerings and offer significant growth opportunities across both the admitted and E&S markets. We seek to have a diversified business mix, anchored by our core earthquake offerings and we have made substantial progress diversifying our business by product, market, and geography.
Best, or whose surplus drops by more than 20%. ​ 15 Table of Contents In addition to reinsurance purchased from traditional reinsurers, we have historically incorporated collateralized protection from the insurance linked securities market via catastrophe bonds. During the first quarter of 2021, the Company closed a $400 million 144A catastrophe bond which became effective June 1, 2021.
Best, or whose surplus drops by more than 20%. ​ 15 Table of Contents In addition to reinsurance purchased from traditional reinsurers, we have historically incorporated collateralized protection from the insurance linked securities market via catastrophe bonds. During the first quarter of 2021, we closed a $400 million 144A catastrophe bond that became effective June 1, 2021.
We seek to write a diverse mix of business by loss exposure, customer type and geography to capitalize on market opportunities, mitigate the potential impact of any single catastrophe event, and reduce our cost of reinsurance.
We seek to write a diverse mix of business by loss exposure, customer type and geography to capitalize on market opportunities, mitigate the potential impact of any single catastrophe event or shock loss, and reduce our cost of reinsurance.
Enterprise Risk Management (“ERM”) We maintain a dedicated ERM function that is responsible for analyzing and reporting our risks, monitoring that risks remain within established tolerances, and monitoring, on an ongoing basis, that our ERM objectives are met.
Enterprise Risk Management ( “ ERM ” ) We maintain a dedicated ERM function that is responsible for analyzing and reporting our risks, monitoring that risks remain within established tolerances, and monitoring, on an ongoing basis, that our ERM objectives are met.
We currently contract with multiple TPAs to reduce our reliance on any single TPA, as well as to benefit from expertise of individual vendors in specific lines of business. Our management team is responsible for overseeing our TPAs, including the management of loss reserves, event preparation, settlement, arbitration, and mediation.
We currently contract with multiple TPAs to reduce our reliance on any single TPA, as well as to benefit from expertise of individual vendors in specific lines of business. Our management team is responsible for overseeing our TPAs, including the management of catastrophe event preparation, loss reserves, claim evaluation, arbitration, mediation, and settlement.
Under this agreement, which accounted for $173.1 million of written premiums for the year ended December 31, 2022, we conduct product development and underwriting while our program administrator manages a base of over 1,000 retail agents who individually bind policies through PASS or an internal system which automatically applies our pricing and underwriting guidelines to new policies, and is subjected to our disciplined risk management.
Under this agreement, which accounted for $208.1 million of written premiums for the year ended December 31, 2023, we conduct product development and underwriting while our program administrator manages a base of over 1,000 retail agents who individually bind policies through PASS or an internal system which automatically applies our pricing and underwriting guidelines to new policies, and is subjected to our disciplined risk management.
Commercial All Risk We offer Commercial All Risk insurance on a E&S basis nationwide through the underwriting division of a national wholesaler. Our products currently compete in the national layered and shared commercial property market, an area where we believe there is currently a high-level of market dislocation.
Commercial All Risk We offer Commercial All Risk insurance on a E&S basis nationwide through the underwriting division of a national wholesaler and through our internally underwritten Excess Property products. Our products currently compete in the national layered and shared commercial property market, an area where we believe there is a high-level of market dislocation.
In 2022, 100% of our workforce received equity awards. We offer team members a comprehensive and leading benefits program that includes a holistic approach to health and wellness.
In 2023, 100% of our workforce received equity awards. We offer team members a comprehensive and leading benefits program that includes a holistic approach to health and wellness.
We continue to experience growth and profitability across our other lines of business. 3 Table of Contents Our primary lines of business include: Residential and Commercial Earthquake, Fronting, and Inland Marine.
We also continue to experience growth and profitability across our other lines of business. 3 Table of Contents Our primary lines of business include: Residential and Commercial Earthquake, Fronting, Inland Marine, and Casualty.
Personal lines policies are issued via automated underwriting and account for approximately 37% of our gross written premium for the year ended December 31, 2022. Using our predefined underwriting guidelines, distribution partners can rapidly quote and bind accounts lower in limit via automated processing.
Personal lines policies are issued via automated underwriting and account for approximately 31% of our gross written premium for the year ended December 31, 2023. Using our predefined underwriting guidelines, distribution partners can rapidly quote and bind accounts lower in limit via automated processing.
In addition, we have certain managerial requirements of our TPAs around notification, reserve approval, payment management, correspondence with insureds, and reports for all claims in excess of the claims analyst’s authority. We also monitor possible litigation and litigation trends associated with our claims.
In addition, we have certain managerial requirements of our TPAs around notification, reserve approval, payment management, correspondence with insureds, timeliness, regulatory compliance, and reports for all claims in excess of the claims analyst’s authority. We also monitor possible litigation and litigation trends associated with our claims.
As owners of approximately 2.8% of our outstanding common stock as of December 31, 2022, we believe our management team has closely aligned interests with our stockholders. In addition, our Board of Directors is comprised of accomplished industry veterans who bring decades of experience from their prior roles working in insurance and financial services companies.
As owners of approximately 2.6% of our outstanding common stock as of December 31, 2023, we believe our management team has closely aligned interests with our stockholders. In addition, our Board of Directors is comprised of accomplished industry veterans who bring decades of experience from their prior roles working in insurance and financial services companies.
Our fixed maturity investment portfolio is managed by Conning, Inc., an investment advisory firm that is an experienced manager of insurance company assets, and operates under guidelines approved by our Board of Directors. We believe our investment strategy allows us to eliminate the expense of a treasury department while allowing our management to maintain oversight over the investment portfolio.
Our fixed maturity investment portfolio is primarily managed by an external investment advisory firm that is an experienced manager of insurance company assets, and operates under guidelines approved by our Board of Directors. We believe our investment strategy allows us to eliminate the expense of a treasury department while allowing our management to maintain oversight over the investment portfolio.
Short-term investments are reported at cost and include investments that are both readily convertible to known amounts of cash and have maturities of 12 months or less upon acquisition by us. 19 Table of Contents Our investment securities available totaled $553.6 million and $465.9 million at December 31, 2022 and 2021 respectively, and are summarized as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair % of Total December 31, 2022 ​ Value ​ Fair Value Fixed maturities: ​ ​ U.S.
Short-term investments are reported at cost and include investments that are both readily convertible to known amounts of cash and have maturities of 12 months or less upon acquisition by us. 19 Table of Contents Our investment securities available totaled $689.6 million and $553.6 million at December 31, 2023 and 2022 respectively, and are summarized as follows: ​ Fair % of Total December 31, 2023 Value Fair Value Fixed maturities: ​ ​ U.S.
Additionally, we will voluntarily disclose our base pay ranges to all our internal employees for the roles they hold in alignment with our philosophy of pay transparency. ​ ​ ​ Talent Development We provide numerous training opportunities for our team members, with a focus on personal and professional development.
Additionally, we voluntarily disclose our base pay ranges to all our internal employees for the roles they hold in alignment with our philosophy of pay transparency. ​ 24 Table of Contents Talent Development We provide numerous training opportunities for our team members, with a focus on personal and professional development.
In addition, we maintain reinsurance coverage equivalent to or better than the 1 in 250 year PML for our other lines. As of December 31, 2022, our first event retention represented approximately 3.2% of our stockholders’ equity.
In addition, we maintain reinsurance coverage equivalent to or better than the 1 in 250 year PML for our other lines. As of December 31, 2023, our first event retention represented approximately 3.7% of our stockholders’ equity.
Our focus and expertise have enabled us to rapidly increase our market share; for example, we have grown to become the 4 th largest earthquake insurer in California and the 5 th largest earthquake insurer in the United States. In markets with similar characteristics, we are experiencing growth and profitability across our other lines of business.
Our focus and expertise have enabled us to rapidly increase our market share; for example, we have grown to become the 2nd largest earthquake insurer in California and the 3rd largest earthquake insurer in the United States. In markets with similar characteristics, we are experiencing growth and profitability across our other lines of business.
Inland Marine Our Inland Marine products include Builder’s Risk, Contractor’s Equipment, Mobile Equipment, Motor Truck Cargo, Miscellaneous Floaters, Installation Floaters, and Special Property Floaters. We write our Inland Marine products on an admitted and on an E&S basis directly and through program administrators.
Inland Marine Our Inland Marine products include Builder’s Risk, Contractor’s Equipment, Mobile Equipment, Motor Truck Cargo, Miscellaneous Floaters, Installation Floaters, and Special Property Floaters. Our Inland Marine products are written on an admitted and on an E&S basis directly and through program administrators.
In 8 Table of Contents August 2014, we incorporated Palomar Specialty Reinsurance Company Bermuda Ltd.(“PSRE”), a Bermuda-based reinsurance subsidiary that provides reinsurance support exclusively to PSIC and PESIC. In August 2015, we incorporated Prospect General Insurance Agency, Inc., now known as Palomar Insurance Agency, Inc., (“PIA”), to underwrite specialty insurance products on behalf of third-party insurance companies.
PSIC was formed in February 2014. In August 2014, we incorporated Palomar Specialty Reinsurance Company Bermuda Ltd.(“PSRE”), a Bermuda-based reinsurance subsidiary that provides reinsurance support exclusively to PSIC and PESIC. In August 2015, we incorporated Prospect General Insurance Agency, Inc., now known as Palomar Insurance Agency, Inc., (“PIA”), to underwrite specialty insurance products on behalf of third-party insurance companies.
Hawaii Hurricane We offer admitted residential property coverage for named hurricanes in the state of Hawaii. The state requires this coverage for homeowners that carry a mortgage on their properties. Similar to our residential earthquake product, insureds have the ability to tailor limits to their preferences.
Hawaii Hurricane We offer admitted residential property coverage for named hurricanes in the state of Hawaii, which is required for homeowners that carry a mortgage on their properties. Similar to our residential earthquake product, insureds have the ability to tailor limits to their preferences.
Our Strategy We believe that our approach will allow us to achieve our goals of both growing our business and generating attractive returns. Our strategy involves: Expand our presence in existing markets. We compete in the United States property and casualty market that represented nearly $800 billion in total written premiums during 2021.
Our Strategy We believe that our approach will allow us to achieve our goals of both growing our business and generating attractive returns. Our strategy involves: Expand our presence in existing markets. We compete in the United States property and casualty market that represented over $850 billion in total written premiums during 2023.
Our reinsurance coverage exhausts at $2.11 billion for earthquake events, $1.01 billion for Hawaii hurricane events, and $250 million for continental U.S. hurricane events, providing coverage in excess of our 1:250 year peak zone PML and in excess of our A.M. Best threshold.
Our reinsurance coverage exhausts at $2.71 billion for earthquake events, $900 million for Hawaii hurricane events, and $100 million for continental U.S. hurricane events, providing coverage in excess of our 1:250 year peak zone PML and in excess of our A.M. Best threshold.
We believe that diversity yields greater creativity and productivity, helps us serve our customers and partners more effectively, and ultimately returns greater value to our shareholders and to the communities in which we do business. We set diversity goals in our annual Sustainability & Citizenship report.
We believe that diversity leads to greater creativity and productivity, helps us serve our customers and partners more effectively, and ultimately benefits our shareholders and the communities in which we do business. We set diversity goals in our annual Sustainability & Citizenship report.
We continue to develop product offerings for lines of business that harness our core competencies and where we believe we can generate attractive risk-adjusted returns. Notable recent examples of our commitment to developing new products include the expansion of our Casualty and Fronting operations during 2022.
We continue to develop product offerings for lines of business that harness our core competencies and where we believe we can generate attractive risk-adjusted returns. Notable recent examples of our commitment to developing new products include the expansion of our Casualty and Fronting operations and the launch of our Crop insurance program.
California represents our largest current exposure with 47% of our gross written premiums for the year ended December 31, 2022. Our business strategy involves continuing to grow our core earthquake insurance business while also diversifying our book of business into uncorrelated products such as Casualty and Fronting and extending the reach of heritage lines of business such as Inland Marine.
California represents our largest current exposure with 53% of our gross written premiums for the year ended December 31, 2023. Our business strategy involves continuing to grow our core earthquake insurance business, diversifying our book of business into uncorrelated products such as Casualty and Fronting, and extending the reach of lines of business such as Inland Marine.
Leverage our underwriting, analytics, and risk transfer acumen to generate fee income. We generate fee income by underwriting on behalf of other insurance companies and through the use of quota share reinsurance treaties whereby third-party reinsurers pay us a ceding commission in order to access attractive pools of risk.
Leverage our underwriting, analytics, and risk transfer acumen to generate fee income. We generate fee income through the use of quota share reinsurance treaties whereby third-party reinsurers pay us a ceding commission in order to access attractive pools of risk.
Policy limits vary by product, however, our E&S offerings are designed to target larger limit business and does not directly compete with our admitted offerings. We believe the flexibility of our Inland Marine products enables us to compete in select market segments and price risk appropriately.
Policy limits vary by product, however, our E&S offerings are designed to target larger limit business and do not directly compete with our admitted offerings. We believe the flexibility of our Inland Marine products enables us to compete in select market segments and price risk appropriately. Casualty We provide Casualty products on an admitted and E&S basis.
In 2022, 40% of our team members identify as a member of an ethnic minority group, compared to 39% in 2021, and 50% of our senior executive team identifies as a member of an ethnic minority group. Our commitment to Diversity and Inclusion follows: ​ 22 Table of Contents DIVERSITY – We are not all the same.
In 2023, 42% of our team members identify as a member of an ethnic minority group, compared to 40% in 2022, and 50% of our senior executive team identifies as a member of an ethnic minority group. Our commitment to Diversity and Inclusion follows: ​ 23 Table of Contents DIVERSITY – We are not all the same.
We have also been profitable since 2016 and our net income growth since 2016 reflects a compound annual growth rate of 41%. We seek to continuously grow our income by developing product offerings for lines of business that harness our core competencies and where we believe we can generate attractive risk adjusted returns.
We have also been profitable since 2016 and our net income growth since 2016 reflects a compound annual growth rate of 43%. We seek to continuously grow our income by developing products in lines of business that harness our core competencies and where we believe we can generate attractive risk adjusted returns.
The policies we write only trigger coverage if wind damage occurs while the insured risk is in a county that is under a hurricane watch or warning as deemed by the Pacific division of the National Weather Service. Coverage only remains in effect for a period of 72 hours after the hurricane watch or warning expires.
The policies we write only trigger coverage if an insured risk incurs wind damage while directly under a hurricane watch or warning as deemed by the Pacific division of the National Weather Service. Coverage only remains in effect for a period of 72 hours after the hurricane watch or warning expires.
Our primary insurance products include Residential and Commercial Earthquake, Fronting, and Inland Marine. We aim to develop a diversified portfolio with exposure spread across geographic regions with limited correlation. Although our largest exposure remains in the state of California, we have expanded across the United States.
Our primary insurance products include Residential and Commercial Earthquake, Fronting, Inland Marine, and Casualty. We aim to develop a diversified portfolio with exposure spread across geographic regions with limited correlation. Although our largest exposure is in the state of California, we write business across the United States.
Founded in 2014, we have significantly grown our business and have generated attractive returns. We have organically increased gross written premiums from $16.6 million in our first year of operations to $881.9 million for the year ended December 31, 2022, which reflects a compound annual growth rate of approximately 64%.
Founded in 2014, we have significantly grown our business and have generated attractive returns. We have organically increased gross written premiums from $16.6 million in our first year of operations to $1.1 billion for the year ended December 31, 2023, which reflects a compound annual growth rate of approximately 60%.
Our underwriters bring specific line of business experience including underwriting expertise, distribution relationships and support from the reinsurance community while collaborating closely with our actuarial team on pricing. In addition, we continue to pursue the use of technology to streamline inspections and other components of the underwriting process.
Our underwriters bring specific line of business experience including underwriting expertise, distribution relationships and support from the reinsurance community while collaborating closely with our actuarial team on pricing. In addition, we continue to pursue the use of technology to streamline inspections and other components of the underwriting process. We apply disciplined underwriting principles when selecting program administrator partners.
Our current reinsurance program is designed to limit our net loss before tax from a single event to $12.5 million , equivalent to approximately 3.2% of our total stockholders’ equity as of December 31, 2022.
Our current reinsurance program is designed to limit our net loss before tax from a single event to $17.5 million, equivalent to approximately 3.7% of our total stockholders’ equity as of December 31, 2023.
For the year ended December 31, 2022, 37% of our gross written premium consisted of personal lines business and 63% of gross written premium consisted of commercial lines business, compared to 54% personal lines business and 46% commercial lines business during the year ended December 31, 2021.
For the year ended December 31, 2023, 31% of our gross written premium consisted of personal lines business and 69% of gross written premium consisted of commercial lines business, compared to 37% personal lines business and 63% commercial lines business during the year ended December 31, 2022.
For the year ended December 31, 2022, 39% of our gross written premiums were related to earthquake insurance and non-earthquake related premiums grew 96% while earthquake related premiums grew 32% versus the prior year. ​ 4 Table of Contents Our admitted insurance subsidiary, PSIC, is licensed in 37 states and we have the flexibility to write nationally through our surplus lines subsidiary, PESIC.
For the year ended December 31, 2023, 38% of our gross written premiums were related to earthquake insurance and non-earthquake related premiums grew 31% while earthquake related premiums grew 27% versus the prior year. ​ 4 Table of Contents Our admitted insurance subsidiary, PSIC, is licensed in 42 states and we have the flexibility to write nationally through our surplus lines subsidiary, PESIC.
As a result, we are able to generate an attractive underwriting profit through expanding the addressable market and winning market share with our distinctive products. For the years ended December 31, 2022 and 2021, our return on equity (“ROE”) was 13.4% and 12.1%, and our adjusted ROE was 18.3% and 13.8%, respectively.
As a result, we are able to generate an attractive underwriting profit by expanding the addressable market and winning market share with our distinctive products. For the years ended December 31, 2023 and 2022, our return on equity (“ROE”) was 18.5% and 13.4%, and our adjusted ROE was 21.9% and 18.3%, respectively.
We believe this market acceptance and return potential is evidenced by the fact that we have quickly and profitably grown to be the 4 th largest earthquake insurer in the state of California and the 5 th largest earthquake insurer in the United States.
We believe this market acceptance and return potential is evidenced by the fact that we have quickly and profitably grown to become the 2nd largest earthquake insurer in the state of California and the 3rd largest earthquake insurer in the United States.
We write surplus lines policies primarily for our commercial business. As the E&S market does not involve the same level of regulation and required approvals as the admitted market, our surplus lines products enable us to react quickly to changing market conditions.
As the E&S market does not involve the same level of regulation and required approvals as the admitted market, our surplus lines products enable us to react quickly to changing market conditions.
In addition, we compete against state or other publicly managed enterprises including the California Earthquake Authority and the National Flood Insurance Program. We may also compete with new market entrants in the future.
We also compete with the E&S market, including Lloyd’s of London in some of our lines. In addition, we compete against state or other publicly managed enterprises including the California Earthquake Authority and the National Flood Insurance Program. We may also compete with new market entrants in the future.
Should an event equivalent to one of these historical events recur, our hypothetical net loss before any tax effect would be capped at our current net retention of $12.5 million. ​ ​ ​ ​ ​ 12/31/22 Historical Event ​ modeled PML ​ ​ ($ millions) CA 1906 San Francisco M7.8 ​ $ 1,821 CA 1994 Northridge M6.7 ​ 1,252 CA 1971 San Fernando M6.7 ​ 625 CA 1868 Hayward M7.0 ​ 576 NM 1811‑12 sequence M7.8 ​ 552 HI 1992 Hurricane Iniki ​ 439 NW 1949 Puget Sound M7.1 ​ 375 CA 1857 Fort Tejon M7.9 ​ 350 CA 1933 Long Beach M6.4 ​ 320 ​ While we only select reinsurers whom we believe to have acceptable credit and a minimum A.M.
Should an event equivalent to one of these historical events recur, our hypothetical net loss before any tax effect would be capped at our current net retention of $17.5 million. ​ 12/31/2023 Historical Event modeled PML ​ ($ millions) CA 1906 San Francisco M7.8 $ 1,912 CA 1994 Northridge M6.7 1,352 CA 1971 San Fernando M6.7 694 CA 1868 Hayward M7.0 672 NM 1811‑12 sequence M7.8 591 HI 1992 Hurricane Iniki 455 NW 1949 Puget Sound M7.1 461 CA 1857 Fort Tejon M7.9 382 CA 1933 Long Beach M6.4 336 While we only select reinsurers whom we believe to have acceptable credit or a minimum A.M.
We regularly review the output of these models to evaluate the geographic spread of our risk, including the evaluation of AAL and PML by line of business and for the portfolio as a whole.
We use third-party catastrophe modeling software to evaluate our ongoing risk exposure. We regularly review the output of these models to evaluate the geographic spread of our risk, including the evaluation of AAL and PML by line of business and for the portfolio as a whole.
We write policy limits up to $15 million; all policies involve automated underwriting and lower limit policies are issued via automated processing. During the year ended December 31, 2022 and 2021, our Residential Earthquake products had a premium retention rate of approximately 91%.
We write policy limits up to $15 million; all policies involve automated underwriting and lower limit policies are issued via automated processing. During the year ended December 31, 2023 and 2022, our Residential Earthquake products had a premium retention rate of approximately 97%. Commercial Earthquake We offer Commercial Earthquake products on an admitted and E&S basis.
We believe that we can generate superior risk-adjusted returns through underwriting which better reflects our customers’ underlying risk by applying a more granular approach to pricing than what is typically offered by standard carriers.
We believe that we can generate superior risk-adjusted returns through the use of underwriting methods that apply a more granular approach to pricing than what is typically offered by standard carriers and that better reflect our customers' underlying risk.
The following table shows gross written premium by product line for the years ended December 31, 2022, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2022 ​ 2021 2020 ​ ​ ($ in thousands) ​ ​ ​ ​ ​ % of ​ ​ ​ ​ % of ​ ​ ​ % of ​ ​ Amount ​ GWP ​ Amount ​ GWP Amount ​ GWP Product ​ ​ ​ ​ ​ Fronting ​ $ 223,249 ​ 25.3 % $ 11,459 ​ 2.2 % $ — ​ NM ​ Residential Earthquake ​ ​ 213,803 ​ 24.2 % ​ 171,048 ​ 32.0 % ​ 140,934 ​ 39.8 % Commercial Earthquake ​ 131,677 ​ 14.9 % 90,552 ​ 16.9 % 58,890 ​ 16.6 % Inland Marine ​ 105,068 ​ 11.9 % 57,124 ​ 10.7 % 15,423 ​ 4.3 % Commercial All Risk ​ 51,671 ​ 5.9 % 38,640 ​ 7.2 % 53,933 ​ 15.2 % Casualty ​ ​ 35,791 ​ 4.1 % ​ 9,584 ​ 1.9 % ​ — ​ NM ​ Hawaii Hurricane ​ ​ 32,967 ​ 3.7 % ​ 30,298 ​ 5.6 % ​ 13,824 ​ 3.9 % Specialty Homeowners ​ 29,959 ​ 3.4 % 67,894 ​ 12.7 % 49,849 ​ 14.1 % Residential Flood ​ 14,539 ​ 1.7 % 11,652 ​ 2.2 % 8,176 ​ 2.3 % Other ​ ​ 43,144 ​ 4.9 % ​ 46,924 ​ 8.6 % ​ 13,331 ​ 3.8 % Total Gross Written Premiums ​ $ 881,868 100.0 % $ 535,175 100.0 % $ 341,029 100.0 % NM-Not Meaningful ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential Earthquake We offer Residential Earthquake products in 37 states on an admitted basis and nationwide on an E&S basis.
The following table shows gross written premium by product line for the years ended December 31, 2023, 2022 and 2021: Year Ended December 31, 2023 2022 2021 ($ in thousands) % of % of % of Amount GWP Amount GWP Amount GWP Product Fronting $ 364,250 31.9 % $ 223,249 25.3 % $ 11,459 2.2 % Residential Earthquake 253,530 22.2 % 213,803 24.2 % 171,048 32.0 % Commercial Earthquake 183,368 16.1 % 131,677 14.9 % 90,552 16.9 % Inland Marine 140,067 12.3 % 105,068 11.9 % 57,124 10.7 % Casualty 76,864 6.7 % 35,791 4.1 % 9,584 1.9 % Hawaii Hurricane 38,188 3.3 % 32,967 3.7 % 30,298 5.6 % Commercial All Risk 35,515 3.1 % 51,671 5.9 % 38,640 7.2 % Residential Flood 20,087 1.8 % 14,539 1.7 % 11,652 2.2 % Specialty Homeowners (101 ) (0.0 )% 29,959 3.4 % 67,894 12.7 % Other 29,790 2.6 % 43,144 4.9 % 46,924 8.6 % Total Gross Written Premiums $ 1,141,558 100.0 % $ 881,868 100.0 % $ 535,175 100.0 % Residential Earthquake We offer Residential Earthquake products on an admitted and E&S basis.
Our cash and invested assets consist of fixed maturity securities, short-term investments, cash and cash equivalents, mutual funds, exchange traded funds and equity securities. Our fixed maturity securities are classified as “available-for-sale” and are carried at fair value with unrealized gains and losses on these securities reported, net of tax, as a separate component of accumulated other comprehensive income (loss).
Our fixed maturity securities are classified as “available-for-sale” and are carried at fair value with unrealized gains and losses on these securities reported, net of tax, as a separate component of accumulated other comprehensive income (loss). Our equity investments are measured at fair value with changes in fair value recognized in net income.
These ongoing enhancements include the creation of an ERM Sub Committee of the Audit Committee of the 20 Table of Contents Board of Directors which is comprised of executive management and select board members, creation and maintenance of a risk register, and regular reporting on risk management.
These ongoing enhancements include the creation of an ERM Committee of the Board of Directors which is comprised select board members and select members of executive management, creation and maintenance of a risk register, and regular reporting on risk management. 20 Table of Contents An additional important part of our ERM is business continuity, including in the circumstances of a catastrophe event.
Most notably, for our Value Select Residential Earthquake products, we have a mutually exclusive program administrator agreement with Arrowhead for the states of California, Oregon and Washington.
We audit the underwriting, systems, financial strength and reporting capabilities of all of our program administrators on a regular basis. Most notably, for our Value Select Residential Earthquake products, we have a mutually exclusive program administrator agreement with Arrowhead for the states of California, Oregon and Washington.
During 2020, we received regulatory approval for and capitalized PESIC. PESIC is domiciled in the State of Arizona and licensed in Arizona to write surplus lines business on a nationwide basis across all our existing lines of business. Our Products We provide personal and commercial specialty insurance products in our target markets.
During 2020, we received regulatory approval for and capitalized PESIC. PESIC is domiciled in the State of Arizona and licensed in Arizona to write surplus lines business on a nationwide basis across all our existing lines of business. During 2023, we formed Palomar Underwriters Exchange Organization, Inc.
By comparison, we generated $881.9 million of gross written premiums for the year ended December 31, 2022.
By comparison, we generated $1.1 billion of gross written premiums for the year ended December 31, 2023.
During the second quarter of 2022, the Company also closed a $275 million 144A catastrophe bond which became effective June 1, 2022.
During the second quarter of 2023, we also closed a $200 million 144A catastrophe bond that became effective June 1, 2023.
Ratings Each of our insurance company subsidiaries, PSIC and PESIC has a rating of “A−” (Excellent) (Outlook Stable) from A.M. Best, which rates insurance companies based on factors of concern to policyholders. A.M. Best currently assigns 16 ratings to insurance companies, which currently range from “A++” (Superior) to “S” (Rating Suspended). “A−” (Excellent) (Outlook Stable) is the fourth highest rating.
Ratings Each of our insurance company subsidiaries, PSIC and PESIC has a rating of “A−” (Excellent) (Outlook Positive) from A.M. Best, which rates insurance companies based on factors of concern to policyholders. A.M. Best currently assigns 16 ratings to insurance companies, which currently range from “A++” (Superior) to “F” for insurance companies that have been publicly placed in liquidation.
Our equity investments are measured at fair value with changes in fair value recognized in net income. Fair value generally represents quoted market value prices for securities traded in the public market or prices analytically determined using bid or closing prices for securities not traded in the public marketplace.
Fair value generally represents quoted market value prices for securities traded in the public market or prices analytically determined using bid or closing prices for securities not traded in the public marketplace.
This catastrophe bond was completed through Torrey Pines Re Ltd., a Bermuda-domiciled special purpose insurer that provides indemnity-based reinsurance covering earthquake events through June 1, 2025. ​ Our largest single XOL reinsurer, excluding Torrey Pines Re, comprises 5.2% of the total catastrophe XOL reinsurance limit we have in effect.
This catastrophe bond was also completed through Torrey Pines Re Ltd and provides indemnity-based reinsurance covering earthquake events through June 1, 2026. ​ Our largest single XOL reinsurer, excluding Torrey Pines Re, comprises 5.82% of the total catastrophe XOL reinsurance limit we have in effect. The table below reflects the ratings of our largest individual reinsurers.
Wholesale brokers are an important channel for commercial property insurance products as they control much of the premium in these segments. We select wholesale brokers based on our management’s review of their experience, knowledge, and business plan. We target brokers with the experience to serve our target markets and with business plans consistent with our strategy and underwriting objectives.
Wholesale brokers are an important channel for commercial insurance products as they control much of the premium in these segments. We target brokers with experience serving our target markets and with business plans consistent with our strategy and underwriting objectives. Brokers must demonstrate an ability to produce both the quality and quantity of business that we seek.
We encourage all team members to take advantage of company supported learning opportunities that help broaden industry and functional knowledge to help them excel in their current roles as well as advance their overall career objectives. In 2022, our team members completed approximately 2,903 hours of training.
We encourage all team members to take advantage of company supported learning opportunities that help broaden industry and functional knowledge to help them excel in their current roles as well as advance their overall career objectives. We believe in the dynamic allocation of talent, and therefore we encourage interested team members to explore functions outside their current role.
The Commercial All Risk policy covers the perils of fire and wind, with wind including hurricane, tornado, and hailstorm. For additional premium, the policy can include the peril of earthquake. We target occupancy types including government entities, homeowner’s associations, retail stores, hotels, motels, and office buildings.
The Commercial All Risk policy covers the perils of fire and wind, with wind including hurricane, tornado, and hailstorm. For additional premium, the policy can include the peril of earthquake.
Lastly, we have a methodical approach to talent development, offering organizational advancement and 23 Table of Contents mentoring services to all team members regardless of position or title.
To support this belief, we provide a $3,000 tuition and/or certification reimbursement for ongoing development. Lastly, we have a methodical approach to talent development, offering organizational advancement and mentoring services to all team members regardless of position or title.
With all partnerships, we review pricing at the policy level to ensure that the risk characteristics of both new and assumed business are consistent with our underwriting of direct business.
With all partnerships, we review pricing at the policy level to ensure that the risk characteristics of both new and assumed business are consistent with our underwriting of direct business. 13 Table of Contents Underwriting Our underwriting team combines comprehensive data analysis with experienced underwriting techniques to build a profitable, stable and diversified book of business.
The following table shows gross written premium (“GWP”) by state for the years ended December 31, 2022, 2021 and 2020. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2022 ​ 2021 2020 ​ ​ ($ in thousands) ​ ​ ​ ​ ​ % of ​ ​ ​ ​ % of ​ ​ ​ ​ % of ​ ​ ​ Amount ​ GWP ​ Amount ​ GWP ​ Amount ​ GWP State ​ ​ ​ ​ California ​ $ 418,809 47.5 % $ 244,416 45.6 % $ 172,765 ​ 48.8 % Texas ​ 90,459 10.3 % 62,893 11.8 % 67,974 ​ 19.2 % Washington ​ 41,827 4.7 % 23,608 4.4 % 14,328 ​ 4.0 % Hawaii ​ 40,157 4.5 % 34,993 6.5 % 16,398 ​ 4.6 % Florida ​ 38,715 4.4 % 27,386 5.1 % 5,795 ​ 1.7 % Oregon ​ 24,108 2.7 % 13,677 2.6 % 10,038 ​ 2.8 % Illinois ​ 17,368 2.0 % 12,133 2.3 % 6,133 ​ 1.7 % North Carolina ​ 12,776 1.5 % 15,271 2.9 % 11,143 ​ 3.1 % Other ​ 197,649 22.4 % 100,798 18.8 % 49,786 ​ 14.1 % Total Gross Written Premiums ​ $ 881,868 100.0 % $ 535,175 100.0 % $ 354,360 100.0 % ​ ​ 9 Table of Contents We believe that maintaining a balanced book of personal and commercial lines business is beneficial.
Year Ended December 31, 2023 2022 2021 ($ in thousands) % of % of % of Amount GWP Amount GWP Amount GWP State California $ 600,791 52.6 % $ 418,809 47.5 % $ 244,416 45.7 % Texas 95,517 8.4 % 90,459 10.3 % 62,893 11.8 % Washington 49,494 4.3 % 41,827 4.7 % 23,608 4.4 % Hawaii 47,388 4.2 % 40,157 4.5 % 34,993 6.5 % Florida 47,595 4.2 % 38,715 4.4 % 27,386 5.1 % Oregon 23,220 2.0 % 24,108 2.7 % 13,677 2.6 % Illinois 22,340 2.0 % 17,368 2.0 % 12,133 2.3 % New York 18,424 1.6 % 12,510 1.5 % 3,077 0.6 % Other 236,789 20.7 % 197,915 22.4 % 112,992 21.1 % Total Gross Written Premiums $ 1,141,558 100.0 % $ 881,868 100.0 % $ 535,175 100.0 % 9 Table of Contents We believe that maintaining a balanced book of personal and commercial lines business is beneficial.
Commercial Earthquake We offer Commercial Earthquake products, commonly known as “Difference in Conditions” policies, on an admitted basis in 15 states and nationwide on an E&S basis. Our Commercial Earthquake products focus on providing coverage for benign commercial risks where the business interruption exposure is typically less than 15% of the total insured value (“TIV”).
Our Commercial Earthquake products focus on providing coverage for benign commercial risks where the business interruption exposure is typically less than 15% of the total insured value (“TIV”).
We maintain an additional office in Edina, Minnesota to use as a redundant location in the event of a disruptive event in San Diego, and purchase business continuity services to support the La Jolla office in the event of a disruptive event.
We maintain an additional office in Edina, Minnesota to use as a redundant location in the event of a disruptive event in San Diego, and purchase business continuity services to support the La Jolla office in the event of a disruptive event. 21 Table of Contents Environmental, Social and Governance Matters In 2021, our Board of Directors established an Environmental, Social and Corporate Governance (“ESG”) Committee which is comprised of various members of our Board.
We apply the same principles and discipline to underwriting when selecting program administrator partners. We proactively engage with our program managers to create specific underwriting guidelines and techniques. We regularly conduct underwriting, claims and financial audits to ensure consistent execution upon underwriting guidelines, claims processing and compliance with regulatory requirements.
We proactively engage with our program managers to create specific underwriting guidelines and techniques. We regularly conduct underwriting, claims and financial audits to ensure consistent execution upon underwriting guidelines, claims processing and compliance with regulatory requirements. Ongoing risk management of our portfolio in aggregate is a critical component of our underwriting process.
History We are an insurance holding company that was originally incorporated under the laws of the Cayman Islands in October 2013. In March 2019, we (i) implemented a domestication pursuant to Section 388 of the Delaware General Corporation Law and became a Delaware corporation.
History We are an insurance holding company that was originally incorporated under the laws of the Cayman Islands in October 2013.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties ​ Our primary executive offices and insurance operations are located in La Jolla, California, which occupy approximately 14,700 square feet of office space for annual rent and rent-related operating payments of approximately $0.7 million. The lease for this space expires in 2024.
Biggest changeItem 2. Properties ​ Our primary executive offices and insurance operations are located in La Jolla, California, which occupy approximately 14,700 square feet of office space for annual rent and rent-related operating payments of approximately $0.7 million. We recently signed a lease extension through July 2034 for this space.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeSuch returns are based on historical results and are not indicative of future performance. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ April 17, 2019 ​ December 31, 2019 ​ December 31, 2020 ​ ​ December 31, 2021 ​ December 31, 2022 Palomar Holdings, Inc $ 100.00 ​ $ 265.88 ​ $ 467.83 ​ ​ $ 341.07 ​ $ 237.81 Nasdaq Composite Index $ 100.00 ​ $ 112.21 ​ $ 161.18 ​ ​ $ 195.66 ​ $ 145.59 Nasdaq Insurance Index $ 100.00 ​ $ 110.88 ​ $ 111.93 ​ ​ $ 126.69 ​ $ 116.15 ​ ​ ​ Item 6. [Reserved] ​ ​ ​
Biggest changeSuch returns are based on historical results and are not indicative of future performance. ​ April 17, 2019 December 31, 2019 December 31, 2020 December 31, 2021 December 31, 2022 December 31, 2023 Palomar Holdings, Inc $ 100.00 $ 265.88 $ 467.83 $ 341.07 $ 237.81 $ 292.26 Nasdaq Composite Index $ 100.00 $ 112.21 $ 161.18 $ 195.66 $ 145.59 $ 187.73 Nasdaq Insurance Index $ 100.00 $ 110.88 $ 111.93 $ 126.69 $ 116.15 $ 139.85 Item 6. [Reserved]
Because most of our shares of common stock are held by brokers and other institutions on behalf of our stockholders, this number is not representative our total stockholders. ​ Payment of Dividends ​ The continued operation and growth of our business will require substantial capital.
Because most of our shares of common stock are held by brokers and other institutions on behalf of our stockholders, this number is not representative of our total stockholders. ​ Payment of Dividends ​ The continued operation and growth of our business will require substantial capital.
These restrictions, and any other future restrictions adopted by the BMA, could have the effect, under certain circumstances, of significantly reducing dividends or other amounts payable to us by our Bermuda reinsurance subsidiary without affirmative approval of the BMA. 51 Table of Contents Any determination to pay dividends in the future will be at the discretion of our Board of Directors and will depend upon results of operations, financial condition, restrictions imposed by applicable law and other factors our Board of Directors deems relevant.
These restrictions, and any other future restrictions adopted by the BMA, could have the effect, under certain circumstances, of significantly reducing dividends or other amounts payable to us by our Bermuda reinsurance subsidiary without affirmative approval of the BMA. 52 Table of Contents Any determination to pay dividends in the future will be at the discretion of our Board of Directors and will depend upon results of operations, financial condition, restrictions imposed by applicable law and other factors our Board of Directors deems relevant.
Performance Graph ​ The following performance graph compares the cumulative total shareholder return of an investment in (1) our common stock, (2) the cumulative total returns to the Nasdaq Composite Index and (3) the cumulative total returns to the Nasdaq Insurance Index, for the period from April 17, 2019 (the date our common stock began trading on Nasdaq) through December 31, 2022. ​ 52 Table of Contents The graph assumes an initial investment of $100.
Performance Graph ​ The following performance graph compares the cumulative total shareholder return of an investment in (1) our common stock, (2) the cumulative total returns to the Nasdaq Composite Index and (3) the cumulative total returns to the Nasdaq Insurance Index, for the period from April 17, 2019 (the date our common stock began trading on Nasdaq) through December 31, 2023. ​ 53 Table of Contents The graph assumes an initial investment of $100.
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ​ Market information for Common Stock Our common shares began trading on the NASDAQ Global Select Market under the symbol “PLMR” on April 17, 2019. Prior to that time, there was no public market for our common shares.
Item 5. Market for the Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ​ Market information for Common Stock Our common shares began trading on the NASDAQ Global Select Market under the symbol “PLMR” on April 17, 2019. Prior to that time, there was no public market for our common shares.
As of February 22, 2023, there were approximately 9 holders of record of our common stock.
As of February 22, 2024, there were approximately seven holders of record of our common stock.
On January 24, 2022, the Board of Directors approved a new share repurchase program, replacing the existing program and authorizing the repurchase by the Company of up to $100 million of its outstanding shares of common stock over the period ending on March 31, 2024.
Issuer Purchases of Equity Securities 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 over the period ending on March 31, 2024.
The Company repurchased 621,415 shares for $34.4 million and at a weighted-average price of $55.36 per share under this program during the 12 months ended December 31, 2022.
The Company purchased 418,901 shares for $22.3 million at an average price of $54.4 under this program during the year ended December 31, 2023. Approximately $43.5 million remains available for future repurchases. There were no share repurchases during the quarter ended December 31, 2023.
Removed
Issuer Purchases of Equity Securities During the year ended December 31, 2021, the Company’s Board of Directors authorized a $40 million share repurchase program and the Company repurchased $15.9 million of shares under this program in 2021.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeItem 6. [Reserved] 53 ​ ​ ​ Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 53 ​ ​ ​ Item 7A. Quantitative and Qualitative Disclosures About Market Risk 80 ​ ​ ​ Item 8. Financial Statements and Supplementary Data 89 ​ ​ ​
Biggest changeItem 6. [Reserved] 54 ​ ​ ​ Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 54 ​ ​ ​ Item 7A. Quantitative and Qualitative Disclosures About Market Risk 81 ​ ​ ​ Item 8. Financial Statements and Supplementary Data 83 ​ ​ ​

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeSee “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of stockholders’ equity calculated in accordance with GAAP to tangible stockholders’ equity. 58 Table of Contents Results of Operations Year ended December 31, 2022 compared to year ended December 31, 2021 ​ The following table summarizes our results for the years ended December 31, 2022 and 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ ​ Percent ​ 2022 2021 Change Change ​ ​ ($ in thousands, except per share data) ​ ​ ​ Gross written premiums ​ $ 881,868 ​ $ 535,175 ​ $ 346,693 64.8 % Ceded written premiums ​ (524,575) ​ (223,443) ​ (301,132) 134.8 % Net written premiums ​ 357,293 ​ 311,732 ​ 45,561 14.6 % Net earned premiums ​ 316,466 ​ 233,826 ​ 82,640 35.3 % Commission and other income ​ 4,272 ​ 3,608 ​ 664 18.4 % Total underwriting revenue (1) ​ 320,738 ​ 237,434 ​ 83,304 35.1 % Losses and loss adjustment expenses ​ 78,672 ​ 41,457 ​ 37,215 89.8 % Acquisition expenses ​ 110,771 ​ 95,433 ​ 15,338 16.1 % Other underwriting expenses ​ 69,219 ​ 53,723 ​ 15,496 28.8 % Underwriting income (1) ​ 62,076 ​ 46,821 ​ 15,255 32.6 % Interest expense ​ (873) ​ (40) ​ (833) NM ​ Net investment income ​ 13,877 ​ 9,080 ​ 4,797 52.8 % Net realized and unrealized (losses) gains on investments ​ (7,529) ​ 1,277 ​ (8,806) NM ​ Income before income taxes ​ 67,551 ​ 57,138 ​ 10,413 18.2 % Income tax expense ​ 15,381 ​ 11,291 ​ 4,090 36.2 % Net income ​ 52,170 ​ 45,847 ​ 6,323 13.8 % Adjustments: ​ ​ ​ ​ ​ Net realized and unrealized losses (gains) on investments (2) ​ ​ 7,529 ​ ​ (1,277) ​ ​ 8,806 NM ​ Expenses associated with transactions ​ 130 ​ 563 ​ (433) (76.9) % Stock-based compensation expense ​ ​ 11,624 ​ ​ 5,584 ​ ​ 6,040 ​ 108.2 % Amortization of intangibles ​ 1,255 ​ 1,251 ​ 4 0.3 % Expenses associated with catastrophe bond, net of rebate ​ ​ 1,992 ​ ​ 1,704 ​ ​ 288 ​ 16.9 % Tax impact ​ ​ (3,366) ​ ​ (1,238) ​ ​ (2,128) ​ 171.9 % Adjusted net income (1) (2) ​ $ 71,334 ​ $ 52,434 ​ $ 18,900 36.0 % Key Financial and Operating Metrics ​ ​ ​ ​ Annualized return on equity ​ 13.4 % 12.1 % ​ Annualized adjusted return on equity (1) ​ 18.3 % 13.8 % ​ Loss ratio ​ 24.9 % 17.7 % ​ Expense ratio ​ 55.5 % 62.2 % ​ Combined ratio ​ 80.4 % 80.0 % ​ ​ ​ ​ ​ Adjusted combined ratio (1) ​ 75.6 % 76.1 % ​ ​ ​ ​ ​ Diluted earnings per share ​ $ 2.02 ​ $ 1.76 ​ ​ ​ ​ ​ ​ Diluted adjusted earnings per share (1) ​ $ 2.77 ​ $ 2.01 ​ ​ Catastrophe losses ​ $ 15,394 ​ $ 5,015 ​ ​ ​ ​ ​ ​ Catastrophe loss ratio (1) ​ ​ 4.9 % ​ 2.1 % ​ ​ ​ ​ ​ Adjusted combined ratio excluding catastrophe losses (1) ​ ​ 70.8 % ​ 73.9 % ​ ​ ​ ​ ​ Adjusted underwriting income (1) ​ $ 77,077 ​ $ 55,923 ​ ​ 21,154 ​ 37.8 % NM-Not Meaningful ​ ​ ​ ​ ​ ​ ​ ​ ​ (1) Indicates non-GAAP financial measure; see “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of the non-GAAP financial measures to their most directly comparable financial measures prepared in accordance with GAAP. 59 Table of Contents (2) Beginning with this Annual Report on Form 10-K, we are including the impact of net realized and unrealized losses and gains on investments as an adjustment to our net income.
Biggest changeSee “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of stockholders’ equity calculated in accordance with GAAP to tangible stockholders’ equity. 59 Table of Contents Results of Operations Year ended December 31, 2023 compared to year ended December 31, 2022 ​ The following table summarizes our results for the years ended December 31, 2023 and 2022: Year Ended December 31, Percent 2023 2022 Change Change ($ in thousands, except per share data) Gross written premiums $ 1,141,558 $ 881,868 $ 259,690 29.4 % Ceded written premiums (731,531 ) (524,575 ) (206,956 ) 39.5 % Net written premiums 410,027 357,293 52,734 14.8 % Net earned premiums 345,913 316,466 29,447 9.3 % Commission and other income 3,367 4,272 (905 ) (21.2 )% Total underwriting revenue (1) 349,280 320,738 28,542 8.9 % Losses and loss adjustment expenses 72,592 78,672 (6,080 ) (7.7 )% Acquisition expenses 107,745 110,771 (3,026 ) (2.7 )% Other underwriting expenses 88,172 69,219 18,953 27.4 % Underwriting income (1) 80,771 62,076 18,695 30.1 % Interest expense (3,775 ) (873 ) (2,902 ) 332.4 % Net investment income 23,705 13,877 9,828 70.8 % Net realized and unrealized gains (losses) on investments 2,941 (7,529 ) 10,470 (139.1 )% Income before income taxes 103,642 67,551 36,091 53.4 % Income tax expense 24,441 15,381 9,060 58.9 % Net income 79,201 52,170 27,031 51.8 % Adjustments: Net realized and unrealized (gains) losses on investments (2,941 ) 7,529 (10,470 ) (139.1 )% Expenses associated with transactions 706 130 576 443.1 % Stock-based compensation expense 14,913 11,624 3,289 28.3 % Amortization of intangibles 1,481 1,255 226 18.0 % Expenses associated with catastrophe bond, net of rebate 1,640 1,992 (352 ) (17.7 )% Tax impact (1,480 ) (3,366 ) 1,886 (56.0 )% Adjusted net income (1) $ 93,520 $ 71,334 $ 22,186 31.1 % Key Financial and Operating Metrics Annualized return on equity 18.5 % 13.4 % Annualized adjusted return on equity (1) 21.9 % 18.3 % Loss ratio 21.0 % 24.9 % Expense ratio 55.7 % 55.5 % Combined ratio 76.6 % 80.4 % Adjusted combined ratio (1) 71.2 % 75.6 % Diluted earnings per share $ 3.13 $ 2.02 Diluted adjusted earnings per share (1) $ 3.69 $ 2.77 Catastrophe losses $ 3,442 $ 15,394 Catastrophe loss ratio (1) 1.0 % 4.9 % Adjusted combined ratio excluding catastrophe losses (1) 70.2 % 70.8 % Adjusted underwriting income (1) $ 99,511 $ 77,077 $ 22,434 29.1 % ​ (1) Indicates non-GAAP financial measure; see “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of the non-GAAP financial measures to their most directly comparable financial measures prepared in accordance with GAAP. 60 Table of Contents Gross Written Premiums Gross written premiums were $1.1 billion for the year ended December 31, 2023 compared to $881.9 million for the year ended December 31, 2022, an increase of $259.7 million, or 29.4%.
Interest Expense Interest expense consists of the unused line fee and amortization of the commitment fee on our credit agreement with U.S. Bank National Association and interest incurred on borrowings from our FHLB line of credit. Net Investment Income We earn investment income on our portfolio of invested assets.
Interest Expense Interest expense consists of the unused line fee, amortization of the commitment fee and interest incurred on borrowings from our credit agreement with U.S. Bank National Association and interest incurred on borrowings from our FHLB line of credit. Net Investment Income We earn investment income on our portfolio of invested assets.
Although we are inherently subject to catastrophe losses, the frequency and severity of catastrophe losses is unpredictable and their impact on our operating results may vary significantly between periods and obscure other trends in our business.
Although we are inherently subject to catastrophe losses, the frequency and severity of catastrophe losses is unpredictable and their impact on our operating results may vary significantly between periods and obscure other trends in our business.
Therefore, we are providing this metric because we believe it gives our management and other financial statement users useful insight into our results of operations and trends in our financial performance without the volatility caused by catastrophe losses.
Therefore, we are providing this metric because we believe it gives our management and other financial statement users useful insight into our results of operations and trends in our financial performance without the volatility caused by catastrophe losses.
The volume of fronting premiums written each period may vary due to the timing of entering new fronting partnerships and terminations of fronting partnerships. During the second quarter of 2022, we ceased writing Specialty Homeowners business outside of Texas and converted our Texas Specialty Homeowners business to a fronting arrangement beginning June 1, 2022.
The volume of fronting premiums written each period may vary due to the timing of entering new fronting partnerships and terminations of existing fronting partnerships. During the second quarter of 2022, we ceased writing Specialty Homeowners business outside of Texas and converted our Texas Specialty Homeowners business to a fronting arrangement beginning June 1, 2022.
Deferred tax assets and liabilities are measured by applying enacted tax rates in effect for the years in which such differences are expected to reverse. Our deferred tax assets result from temporary differences primarily attributable to unearned premiums, net operating losses (“NOLs”) and unrealized losses on investments.
Deferred tax assets and liabilities are measured by applying enacted tax rates in effect for the years in which such differences are expected to reverse. Our deferred tax assets result from temporary differences primarily attributable to unearned premiums, net operating losses (“NOLs”), unrealized losses on investments and deferred compensation.
The assessment requires significant judgement and review of all positive and negative 79 Table of Contents evidence to reach a conclusion that it is more likely than not that all or some of portion of the deferred tax asset will not be realized. ​ In assessing the need for a deferred tax asset valuation allowance, we are required to make certain judgments and assumptions about our future operations based on historical experience and information regarding reversals of existing temporary differences, carryback capacity, future taxable income and tax planning strategies.
The assessment requires significant judgement and review of all positive and negative evidence to reach a conclusion that it is more likely than not that all or some of portion of the deferred tax asset will not be realized. ​ 80 Table of Contents In assessing the need for a deferred tax asset valuation allowance, we are required to make certain judgments and assumptions about our future operations based on historical experience and information regarding reversals of existing temporary differences, carryback capacity, future taxable income and tax planning strategies.
The potential for a large claim under an insurance or reinsurance contract means that our insurance subsidiaries may need to make substantial payments within relatively short periods of time, which would have a negative impact on our operating cash flows. We generated positive cash flows from operations for the years ended December 31, 2022 and 2021.
The potential for a large claim under an insurance or reinsurance contract means that our insurance subsidiaries may need to make substantial payments within relatively short periods of time, which would have a negative impact on our operating cash flows. We generated positive cash flows from operations for the years ended December 31, 2023 and 2022.
Our personnel use their knowledge of the specific claim along with internal and external experts, including underwriters and legal counsel, to estimate the expected ultimate losses. 74 Table of Contents We establish IBNR reserves to provide for (i) the estimated amount of future loss payments on incurred claims not yet reported, and (ii) potential development on reported claims.
Our personnel use their knowledge of the specific claim along with internal and external experts, including underwriters and legal counsel, to estimate the expected ultimate losses. 75 Table of Contents We establish IBNR reserves to provide for (i) the estimated amount of future loss payments on incurred claims not yet reported, and (ii) potential development on reported claims.
We use proprietary data analytics and a modern technology platform to offer our customers flexible products with customized and granular pricing for both the admitted and excess and surplus lines (“E&S”) markets. 53 Table of Contents We provide admitted insurance products through our Oregon domiciled insurance company, Palomar Specialty Insurance Company (“PSIC”), and E&S insurance products through our Arizona domiciled surplus lines insurance company, Palomar Excess and Surplus Insurance Company (“PESIC”).
We use proprietary data analytics and a modern technology platform to offer our customers flexible products with customized and granular pricing for both the admitted and excess and surplus lines (“E&S”) markets. 54 Table of Contents We provide admitted insurance products through our Oregon domiciled insurance company, Palomar Specialty Insurance Company (“PSIC”), and E&S insurance products through our Arizona domiciled surplus lines insurance company, Palomar Excess and Surplus Insurance Company (“PESIC”).
As of December 31, 2022 and December 31, 2021, the total adjusted capital of PSIC and PESIC were in excess of their respective prescribed risk-based capital requirements. Under the Insurance Act and related regulations, our Bermuda reinsurance subsidiary, PSRE, is required to maintain certain solvency and liquidity levels, which it maintained as of December 31, 2022 and December 31, 2021.
As of December 31, 2023 and December 31, 2022, the total adjusted capital of PSIC and PESIC were in excess of their respective prescribed risk-based capital requirements. Under the Insurance Act and related regulations, our Bermuda reinsurance subsidiary, PSRE, is required to maintain certain solvency and liquidity levels, which it maintained as of December 31, 2023 and December 31, 2022.
In the event of significant new regulation or legislation, we will attempt to quantify its impact on our business, but no assurance can be given that our attempt to quantify such inputs will be accurate or successful. The table below quantifies the impact of potential reserve deviations from our carried reserve at December 31, 2022.
In the event of significant new regulation or legislation, we will attempt to quantify its impact on our business, but no assurance can be given that our attempt to quantify such inputs will be accurate or successful. The table below quantifies the impact of potential reserve deviations from our carried reserve at December 31, 2023.
Our effective tax rates are dependent upon the components of pretax earnings and the related tax effects. ​ 56 Table of Contents Key Financial and Operating Metrics We discuss certain key financial and operating metrics, described below, which provide useful information about our business and the operational factors underlying our financial performance.
Our effective tax rates are dependent upon the components of pretax earnings and the related tax effects. 57 Table of Contents Key Financial and Operating Metrics We discuss certain key financial and operating metrics, described below, which provide useful information about our business and the operational factors underlying our financial performance.
The relevant liabilities include total general business insurance reserves and total other liabilities, less sundry liabilities. As of December 31, 2022 and December 31, 2021, we met the minimum liquidity ratio requirement. Bermuda regulations limit the amount of dividends and return of capital paid by a regulated entity.
The relevant liabilities include total general business insurance reserves and total other liabilities, less sundry liabilities. As of December 31, 2023 and December 31, 2022, we met the minimum liquidity ratio requirement. Bermuda regulations limit the amount of dividends and return of capital paid by a regulated entity.
We invest primarily in investment grade fixed maturity securities, including U.S. government issues, state government issues, mortgage and asset-backed obligations, and corporate bonds with a small portion of our portfolio in equity securities and cash and cash equivalents.
We invest primarily in investment grade fixed maturity securities, including U.S. government issues, state government issues, mortgage and asset-backed obligations, and corporate bonds with a small portion of our portfolio in equity securities, equity method investments, and cash and cash equivalents.
The volume of ceded written premiums is also impacted by the amount of premium we write under fronting agreements. 54 Table of Contents Our ceded written premiums can be impacted significantly in certain periods due to changes in quota share agreements.
The volume of ceded written premiums is also impacted by the amount of premium we write under fronting agreements. 55 Table of Contents Our ceded written premiums can be impacted significantly in certain periods due to changes in quota share agreements.
See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of loss ratio calculated using unadjusted GAAP numbers to catastrophe loss ratio. ​ 57 Table of Contents 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 loss ratio calculated using unadjusted GAAP numbers to catastrophe loss ratio. 58 Table of Contents 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 income before income taxes calculated in accordance with GAAP to adjusted underwriting income. 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 income before income taxes calculated in accordance with GAAP to adjusted underwriting income. Tangible stockholders ’ equity is a non-GAAP financial measure defined as stockholders’ equity less intangible assets.
The amounts in the above table represent our gross estimates of known liabilities as of December 31, 2022 and do not include any allowance for claims for future events within the time period specified.
The amounts in the above table represent our gross estimates of known liabilities as of December 31, 2023 and do not include any allowance for claims for future events within the time period specified.
We also have the ability to access additional capital through pursuing third-party borrowings including our credit agreement, sales of our equity or debt securities or entrance into a reinsurance arrangement.
We also have the ability to access additional capital through pursuing third-party borrowings including our credit agreements, sales of our equity or debt securities, or entrance into a reinsurance arrangement.
These IBNR amounts are added to the reported-to-date amount to derive ultimate losses. ​ 75 Table of Contents ● Reported Bornhuetter-Ferguson Severity Method —Under this method, ultimate losses are estimated as the sum of cumulative reported losses and estimated IBNR losses.
These IBNR amounts are added to the reported-to-date amount to derive ultimate losses. ​ 76 Table of Contents ● Reported Bornhuetter-Ferguson Severity Method —Under this method, ultimate losses are estimated as the sum of cumulative reported losses and estimated IBNR losses.
Acquisition Expenses Acquisition expenses are principally comprised of the commissions we pay retail agents, program administrators and wholesale brokers, net of ceding commissions and fronting fees we receive on business ceded under quota share and fronting reinsurance agreements. In addition, acquisition expenses include premium-related taxes and 55 Table of Contents other fees.
Acquisition Expenses Acquisition expenses are principally comprised of the commissions we pay retail agents, program administrators and wholesale brokers, net of ceding commissions and fronting fees we receive on business ceded under quota share and fronting reinsurance agreements. In addition, acquisition expenses include premium-related taxes and other fees.
The increase was primarily due to a higher average balance of investments during the year ended December 31, 2022 and higher yields on invested assets.
The increase was primarily due to a higher average balance of investments during the year ended December 31, 2023 and higher yields on invested assets.
We are currently utilizing tax planning strategies in our assessment of the realizability of a portion of our net capital deferred tax asset at December 31, 2022.
We are currently utilizing tax planning strategies in our assessment of the realizability of a portion of our net capital deferred tax asset at December 31, 2023.
We use this metric as we believe it gives our management and other users of our financial information useful insight into our underlying business performance. Adjusted underwriting income should not be viewed as a substitute for pre-tax income calculated in accordance with GAAP. Other companies may define adjusted underwriting income differently.
We use this metric as we believe it gives our management and other users of our financial information useful insight into our underlying business performance. Adjusted underwriting income should not be viewed as a substitute for pre-tax income calculated in accordance with GAAP.
Equity securities are carried at fair value with unrealized gains and losses included as a component of net income on the Company’s consolidated statement of income. 78 Table of Contents All financial assets measured at amortized cost, including available-for-sale securities are required to be presented at the net amount expected to be collected by means of an allowance for credit losses that is included in net income.
Equity securities are carried at fair value with unrealized gains and losses included as a component of net income on the Company’s consolidated statement of income. 79 Table of Contents All financial assets, including available-for-sale securities are required to be presented at the net amount expected to be collected by means of an allowance for credit losses that is included in net income.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion of our historical results of operations and our liquidity and capital resources should be read together with the consolidated financial statements and related notes that appear elsewhere in this Annual Report on Form 10-K.
Item 7. Management ’ s Discussion and Analysis of Financial Condition and Results of Operations The following discussion of our historical results of operations and our liquidity and capital resources should be read together with the consolidated financial statements and related notes that appear elsewhere in this Annual Report on Form 10-K.
On a quarterly basis, we perform an analysis of our loss development and select the expected ultimate loss ratio for each of our product lines by accident year. In our actuarial analysis, we use input from our TPAs and our underwriting departments, including premium pricing assumptions and historical experience.
On a quarterly basis, we perform an analysis of our loss development and select the expected ultimate loss ratio for each of our product lines by exposure period. In our actuarial analysis, we use input from our TPAs and our underwriting departments, including premium pricing assumptions and historical experience.
These tax planning strategies include the holding of fixed maturity and equity securities that are currently in a net unrealized loss position for tax purposes until recovery or maturity, if needed, to avoid future expiring capital loss carryforwards. ​ As of December 31, 2022, we had a valuation allowance of $3.0 million relating to our state net operating loss carryforwards and the remainder of our deferred tax assets did not require a valuation allowance. ​ Recent Accounting Pronouncements See “Note 2—Recent Accounting Pronouncements” in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for a discussion of accounting pronouncements recently adopted and recently issued accounting pronouncements not yet adopted and their potential impact to our financial statements.
These tax planning strategies include the holding of fixed maturity securities that are currently in a net unrealized loss position for tax purposes until recovery or maturity, if needed, to avoid future expiring capital loss carryforwards. ​ As of December 31, 2023, we had a valuation allowance of $3.5 million relating to our state net operating loss carryforwards and federal net operating losses related to Laulima, and the remainder of our deferred tax assets did not require a valuation allowance. ​ Recent Accounting Pronouncements See “Note 2—Recent Accounting Pronouncements” in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for a discussion of accounting pronouncements recently adopted and recently issued accounting pronouncements not yet adopted and their potential impact to our financial statements.
Pursuant to Bermuda regulations, the maximum amount of dividends and return of capital available to be paid by a reinsurer is determined pursuant to a formula. Under this formula, the maximum amount of dividends and return of capital available from PSRE during 2023 is calculated to be approximately $3.9 million.
Pursuant to Bermuda regulations, the maximum amount of dividends and return of capital available to be paid by a reinsurer is determined pursuant to a formula. Under this formula, the maximum amount of dividends and return of capital available from PSRE during 2023 is calculated to be approximately $4.1 million.
As of December 31, 2022, the majority of our investment portfolio, or $515.1 million, was comprised of fixed maturity securities that are classified as available-for-sale and carried at fair value with unrealized gains and losses on these securities, net of applicable taxes, reported as a separate component of accumulated other comprehensive income.
As of December 31, 2023, the majority of our investment portfolio, or $643.8 million, was comprised of fixed maturity securities that are classified as available-for-sale and carried at fair value with unrealized gains and losses on these securities, net of applicable taxes, reported as a separate component of accumulated other comprehensive income.
During the year ended December 31, 2021, our gross incurred losses for accident years 2020 and prior developed unfavorably by $28.7 million. The gross unfavorable development was due primarily to losses on certain 2020 Hurricanes emerging at a higher severity than expected, primarily in our special property lines of business.
During the year ended December 31, 2022, our total gross incurred losses for accident years 2021 and prior developed unfavorably by $0.3 million. The gross unfavorable development was due primarily to losses on certain 2020 Hurricanes emerging at a higher severity than expected, primarily in our special property lines of business.
Recent events, including changes in market interest rates and significant financial market volatility have caused us to incur unrealized losses on investments which contributes to us having a net capital deferred tax asset in the amount of $11.0 million at December 31, 2022, as compared to a net capital deferred tax liability of $0.3 million at December 31, 2021.
Recent events, including changes in market interest rates and significant financial market volatility have caused us to incur unrealized losses on investments which contributes to us having a net capital deferred tax asset in the amount of $5.9 million at December 31, 2023, as compared to a net capital deferred tax asset of $11.0 million at December 31, 2022.
Excluding the impact of expenses relating to transactions, stock-based compensation, amortization of intangibles, and catastrophe bonds, other underwriting expenses as a percentage of gross earned premiums were 7.8% for the year ended December 31, 2022 compared to 10.3% for the year ended December 31, 2021.
Excluding the impact of expenses relating to transactions, stock-based compensation, amortization of intangibles, and catastrophe bonds, other underwriting expenses as a percentage of gross earned premiums were 6.8% for the year ended December 31, 2023 compared to 7.8% for the year ended December 31, 2022.
The increase was primarily due to the Company incurring higher payroll, technology, and stock-based compensation expenses associated with growth of the Company. Other underwriting expenses as a percentage of gross earned premiums were 10.0% for the year ended December 31, 2022 compared to 12.4% for the year ended December 31, 2021.
The increase was primarily due to the Company incurring higher payroll, technology, and stock-based compensation expenses associated with growth of the Company. Other underwriting expenses as a percentage of gross earned premiums were 8.7% for the year ended December 31, 2023 compared to 10.0% for the year ended December 31, 2022.
In addition to historical financial information, this Annual Report on Form 10-K contains “forward-looking statements.” You should review the “Special Note Regarding Forward-Looking Statements” and “Risk Factors” sections of this Annual Report on Form 10-K for factors and uncertainties that may cause our actual future results to be materially different from those in our forward-looking statements.
In addition to historical financial information, this Annual Report on Form 10-K contains “ forward-looking statements. ” You should review the “ Special Note Regarding Forward-Looking Statements ” and “ Risk Factors ” sections of this Annual Report on Form 10-K for factors and uncertainties that may cause our actual future results to be materially different from those in our forward-looking statements.
We have also been profitable since 2016 and our net income growth since 2016 reflects a compound annual growth rate of 41%. We seek to continuously grow our income by developing product offerings for lines of business that harness our core competencies and where we believe we can generate attractive risk adjusted returns.
We have also been profitable since 2016 and our net income growth since 2016 reflects a compound annual growth rate of 43%. We seek to continuously grow our income by developing products in lines of business that harness our core competencies and where we believe we can generate attractive risk adjusted returns.
Stockholders’ equity decreased primarily due to unrealized losses on fixed maturity securities and repurchases of shares of our common stock and was partially offset by the net income we earned for the period and activity related to stock-based compensation. Stock-based compensation expense is treated as an additional paid-in-capital and increases stockholders’ equity. Tangible stockholders’ equity is a non-GAAP financial measure.
Stockholders’ equity increased primarily due to net income we earned for the period and activity related to stock-based compensation, and was partially offset by repurchases of shares of our common stock. Stock-based compensation expense is treated as an additional paid-in-capital and increases stockholders’ equity. Tangible stockholders’ equity is a non-GAAP financial measure.
Our fixed income investment portfolio had a book yield of 3.30% as of December 31, 2022, compared to 2.23% as of December 31, 2021. 72 Table of Contents At December 31, 2022 and December 31, 2021 the amortized cost and fair value on available-for-sale securities were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortized Fair % of Total December 31, 2022 ​ Cost or Cost ​ Value ​ Fair Value ​ ($ in thousands) ​ Fixed maturities: ​ ​ ​ U.S.
Our fixed income investment portfolio had a book yield of 4.07% as of December 31, 2023, compared to 3.30% as of December 31, 2022. 73 Table of Contents At December 31, 2023 and December 31, 2022 the amortized cost and fair value on available-for-sale securities were as follows: December 31, 2023 Amortized Cost or Cost Fair Value % of Total Fair Value ​ ($ in thousands) Fixed maturities: ​ U.S.
Founded in 2014, we have significantly grown our business and have generated attractive returns. We have organically increased gross written premiums from $16.6 million in our first year of operations to $881.9 million for the year ended December 31, 2022, which reflects a compound annual growth rate of approximately 64%.
Founded in 2014, we have significantly grown our business and have generated attractive returns. We have organically increased gross written premiums from $16.6 million in our first year of operations to $1.1 billion for the year ended December 31, 2023, which reflects a compound annual growth rate of approximately 60%.
Premium growth was primarily due to an increased volume of policies written across our lines of business which was driven by new business generated with existing partners, strong premium retention rates for existing business, expansion of our distribution footprint, and new partnerships. For commercial products, substantial rate increases also contributed to premium growth.
Premium growth was primarily due to an increased volume of policies written across our lines of business which was driven by new business generated with existing partners, strong premium retention rates for existing business, expansion of our distribution footprint, and new partnerships.
To the extent our future operating cash flows are insufficient to cover our net losses from catastrophic events, we had $621.8 million in cash and investment securities available at December 31, 2022.
To the extent our future operating cash flows are insufficient to cover our net losses from catastrophic events, we had $741.4 million in cash and investment securities available at December 31, 2023.
Adjusted return on equity should not be viewed as a substitute for return on equity calculated using unadjusted GAAP numbers, and other companies may define adjusted return on equity differently. 65 Table of Contents Adjusted return on equity is calculated as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2022 2021 ​ ​ ($ in thousands) ​ Numerator: Adjusted net income ​ $ 71,334 ​ $ 52,434 ​ Denominator: Average stockholders' equity ​ 389,461 ​ 378,941 ​ Adjusted return on equity ​ 18.3 % 13.8 % ​ Adjusted Combined Ratio We define adjusted combined ratio 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.
Adjusted return on equity should not be viewed as a substitute for return on equity calculated using unadjusted GAAP numbers, and other companies may define adjusted return on equity differently. 66 Table of Contents Adjusted return on equity is calculated as follows: ​ Year Ended December 31, ​ 2023 2022 ​ ($ in thousands) Numerator: Adjusted net income $ 93,520 $ 71,334 Denominator: Average stockholders' equity 428,002 389,461 Adjusted return on equity 21.9 % 18.3 % Adjusted Combined Ratio We define adjusted combined ratio 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.
Adjusted combined ratio is calculated as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2022 2021 ​ ​ ($ in thousands) Numerator: Sum of losses, loss adjustment expenses, underwriting, acquisition and other underwriting expenses, net of commission and other income ​ $ 254,390 ​ $ 187,005 ​ Denominator: Net earned premiums ​ $ 316,466 ​ $ 233,826 ​ Combined ratio ​ 80.4 % 80.0 % Adjustments to numerator: ​ ​ ​ ​ ​ ​ ​ Expenses associated with transactions ​ ​ (130) ​ ​ (563) ​ Stock-based compensation expense ​ ​ (11,624) ​ ​ (5,584) ​ Amortization of intangibles ​ ​ (1,255) ​ ​ (1,251) ​ Expenses associated with catastrophe bond, net of rebate ​ ​ (1,992) ​ ​ (1,704) ​ Adjusted combined ratio ​ ​ 75.6 % ​ 76.1 % ​ Diluted adjusted earnings per share We define diluted adjusted earnings per share 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.
Adjusted combined ratio is calculated as follows: ​ Year Ended December 31, ​ 2023 2022 ​ ($ in thousands) Numerator: Sum of losses, loss adjustment expenses, underwriting, acquisition and other underwriting expenses, net of commission and other income $ 265,142 $ 254,390 Denominator: Net earned premiums $ 345,913 $ 316,466 Combined ratio 76.6 % 80.4 % Adjustments to numerator: Expenses associated with transactions (706 ) (130 ) Stock-based compensation expense (14,913 ) (11,624 ) Amortization of intangibles (1,481 ) (1,255 ) Expenses associated with catastrophe bond, net of rebate (1,640 ) (1,992 ) Adjusted combined ratio 71.2 % 75.6 % Diluted adjusted earnings per share We define diluted adjusted earnings per share 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.
For the year ended December 31, 2022 our effective tax rate was 22.8% and the difference between our tax effective tax rate and the statutory rate of 21% relates primarily to non-deductible executive compensation expense and state taxes, offset by the permanent component of employee stock options.
For the year ended December 31, 2023 our effective tax rate was 23.6% and the difference between our tax effective tax rate and the statutory rate of 21% relates primarily to non-deductible executive compensation expense, offset by the permanent component of employee stock options.
Our fixed maturity securities, including cash equivalents, had a weighted average effective duration of 3.81 and 3.99 years and an average rating of “A1/A+” and “A2/A” at December 31, 2022 and December 31, 2021, respectively.
Our fixed maturity securities, including cash equivalents, had a weighted average effective duration of 3.48 and 3.81 years and an average rating of “Aa3/A+” and “A1/A+” at December 31, 2023 and December 31, 2022, respectively.
Diluted adjusted earnings per share should not be viewed as a substitute for diluted earnings per share calculated in accordance with GAAP, and other companies may define diluted adjusted earnings per share differently. 66 Table of Contents Diluted adjusted earnings per share is calculated as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2022 2021 ​ ​ (in thousands except shares and per share data) ​ ​ ​ Adjusted net income ​ $ 71,334 ​ $ 52,434 Weighted-average common shares outstanding, diluted ​ 25,796,008 ​ 26,111,904 Diluted adjusted earnings per share ​ $ 2.77 ​ $ 2.01 ​ Catastrophe Loss Ratio ​ Catastrophe loss ratio is defined as the ratio of catastrophe losses to net earned premiums.
Diluted adjusted earnings per share should not be viewed as a substitute for diluted earnings per share calculated in accordance with GAAP, and other companies may define diluted adjusted earnings per share differently. 67 Table of Contents Diluted adjusted earnings per share is calculated as follows: ​ Year Ended December 31, ​ 2023 2022 ​ (in thousands except shares and per share data) Adjusted net income $ 93,520 $ 71,334 Weighted-average common shares outstanding, diluted 25,327,091 25,796,008 Diluted adjusted earnings per share $ 3.69 $ 2.77 ​ Catastrophe Loss Ratio ​ Catastrophe loss ratio is defined as the ratio of catastrophe losses to net earned premiums.
For the year ended December 31, 2021, our effective tax rate was 19.8% and the difference between our tax rate and the statutory rate of 21% relates primarily to a benefit from the permanent component of employee stock option exercises and charges related to state tax accruals, offset by the non-deductible executive compensation expense. 63 Table of Contents Reconciliation of Non-GAAP Financial Measures Underwriting Revenue We define underwriting revenue as total revenue excluding net investment income and net realized and unrealized gains and losses on investments.
For the year ended December 31, 2022, our effective tax rate was 22.8% and the difference between our tax rate and the statutory rate of 21% relates primarily to non-deductible executive compensation expense and state taxes, offset by the permanent component of employee stock options. 64 Table of Contents Reconciliation of Non-GAAP Financial Measures Underwriting Revenue We define underwriting revenue as total revenue excluding net investment income and net realized and unrealized gains and losses on investments.
Stockholders’ equity calculated in accordance with GAAP reconciles to tangible stockholders’ equity as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2022 2021 ​ ​ (in thousands) Stockholders’ equity ​ $ 384,754 ​ $ 394,169 Intangible assets ​ (8,261) ​ (9,501) Tangible stockholders’ equity ​ $ 376,493 ​ $ 384,668 ​ Liquidity and Capital Resources Sources and Uses of Funds We operate as a holding company with no business operations of our own.
Stockholders’ equity calculated in accordance with GAAP reconciles to tangible stockholders’ equity as follows: ​ December 31, ​ 2023 2022 ​ (in thousands) Stockholders’ equity $ 471,252 $ 384,754 Intangible assets (12,315 ) (8,261 ) Tangible stockholders’ equity $ 458,937 $ 376,493 ​ Liquidity and Capital Resources Sources and Uses of Funds We operate as a holding company with no business operations of our own.
Net income calculated in accordance with GAAP reconciles to adjusted net income as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2022 2021 ​ ​ (in thousands) Net income ​ $ 52,170 ​ $ 45,847 Adjustments: ​ ​ ​ ​ ​ Net realized and unrealized losses (gains) on investments ​ ​ 7,529 ​ ​ (1,277) Expenses associated with transactions ​ ​ 130 ​ 563 Stock-based compensation expense ​ ​ 11,624 ​ 5,584 Amortization of intangibles ​ ​ 1,255 ​ ​ 1,251 Expenses associated with catastrophe bond, net of rebate ​ ​ 1,992 ​ ​ 1,704 Tax impact ​ ​ (3,366) ​ ​ (1,238) Adjusted net income ​ $ 71,334 ​ $ 52,434 ​ Adjusted Return on Equity We define adjusted return on equity as adjusted net income expressed on an annualized basis as a percentage of average beginning and ending stockholders’ equity during the period.
Net income calculated in accordance with GAAP reconciles to adjusted net income as follows: ​ Year Ended December 31, ​ 2023 2022 ​ (in thousands) Net income $ 79,201 $ 52,170 Adjustments: Net realized and unrealized (gains) losses on investments (2,941 ) 7,529 Expenses associated with transactions 706 130 Stock-based compensation expense 14,913 11,624 Amortization of intangibles 1,481 1,255 Expenses associated with catastrophe bond, net of rebate 1,640 1,992 Tax impact (1,480 ) (3,366 ) Adjusted net income $ 93,520 $ 71,334 Adjusted Return on Equity We define adjusted return on equity as adjusted net income expressed on an annualized basis as a percentage of average beginning and ending stockholders’ equity during the period.
Cash used in financing activities for the year ended December 31, 2021 related to the repurchase of $15.9 million of our common stock offset by $2.8 million in proceeds from common stock issued via stock option exercises and our employee stock purchase plan. 70 Table of Contents We do not have any current plans for material capital expenditures other than current operating requirements.
Cash provided by financing activities for the year ended December 31, 2022 related to $36.4 million in proceeds from our FHLB line of credit, $2.3 million in proceeds from common stock issued via stock option exercises and $0.8 million in proceeds from our employee stock purchase plan, offset by the repurchase of $34.4 million of our common stock. 71 Table of Contents We do not have any current plans for material capital expenditures other than current operating requirements.
Catastrophe loss ratio should not be viewed as a substitute for loss ratio calculated using unadjusted GAAP numbers, and other companies may define catastrophe loss ratio differently. ​ Catastrophe loss ratio is calculated as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ 2022 2021 ​ ​ ($ in thousands) Numerator: Losses and loss adjustment expenses ​ $ 78,672 ​ $ 41,457 ​ Denominator: Net earned premiums ​ $ 316,466 ​ $ 233,826 ​ Loss ratio ​ 24.9 % 17.7 % ​ ​ ​ ​ ​ ​ ​ ​ Numerator: Catastrophe losses ​ $ 15,394 ​ $ 5,015 ​ Denominator: Net earned premiums ​ $ 316,466 ​ $ 233,826 ​ Catastrophe loss ratio ​ ​ 4.9 % ​ 2.1 % ​ Adjusted Combined Ratio Excluding Catastrophe Losses ​ Adjusted combined ratio excluding catastrophe losses is defined as adjusted combined ratio excluding the impact of catastrophe losses.
Catastrophe loss ratio should not be viewed as a substitute for loss ratio calculated using unadjusted GAAP numbers, and other companies may define catastrophe loss ratio differently. ​ Catastrophe loss ratio is calculated as follows: Year Ended December 31, 2023 2022 ($ in thousands) Numerator: Losses and loss adjustment expenses $ 72,592 $ 78,672 Denominator: Net earned premiums $ 345,913 $ 316,466 Loss ratio 21.0 % 24.9 % Numerator: Catastrophe losses $ 3,442 $ 15,394 Denominator: Net earned premiums $ 345,913 $ 316,466 Catastrophe loss ratio 1.0 % 4.9 % Adjusted Combined Ratio Excluding Catastrophe Losses ​ Adjusted combined ratio excluding catastrophe losses is defined as adjusted combined ratio excluding the impact of catastrophe losses.
Acquisition expenses as a percentage of gross earned premiums decreased due to the recognition of higher ceding commission and fronting fee income as a percentage of gross earned premiums due to changes in mix of business produced and growth in fronting premiums. 62 Table of Contents Other Underwriting Expenses Other underwriting expenses increased $15.5 million, or 28.8%, to $69.2 million for the year ended December 31, 2022 from $53.7 million for the year ended December 31, 2021.
Acquisition expenses as a percentage of gross earned premiums decreased due to the recognition of higher ceding commission and fronting fee income as a percentage of gross earned premiums due to changes in mix of business produced and growth in fronting premiums. 63 Table of Contents Other Underwriting Expenses Other underwriting expenses increased $19.0 million, or 27.4%, to $88.2 million for the year ended December 31, 2023 from $69.2 million for the year ended December 31, 2022.
All advances have predetermined term and the interest rate varies based on the term of the advance. ​ As of December 31, 2022, the Company had $36.4 million of borrowings outstanding through the FHLB line of credit. ​ Financial Condition Stockholders’ Equity At December 31, 2022 total stockholders’ equity was $384.8 million and tangible stockholders’ equity was $376.5 million, compared to total stockholders’ equity of $394.2 million and tangible stockholders’ equity of $384.7 million as of December 31, 2021.
All advances have predetermined term and the interest rate varies based on the term of the advance. ​ As of December 31, 2023, the Company had $52.6 million of borrowings outstanding through the FHLB line of credit. ​ Financial Condition Stockholders ’ Equity At December 31, 2023 total stockholders’ equity was $471.3 million and tangible stockholders’ equity was $458.9 million, compared to total stockholders’ equity of $384.8 million and tangible stockholders’ equity of $376.5 million as of December 31, 2022.
Cash provided by financing activities for the year ended December 31, 2022 related to $36.4 million in proceeds from our FHLB line of credit and $3.0 million in proceeds from common stock issued via stock option exercises and our employee stock purchase plan, offset by the repurchase of $34.4 million of our common stock.
Cash used in financing activities for the year ended December 31, 2023 related to the repurchase of $22.3 million of our common stock, offset by $16.2 million in proceeds from our FHLB line of credit, $1.2 million in proceeds from common stock issued via stock option exercises and the receipt of $0.8 million in proceeds from our employee stock purchase plan.
Adjusted combined ratio excluding catastrophe losses should not be viewed as a substitute for combined ratio calculated using unadjusted GAAP numbers, and other companies may define adjusted combined ratio excluding catastrophe losses differently. ​ 67 Table of Contents Adjusted combined ratio excluding catastrophe losses is calculated as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ 2022 2021 ​ ​ ($ in thousands) Numerator: Sum of losses and loss adjustment expenses, acquisition expenses, and other underwriting expenses, net of commission and other income ​ $ 254,390 ​ $ 187,005 ​ Denominator: Net earned premiums ​ $ 316,466 ​ $ 233,826 ​ Combined ratio ​ 80.4 % 80.0 % Adjustments to numerator: ​ ​ ​ ​ ​ ​ ​ Expenses associated with transactions ​ $ (130) ​ $ (563) ​ Stock-based compensation expense ​ ​ (11,624) ​ ​ (5,584) ​ Amortization of intangibles ​ ​ (1,255) ​ ​ (1,251) ​ Expenses associated with catastrophe bond, net of rebate ​ ​ (1,992) ​ ​ (1,704) ​ Catastrophe losses ​ ​ (15,394) ​ ​ (5,015) ​ Adjusted combined ratio excluding catastrophe losses ​ ​ 70.8 % ​ 73.9 % ​ ​ Tangible Stockholders’ Equity We define tangible stockholders’ equity as stockholders’ equity less intangible assets.
Adjusted combined ratio excluding catastrophe losses should not be viewed as a substitute for combined ratio calculated using unadjusted GAAP numbers, and other companies may define adjusted combined ratio excluding catastrophe losses differently. ​ 68 Table of Contents Adjusted combined ratio excluding catastrophe losses is calculated as follows: Year Ended December 31, 2023 2022 ($ in thousands) Numerator: Sum of losses and loss adjustment expenses, acquisition expenses, and other underwriting expenses, net of commission and other income $ 265,142 $ 254,390 Denominator: Net earned premiums $ 345,913 $ 316,466 Combined ratio 76.6 % 80.4 % Adjustments to numerator: Expenses associated with transactions $ (706 ) $ (130 ) Stock-based compensation expense (14,913 ) (11,624 ) Amortization of intangibles (1,481 ) (1,255 ) Expenses associated with catastrophe bond, net of rebate (1,640 ) (1,992 ) Catastrophe losses (3,442 ) (15,394 ) Adjusted combined ratio excluding catastrophe losses 70.2 % 70.8 % Tangible Stockholders ’ Equity We define tangible stockholders’ equity as stockholders’ equity less intangible assets.
Loss Adjustment Expense reserves are estimated based on the ratio of paid loss adjustment expense to paid loss, which is estimated separately by line of business as well as split by hurricane and excluding hurricane.
Considering each of the alternative ultimate estimates, we select an estimate of ultimate loss for each line of business. Loss Adjustment Expense reserves are estimated based on the ratio of paid loss adjustment expense to paid loss, which is estimated separately by line of business as well as split by hurricane and excluding hurricane.
Total revenue calculated in accordance with GAAP reconciles to underwriting revenue as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ 2022 2021 ​ (in thousands) Total revenue ​ $ 327,086 ​ $ 247,791 Net investment income ​ (13,877) ​ (9,080) Net realized and unrealized losses (gains) on investments ​ 7,529 ​ (1,277) Underwriting revenue ​ $ 320,738 ​ $ 237,434 ​ Underwriting Income and adjusted underwriting income We define underwriting income as income before income taxes excluding net investment income, net realized and unrealized gains and losses on investments, and interest expense.
Total revenue calculated in accordance with GAAP reconciles to underwriting revenue as follows: ​ Year Ended ​ December 31, ​ 2023 2022 ​ (in thousands) Total revenue $ 375,926 $ 327,086 Net investment income (23,705 ) (13,877 ) Net realized and unrealized (gains) losses on investments (2,941 ) 7,529 Underwriting revenue $ 349,280 $ 320,738 ​ ​ Underwriting Income and adjusted underwriting income We define underwriting income as income before income taxes excluding net investment income, net realized and unrealized gains and losses on investments, and interest expense.
Also included in our investment portfolio were $38.6 million of equity securities. In addition, we maintained a non-restricted cash and cash equivalent balance of $68.1 million at December 31, 2022.
Also included in our investment portfolio were $43.2 million of equity securities. In addition, we maintained a non-restricted cash and cash equivalent balance of $51.9 million at December 31, 2023.
The following table summarizes our cash flows for the years ended December 31, 2022 and 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended ​ ​ December 31, ​ 2022 2021 ​ ​ ($ in thousands) Cash provided by (used in): ​ ​ Operating activities ​ $ 169,584 ​ $ 87,814 Investing activities ​ (156,808) ​ (58,188) Financing activities ​ 5,017 ​ (13,041) Change in cash, cash equivalents, and restricted cash ​ $ 17,793 ​ $ 16,585 ​ Our cash flow from operating activities has been positive in each of the last two years.
The following table summarizes our cash flows for the years ended December 31, 2023 and 2022: ​ Year ended ​ December 31, ​ 2023 2022 ​ ($ in thousands) Cash provided by (used in): ​ ​ Operating activities $ 116,106 $ 169,583 Investing activities (128,478 ) (156,807 ) Financing activities (3,940 ) 5,017 Change in cash, cash equivalents, and restricted cash $ (16,312 ) $ 17,793 ​ Our cash flow from operating activities has been positive in each of the last two years.
Income before income taxes calculated in accordance with GAAP reconciles to underwriting income and adjusted underwriting income as follows: 64 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ 2022 2021 ​ (in thousands) Income before income taxes ​ $ 67,551 $ 57,138 Net investment income ​ (13,877) ​ (9,080) Net realized and unrealized losses (gains) on investments ​ 7,529 ​ (1,277) Interest expense ​ ​ 873 ​ ​ 40 Underwriting income ​ $ 62,076 ​ $ 46,821 Expenses associated with transactions ​ ​ 130 ​ ​ 563 Stock-based compensation expense ​ ​ 11,624 ​ ​ 5,584 Amortization of intangibles ​ ​ 1,255 ​ ​ 1,251 Expenses associated with catastrophe bond, net of rebate ​ ​ 1,992 ​ ​ 1,704 Adjusted underwriting income ​ $ 77,077 ​ $ 55,923 ​ Adjusted Net Income We define adjusted net income 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.
Other companies may define adjusted underwriting income differently. 65 Table of Contents Income before income taxes calculated in accordance with GAAP reconciles to underwriting income and adjusted underwriting income as follows: ​ Year Ended ​ December 31, ​ 2023 2022 ​ (in thousands) Income before income taxes $ 103,642 $ 67,551 Net investment income (23,705 ) (13,877 ) Net realized and unrealized (gains) losses on investments (2,941 ) 7,529 Interest expense 3,775 873 Underwriting income $ 80,771 $ 62,076 Expenses associated with transactions 706 130 Stock-based compensation expense 14,913 11,624 Amortization of intangibles 1,481 1,255 Expenses associated with catastrophe bond, net of rebate 1,640 1,992 Adjusted underwriting income $ 99,511 $ 77,077 Adjusted Net Income We define adjusted net income 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.
Based on the above restrictions, PESIC may not pay a dividend or distribution in 2023 without approval of the Arizona Insurance Commissioner due to incurring a statutory net loss in 2022. In addition to the above limitations, any dividend or distribution declared is also subject to state regulatory approval prior to payment.
Based on the above restrictions, PESIC may pay a dividend or distribution of no greater than $1.5 million in 2024 without approval of the Arizona Insurance Commissioner. In addition to the above limitations, any dividend or distribution declared is also subject to state regulatory approval prior to payment.
The increase was primarily due to increased premiums ceded under quota share and fronting agreements due to growth in the volume of written premiums subject to quota share or fronting agreements. In addition, we incurred increased excess of loss (“XOL”) reinsurance expense due to growth in exposure.
The increase was primarily due to increased premiums ceded under fronting agreements due to growth in fronting premiums written and growth in the volume of written premiums subject to quota shares. In addition, our XOL reinsurance expense increased due to growth in exposure and higher rates on XOL reinsurance.
The gross unfavorable development was due primarily to losses on certain 2020 Hurricanes emerging at a higher severity than expected, primarily in our special property lines of business. This was offset by favorable development on 2021 attritional and catastrophe losses.
The gross unfavorable development was due primarily to losses on certain 2020 Hurricanes emerging at a higher severity than expected, primarily in our special property lines of business. On a net basis, the development was favorable by $3.6 million due to the effect of ceding gross unfavorable development under our reinsurance program.
Unrealized gains and losses on fixed maturity securities are recognized as a component of other comprehensive income and do not impact our net income. ​ The following table summarizes the components of our investment income for each period presented: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ ​ ​ ​ ​ 2022 2021 Change % Change ​ ($ in thousands) ​ Interest income ​ $ 13,631 ​ $ 9,119 ​ $ 4,512 49.5 % Dividend income ​ 739 ​ 461 ​ 278 60.3 % Investment management fees and expenses ​ (493) ​ (500) ​ 7 (1.4) % Net investment income ​ 13,877 ​ 9,080 ​ 4,797 52.8 % Net realized and unrealized (losses) gains on investments ​ (7,529) ​ 1,277 ​ (8,806) NM ​ Total ​ $ 6,348 ​ $ 10,357 ​ $ (4,009) (38.7) % ​ Income Tax Expense Income tax expense increased $4.1 million, or 36.2%, to $15.4 million for the year ended December 31, 2022 compared to $11.3 million during the year ended December 31, 2021.
Unrealized gains and losses on fixed maturity securities are recognized as a component of other comprehensive income and do not impact our net income. ​ The following table summarizes the components of our investment income for each period presented: Year Ended December 31, ​ 2023 2022 Change % Change ​ ($ in thousands) Interest income $ 23,349 $ 13,631 $ 9,718 71.3 % Dividend income 871 739 132 17.9 % Investment management fees and expenses (515 ) (493 ) (22 ) 4.5 % Net investment income 23,705 13,877 9,828 70.8 % Net realized and unrealized gains (losses) on investments 2,941 (7,529 ) 10,470 (139.1 )% Total $ 26,646 $ 6,348 $ 20,298 319.8 % ​ Income Tax Expense Income tax expense increased $9.1 million, or 58.9%, to $24.4 million for the year ended December 31, 2023 compared to $15.4 million during the year ended December 31, 2022.
Contractual Obligations and Commitments The following table illustrates our contractual obligations and commercial commitments by due date as of December 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ One Year Three Years ​ ​ ​ ​ ​ ​ ​ Less Than ​ to Less Than ​ to Less Than ​ More Than ​ ​ Total ​ One Year ​ Three Years ​ Five Years ​ Five Years ​ ​ (in thousands) Reserves for losses and loss adjustment expenses ​ $ 231,415 ​ $ 177,877 ​ $ 29,513 ​ $ 23,742 $ 283 Operating lease obligations ​ 2,187 ​ 966 ​ 808 ​ 413 ​ — Total ​ $ 233,602 ​ $ 178,843 ​ $ 30,321 ​ $ 24,155 $ 283 ​ The reserve for losses and loss adjustment expenses represent management’s estimate of the ultimate cost of settling losses.
Contractual Obligations and Commitments The following table illustrates our contractual obligations and commercial commitments by due date as of December 31, 2023: ​ Total ​Less Than One Year ​One Year to Less Than Three Years ​Three Years to Less Than Five Years More Than Five Years ($ in thousands) Reserves for losses and loss adjustment expenses $ 342,275 $ 247,275 $ 49,003 $ 40,992 $ 5,005 Operating lease obligations 1,127 643 348 136 — Total $ 233,602 $ 178,843 $ 30,321 $ 24,155 $ 283 ​ ​ The reserve for losses and loss adjustment expenses represents management’s estimate of the ultimate cost of settling losses.
On a net basis, the development was favorable by $3.6 million due to the effect of ceding gross unfavorable development under our reinsurance program. The catastrophe events which experienced unfavorable development were primarily subject to ceding under our XOL treaties while the catastrophe events which experienced favorable development were subject to a lower amount of ceding.
On a net basis, the development was unfavorable by $2.2 million due to the effect of ceding gross favorable development under our catastrophe XOL reinsurance program and due to unfavorable development on lines of business subject to lower amounts of ceding.
Under Arizona statute which governs PESIC, dividends paid in a consecutive twelve month period cannot exceed the lesser of (i) 10% of an insurance company’s statutory policyholders’ surplus as of December 31 of the preceding year or (ii) 100% of its statutory net income for the preceding calendar year.
Based on the above restrictions, PSIC may pay a dividend or distribution of no greater than $96.0 million in 2024 without approval by the California and Oregon Insurance Commissioners. 69 Table of Contents Under Arizona statute which governs PESIC, dividends paid in a consecutive twelve month period cannot exceed the lesser of (i) 10% of an insurance company’s statutory policyholders’ surplus as of December 31 of the preceding year or (ii) 100% of its statutory net income for the preceding calendar year.
Forward-looking statements in this Annual Report on Form 10-K are based on information available to us as of the date hereof, and we assume no obligation to update any such forward-looking statements. Overview We are a specialty insurance company that provides property and casualty insurance products to individuals and businesses.
Forward-looking statements in this Annual Report on Form 10-K are based on information available to us as of the date hereof, and we assume no obligation to update any such forward-looking statements. The following section generally discusses 2023 results compared to 2022 results.
Other Underwriting Expenses Other underwriting expenses represent the general and administrative expenses of our insurance operations including employee salaries and benefits, software and technology costs, office rent, stock-based compensation, licenses and fees, and professional services fees such as legal, accounting, and actuarial services.
We earn fronting fees in a manner consistent with the recognition of the earned premiums on the underlying insurance policies, on a pro rata basis over the terms of the policies. 56 Table of Contents Other Underwriting Expenses Other underwriting expenses represent the general and administrative expenses of our insurance operations including employee salaries and benefits, software and technology costs, office rent, stock-based compensation, licenses and fees, and professional services fees such as legal, accounting, and actuarial services.
Credit Agreement In December 2021, we entered into a Credit Agreement (the “Credit Agreement”) with U.S. Bank National Association which provides a revolving credit facility of up to $100 million through December 8, 2026.
Bank National Association which provides a revolving credit facility of up to $100 million through December 8, 2026.
The following tables summarize our gross and net reserves for unpaid losses and loss adjustment expenses at December 31, 2022 and 2021. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ Gross % of Total Net % of Total Loss and Loss Adjustment Reserves ($ in thousands) ​ Case reserves ​ $ 72,598 31.4 % $ 34,084 44.0 % IBNR ​ 158,817 68.6 % 43,436 56.0 % Total reserves ​ $ 231,415 100.0 % $ 77,520 100.0 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ Gross % of Total Net % of Total Loss and Loss Adjustment Reserves ​ ​ ​ Case reserves ​ $ 91,715 52.9 % $ 26,595 58.6 % IBNR ​ 81,651 47.1 % 18,824 41.4 % Total reserves ​ $ 173,366 100.0 % $ 45,419 100.0 % ​ The process of estimating the reserves for losses and loss adjustment expenses requires a high degree of judgment and is subject to several variables.
The following tables summarize our gross and net reserves for unpaid losses and loss adjustment expenses at December 31, 2023 and 2022. ​ December 31, 2023 ​ Gross % of Total Net % of Total Loss and Loss Adjustment Reserves ($ in thousands) Case reserves $ 124,170 36.3 % $ 38,428 39.4 % IBNR 218,105 63.7 % 59,225 60.6 % Total reserves $ 342,275 100.0 % $ 97,653 100.0 % ​ ​ December 31, 2022 ​ Gross % of Total Net % of Total Loss and Loss Adjustment Reserves ​ ​ ​ Case reserves $ 72,598 31.4 % $ 34,084 44.0 % IBNR 158,817 68.6 % 43,436 56.0 % Total reserves $ 231,415 100.0 % $ 77,520 100.0 % ​ ​ The process of estimating the reserves for losses and loss adjustment expenses requires a high degree of judgment and is subject to several variables.
On a net basis, the development was unfavorable by $2.4 million due to the effect of ceding under our reinsurance program. The favorable 2021 development was subject to a higher amount of ceding versus the unfavorable 2020 development resulting in the net unfavorable development being higher than the gross amount.
This was offset by favorable development on 2021 attritional and catastrophe losses. On a net basis, the development was unfavorable by $2.4 million due to the effect of ceding under our reinsurance program.
We believe that potential changes such as these would not have a material impact on our liquidity. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net Ultimate ​ ​ ​ ​ ​ ​ ​ Potential Impact ​ ​ ​ ​ LLAE ​ December 31, 2022 ​ on 2022 ​ Accident Sensitivity Net Ultimate Net LLAE Pre ‑ tax Stockholders’ Sensitivity ​ Year ​ Factor ​ Incurred LLAE ​ Reserve ​ income ​ Equity* ​ ($ in thousands) Sample increases 2022 5.0 % $ 76,289 ​ $ 54,487 ​ $ 3,814 ​ $ 3,013 ​ 2021 2.5 % $ 43,872 ​ $ 16,066 ​ $ 1,097 ​ $ 867 ​ Prior 1.0 % $ 98,051 ​ $ 6,967 ​ $ 981 ​ $ 775 Sample decreases 2022 (5.0) % $ 76,289 ​ $ 54,487 ​ $ (3,814) ​ $ (3,013) ​ 2021 (2.5) % $ 43,872 ​ $ 16,066 ​ $ (1,097) ​ $ (867) ​ Prior (1.0) % $ 98,051 ​ $ 6,967 ​ $ (981) ​ $ (775) * Effective tax rate estimated to be 21% 76 Table of Contents The amount by which estimated losses differ from those originally reported for a period is known as “development.” Development is unfavorable when the losses ultimately settle for more than the amount reserved or subsequent estimates indicate a basis for reserve increases on unresolved claims.
Net Ultimate LLAE December 31, 2023 Potential Impact on 2023 Sensitivity Accident Year Sensitivity Factor Net Ultimate Incurred LLAE Net LLAE Reserve Pre‑tax income Stockholders’ Equity* (in thousands) Sample increases 2023 5.0 % $ 70,346 $ 50,746 $ 3,517 $ 2,779 2022 2.5 % $ 83,026 $ 33,538 $ 2,076 $ 1,640 Prior 1.0 % $ 137,410 $ 13,369 $ 1,374 $ 1,086 Sample decreases 2023 (5.0 )% $ 70,346 $ 50,746 $ (3,517 ) $ (2,779 ) 2022 (2.5 )% $ 83,026 $ 33,538 $ (2,076 ) $ (1,640 ) Prior (1.0 )% $ 137,410 $ 13,369 $ (1,374 ) $ (1,086 ) * Effective tax rate estimated to be 21% 77 Table of Contents The amount by which estimated losses differ from those originally reported for a period is known as “development.” Development is unfavorable when the losses ultimately settle for more than the amount reserved or subsequent estimates indicate a basis for reserve increases on unresolved claims.
Outstanding 71 Table of Contents amounts under the Credit Agreement may be prepaid in full or in part at any time with no prepayment premium and may be reduced in full or in part at any time upon prior notice. ​ As of December 31, 2022 we do not have any outstanding borrowings under the Credit Agreement, but we may seek to borrow under the Credit Agreement in the future. ​ Our PSIC subsidiary is a member of the Federal Home Loan Bank of San Francisco (“FHLB”).
Currently, $15 million of the borrowing capacity of the Credit Agreement is pledged as collateral and not able to be utilized. ​ 72 Table of Contents As of December 31, 2023 we do not have any outstanding borrowings under the Credit Agreement, but we may seek to borrow under the Credit Agreement in the future. ​ Our PSIC subsidiary is a member of the Federal Home Loan Bank of San Francisco (“FHLB”).
We applied sensitivity factors to incurred losses for the three most recent accident years and to the carried reserve for all prior accident years combined.
We applied sensitivity factors to incurred losses for the three most recent accident years and to the carried reserve for all prior accident years combined. We believe that potential changes such as these would not have a material impact on our liquidity.
There were no dividends declared or paid during the year ended December 31, 2022. 69 Table of Contents One of our insurance company subsidiaries, PSIC, is a member of the Federal Home Loan Bank of San Francisco (FHLB). Membership allows PSIC access to collateralized advances, which may be used to support and enhance liquidity management.
However, this dividend amount is subject to annual enhanced solvency requirement calculations. There were no dividends declared or paid during the years ended December 31, 2023 and December 31, 2022 70 Table of Contents One of our insurance company subsidiaries, PSIC, is a member of the Federal Home Loan Bank of San Francisco (FHLB).
This increase was primarily due to increased quota share and fronting cessions as previously described. Net Written Premiums Net written premiums increased $45.6 million, or 14.6%, to $357.3 million for the year ended December 31, 2022 from $311.7 million for the year ended December 31, 2021.
Ceded written premiums as a percentage of gross written premiums increased to 64.1% for the year ended December 31, 2023 from 59.5% for the year ended December 31, 2022. This increase was primarily due to increased quota share and fronting cessions as previously described.
The Company incurred $7.5 million of net realized and unrealized losses on investments for the year ended December 31, 2022 compared to a $1.3 million gain for the year ended December 31, 2021 due to higher realized losses on fixed maturity securities and unrealized losses on our equity securities held during the period ended December 31, 2022.
The Company incurred $2.9 million of net realized and unrealized gains on investments for the year ended December 31, 2023 compared to $7.5 million of net realized and unrealized losses for the year ended December 31, 2022.
Net Earned Premiums Net earned premiums increased $82.6 million, or 35.3%, to $316.5 million for the year ended December 31, 2022 from $233.8 million for the year ended December 31, 2021 due primarily to the earning of increased gross written premiums offset by the earning of ceded written premiums under reinsurance agreements.
The increase was primarily due to an increase in gross written premiums, primarily in our Commercial Earthquake, Casualty, and Residential Earthquake lines, partially offset by increased ceded written premiums. 62 Table of Contents Net Earned Premiums Net earned premiums increased $29.4 million, or 9.3%, to $345.9 million for the year ended December 31, 2023 from $316.5 million for the year ended December 31, 2022 due primarily to the earning of increased gross written premiums offset by the earning of ceded written premiums under reinsurance agreements.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeSeasonality Our Commercial All Risk and Hawaii Hurricane businesses expose us to claims from seasonal weather events such as hurricanes and windstorms. The occurrence of such events typically increases between June and November of each year. As a result, we may experience increased losses in our Commercial All Risk and Hawaii Hurricane lines of business during this period.
Biggest changeSeasonality Our Commercial All Risk and Hawaii Hurricane businesses expose us to claims from seasonal weather events such as hurricanes and windstorms. The occurrence of such events typically increases between June and November of each year.
Our fixed maturity portfolio includes some securities issued with financial guaranty insurance. We purchase fixed maturities based on our assessment of the credit quality of the underlying assets without regard to insurance. 80 Table of Contents Interest Rate Risk We manage our exposure to interest rate risk through a disciplined asset/liability matching and capital management process.
Our fixed maturity portfolio includes some securities issued with financial guaranty insurance. We purchase fixed maturities based on our assessment of the credit quality of the underlying assets without regard to insurance. 81 Table of Contents Interest Rate Risk We manage our exposure to interest rate risk through a disciplined asset/liability matching and capital management process.
We also invest in higher yielding fixed maturities and equity securities. Our fixed maturity portfolio has an average rating by at least one nationally recognized rating organization of “AA−,” with approximately 79.5% rated “A−” or better. At December 31, 2022, 2.0% of our fixed maturity portfolio was unrated or rated below investment grade.
We also invest in higher yielding fixed maturities and equity securities. Our fixed maturity portfolio has an average rating by at least one nationally recognized rating organization of “AA−,” with approximately 80.0% rated “A−” or better. At December 31, 2023, 1.5% of our fixed maturity portfolio was unrated or rated below investment grade.
In the management of this risk, the characteristics of duration, credit and variability of cash flows are critical elements. We regularly assess these risks and balance them within the context of our liability and capital position. As of December 31, 2022 the estimated fair value of our fixed maturities was $515.1 million.
In the management of this risk, the characteristics of duration, credit and variability of cash flows are critical elements. We regularly assess these risks and balance them within the context of our liability and capital position. As of December 31, 2023, the estimated fair value of our fixed maturities was $643.8 million.
We estimate that a 100-basis point increase in interest rates would cause a 3.7% decline in the estimated fair value of our fixed maturities portfolio, while a 100-basis point decrease in interest rates would cause a 3.9% increase in the estimated fair value of that portfolio.
We estimate that a 100-basis point increase in interest rates would cause a 3.4% decline in the estimated fair value of our fixed maturities portfolio, while a 100-basis point decrease in interest rates would cause a 3.6% increase in the estimated fair value of that portfolio.
Removed
Our Residential Earthquake and Commercial Earthquake businesses are not subject to seasonality. ​ ​ 81 Table of Contents ​
Added
As a result, we may experience increased losses in our Commercial All Risk and Hawaii Hurricane lines of business during this period. ​ 82 Table of Contents

Other PLMR 10-K year-over-year comparisons