LA JOLLA, Calif., Nov. 10, 2020 (GLOBE NEWSWIRE) — Palomar Holdings, Inc. (NASDAQ:PLMR) (“Palomar” or the “Company”) reported a net loss of $15.7 million, or $0.62 per diluted share, for the third quarter of 2020 compared to net income of $7.5 million, or $0.31 per diluted share, for the third quarter of 2019.
Third Quarter 2020 Highlights
- Gross written premiums increased by 55.4% to $103.0 million compared to $66.2 million in the third quarter of 2019
- Net loss was $15.7 million, or $0.62 per diluted share, compared to net income of $7.5 million, or $0.31 per diluted share, in the third quarter of 2019
- Adjusted net income excluding catastrophe losses(1) was $13.7 million, compared to $9.6 million in the third quarter of 2019
- Total loss ratio of 97.7% compared to 8.8% in the third quarter of 2019
- Catastrophe loss ratio of 86.9%(1) compared to zero percent in the third quarter of 2019
- Combined ratio of 157.1% compared to 73.4% in the third quarter of 2019
- Adjusted combined ratio excluding catastrophe losses(1) of 68.9%, compared to 63.6% in the third quarter of 2019
- Annualized return on equity of (17.0)%, compared to 14.6% in the third quarter of 2019
(1) See discussion below of “Non-GAAP and Key Performance Indicators”
Mac Armstrong, Chairman and Chief Executive Officer, commented, “The third quarter demonstrated the sustained execution of Palomar’s strategic plan while also serving as a test of our analytically driven underwriting and risk management frameworks due to the impact from several damaging hurricanes that made landfall in areas of our exposure. Our third quarter results were highlighted by a 55.4%, year-over-year increase in gross written premiums, as we experienced meaningful growth across all of our product lines, most notably commercial earthquake and inland marine. We launched our newly established surplus lines subsidiary, Palomar Excess and Surplus Insurance Company (“PESIC”) in August. PESIC bound policies across several existing lines of business during the quarter and will enable Palomar to expand our lines of business and geographic footprint in an expedient fashion. We believe PESIC enhances our ability to pursue profitable growth and respond favorably to the continuing hardening rate environment. Finally, we executed several notable partnerships across multiple lines of business and maintained our commitment to building a world class team and organization centered around strong and enduring values.”
Mr. Armstrong continued, “Our country experienced an unusual frequency of severe weather-related events during the quarter, from the Midwest derecho to an unprecedented windstorm season to the devastating wildfires in our home state of California. Palomar and our policyholders were impacted by the spate of hurricanes that made landfall in the United States including Hurricanes Hanna, Isaias, Laura, Sally, and Beta. I am very proud of our team’s rapid response as we worked to help our policyholders and their communities recover from these damaging events. These events also afford Palomar the opportunity to learn from this wind season and apply the data we have gathered to improve our underwriting, analytics and risk transfer strategy and, moreover, to ensure predictable earnings long-term.”
Underwriting Results
Gross written premiums increased 55.4% to $103.0 million compared to $66.2 million in the third quarter of 2019, while net earned premiums increased 51.9% compared to the prior year’s third quarter. Losses and loss adjustment expenses for the third quarter were $41.1 million including $36.5 million of catastrophe losses and $4.6 million of non-catastrophe attritional losses. The loss ratio for the quarter was 97.7%, comprised of a catastrophe loss ratio of 86.9%(1) and an attritional loss ratio of 10.8%, compared to a loss ratio of 8.8%, comprised entirely of attritional losses, during the same period last year. The third quarter results include $0.3 million of unfavorable prior year development. Underwriting loss(1) was $24.0 million resulting in a combined ratio of 157.1% compared to underwriting income of $7.4 million and a combined ratio of 73.4% during the same period last year. The third quarter of 2020 results include certain expenses related to stock-based compensation and catastrophe losses. The third quarter of 2019 results include certain expenses related to a secondary offering and one-time incentive cash bonuses and stock-based compensation. Without these items, the Company’s adjusted combined ratio excluding catastrophe losses(1) was 68.9% in the third quarter compared to 63.6% during the same period last year. The Company had a net loss of $15.7 million in the third quarter compared to net income of $7.5 million during the same period last year. The Company had adjusted net income excluding catastrophe losses(1) of $13.7 million in the third quarter, compared to $9.6 million during the same period last year.
(1) See discussion below of “Non-GAAP and Key Performance Indicators”
Investment Results
Net investment income increased by 23.7% to $2.1 million compared to $1.7 million in the prior year’s third quarter. The year-over-year increase was primarily due to a higher average balance of investments held during the three months ended September 30, 2020 due primarily to cash generated from operations as well as proceeds from the Company’s January and June 2020 stock offerings. Funds are generally invested conservatively in high quality securities, including government agency, asset and mortgage-backed securities, and municipal and corporate bonds with an average credit quality of “A1/A+.” The Company’s fixed income investment portfolio had a book yield of 2.33% as of September 30, 2020. Cash and invested assets totaled $450.0 million at September 30, 2020. During the third quarter, the Company recognized realized and unrealized gains of $0.02 million related to its investment portfolio compared to $0.4 million in last year’s third quarter.
Tax Rate
The effective tax rate for the three months ended September 30, 2020 was 28.2% compared to 21.1% for the three months ended September 30, 2019. For the current quarter, company’s income tax rate differed from the statutory rate due to the tax impact of the permanent component of employee stock option exercises.
Stockholders’ Equity and Returns
Stockholders’ equity was $361.9 million at September 30, 2020, compared to $218.6 million at December 31, 2019. For the three months ended September 30, 2020, the Company’s annualized return on equity was (17.0)% compared to 14.6% for the same period last year.
Full Year 2020 Outlook
For the full year 2020, the Company updated its previous full year 2020 guidance of adjusted net income of $50.5 to $53.0 million, to adjusted net income of $51.0 to $52.0 million excluding catastrophe losses, equating to a growth rate of 35% to 37% compared to the full year 2019.
The Company will discuss this guidance and provide additional information related to the impact of COVID-19 on its upcoming earnings call on November 11, 2020.
Conference Call
As previously announced, Palomar will host a conference call November 11, 2020, to discuss its third quarter 2020 results at 12:00 p.m. (Eastern Time). The conference call can be accessed by dialing 1-877-423-9813 (domestic) or 1-201-689-8573 (international) and asking for the Palomar Third Quarter 2020 Earnings Call. A telephonic replay will be available approximately two hours after the call and can be accessed by dialing 1-844-512-2921, or for international callers 1-412-317-6671 and providing the access code 13711590. The telephonic replay will be available until 11:59 pm (Eastern Time) on November 18, 2020.
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, Palomar Specialty Reinsurance Company Bermuda Ltd., Palomar Insurance Agency, Inc. and Palomar Excess and Surplus Insurance Company. Palomar is an innovative insurer that focuses on the provision of specialty property 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, wind and flood insurance. Palomar’s principal insurance subsidiary, Palomar Specialty Insurance Company, is an admitted carrier in 31 states and has an A.M. Best financial strength rating of “A-” (Excellent).
Non-GAAP and Key Performance Indicators
Palomar discusses certain key financial and operating metrics, 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 (loss) 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 (loss).
Return on equity is net income expressed on an annualized basis as a percentage of average beginning and ending stockholders’ equity during the period.
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 (loss) 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 net income excluding catastrophe losses is a non‑GAAP financial measure defined as adjusted net income excluding catastrophe losses, net of tax impact. We calculate the tax impact 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 income before income taxes calculated in accordance with GAAP to adjusted net income excluding catastrophe losses.
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. competitive conditions, and the impact of COVID-19 and related economic conditions, including the Company’s assessment of the vulnerability of certain categories of investments to the economic disruptions associated with COVID-19 and legislative or regulatory developments affecting the insurance industry. 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.
Investor Relations
1-619-771-1743
investors@palomarspecialty.com
Source: Palomar Holdings, Inc.
Summary of Operating Results
The following table summarizes the Company’s results for the three months ended September 30, 2020 and 2019:
| Three months ended | ||||||||||||
| September 30, | ||||||||||||
| 2020 | 2019 | Change | % Change | |||||||||
| ($ in thousands, except per share data) | ||||||||||||
| Revenue: | ||||||||||||
| Gross written premiums | $ | 102,967 | 66,242 | $ | 36,725 | 55.4 | % | |||||
| Ceded written premiums | (41,570) | (28,060) | (13,510) | 48.1 | % | |||||||
| Net written premiums | 61,397 | 38,182 | 23,215 | 60.8 | % | |||||||
| Net earned premiums | 42,020 | 27,662 | 14,358 | 51.9 | % | |||||||
| Commission and other income | 816 | 709 | 107 | 15.1 | % | |||||||
| Total underwriting revenue (1) | 42,836 | 28,371 | 14,465 | 51.0 | % | |||||||
| Losses and loss adjustment expenses | 41,060 | 2,439 | 38,621 | 1,583.5 | % | |||||||
| Acquisition expenses | 17,976 | 10,243 | 7,733 | 75.5 | % | |||||||
| Other underwriting expenses | 7,805 | 8,330 | (525) | (6.3) | % | |||||||
| Underwriting income (loss) (1) | (24,005) | 7,359 | (31,364) | (426.2) | % | |||||||
| Net investment income | 2,138 | 1,729 | 409 | 23.7 | % | |||||||
| Net realized and unrealized gains on investments | 24 | 361 | (337) | (93.4) | % | |||||||
| Income before income taxes | (21,843) | 9,449 | (31,292) | (331.2) | % | |||||||
| Income tax expense (benefit) | (6,158) | 1,995 | (8,153) | (408.7) | % | |||||||
| Net income (loss) | $ | (15,685) | $ | 7,454 | $ | (23,139) | (310.4) | % | ||||
| Adjustments: | ||||||||||||
| Expenses associated with IPO, tax restructuring, secondary offerings, and one-time incentive cash bonuses | — | 2,289 | (2,289) | NM | ||||||||
| Stock-based compensation expense | 551 | 410 | 141 | NM | ||||||||
| Tax impact | (101) | (570) | 469 | NM | ||||||||
| Adjusted net income (loss) (1) | $ | (15,235) | $ | 9,583 | $ | (24,818) | (259.0) | % | ||||
| Key Financial and Operating Metrics | ||||||||||||
| Annualized return on equity | (17.0) | % | 14.6 | % | ||||||||
| Annualized adjusted return on equity (1) | (16.5) | % | 18.8 | % | ||||||||
| Loss ratio | 97.7 | % | 8.8 | % | ||||||||
| Expense ratio | 59.4 | % | 64.6 | % | ||||||||
| Combined ratio | 157.1 | % | 73.4 | % | ||||||||
| Adjusted combined ratio (1) | 155.8 | % | 63.6 | % | ||||||||
| Diluted earnings per share | $ | (0.62) | $ | 0.31 | ||||||||
| Diluted adjusted earnings per share (1) | $ | (0.60) | $ | 0.40 | ||||||||
| Catastrophe losses (2) | $ | 36,512 | $ | — | ||||||||
| Catastrophe loss ratio (1) | 86.9 | % | — | % | ||||||||
| Adjusted combined ratio excluding catastrophe losses (1) | 68.9 | % | 63.6 | % | ||||||||
| Adjusted net income excluding catastrophe losses (1) (2) | $ | 13,672 | $ | 9,583 | ||||||||
| 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.
(2) Catastrophe losses above are shown before their tax impact. Adjusted net income excluding catastrophe losses excludes catastrophe losses net of the estimated tax effect on them.
The following table summarizes the Company’s results for the nine months ended September 30, 2020 and 2019:
| Nine months ended | ||||||||||||
| September 30, | ||||||||||||
| 2020 | 2019 | Change | % Change | |||||||||
| ($ in thousands, except per share data) | ||||||||||||
| Revenue: | ||||||||||||
| Gross written premiums | $ | 258,268 | $ | 178,619 | $ | 79,649 | 44.6 | % | ||||
| Ceded written premiums | (101,264) | (78,797) | (22,467) | 28.5 | % | |||||||
| Net written premiums | 157,004 | 99,822 | 57,182 | 57.3 | % | |||||||
| Net earned premiums | 116,145 | 69,220 | 46,925 | 67.8 | % | |||||||
| Commission and other income | 2,492 | 2,017 | 475 | 23.5 | % | |||||||
| Total underwriting revenue (1) | 118,637 | 71,237 | 47,400 | 66.5 | % | |||||||
| Losses and loss adjustment expenses | 46,901 | 3,398 | 43,503 | 1,280.3 | % | |||||||
| Acquisition expenses | 45,909 | 26,189 | 19,720 | 75.3 | % | |||||||
| Other underwriting expenses | 24,732 | 44,348 | (19,616) | (44.2) | % | |||||||
| Underwriting income (loss) (1) | 1,095 | (2,698) | 3,793 | (140.6) | % | |||||||
| Interest expense | — | (1,068) | 1,068 | (100.0) | % | |||||||
| Net investment income | 6,287 | 4,172 | 2,115 | 50.7 | % | |||||||
| Net realized and unrealized gains on investments | 1,243 | 3,265 | (2,022) | (61.9) | % | |||||||
| Income before income taxes | 8,625 | 3,671 | 4,954 | 134.9 | % | |||||||
| Income tax expense | 523 | 3,929 | (3,406) | (86.7) | % | |||||||
| Net income (loss) | $ | 8,102 | $ | (258) | $ | 8,360 | (3,240.3) | % | ||||
| Adjustments: | ||||||||||||
| Expenses associated with IPO, tax restructuring, secondary offerings, and one-time incentive cash bonuses | 708 | 2,699 | (1,991) | NM | ||||||||
| Stock-based compensation expense | 1,457 | 23,677 | (22,220) | NM | ||||||||
| Expenses associated with retirement of debt | — | 1,297 | (1,297) | NM | ||||||||
| Expenses associated with catastrophe bond | 399 | — | 399 | NM | ||||||||
| Tax impact | (534) | (994) | 460 | NM | ||||||||
| Adjusted net income (1) | $ | 10,132 | $ | 26,421 | $ | (16,289) | (61.7) | % | ||||
| Key Financial and Operating Metrics | ||||||||||||
| Annualized return on equity | 3.7 | % | (0.2) | % | ||||||||
| Annualized adjusted return on equity (1) | 4.7 | % | 23.1 | % | ||||||||
| Loss ratio | 40.4 | % | 4.9 | % | ||||||||
| Expense ratio | 58.7 | % | 99.0 | % | ||||||||
| Combined ratio | 99.1 | % | 103.9 | % | ||||||||
| Adjusted combined ratio (1) | 96.8 | % | 64.5 | % | ||||||||
| Diluted earnings per share | $ | 0.32 | $ | (0.01) | ||||||||
| Diluted adjusted earnings per share (1) | $ | 0.40 | $ | 1.27 | ||||||||
| Catastrophe losses (2) | $ | 36,512 | $ | — | ||||||||
| Catastrophe loss ratio (1) | 31.4 | % | — | % | ||||||||
| Adjusted combined ratio excluding catastrophe losses (1) | 65.4 | % | 64.5 | % | ||||||||
| Adjusted net income excluding catastrophe losses (1) (2) | $ | 39,039 | $ | 26,421 | ||||||||
| 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.
(2) Catastrophe losses above are shown before their tax impact. Adjusted net income excluding catastrophe losses excludes catastrophe losses net of the estimated tax effect on them.
Condensed Consolidated Balance sheets
Palomar Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (unaudited)
(in thousands, except shares and par value data)
| September 30, | December 31, | |||||
| 2020 | 2019 | |||||
| (Unaudited) | ||||||
| Assets | ||||||
| Investments: | ||||||
| Fixed maturity securities available for sale, at fair value (amortized cost: $377,658 in 2020; $211,278 in 2019) | $ | 390,811 | $ | 217,151 | ||
| Equity securities, at fair value (cost: $43,071 in 2020; $21,336 in 2019) | 45,037 | 22,328 | ||||
| Total investments | 435,848 | 239,479 | ||||
| Cash and cash equivalents | 14,033 | 33,119 | ||||
| Restricted cash | 163 | 230 | ||||
| Accrued investment income | 2,366 | 1,386 | ||||
| Premium receivable | 48,117 | 36,237 | ||||
| Deferred policy acquisition costs | 34,584 | 25,201 | ||||
| Reinsurance recoverable on unpaid losses and loss adjustment expenses | 92,537 | 12,952 | ||||
| Reinsurance recoverable on paid losses and loss adjustment expenses | 10,497 | 4,303 | ||||
| Ceded unearned premiums | 28,461 | 26,105 | ||||
| Prepaid expenses and other assets | 31,656 | 14,861 | ||||
| Property and equipment, net | 753 | 845 | ||||
| Intangible assets | 744 | 744 | ||||
| Total assets | $ | 699,759 | $ | 395,462 | ||
| Liabilities and stockholders’ equity | ||||||
| Liabilities: | ||||||
| Accounts payable and other accrued liabilities | $ | 13,226 | $ | 13,555 | ||
| Reserve for losses and loss adjustment expenses | 132,077 | 16,821 | ||||
| Unearned premiums | 173,587 | 130,373 | ||||
| Ceded premium payable | 11,685 | 11,383 | ||||
| Funds held under reinsurance treaty | 3,061 | 1,658 | ||||
| Income and excise taxes payable | — | 1,117 | ||||
| Deferred tax liabilities, net | 4,228 | 1,999 | ||||
| Total liabilities | 337,864 | 176,906 | ||||
| Stockholders’ equity: | ||||||
| Preferred stock, $0.0001 par value, 5,000,000 shares authorized as of September 30, 2020 and December 31, 2019, respectively, 0 shares issued and outstanding as of September 30, 2020 and December 31, 2019 | — | — | ||||
| Common stock, $0.0001 par value, 500,000,000 shares authorized, 25,518,957 and 23,468,750 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively | 3 | 2 | ||||
| Additional paid-in capital | 309,496 | 180,012 | ||||
| Accumulated other comprehensive income | 10,438 | 4,686 | ||||
| Retained earnings | 41,958 | 33,856 | ||||
| Total stockholders’ equity | 361,895 | 218,556 | ||||
| Total liabilities and stockholders’ equity | $ | 699,759 | $ | 395,462 | ||
Condensed Consolidated Income Statement
Palomar Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) (Unaudited)
(in thousands, except shares and per share data)
| Three Months Ended | Nine Months Ended | |||||||||||
| September 30, | September 30, | |||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||
| Revenues: | ||||||||||||
| Gross written premiums | $ | 102,967 | $ | 66,242 | $ | 258,268 | $ | 178,619 | ||||
| Ceded written premiums | (41,570) | (28,060) | (101,264) | (78,797) | ||||||||
| Net written premiums | 61,397 | 38,182 | 157,004 | 99,822 | ||||||||
| Change in unearned premiums | (19,377) | (10,520) | (40,859) | (30,602) | ||||||||
| Net earned premiums | 42,020 | 27,662 | 116,145 | 69,220 | ||||||||
| Net investment income | 2,138 | 1,729 | 6,287 | 4,172 | ||||||||
| Net realized and unrealized gains on investments | 24 | 361 | 1,243 | 3,265 | ||||||||
| Commission and other income | 816 | 709 | 2,492 | 2,017 | ||||||||
| Total revenues | 44,998 | 30,461 | 126,167 | 78,674 | ||||||||
| Expenses: | ||||||||||||
| Losses and loss adjustment expenses | 41,060 | 2,439 | 46,901 | 3,398 | ||||||||
| Acquisition expenses | 17,976 | 10,243 | 45,909 | 26,189 | ||||||||
| Other underwriting expenses (includes stock-based compensation of $551 and $410 for the three months ended September 30, 2020 and 2019, respectively and $1,457 and $23,677 for the nine months ended September 30, 2020 and 2019, respectively) | 7,805 | 8,330 | 24,732 | 44,348 | ||||||||
| Interest expense | — | — | — | 1,068 | ||||||||
| Total expenses | 66,841 | 21,012 | 117,542 | 75,003 | ||||||||
| Income (loss) before income taxes | (21,843) | 9,449 | 8,625 | 3,671 | ||||||||
| Income tax expense (benefit) | (6,158) | 1,995 | 523 | 3,929 | ||||||||
| Net income (loss) | (15,685) | 7,454 | 8,102 | (258) | ||||||||
| Other comprehensive income, net: | ||||||||||||
| Net unrealized gains on securities available for sale for the three and nine months ended September 30, 2020 and 2019, respectively | 909 | 974 | 5,752 | 6,459 | ||||||||
| Net comprehensive income (loss) | $ | (14,776) | $ | 8,428 | $ | 13,854 | $ | 6,201 | ||||
| Per Share Data: | ||||||||||||
| Basic earnings per share | $ | (0.62) | $ | 0.32 | $ | 0.33 | $ | (0.01) | ||||
| Diluted earnings per share | $ | (0.62) | $ | 0.31 | $ | 0.32 | $ | (0.01) | ||||
| Weighted-average common shares outstanding: | ||||||||||||
| Basic | 25,492,274 | 23,468,750 | 24,654,722 | 20,838,599 | ||||||||
| Diluted | 25,492,274 | 23,885,137 | 25,384,518 | 20,838,599 | ||||||||
Underwriting Segment Data
The Company has a single reportable segment and offers primarily earthquake, wind, and flood insurance products. Gross written premiums (GWP) by product and location are presented below:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
| ($ in thousands) | ($ in thousands) | |||||||||||||||||||||
| % of | % of | % of | % of | |||||||||||||||||||
| Amount | GWP | Amount | GWP | Amount | GWP | Amount | GWP | |||||||||||||||
| Product | ||||||||||||||||||||||
| Residential Earthquake | $ | 40,507 | 39.3 | % | $ | 35,711 | 53.9 | % | $ | 103,503 | 40.1 | % | $ | 95,005 | 53.2 | % | ||||||
| Commercial Earthquake | 18,061 | 17.5 | % | 8,402 | 12.7 | % | 40,727 | 15.8 | % | 23,020 | 12.9 | % | ||||||||||
| Specialty Homeowners | 17,048 | 16.6 | % | 8,572 | 12.9 | % | 38,461 | 14.9 | % | 24,994 | 14.0 | % | ||||||||||
| Commercial All Risk | 12,467 | 12.1 | % | 7,077 | 10.7 | % | 39,765 | 15.4 | % | 21,929 | 12.3 | % | ||||||||||
| Inland Marine | 4,406 | 4.3 | % | 1,060 | 1.6 | % | 9,747 | 3.8 | % | 1,294 | 0.7 | % | ||||||||||
| Hawaii Hurricane | 4,360 | 4.2 | % | 3,299 | 5.0 | % | 10,296 | 4.0 | % | 8,048 | 4.5 | % | ||||||||||
| Residential Flood | 2,170 | 2.1 | % | 1,450 | 2.2 | % | 5,728 | 2.2 | % | 3,494 | 2.0 | % | ||||||||||
| Other | 3,948 | 3.9 | % | 671 | 1.0 | % | 10,041 | 3.8 | % | 835 | 0.4 | % | ||||||||||
| Total Gross Written Premiums | $ | 102,967 | 100.0 | % | $ | 66,242 | 100.0 | % | $ | 258,268 | 100.0 | % | $ | 178,619 | 100.0 | % | ||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
| ($ in thousands) | ($ in thousands) | |||||||||||||||||||||
| % of | % of | % of | % of | |||||||||||||||||||
| Amount | GWP | Amount | GWP | Amount | GWP | Amount | GWP | |||||||||||||||
| State | ||||||||||||||||||||||
| California | $ | 52,960 | 51.4 | % | $ | 36,789 | 55.5 | % | $ | 124,131 | 48.1 | % | $ | 99,543 | 55.7 | % | ||||||
| Texas | 20,460 | 19.9 | % | 11,239 | 17.0 | % | 55,047 | 21.3 | % | 32,678 | 18.3 | % | ||||||||||
| Hawaii | 5,097 | 5.0 | % | 3,675 | 5.5 | % | 11,990 | 4.6 | % | 8,688 | 4.9 | % | ||||||||||
| Washington | 4,340 | 4.2 | % | 2,910 | 4.4 | % | 10,002 | 3.9 | % | 6,430 | 3.6 | % | ||||||||||
| South Carolina | 2,089 | 2.0 | % | 1,258 | 1.9 | % | 7,203 | 2.8 | % | 4,614 | 2.5 | % | ||||||||||
| North Carolina | 2,839 | 2.8 | % | 967 | 1.5 | % | 7,131 | 2.8 | % | 2,654 | 1.5 | % | ||||||||||
| Oregon | 2,912 | 2.8 | % | 2,153 | 3.3 | % | 7,298 | 2.8 | % | 5,279 | 3.0 | % | ||||||||||
| Mississippi | 2,173 | 2.1 | % | 1,315 | 2.0 | % | 5,628 | 2.2 | % | 3,383 | 1.9 | % | ||||||||||
| Other | 10,097 | 9.8 | % | 5,936 | 8.9 | % | 29,838 | 11.5 | % | 15,350 | 8.6 | % | ||||||||||
| Total Gross Written Premiums | $ | 102,967 | 100.0 | % | $ | 66,242 | 100.0 | % | $ | 258,268 | 100.0 | % | $ | 178,619 | 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 | Nine Months Ended | ||||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||||
| 2020 | 2019 | Change | % Change | 2020 | 2019 | Change | % Change | ||||||||||||||||||
| ($ in thousands) | ($ in thousands) | ||||||||||||||||||||||||
| Gross earned premiums | $ | 79,428 | $ | 53,453 | $ | 25,975 | 48.6 | % | $ | 215,266 | $ | 141,554 | $ | 73,712 | 52.1 | % | |||||||||
| Ceded earned premiums | (37,408) | (25,791) | (11,617) | 45.0 | % | (99,120) | (72,334) | (26,786) | 37.0 | % | |||||||||||||||
| Net earned premiums | $ | 42,020 | $ | 27,662 | $ | 14,358 | 51.9 | % | $ | 116,146 | $ | 69,220 | $ | 46,926 | 67.8 | % | |||||||||
| Net earned premium ratio | 52.9% | 51.8% | 54.0% | 48.9% | |||||||||||||||||||||
Loss detail
The following table represents a reconciliation of changes in the ending reserve balances for losses and loss adjustment expenses:
| Three months ended September 30, | Nine Months Ended September 30, | |||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||
| (in thousands) | (in thousands) | |||||||||||
| Reserve for losses and loss adjustment expenses net of reinsurance recoverables at beginning of period | $ | 7,087 | $ | 1,428 | $ | 3,869 | $ | 4,165 | ||||
| Add: Incurred losses and loss adjustment expenses, net of reinsurance, related to: | ||||||||||||
| Current year | 40,803 | 2,647 | 46,867 | 3,660 | ||||||||
| Prior years | 257 | (208) | 34 | (262) | ||||||||
| Total incurred | 41,060 | 2,439 | 46,901 | 3,398 | ||||||||
| Deduct: Loss and loss adjustment expense payments, net of reinsurance, related to: | ||||||||||||
| Current year | 8,232 | 641 | 9,754 | 1,044 | ||||||||
| Prior years | 375 | 312 | 1,476 | 3,605 | ||||||||
| Total payments | 8,607 | 953 | 11,230 | 4,649 | ||||||||
| Reserve for losses and loss adjustment expense net of reinsurance recoverables at end of period | 39,540 | 2,914 | 39,540 | 2,914 | ||||||||
| Add: Reinsurance recoverables on unpaid losses and loss adjustment expenses at end of period | 92,537 | 14,052 | 92,537 | 14,052 | ||||||||
| Reserve for losses and loss adjustment expenses gross of reinsurance recoverables on unpaid losses and loss adjustment expenses at end of period | $ | 132,077 | $ | 16,966 | $ | 132,077 | $ | 16,966 | ||||
Reconciliation of Non-GAAP Financial Measures
For the three and nine months ended September 30, 2020 and 2019, the Non-GAAP financial measures discussed above reconcile to their most comparable GAAP measures as follows:
Underwriting revenue
| Three Months Ended | Nine Months Ended | ||||||||||||
| September 30, | September 30, | ||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||
| (in thousands) | (in thousands) | ||||||||||||
| Total revenue | $ | 44,998 | $ | 30,461 | $ | 126,167 | $ | 78,674 | |||||
| Net investment income | (2,138) | (1,729) | (6,287) | (4,172) | |||||||||
| Net realized and unrealized gains on investments | (24) | (361) | (1,243) | (3,265) | |||||||||
| Underwriting revenue | $ | 42,836 | $ | 28,371 | $ | 118,637 | $ | 71,237 | |||||
Underwriting income (loss)
| Three Months Ended | Nine Months Ended | ||||||||||||
| September 30, | September 30, | ||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||
| (in thousands) | (in thousands) | ||||||||||||
| Income (loss) before income taxes | $ | (21,843) | $ | 9,449 | $ | 8,625 | $ | 3,671 | |||||
| Net investment income | (2,138) | (1,729) | (6,287) | (4,172) | |||||||||
| Net realized and unrealized gains on investments | (24) | (361) | (1,243) | (3,265) | |||||||||
| Interest expense | — | — | — | 1,068 | |||||||||
| Underwriting income (loss) | $ | (24,005) | $ | 7,359 | $ | 1,095 | $ | (2,698) | |||||
Adjusted net income (loss)
| Three Months Ended | Nine Months Ended | ||||||||||||
| September 30, | September 30, | ||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||
| (in thousands) | (in thousands) | ||||||||||||
| Net income (loss) | $ | (15,685) | $ | 7,454 | $ | 8,102 | $ | (258) | |||||
| Adjustments: | |||||||||||||
| Expenses associated with IPO, tax restructuring, secondary offerings, and one-time incentive cash bonuses | — | 2,289 | 708 | 2,699 | |||||||||
| Stock-based compensation expense | 551 | 410 | 1,457 | 23,677 | |||||||||
| Expenses associated with retirement of debt | — | — | — | 1,297 | |||||||||
| Expenses associated with catastrophe bond | — | — | 399 | — | |||||||||
| Tax impact | (101) | (570) | (534) | (994) | |||||||||
| Adjusted net income (loss) | $ | (15,235) | $ | 9,583 | $ | 10,132 | $ | 26,421 | |||||
Annualized adjusted return on equity
| Three Months Ended | Nine Months Ended | |||||||||||||
| September 30, | September 30, | |||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||
| ($ in thousands) | ($ in thousands) | |||||||||||||
| Annualized adjusted net income (loss) | $ | (60,940) | $ | 38,332 | $ | 13,509 | $ | 35,228 | ||||||
| Average stockholders’ equity | $ | 368,568 | $ | 204,049 | $ | 290,225 | $ | 152,377 | ||||||
| Annualized adjusted return on equity | (16.5) | % | 18.8 | % | 4.7 | % | 23.1 | % | ||||||
Adjusted combined ratio
| Three Months Ended | Nine Months Ended | |||||||||||||
| September 30, | September 30, | |||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||
| ($ in thousands) | ($ in thousands) | |||||||||||||
| Numerator: Sum of losses and loss adjustment expenses, acquisition expenses, and other underwriting expenses, net of commission and other income | $ | 66,025 | $ | 20,303 | $ | 115,050 | $ | 71,918 | ||||||
| Denominator: Net earned premiums | $ | 42,020 | $ | 27,662 | $ | 116,145 | $ | 69,220 | ||||||
| Combined ratio | 157.1 | % | 73.4 | % | 99.1 | % | 103.9 | % | ||||||
| Adjustments to numerator: | ||||||||||||||
| Expenses associated with IPO, tax restructuring, secondary offerings, and one-time incentive cash bonuses | $ | — | $ | (2,289) | $ | (708) | $ | (2,699) | ||||||
| Stock-based compensation expense | (551) | (410) | (1,457) | (23,677) | ||||||||||
| Portion of expenses associated with retirement of debt classified as other underwriting expenses | — | — | — | (897) | ||||||||||
| Expenses associated with catastrophe bond | — | — | (399) | — | ||||||||||
| Adjusted combined ratio | 155.8 | % | 63.6 | % | 96.8 | % | 64.5 | % | ||||||
Diluted adjusted earnings per share
| Three Months Ended | Nine Months Ended | ||||||||||||
| September 30, | September 30, | ||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||
| (in thousands, except per share data) | (in thousands, except per share data) | ||||||||||||
| Adjusted net income (loss) | $ | (15,235) | $ | 9,583 | $ | 10,132 | $ | 26,421 | |||||
| Weighted-average common shares outstanding, diluted (1) | $ | 25,492,274 | 23,885,137 | 25,384,518 | 21,035,340 | ||||||||
| Diluted adjusted earnings per share | $ | (0.60) | $ | 0.40 | $ | 0.40 | $ | 1.26 | |||||
(1) For the nine months ended September 30, 2019, we had a net loss on a GAAP basis. Therefore, common share equivalents were not included in the denominator for calculating GAAP net loss per share as doing so would be anti-dilutive. The common share equivalents are included in the above denominator as we had adjusted net income during that period.
Catastrophe loss ratio
| Three Months Ended | Nine Months Ended | |||||||||||||
| September 30, | September 30, | |||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||
| ($ in thousands) | ($ in thousands) | |||||||||||||
| Numerator: Losses and loss adjustment expenses | $ | 41,060 | $ | 2,439 | $ | 46,901 | $ | 3,398 | ||||||
| Denominator: Net earned premiums | $ | 42,020 | $ | 27,662 | $ | 116,145 | $ | 69,220 | ||||||
| Loss ratio | 97.7 | % | 8.8 | % | 40.4 | % | 4.9 | % | ||||||
| Numerator: Catastrophe losses | $ | 36,512 | $ | — | $ | 36,512 | $ | — | ||||||
| Denominator: Net earned premiums | $ | 42,020 | $ | 27,662 | $ | 116,145 | $ | 69,220 | ||||||
| Catastrophe loss ratio | 86.9 | % | 0.0 | % | 31.4 | % | 0.0 | % | ||||||
Adjusted combined ratio excluding catastrophe losses
| Three Months Ended | Nine Months Ended | |||||||||||||
| September 30, | September 30, | |||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||
| ($ in thousands) | ($ in thousands) | |||||||||||||
| Numerator: Sum of losses and loss adjustment expenses, acquisition expenses, and other underwriting expenses, net of commission and other income | $ | 66,025 | $ | 20,303 | $ | 115,050 | $ | 71,918 | ||||||
| Denominator: Net earned premiums | $ | 42,020 | $ | 27,662 | $ | 116,145 | $ | 69,220 | ||||||
| Combined ratio | 157.1 | % | 73.4 | % | 99.1 | % | 103.9 | % | ||||||
| Adjustments to numerator: | ||||||||||||||
| Expenses associated with IPO, tax restructuring, secondary offerings, and one-time incentive cash bonuses | $ | — | $ | (2,289) | $ | (708) | $ | (2,699) | ||||||
| Stock-based compensation expense | (551) | (410) | (1,457) | (23,677) | ||||||||||
| Portion of expenses associated with retirement of debt classified as other underwriting expenses | — | — | — | (897) | ||||||||||
| Expenses associated with catastrophe bond | — | — | (399) | — | ||||||||||
| Catastrophe losses | (36,512) | — | (36,512) | — | ||||||||||
| Adjusted combined ratio excluding catastrophe losses | 68.9 | % | 63.6 | % | 65.4 | % | 64.5 | % | ||||||
Adjusted net income excluding catastrophe losses
| Three Months Ended | Nine Months Ended | ||||||||||||
| September 30, | September 30, | ||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||
| (in thousands) | (in thousands) | ||||||||||||
| Net income (loss) | $ | (15,685) | $ | 7,454 | $ | 8,102 | $ | (258) | |||||
| Adjustments: | |||||||||||||
| Expenses associated with IPO, tax restructuring, secondary offerings, and one-time incentive cash bonuses | — | 2,289 | 708 | 2,699 | |||||||||
| Stock-based compensation expense | 551 | 410 | 1,457 | 23,677 | |||||||||
| Expenses associated with retirement of debt | — | — | — | 1,297 | |||||||||
| Expenses associated with catastrophe bond | — | — | 399 | — | |||||||||
| Catastrophe losses | 36,512 | — | 36,512 | — | |||||||||
| Tax impact | (7,706) | (570) | (8,139) | (994) | |||||||||
| Adjusted net income excluding catastrophe losses | $ | 13,672 | $ | 9,583 | $ | 39,039 | $ | 26,421 | |||||
Tangible Stockholders’ equity
| September 30, | December 31, | |||||
| 2020 | 2019 | |||||
| (in thousands) | ||||||
| Stockholders’ equity | $ | 361,895 | $ | 218,556 | ||
| Intangible assets | (744) | (744) | ||||
| Tangible stockholders’ equity | $ | 361,151 | $ | 217,812 | ||