Palomar Holdings, Inc. Reports Second Quarter 2022 Results

ソース: Nasdaq GlobeNewswire / 03 8 2022 16:15:02 America/New_York

LA JOLLA, Calif., Aug. 03, 2022 (GLOBE NEWSWIRE) -- Palomar Holdings, Inc. (NASDAQ:PLMR) (“Palomar” or “Company”) reported net income of $14.6 million, or $0.57 per diluted share, for the second quarter of 2022 compared to $12.3 million, or $0.47 per diluted share, for the second quarter of 2021. Adjusted net income⁽¹⁾ was $18.7 million, or $0.73 per diluted share, for the second quarter of 2022 as compared to $13.2 million, or $0.51 per diluted share, for the second quarter of 2021.

Second Quarter 2022 Highlights

Gross written premiums increased by 69.1% to $218.7 million compared to $129.4 million in the second quarter of 2021
Net income of $14.6 million, compared to $12.3 million in the second quarter of 2021
Adjusted net income⁽¹⁾of $18.7 million, compared to $13.2 million in the second quarter of 2021
Total loss ratio of 17.9% compared to 13.3% in the second quarter of 2021
Combined ratio of 75.1% compared to 76.0% in the second quarter of 2021
Adjusted combined ratio⁽¹⁾ of 69.1%, compared to 73.8% in the second quarter of 2021
Annualized return on equity of 15.4%, compared to 13.1% in the second quarter of 2021
Annualized adjusted return on equity⁽¹⁾ of 19.7%, compared to 14.1% in the second quarter of 2021

(1) See discussion of “Non-GAAP and Key Performance Indicators” below.

Mac Armstrong, Chairman and Chief Executive Officer, commented, “Simply put, Palomar had a very strong second quarter. Our results clearly demonstrate further execution of our 2022 strategic objectives and “Palomar 2X”, our intermediate term strategic plan of doubling our adjusted underwriting income and delivering an adjusted return on equity of 20%. Highlights of the quarter included 69% year-over-year gross written premium growth, the successful placement of our excess of loss reinsurance program, the conversion of our Texas Specialty Homeowner’s product to a fronting program and incremental traction in our new products including professional liability and PLMR-FRONT.”

“Predictable, profitable growth is a key tenant of Palomar 2X and the second quarter results embodied this tenant. During the quarter, we achieved an adjusted combined ratio of approximately 69.1%, an annualized adjusted ROE of 19.7%, and year-over-year adjusted net income growth of 41.3%, even with $4.6 million of unrealized losses in our equity portfolio," concluded Mr. Armstrong.

Underwriting Results
Gross written premiums increased 69.1% to $218.7 million compared to $129.4 million in the second quarter of 2021, while net earned premiums increased 48.0% compared to the prior year’s second quarter.

Losses and loss adjustment expenses for the second quarter were $14.4 million including $13.9 million of non-catastrophe attritional losses, and $0.5 million of catastrophe losses from unfavorable prior period development. The loss ratio for the quarter of 17.9% was comprised of a catastrophe loss ratio of 0.7% and an attritional loss ratio of 17.2%, compared to a loss ratio of 13.3% during the same period last year comprised of a catastrophe loss ratio of negative 2.1% and an attritional loss ratio of 15.4%. Non-catastrophe losses and loss ratio increased mainly due to the growth of lines of business subject to attritional losses, such as Inland Marine, Flood, and Commercial All Risk.

Underwriting income⁽¹⁾ was $20.0 million resulting in a combined ratio of 75.1% compared to underwriting income of $13.0 million and a combined ratio of 76.0% during the same period last year. Excluding expenses related to stock-based compensation, amortization of intangibles, and catastrophe bonds, the Company’s adjusted combined ratio⁽¹⁾ was 69.1% in the second quarter compared to 73.8% during the same period last year. The adjusted combined ratio⁽¹⁾ decreased primarily due to a lower expense ratio offset by a higher loss ratio during the quarter.

Investment Results
Net investment income increased by 43.1% to $3.1 million compared to $2.2 million in the prior year’s second quarter. The year over year increase was a result of a higher average balance of investments held during the three months ended June 30, 2022 due to cash generated from operations and higher yields on fixed income investments. Funds are generally invested conservatively in high quality securities, including government agency, asset and mortgage-backed securities, municipal and corporate bonds with an average credit quality of "A1/A" with a small portion of our portfolio invested in equity securities. The weighted average duration of the fixed-maturity investment portfolio, including cash equivalents, was 4.18 years at June 30, 2022. Cash and invested assets totaled $552.5 million at June 30, 2022. During the second quarter, the Company recorded realized and unrealized losses of $4.7 million related to its equity investment portfolio as compared to realized and unrealized gains of $0.3 million in last year’s second quarter.

Tax Rate
The effective tax rate for the three months ended June 30, 2022 was 20.2% compared to 20.5% for the three months ended June 30, 2021. For the current quarter and prior year quarter, the Company’s income tax rate was lower than the statutory rate of 21% due primarily to the tax impact of the permanent component of employee stock option exercises.

Stockholders’ Equity and Returns
Stockholders' equity was $378.1 million at June 30, 2022, compared to $376.7 million at June 30, 2021. For the three months ended June 30, 2022, the Company’s annualized return on equity was 15.4% compared to 13.1% for the same period in the prior year while adjusted return on equity⁽¹⁾was 19.7% compared to 14.1% for the same period in the prior year. During the current quarter, the Company repurchased 127,952 shares, or $7.3 million, of the Company’s previously announced $100 million share repurchase authorization. As of June 30 2022, $79.7 million remains available for future repurchases.

Full Year 2022 Outlook
For the full year 2022, the Company maintains its outlook to achieve adjusted net income of $80 million to $85 million, including $5.9 million of pre-tax unrealized losses on equity security holdings. This range is equivalent to adjusted net income of $85 million to $90 million excluding unrealized gains and losses for the year.

Conference Call
As previously announced, Palomar will host a conference call Thursday August 4, 2022, to discuss its second quarter 2022 results at 12:00 p.m. (Eastern Time). The conference call can be accessed live by dialing 1-877-423-9813 or for international callers, 1-201-689-8573, and requesting to be joined to the Palomar Second Quarter 2022 Earnings Conference Call. A replay will be available starting at 3:00 p.m. (Eastern Time) on August 4, 2022, and can be accessed by dialing 1-844-512-2921, or for international callers, 1-412-317-6671. The passcode for the replay is 13730139. The replay will be available until 11:59 p.m. (Eastern Time) on August 11, 2022.

Interested investors and other parties may also listen to a simultaneous webcast of the conference call by logging onto the investor relations section of the Company’s website at http://ir.palomarspecialty.com/. The online replay will remain available for a limited time beginning immediately following the call.

About Palomar Holdings, Inc.
Palomar Holdings, Inc. is the holding company of subsidiaries Palomar Specialty Insurance Company (“PSIC”), Palomar Specialty Reinsurance Company Bermuda Ltd., Palomar Insurance Agency, Inc. and Palomar Excess and Surplus Insurance Company (“PESIC”). Palomar is an innovative insurer that focuses on the provision of specialty insurance for residential and commercial clients. Palomar’s underwriting and analytical expertise allow it to concentrate on certain markets that it believes are underserved by other insurance companies, such as the markets for earthquake, hurricane and flood insurance. Palomar’s insurance subsidiaries, Palomar Specialty Insurance Company, Palomar Specialty Reinsurance Company Bermuda Ltd., and Palomar Excess and Surplus Insurance Company, have a financial strength rating of “A-” (Excellent) from A.M. Best.

To learn more, visit PLMR.com.

Follow Palomar on Facebook, LinkedIn and Twitter: @PLMRInsurance

Non-GAAP and Key Performance Indicators

Palomar discusses certain key performance indicators, described below, which provide useful information about the Company’s business and the operational factors underlying the Company’s financial performance.

Underwriting revenue is a non-GAAP financial measure defined as total revenue, excluding net investment income and net realized and unrealized gains and losses on investments. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of total revenue calculated in accordance with GAAP to underwriting revenue.

Underwriting income is a non-GAAP financial measure defined as income before income taxes excluding net investment income, net realized and unrealized gains and losses on investments, and interest expense. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of income before income taxes calculated in accordance with GAAP to underwriting income.

Adjusted net income is a non-GAAP financial measure defined as net income excluding the impact of certain items that may not be indicative of underlying business trends, operating results, or future outlook, net of tax impact. Palomar calculates the tax impact only on adjustments which would be included in calculating the Company’s income tax expense using the estimated tax rate at which the company received a deduction for these adjustments. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of net income calculated in accordance with GAAP to adjusted net income.

Annualized Return on equity is net income expressed on an annualized basis as a percentage of average beginning and ending stockholders’ equity during the period.

Annualized adjusted return on equity is a non-GAAP financial measure defined as adjusted net income expressed on an annualized basis as a percentage of average beginning and ending stockholders’ equity during the period. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of return on equity calculated using unadjusted GAAP numbers to adjusted return on equity.

Loss ratio, expressed as a percentage, is the ratio of losses and loss adjustment expenses, to net earned premiums.

Expense ratio, expressed as a percentage, is the ratio of acquisition and other underwriting expenses, net of commission and other income to net earned premiums.

Combined ratio is defined as the sum of the loss ratio and the expense ratio. A combined ratio under 100% generally indicates an underwriting profit. A combined ratio over 100% generally indicates an underwriting loss.

Adjusted combined ratio is a non-GAAP financial measure defined as the sum of the loss ratio and the expense ratio calculated excluding the impact of certain items that may not be indicative of underlying business trends, operating results, or future outlook. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of combined ratio calculated using unadjusted GAAP numbers to adjusted combined ratio.

Diluted adjusted earnings per share is a non-GAAP financial measure defined as adjusted net income divided by the weighted-average common shares outstanding for the period, reflecting the dilution which could occur if equity-based awards are converted into common share equivalents as calculated using the treasury stock method. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of diluted earnings per share calculated in accordance with GAAP to diluted adjusted earnings per share.

Catastrophe loss ratio is a non-GAAP financial measure defined as the ratio of catastrophe losses to net earned premiums. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of loss ratio calculated using unadjusted GAAP numbers to catastrophe loss ratio.

Adjusted combined ratio excluding catastrophe losses is a non-GAAP financial measure defined as adjusted combined ratio excluding the impact of catastrophe losses. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of combined ratio calculated using unadjusted GAAP numbers to adjusted combined ratio excluding catastrophe losses.

Adjusted underwriting income is a non-GAAP financial measure defined as underwriting income excluding the impact of certain items that may not be indicative of underlying business trends, operating results, or future outlook. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of 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 stockholders’ equity calculated in accordance with GAAP to tangible stockholders’ equity.

Safe Harbor Statement
Palomar cautions you that statements contained in this press release may regard matters that are not historical facts but are forward-looking statements. These statements are based on the company’s current beliefs and expectations. The inclusion of forward-looking statements should not be regarded as a representation by Palomar that any of its plans will be achieved. Actual results may differ from those set forth in this press release due to the risks and uncertainties inherent in the Company’s business. The forward-looking statements are typically, but not always, identified through use of the words "believe," "expect," "enable," "may," "will," "could," "intends," "estimate," "anticipate," "plan," "predict," "probable," "potential," "possible," "should," "continue," and other words of similar meaning. Actual results could differ materially from the expectations contained in forward-looking statements as a result of several factors, including unexpected expenditures and costs, unexpected results or delays in development and regulatory review, regulatory approval requirements, the frequency and severity of adverse events and competitive conditions. These and other factors that may result in differences are discussed in greater detail in the Company's filings with the Securities and Exchange Commission. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof, and the Company undertakes no obligation to update such statements to reflect events that occur or circumstances that exist after the date hereof. All forward-looking statements are qualified in their entirety by this cautionary statement, which is made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Contact
Media Inquiries
Bill Bold
1-619-890-5972
bbold@plmr.com

Investor Relations
Jamie Lillis
1-203-428-3223
investors@plmr.com

Source: Palomar Holdings, Inc.

Summary of Operating Results

The following table summarizes the Company’s results for the three months ended June 30, 2022 and 2021:

	Three months ended
	June 30,
	2022			2021			Change			% Change
	($ in thousands, except per share data)
Gross written premiums	$	218,689		$	129,359		$	89,330		69.1	%
Ceded written premiums		(122,627	)		(51,568	)		(71,059	)	137.8	%
Net written premiums		96,062			77,791			18,271		23.5	%
Net earned premiums		80,265			54,215			26,050		48.0	%
Commission and other income		990			1,006			(16	)	(1.6	%
Total underwriting revenue⁽¹⁾		81,255			55,221			26,034		47.1	%
Losses and loss adjustment expenses		14,398			7,235			7,163		99.0	%
Acquisition expenses		28,663			22,424			6,239		27.8	%
Other underwriting expenses		18,195			12,539			5,656		45.1	%
Underwriting income⁽¹⁾		19,999			13,023			6,976		53.6	%
Interest expense		(111	)		—			(111	)	NM
Net investment income		3,140			2,194			946		43.1	%
Net realized and unrealized gains (losses) on investments		(4,735	)		300			(5,035	)	NM
Income before income taxes		18,293			15,517			2,776		17.9	%
Income tax expense		3,704			3,177			527		16.6	%
Net income	$	14,589		$	12,340		$	2,249		18.2	%
Adjustments:
Stock-based compensation expense		2,704			907			1,797		198.1	%
Amortization of intangibles		313			252			61		24.2	%
Expenses associated with catastrophe bond, net of rebate		1,792			16			1,776		NM
Tax impact		(695	)		(278	)		(417	)	150.0	%
Adjusted net income ⁽¹⁾	$	18,703		$	13,237		$	5,466		41.3	%
Key Financial and Operating Metrics
Annualized return on equity		15.4	%		13.1	%
Annualized adjusted return on equity⁽¹⁾		19.7	%		14.1	%
Loss ratio		17.9	%		13.3	%
Expense ratio		57.1	%		62.6	%
Combined ratio		75.1	%		76.0	%
Adjusted combined ratio⁽¹⁾		69.1	%		73.8	%
Diluted earnings per share	$	0.57		$	0.47
Diluted adjusted earnings per share⁽¹⁾	$	0.73		$	0.51
Catastrophe losses	$	548		$	(1,137	)
Catastrophe loss ratio⁽¹⁾		0.7	%		(2.1	)%
Adjusted combined ratio excluding catastrophe losses⁽¹⁾		68.4	%		75.9	%
Adjusted underwriting income ⁽¹⁾	$	24,808		$	14,198			10,610		74.7	%
NM - not meaningful

(1)- Indicates Non-GAAP financial measure- see above for definition of Non-GAAP financial measures and see below for reconciliation of Non-GAAP financial measures to their most directly comparable measures prepared in accordance with GAAP.

The following table summarizes the Company’s results for the six months ended June 30, 2022 and 2021:

	Six months ended
	June 30,
	2022			2021			Change			% Change
	($ in thousands, except per share data)
Gross written premiums	$	389,623		$	232,936		$	156,687		67.3	%
Ceded written premiums		(212,179	)		(94,932	)		(117,247	)	123.5	%
Net written premiums		177,444			138,004			39,440		28.6	%
Net earned premiums		156,297			101,268			55,029		54.3	%
Commission and other income		1,767			1,717			50		2.9	%
Total underwriting revenue⁽¹⁾		158,064			102,985			55,079		53.5	%
Losses and loss adjustment expenses		29,351			2,813			26,538		NM
Acquisition expenses		56,718			41,737			14,981		35.9	%
Other underwriting expenses		34,119			26,786			7,333		27.4	%
Underwriting income ⁽¹⁾		37,876			31,649			6,227		19.7	%
Interest expense		(204	)		—			(204	)	NM
Net investment income		5,719			4,413			1,306		29.6	%
Net realized and unrealized losses on investments		(6,014	)		(439	)		(5,575	)	NM
Income before income taxes		37,377			35,623			1,754		4.9	%
Income tax expense		8,251			6,653			1,598		24.0	%
Net income	$	29,126		$	28,970		$	156		0.5	%
Adjustments:
Expenses associated with transactions		85			411			(326	)	(79.3	)%
Stock-based compensation expense		5,463			1,845			3,618		196.1	%
Amortization of intangibles		628			589			39		6.6	%
Expenses associated with catastrophe bond, net of rebate		1,992			1,698			294		17.3	%
Tax impact		(1,019	)		(990	)		(29	)	2.9	%
Adjusted net income⁽¹⁾	$	36,275		$	32,523		$	3,752		11.5	%
Key Financial and Operating Metrics
Annualized return on equity		15.1	%		15.6	%
Annualized adjusted return on equity⁽¹⁾		18.8	%		17.6	%
Loss ratio		18.8	%		2.8	%
Expense ratio		57.0	%		66.0	%
Combined ratio		75.8	%		68.7	%
Adjusted combined ratio⁽¹⁾		70.5	%		64.3	%
Diluted earnings per share	$	1.13		$	1.11
Diluted adjusted earnings per share⁽¹⁾	$	1.41		$	1.24
Catastrophe losses	$	1,029		$	(10,768	)
Catastrophe loss ratio⁽¹⁾		0.7	%		(10.6	)%
Adjusted combined ratio excluding catastrophe losses⁽¹⁾		69.9	%		74.9	%
Adjusted underwriting income ⁽¹⁾	$	46,044		$	36,192			9,852		27.2	%
NM- not meaningful

Condensed Consolidated Balance sheets

Palomar Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (unaudited)

(in thousands, except shares and par value data)


	June 30,		December 31,
	2022		2021
	(Unaudited)
Assets
Investments:
Fixed maturity securities available for sale, at fair value (amortized cost: $513,166 in 2022; $426,122 in 2021)	$	478,477	$	432,682
Equity securities, at fair value (cost: $41,990 in 2022; $31,834 in 2021)		37,509		33,261
Total investments		515,986		465,943
Cash and cash equivalents		36,471		50,284
Restricted cash		37		87
Accrued investment income		3,221		2,725
Premium receivable		119,698		88,012
Deferred policy acquisition costs		55,731		55,953
Reinsurance recoverable on unpaid losses and loss adjustment expenses		107,898		127,947
Reinsurance recoverable on paid losses and loss adjustment expenses		24,748		29,368
Ceded unearned premiums		129,724		58,315
Prepaid expenses and other assets		40,519		37,072
Deferred tax assets, net		7,533		—
Property and equipment, net		687		527
Intangible assets, net		8,888		9,501
Total assets	$	1,051,141	$	925,734
Liabilities and stockholders' equity
Liabilities:
Accounts payable and other accrued liabilities	$	17,646	$	21,284
Reserve for losses and loss adjustment expenses		163,667		173,366
Unearned premiums		376,809		284,665
Ceded premium payable		85,592		37,460
Funds held under reinsurance treaty		6,362		10,882
Deferred tax liabilities, net		—		3,908
Borrowings from credit agreements		23,000		—
Total liabilities		673,076		531,565
Stockholders' equity:
Preferred stock, $0.0001 par value, 5,000,000 shares authorized, 0 shares issued and outstanding as of June 30, 2022 and December 31, 2021		—		—
Common stock, $0.0001 par value, 500,000,000 shares authorized, 25,220,131 and 25,428,929 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively		3		3
Additional paid-in capital		326,473		318,902
Accumulated other comprehensive income (loss)		(27,216)		5,312
Retained earnings		78,805		69,952
Total stockholders' equity		378,065		394,169
Total liabilities and stockholders' equity	$	1,051,141	$	925,734

Condensed Consolidated Income Statement

Palomar Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited)

(in thousands, except shares and per share data)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2022			2021			2022			2021
Revenues:
Gross written premiums	$	218,689		$	129,359		$	389,623		$	232,936
Ceded written premiums		(122,627	)		(51,568	)		(212,179	)		(94,932	)
Net written premiums		96,062			77,791			177,444			138,004
Change in unearned premiums		(15,797	)		(23,576	)		(21,147	)		(36,736	)
Net earned premiums		80,265			54,215			156,297			101,268
Net investment income		3,140			2,194			5,719			4,413
Net realized and unrealized gains (losses) on investments		(4,735	)		300			(6,014	)		(439	)
Commission and other income		990			1,006			1,767			1,717
Total revenues		79,660			57,715			157,769			106,959
Expenses:
Losses and loss adjustment expenses		14,398			7,235			29,351			2,813
Acquisition expenses		28,663			22,424			56,718			41,737
Other underwriting expenses		18,195			12,539			34,119			26,786
Interest expense		111			—			204			—
Total expenses		61,367			42,198			120,392			71,336
Income before income taxes		18,293			15,517			37,377			35,623
Income tax expense		3,704			3,177			8,251			6,653
Net income		14,589			12,340			29,126			28,970
Other comprehensive income (loss), net:
Net unrealized gains (losses) on securities available for sale for the three and six months ended June 30, 2022 and 2021, respectively		(14,065	)		2,710			(32,528	)		(3,489	)
Net comprehensive income (loss)	$	524		$	15,050		$	(3,402	)	$	25,481
Per Share Data:
Basic earnings per share	$	0.58		$	0.48		$	1.15		$	1.14
Diluted earnings per share	$	0.57		$	0.47		$	1.13		$	1.11

Weighted-average common shares outstanding:
Basic		25,211,924			25,479,561			25,283,222			25,515,893
Diluted		25,746,780			26,104,880			25,817,442			26,181,206

Underwriting Segment Data

The Company has a single reportable segment and offers primarily earthquake, wind, inland marine, and flood insurance products. Gross written premiums (GWP) by product, location and company are presented below:


	Three Months Ended June 30,								Six Months Ended June 30,
	2022				2021				2022				2021
	($ in thousands)								($ in thousands)
			% of				% of				% of				% of
	Amount		GWP		Amount		GWP		Amount		GWP		Amount		GWP
Product
Residential Earthquake	$	54,090	24.7	%	$	42,192	32.6	%	$	100,426	25.8	%	$	78,090	33.5	%
Fronting Premiums		42,154	19.3	%		—	0.0	%		71,999	18.5	%		—	0.0	%
Commercial Earthquake		33,103	15.1	%		17,343	13.4	%		58,247	14.9	%		38,619	16.6	%
Inland Marine		23,134	10.6	%		11,681	9.0	%		41,371	10.6	%		19,515	8.4	%
Commercial All Risk		21,213	9.7	%		14,976	11.6	%		31,791	8.2	%		23,165	9.9	%
Specialty Homeowners		13,891	6.4	%		19,135	14.8	%		30,176	7.7	%		33,138	14.2	%
Hawaii Hurricane		8,240	3.8	%		7,788	6.0	%		15,154	3.9	%		13,925	6.0	%
Residential Flood		3,583	1.6	%		2,865	2.2	%		6,577	1.7	%		5,149	2.2	%
Other		19,281	8.8	%		13,379	10.4	%		33,882	8.7	%		21,335	9.2	%
Total Gross Written Premiums	$	218,689	100.0	%	$	129,359	100.0	%	$	389,623	100.0	%	$	232,936	100.0	%


	Three Months Ended June 30,								Six Months Ended June 30,
	2022				2021				2022				2021
	($ in thousands)								($ in thousands)
			% of				% of				% of				% of
	Amount		GWP		Amount		GWP		Amount		GWP		Amount		GWP
State
California	$	93,130	42.6	%	$	54,223	41.9	%	$	161,848	41.5	%	$	104,725	45.0	%
Texas		26,286	12.0	%		17,373	13.4	%		45,265	11.6	%		28,427	12.2	%
Florida		14,809	6.8	%		11,697	9.0	%		19,771	5.1	%		17,755	7.6	%
Hawaii		10,191	4.7	%		9,041	7.0	%		18,731	4.8	%		15,970	6.9	%
Washington		8,937	4.1	%		4,663	3.6	%		15,818	4.1	%		8,751	3.8	%
Illinois		4,676	2.1	%		3,173	2.5	%		8,949	2.3	%		5,775	2.4	%
Oregon		4,371	2.0	%		2,818	2.2	%		8,745	2.2	%		5,723	2.4	%
North Carolina		3,700	1.7	%		4,264	3.3	%		7,778	2.0	%		8,152	3.5	%
Other		52,589	24.0	%		22,107	17.1	%		102,718	26.4	%		37,658	16.2	%
Total Gross Written Premiums	$	218,689	100.0	%	$	129,359	100.0	%	$	389,623	100.0	%	$	232,936	100.0	%


	Three Months Ended June 30,								Six Months Ended June 30,
	2022				2021				2022				2021
	($ in thousands)								($ in thousands)
			% of				% of				% of				% of
	Amount		GWP		Amount		GWP		Amount		GWP		Amount		GWP
Subsidiary
PSIC	$	116,338	53.2	%	$	95,271	73.6	%	$	220,342	56.6	%	$	175,117	75.2	%
PESIC		102,351	46.8	%		34,088	26.4	%		169,281	43.4	%		57,819	24.8	%
Total Gross Written Premiums	$	218,689	100.0	%	$	129,359	100.0	%	$	389,623	100.0	%	$	232,936	100.0	%

Gross and net earned premiums

The table below shows the amount of premiums the Company earned on a gross and net basis and the Company’s net earned premiums as a percentage of gross earned premiums for each period presented:


	Three Months Ended												Six Months Ended
	June 30,												June 30,
	2022			2021			Change			% Change			2022			2021			Change			% Change
	($ in thousands)											($ in thousands)
Gross earned premiums	$	158,142		$	102,520		$	55,622		54.3	%		$	297,067		$	193,812		$	103,255		53.3	%
Ceded earned premiums		(77,877	)		(48,305	)		(29,572	)	61.2	%			(140,770	)		(92,544	)		(48,226	)	52.1	%
Net earned premiums	$	80,265		$	54,215		$	26,050		48.0	%		$	156,297		$	101,268		$	55,029		54.3	%

Net earned premium ratio		50.8	%		52.9	%								52.6	%		52.3	%

Loss detail


	Three Months Ended									Six Months Ended
	June 30,									June 30,
	2022		2021			Change		% Change		2022		2021			Change		% Change
	($ in thousands)									($ in thousands)
Catastrophe losses	$	548	$	(1,137	)	$	1,685	NM		$	1,029	$	(10,768	)	$	11,797	NM
Non-catastrophe losses		13,850		8,372			5,478	65.4	%		28,322		13,581			14,741	108.5	%
Total losses and loss adjustment expenses	$	14,398	$	7,235		$	7,163	99.0	%	$	29,351	$	2,813		$	26,538	NM

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


	Three Months Ended June 30,					Six Months Ended June 30,
	2022		2021			2022		2021
		(in thousands)					(in thousands)
Reserve for losses and LAE net of reinsurance recoverables at beginning of period	$	51,386	$	19,016		$	45,419	$	34,470
Add: Incurred losses and LAE, net of reinsurance, related to:
Current year		14,350		7,612			27,799		5,916
Prior years		48		(377	)		1,552		(3,103	)
Total incurred		14,398		7,235			29,351		2,813
Deduct: Loss and LAE payments, net of reinsurance, related to:
Current year		4,399		(1,060	)		5,889		620
Prior years		5,615		3,678			13,112		13,030
Total payments		10,014		2,618			19,001		13,650
Reserve for losses and LAE net of reinsurance recoverables at end of period		55,769		23,633			55,769		23,633
Add: Reinsurance recoverables on unpaid losses and LAE at end of period		107,898		145,459			107,898		145,459
Reserve for losses and LAE gross of reinsurance recoverables on unpaid losses and LAE at end of period	$	163,667	$	169,092		$	163,667	$	169,092

Reconciliation of Non-GAAP Financial Measures

For the three and six months ended June 30, 2022 and 2021, the Non-GAAP financial measures discussed above reconcile to their most comparable GAAP measures as follows:

Underwriting revenue


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2022			2021			2022			2021
	(in thousands)						(in thousands)
Total revenue	$	79,660		$	57,715		$	157,769		$	106,959
Net investment income		(3,140	)		(2,194	)		(5,719	)		(4,413	)
Net realized and unrealized (gains) losses on investments		4,735			(300	)		6,014			439
Underwriting revenue	$	81,255		$	55,221		$	158,064		$	102,985

Underwriting income and adjusted underwriting income


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2022			2021			2022			2021
	(in thousands)						(in thousands)
Income before income taxes	$	18,293		$	15,517		$	37,377		$	35,623
Net investment income		(3,140	)		(2,194	)		(5,719	)		(4,413	)
Net realized and unrealized (gains) losses on investments		4,735			(300	)		6,014			439
Interest expense		111			—			204			—
Underwriting income	$	19,999		$	13,023		$	37,876		$	31,649
Expenses associated with transactions		—			—			85			411
Stock-based compensation expense		2,704			907			5,463			1,845
Amortization of intangibles		313			252			628			589
Expenses associated with catastrophe bond, net of rebate		1,792			16			1,992			1,698
Adjusted underwriting income	$	24,808		$	14,198		$	46,044		$	36,192

Adjusted net income


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2022			2021			2022			2021
	(in thousands)						(in thousands)
Net income	$	14,589		$	12,340		$	29,126		$	28,970
Adjustments:
Expenses associated with transactions		—			—			85			411
Stock-based compensation expense		2,704			907			5,463			1,845
Amortization of intangibles		313			252			628			589
Expenses associated with catastrophe bond, net of rebate		1,792			16			1,992			1,698
Tax impact		(695	)		(278	)		(1,019	)		(990	)
Adjusted net income	$	18,703		$	13,237		$	36,275		$	32,523

Annualized adjusted return on equity


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2022			2021			2022			2021
	($ in thousands)						($ in thousands)

Annualized adjusted net income	$	74,812		$	52,948		$	72,550		$	65,046
Average stockholders' equity	$	379,232		$	376,563		$	386,117		$	370,229
Annualized adjusted return on equity		19.7	%		14.1	%		18.8	%		17.6	%

Adjusted combined ratio


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2022			2021			2022			2021
	($ in thousands)						($ in thousands)
Numerator: Sum of losses and loss adjustment expenses, acquisition expenses, and other underwriting expenses, net of commission and other income	$	60,266		$	41,192		$	118,421		$	69,619
Denominator: Net earned premiums	$	80,265		$	54,215		$	156,297		$	101,268
Combined ratio		75.1	%		76.0	%		75.8	%		68.7
Adjustments to numerator:
Expenses associated with transactions	$	—		$	—		$	(85	)	$	(411	)
Stock-based compensation expense		(2,704	)		(907	)		(5,463	)		(1,845	)
Amortization of intangibles		(313	)		(252	)		(628	)		(589	)
Expenses associated with catastrophe bond, net of rebate		(1,792	)		(16	)		(1,992	)		(1,698	)
Adjusted combined ratio		69.1	%		73.8	%		70.5	%		64.3

Diluted adjusted earnings per share


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
	(in thousands, except per share data)				(in thousands, except per share data)

Adjusted net income	$	18,703	$	13,237	$	36,275	$	32,523
Weighted-average common shares outstanding, diluted		25,746,780		26,104,880		25,817,442		26,181,206
Diluted adjusted earnings per share	$	0.73	$	0.51	$	1.41	$	1.24

Catastrophe loss ratio


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2022			2021			2022			2021
	($ in thousands)						($ in thousands)
Numerator: Losses and loss adjustment expenses	$	14,398		$	7,235		$	29,351		$	2,813
Denominator: Net earned premiums	$	80,265		$	54,215		$	156,297		$	101,268
Loss ratio		17.9	%		13.3	%		18.8	%		2.8	%

Numerator: Catastrophe losses	$	548		$	(1,137	)	$	1,029		$	(10,768	)
Denominator: Net earned premiums	$	80,265		$	54,215	)	$	156,297		$	101,268
Catastrophe loss ratio		0.7	%		(2.1	%		0.7	%		(10.6	)%

Adjusted combined ratio excluding catastrophe losses


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2022			2021			2022			2021
	($ in thousands)						($ in thousands)
Numerator: Sum of losses and loss adjustment expenses, acquisition expenses, and other underwriting expenses, net of commission and other income	$	60,266		$	41,192		$	118,421		$	69,619
Denominator: Net earned premiums	$	80,265		$	54,215		$	156,297		$	101,268
Combined ratio		75.1	%		76.0	%		75.8	%		68.7	%
Adjustments to numerator:
Expenses associated with transactions	$	—		$	—		$	(85	)	$	(411	)
Stock-based compensation expense		(2,704	)		(907	)		(5,463	)		(1,845	)
Amortization of intangibles		(313	)		(252	)		(628	)		(589	)
Expenses associated with catastrophe bond, net of rebate		(1,792	)		(16	)		(1,992	)		(1,698	)
Catastrophe losses		(548	)		1,137			(1,029	)		10,768
Adjusted combined ratio excluding catastrophe losses		68.4	%		75.9	%		69.9	%		74.9	%

Tangible Stockholders’ equity


	June 30,			December 31,
	2022			2021
	(in thousands)
Stockholders' equity	$	378,065		$	394,169
Intangible assets		(8,888	)		(9,501	)
Tangible stockholders' equity	$	369,177		$	384,668

Palomar Holdings, Inc. Reports Second Quarter 2022 Results

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