Palomar Holdings, Inc.

Previous wording

Item 2. Manag ement’s Discussion and Analysis of Financial Condition and Results of Operations

Current wording

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Previous wording

The results of operations for the three months ended March 31, 2026 are not necessarily indicative of the results that may be expected for the full year ended December 31, 2026, or for any other future period. The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in Part I, Item 1 of this Quarterly Report, and in conjunction with our audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K as filed with the SEC on February 24, 2026.

Current wording

The results of operations for the six months ended June 30, 2026 are not necessarily indicative of the results that may be expected for the full year ended December 31, 2026, or for any other future period. The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in Part I, Item 1 of this Quarterly Report, and in conjunction with our audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K as filed with the SEC on February 24, 2026.

Previous wording

Gross written premiums increased $187.7 million, or 42.4%, to $629.8 million for the three months ended March 31, 2026 compared to $442.2 million for the three months ended March 31, 2025. Premium growth was primarily due to an increased volume of policies in the majority of our lines of business, particularly in our Casualty and Inland Marine and Property lines, 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. The following table summarizes our gross written premiums by line of business and shows each line’s percentage of total gross written premiums for each period:

Current wording

Gross written premiums increased $134.2 million, or 27.0%, to $630.5 million for the three months ended June 30, 2026 compared to $496.3 million for the three months ended June 30, 2025. Premium growth was primarily due to an increased volume of policies in the majority of our lines of business, particularly in our Casualty and Crop lines, 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. The following table summarizes our gross written premiums by line of business and shows each line’s percentage of total gross written premiums for each period:

Previous wording

Ceded written premiums increased $61.2 million, or 26.5%, to $291.9 million for the three months ended March 31, 2026 from $230.7 million for the three months ended March 31, 2025. The increase in ceded written premium was primarily driven by growth in written premiums subject to quota share arrangements, such as those in Casualty and Inland Marine and Property lines.

Current wording

Ceded written premiums increased $38.8 million, or 14.5%, to $305.3 million for the three months ended June 30, 2026 from $266.5 million for the three months ended June 30, 2025. The increase in ceded written premium was primarily driven by growth in written premiums subject to quota share arrangements, such as those in Casualty and Crop lines.

Previous wording

Although our volume of ceded written premiums increased, ceded written premiums as a percentage of gross written premiums decreased to 46.3% for the three months ended March 31, 2026 from 52.2% for the three months ended March 31, 2025. This percentage decrease was driven by changes in our composition of business whereby premiums written in the current period were subject to lower quota share or XOL cession percentages compared to premiums written in the prior period.

Current wording

Although our volume of ceded written premiums increased, ceded written premiums as a percentage of gross written premiums decreased to 48.4% for the three months ended June 30, 2026 from 53.7% for the three months ended June 30, 2025. This percentage decrease was driven by changes in our composition of business whereby premiums written in the current period were subject to lower quota share or XOL cession percentages compared to premiums written in the prior period.

Previous wording

Net written premiums increased $126.5 million, or 59.8%, to $337.9 million for the three months ended March 31, 2026 from $211.4 million for the three months ended March 31, 2025. The increase was primarily due to an increase in gross written premiums, primarily in our Casualty and Inland Marine and Property lines, partially offset by increased ceded written premiums.

Current wording

Net written premiums increased $95.4 million, or 41.5%, to $325.2 million for the three months ended June 30, 2026 from $229.8 million for the three months ended June 30, 2025. The increase was primarily due to an increase in gross written premiums, primarily in our Casualty and Crop lines, partially offset by increased ceded written premiums.

Previous wording

Net earned premiums increased $97.4 million, or 59.3%, to $261.4 million for the three months ended March 31, 2026 from $164.1 million for the three months ended March 31, 2025 due primarily to the earning of increased gross written premiums partially offset by the earning of ceded written premiums under reinsurance agreements. The following table shows the amount of premiums we earned on a gross and net basis and net earned premiums as a percentage of gross earned premiums in each period presented:

Current wording

Net earned premiums increased $107.0 million, or 59.5%, to $287.0 million for the three months ended June 30, 2026 from $180.0 million for the three months ended June 30, 2025 due primarily to the earning of increased gross written premiums partially offset by the earning of ceded written premiums under reinsurance agreements. The following table shows the amount of premiums we earned on a gross and net basis and net earned premiums as a percentage of gross earned premiums in each period presented:

Previous wording

Our net earned premium ratio increased due to changes in our composition of business whereby premiums earned in the current period were subject to lower quota share or XOL cession percentages compared to premiums earned in the prior period.

Current wording

Our net earned premium ratio increased as premiums earned in the current period were subject to lower quota share or XOL cession percentages compared to premiums earned in the prior period. This was primarily driven by our decision to retain a higher percentage of premiums on our Crop business in 2026 and lower XOL pricing.

Previous wording

Losses and loss adjustment expenses increased $48.4 million, or 124.8%, to $87.1 million for the three months ended March 31, 2026 from $38.7 million for the three months ended March 31, 2025. Losses and loss adjustment expenses consisted of the following elements during the respective periods:

Current wording

Losses and loss adjustment expenses increased $52.8 million, or 114.3%, to $99.0 million for the three months ended June 30, 2026 from $46.2 million for the three months ended June 30, 2025. Losses and loss adjustment expenses consisted of the following elements during the respective periods:

Previous wording

Catastrophe loss activity for the quarter ended March 31, 2025 was related to favorable development on prior period catastrophe events.

Current wording

Catastrophe loss activity for the quarter ended June 30, 2026 was primarily related to favorable development on prior period catastrophe events.

Previous wording

Acquisition expenses increased $24.0 million, or 51.7%, to $70.3 million for the three months ended March 31, 2026 from $46.4 million for the three months ended March 31, 2025. The increase was primarily due to higher commissions and premium-related taxes resulting from higher gross earned premiums. Acquisition expenses as a percentage of gross earned premiums were 14.0% for the three months ended March 31, 2026 compared to 12.3% for the three months ended March 31, 2025. Acquisition expenses as a percentage of gross earned premiums increased due to higher commissions as a percentage of gross earned premiums due to changes in the composition of our business.

Current wording

Acquisition expenses increased $19.6 million, or 38.0%, to $71.3 million for the three months ended June 30, 2026 from $51.6 million for the three months ended June 30, 2025. The increase was primarily due to higher commissions and premium-related taxes resulting from higher gross earned premiums. Acquisition expenses as a percentage of gross earned premiums were 12.9% for the three months ended June 30, 2026 compared to 12.6% for the three months ended June 30, 2025. Acquisition expenses as a percentage of gross earned premiums increased due to higher commissions as a percentage of gross earned premiums due to changes in the composition of our business.

Previous wording

Other underwriting expenses increased $29.2 million, or 81.6%, to $64.9 million for the three months ended March 31, 2026 from $35.7 million for the three months ended March 31, 2025. The increase was primarily due to us incurring higher payroll, technology, and stock-based compensation expenses associated with general growth.

Current wording

Other underwriting expenses increased $23.9 million, or 52.5%, to $69.4 million for the three months ended June 30, 2026 from $45.5 million for the three months ended June 30, 2025. The increase was primarily due to us incurring higher payroll, technology, and stock-based compensation expenses associated with general growth.

Previous wording

Other underwriting expenses as a percentage of gross earned premiums were 12.9% for the three months ended March 31, 2026 compared to 9.5% for the three months ended March 31, 2025. Excluding the impact of expenses relating to transactions, stock-based compensation, and amortization of intangibles, other underwriting expenses as a percentage of gross earned premiums were 8.5% for the three months ended March 31, 2026 compared to 7.5% for the three months ended March 31, 2025. Other underwriting expenses as a percentage of gross earned premiums fluctuates period over period based on timing of certain expenses relative to premium growth.

Current wording

Other underwriting expenses as a percentage of gross earned premiums were 12.6% for the three months ended June 30, 2026 compared to 11.1% for the three months ended June 30, 2025. Excluding the impact of expenses relating to transactions, stock-based compensation, and amortization of intangibles, other underwriting expenses as a percentage of gross earned premiums were 9.1% for the three months ended June 30, 2026 compared to 8.7% for the three months ended June 30, 2025. Other underwriting expenses as a percentage of gross earned premiums fluctuates period over period based on timing of certain expenses relative to premium growth.

Previous wording

Net investment income increased $5.9 million, or 49.0%, to $18.0 million for the three months ended March 31, 2026 from $12.1 million for the three months ended March 31, 2025. The increase was primarily due to a higher average balance of investments during the three months ended March 31, 2026 due to the investing of cash generated from operations and higher yields on invested assets versus the prior year.

Current wording

Net investment income increased $6.6 million, or 49.2%, to $20.0 million for the three months ended June 30, 2026 from $13.4 million for the three months ended June 30, 2025. The increase was primarily due to a higher average balance of investments during the three months ended June 30, 2026 due to the investing of cash generated from operations and higher yields on invested assets versus the prior year.

Previous wording

We incurred $1.9 million of net realized and unrealized losses on investments for the three months ended March 31, 2026 compared to $2.3 million of net realized and unrealized losses for the three months ended March 31, 2025. In both periods, the balance was primarily driven by unrealized losses on our equity securities. 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:

Current wording

We incurred $6.8 million of net realized and unrealized losses on investments for the three months ended June 30, 2026 compared to $8.3 million of net realized and unrealized losses for the three months ended June 30, 2025. In both periods, the balance was primarily driven by unrealized losses on our equity securities. 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:

Previous wording

Income tax expense decreased $0.3 million to $10.5 million for the three months ended March 31, 2026 from $10.8 million for the three months ended March 31, 2025 due to lower pre-tax income for the period ended March 31, 2026. For the three months ended March 31, 2026 and 2025 our income tax rates of 19.7% and 20.1%, respectively, were lower than the statutory rate of 21% due primarily to the tax impact of the permanent component of employee stock option exercises, offset by non-deductible executive compensation expense.

Current wording

Income tax expense increased $3.9 million to $17.2 million for the three months ended June 30, 2026 from $13.4 million for the three months ended June 30, 2025 due to higher pre-tax income for the period ended June 30, 2026. For the three months ended June 30, 2026 and 2025 our income tax rates of 24.7% and 22.3%, respectively, were higher than the statutory rate of 21% due primarily to non-deductible executive compensation expense.

Previous wording

Catastrophe loss activity for the quarter ended March 31, 2026 was primarily related to Hawaii flood activity offset by favorable development on prior period catastrophe events.

Current wording

Catastrophe loss activity for the six months ended June 30, 2026 was primarily related to Hawaii flood activity offset by favorable development on prior period catastrophe events.

Previous wording

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. We calculate the tax impact only on adjustments which would be included in calculating our income tax expense using the estimated tax rate at which we received a deduction for these adjustments. We use adjusted net income as an internal performance measure in the management of our operations because we believe it gives our management and financial statement users useful insight into our results of operations and our underlying business performance. Adjusted net income does not reflect the overall profitably of our business and should not be viewed as a substitute for net income calculated in accordance with GAAP. Other companies may define adjusted net income differently.

Current wording

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. We calculate the tax impact only on adjustments which would be included in calculating our income tax expense using the estimated tax rate at which we received a deduction for these adjustments. We use adjusted net income as an internal performance measure in the management of our operations because we believe it gives our management and financial statement users useful insight into our results of operations and our underlying business performance. Adjusted net income does not reflect the overall profitability of our business and should not be viewed as a substitute for net income calculated in accordance with GAAP. Other companies may define adjusted net income differently.

Previous wording

Under Louisiana law which governs PCSC, the maximum amount of stockholder dividends that the Company may pay without prior approval of the Louisiana Insurance Commissioner is limited to the lessor of (i) statutory net income for the preceding three calendar years excluding realized capital gains and dividend paid during the preceding two calendar years, or (II) 10% of statutory surplus. Based on the above restrictions, PCSC may pay a dividend or distribution of no greater than $13.2 million in 2026 without approval of the Louisiana Insurance Commissioner.

Current wording

Under Louisiana law which governs PCSC, the maximum amount of stockholder dividends that the Company may pay without prior approval of the Louisiana Insurance Commissioner is limited to the lesser of (i) statutory net income for the preceding three calendar years excluding realized capital gains and dividend paid during the preceding two calendar years, or (II) 10% of statutory surplus. Based on the above restrictions, PCSC may pay a dividend or distribution of no greater than $13.2 million in 2026 without approval of the Louisiana Insurance Commissioner.

Previous wording

The following table summarizes our cash flows for the three months ended March 31, 2026 and 2025:

Current wording

The following table summarizes our cash flows for the six months ended June 30, 2026 and 2025:

Previous wording

Our cash flow from operating activities was positive during the three months ended March 31, 2026 and 2025. Variations in operating cash flow between periods are primarily driven by variations in our gross and ceded written premiums and the volume and timing of premium receipts, claim payments, reinsurance payments, and reinsurance recoveries on paid losses. In addition, fluctuations in losses and loss adjustment expenses and other insurance operating expenses impact operating cash flow.

Current wording

Our cash flow from operating activities was positive during the six months ended June 30, 2026 and 2025. Variations in operating cash flow between periods are primarily driven by variations in our gross and ceded written premiums and the volume and timing of premium receipts, claim payments, reinsurance payments, and reinsurance recoveries on paid losses. In addition, fluctuations in losses and loss adjustment expenses and other insurance operating expenses impact operating cash flow.

Previous wording

Cash used in investing activities for the three months ended March 31, 2026 and 2025 related primarily to purchases of fixed maturity securities in excess of sales and maturities and acquisitions occurring in each period.

Current wording

Cash used in investing activities for the six months ended June 30, 2026 and 2025 related primarily to purchases of fixed maturity securities in excess of sales and maturities and acquisitions occurring in each period.

Previous wording

Cash provided by financing activities for the three months ended March 31, 2026 was related to the issuance of a term loan for $297.4 million, the receipt of $0.9 million in proceeds from policy holder contributions of surplus, and the receipt of $0.7 million in proceeds from our employee stock purchase plan, partially offset by repurchases of $23.1 million of our common stock. Cash provided by financing activities for the three months ended March 31, 2025 was related to the receipt of $2.4 million in proceeds from stock option exercises, the receipt of $0.8 million in proceeds from policy holder contributions of surplus, and the receipt of $0.5 million in proceeds from our employee stock purchase plan, partially offset by $0.1 million in offering costs from the August 2024 secondary offering.

Current wording

Cash provided by financing activities for the six months ended June 30, 2026 was related to the issuance of a term loan for $300.0 million, the receipt of $2.0 million in proceeds from policy holder contributions of surplus, the receipt of $0.7 million in proceeds from our employee stock purchase plan, and the receipt of $0.5 million in proceeds from stock option exercises, partially offset by repurchases of $64.1 million of our common stock, payment of debt issuance costs of $2.6 million, and principal repayment on our term loan of $1.9 million. Cash provided by financing activities for the six months ended June 30, 2025 was related to the receipt of $3.3 million in proceeds from stock option exercises, the receipt of $1.8 million in proceeds from policy holder contributions of surplus, and the receipt of $0.5 million in proceeds from our employee stock purchase plan, partially offset by $0.1 million in offering costs from the August 2024 secondary offering.

Previous wording

We do not have any current plans for material capital expenditures other than current operating requirements. We believe that we will generate sufficient cash flows from operations to satisfy our liquidity requirements for at least the next 12 months and beyond. The key factor that will affect our future operating cash flows is the frequency and severity of catastrophe losses. To the extent our future operating cash flows are insufficient to cover our net losses from catastrophic events, we had $1.6 billion in cash and investment securities available at March 31, 2026. We also have the ability to access additional capital through pursuing third‑party borrowings, sales of our equity or debt securities or entrance into a reinsurance arrangement.

Current wording

We do not have any current plans for material capital expenditures other than current operating requirements. We believe that we will generate sufficient cash flows from operations to satisfy our liquidity requirements for at least the next 12 months and beyond. The key factor that will affect our future operating cash flows is the frequency and severity of catastrophe losses. To the extent our future operating cash flows are insufficient to cover our net losses from catastrophic events, we had $1.7 billion in cash and investment securities available at June 30, 2026. We also have the ability to access additional capital through pursuing third‑party borrowings, sales of our equity or debt securities or entrance into a reinsurance arrangement.

Previous wording

On July 31, 2025, our Board of Directors approved a share repurchase program authorizing the repurchase of up to $150 million of our outstanding common stock through July 31, 2027. As such, we have used and may use our cash in the future to purchase outstanding shares of our common stock. Under this share repurchase program, shares may be repurchased from time to time in the open market or negotiated transactions at prevailing market rates, or by other means in accordance with federal securities laws. We repurchased 190,255 shares for $23.1 million under this program during the three months ended March 31, 2026 and $89.6 million remains available for future repurchases.

Current wording

On July 31, 2025, our Board of Directors approved a share repurchase program, (the “2025 Repurchase Program”), authorizing the repurchase of up to $150 million of our outstanding common stock through July 31, 2027. As such, we have used and may use our cash in the future to purchase outstanding shares of our common stock. Under the 2025 Repurchase Program, shares may be repurchased from time to time in the open market or negotiated transactions at prevailing market rates, or by other means in accordance with federal securities laws. We repurchased 226,130 shares for $27.3 million under the 2025 Program during the six months ended June 30, 2026 and no amount remains available for future repurchases.

Previous wording

On April 30, 2026, our Board of Directors approved a share repurchase program, effective May 6, 2026, which replaces the previous program, and authorizes the repurchase of up to $200 million of our outstanding common stock through May 6, 2028. Under this new share repurchase program, shares may be repurchased from time to time in the open market or negotiated transactions at prevailing market rates, or by other means in accordance with federal securities laws.

Current wording

On April 30, 2026, our Board of Directors approved a share repurchase program, (the “2026 Repurchase Program”), effective May 6, 2026, which replaces the 2025 Repurchase Program, and authorizes the repurchase of up to $200 million of our outstanding common stock through May 6, 2028. Under the 2026 Repurchase Program, shares may be repurchased from time to time in the open market or negotiated transactions at prevailing market rates, or by other means in accordance with federal securities laws. We repurchased 332,844 shares for $36.8 million under this program during the six months ended June 30, 2026 and $163.2 million remains available for future repurchases.

Previous wording

As of March 31, 2026, the Company had $297.4 million outstanding on its Term Loan.

Current wording

As of June 30, 2026, the Company had $295.8 million outstanding on its Term Loan.

Previous wording

At March 31, 2026, total stockholders’ equity was $959.0 million and tangible stockholders’ equity was $712.9 million, compared to total stockholders’ equity of $942.7 million and tangible stockholders’ equity of $881.6 million as of December 31, 2025. Stockholders’ equity increased due to net income earned for the period, activity related to stock-based compensation, and unrealized gains on fixed maturity securities.

Current wording

At June 30, 2026 total stockholders’ equity was $980.9 million and tangible stockholders’ equity was $744.2 million, compared to total stockholders’ equity of $942.7 million and tangible stockholders’ equity of $881.6 million as of December 31, 2025. Stockholders’ equity increased due to net income earned for the period, activity related to stock-based compensation, and unrealized gains on fixed maturity securities.

Previous wording

Our primary investment objectives are to maintain liquidity, preserve capital and generate a stable level of investment income. We purchase securities that we believe are attractive on a relative value basis and seek to generate returns in excess of predetermined benchmarks. Our Investment Committee reviews and recommends investment guidelines, which are subject to approval by our Board of Directors in accordance with applicable regulatory restrictions on asset type, quality and concentration. Our current investment guidelines allow us to invest in taxable and tax‑exempt fixed maturities, as well as publicly traded mutual funds and common stock of individual companies. Our cash and invested assets consist of cash and cash equivalents, fixed maturity securities, and equity securities. As of March 31, 2026, the majority of our investment portfolio, or $1.4 billion, 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. Also included in our investment portfolio were $112.3 million of equity securities, $36.0 million of investments in limited partnerships, and $4.4 million of a livestock put option. In addition, we maintained a non‑restricted cash and cash equivalent balance of $56.5 million at March 31, 2026. Our fixed maturity securities, including cash equivalents, had a weighted average effective duration of 4.21 and 3.81 years and an average rating of “A1/A+” as of March 31, 2026 and December 31, 2025, respectively. Our fixed income investment portfolio had a book yield of 4.89% as of March 31, 2026, compared to 4.83% as of December 31, 2025.

Current wording

Our primary investment objectives are to maintain liquidity, preserve capital and generate a stable level of investment income. We purchase securities that we believe are attractive on a relative value basis and seek to generate returns in excess of predetermined benchmarks. Our Investment Committee reviews and recommends investment guidelines, which are subject to approval by our Board of Directors in accordance with applicable regulatory restrictions on asset type, quality and concentration. Our current investment guidelines allow us to invest in taxable and tax‑exempt fixed maturities, as well as publicly traded mutual funds and common stock of individual companies. Our cash and invested assets consist of cash and cash equivalents, fixed maturity securities, equity securities, and other investments. As of June 30, 2026, the majority of our investment portfolio, or $1.5 billion, 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. Also included in our investment portfolio were $129.5 million of equity securities, $40.9 million of investments in limited partnerships, and $5.0 million of a livestock put option. In addition, we maintained a non‑restricted cash and cash equivalent balance of $62.7 million at June 30, 2026. Our fixed maturity securities, including cash equivalents, had a weighted average effective duration of 4.33 and 3.81 years and an average rating of “A1/A+” as of June 30, 2026 and December 31, 2025, respectively. Our fixed income investment portfolio had a book yield of 4.99% as of June 30, 2026, compared to 4.83% as of December 31, 2025.

Previous wording

In addition to reinsurance from traditional reinsurers, we utilize collateralized protection via catastrophe bonds. We currently have $1.2 billion of multi-year indemnity-based reinsurance coverage for earthquake events, all issued through Torrey Pines Re Ltd, a Bermuda-domiciled special purpose insurer.

Current wording

In addition to reinsurance from traditional reinsurers, we utilize collateralized protection via catastrophe bonds. We currently have $1.2 billion of multi-year indemnity-based reinsurance coverage for catastrophe events, all issued through Torrey Pines Re Ltd., a Bermuda-domiciled special purpose insurer.

Previous wording

Our catastrophe event retention is $20 million for earthquake events and $11 million for hurricane events and all other perils. Laulima maintains Hawaii hurricane reinsurance coverage through a standalone XOL treaty, which provides per-occurrence coverage up to $735 million with a retention of $1.5 million. Our reinsurance coverage exhausts at $3.5 billion for earthquake events and $100 million for continental U.S. hurricane events, providing coverage in excess of our 1 in 250-year peak zone PML and in excess of our A.M. Best requirement. In addition, we maintain reinsurance coverage equivalent to or better than the 1 in 250-year PML for our other lines.

Current wording

Our catastrophe event retention is $20 million for earthquake events and $11 million for hurricane events and all other perils. Laulima maintains Hawaii hurricane reinsurance coverage through a standalone XOL treaty, which provides per-occurrence coverage up to $865 million with a retention of $1.5 million. Our reinsurance coverage exhausts at $3.9 billion for earthquake events and $135 million for continental U.S. hurricane events, providing coverage in excess of our 1 in 250-year peak zone PML and in excess of our A.M. Best requirement. In addition, we maintain reinsurance coverage equivalent to or better than the 1 in 250-year PML for our other lines.