Palomar Holdings Inc

Previous wording

The results of operations for the nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the full year ended December 31, 2024, 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 23, 2024.

Current wording

The results of operations for the three months ended March 31, 2025 are not necessarily indicative of the results that may be expected for the full year ended December 31, 2025, 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 25, 2025.

Previous wording

We are a specialty insurance company that provides property and casualty insurance products to individuals and businesses. We use our underwriting and analytical expertise to provide innovative solutions in five product categories: Earthquake, Inland Marine and Other Property, Casualty, Fronting, and Crop. We use proprietary data analytics and a modern technology platform to offer our customers flexible products with customized and granular pricing for both the admitted and excess and surplus lines (“E&S”) markets.

Current wording

We are a specialty insurance company that provides property and casualty insurance products to individuals and businesses. We use our underwriting and analytical expertise to provide innovative solutions in five product categories: Earthquake, Inland Marine and Other Property, Casualty, Fronting, and Crop. We use proprietary data analytics and a modern technology platform to offer our customers flexible products with customized and granular pricing for both the admitted and excess and surplus lines (“E&S”) markets. Our insurance company subsidiaries, Palomar Specialty Insurance Company (“PSIC”), and Palomar Excess and Surplus Insurance Company (“PESIC”) carry an “A” rating from A.M. Best Company (“A.M. Best”), a leading rating agency for the insurance industry. First Indemnity of America Insurance Co. ("FIA") carries an “A-” (Stable) rating from A.M. Best.

Previous wording

Founded in 2014, we have significantly grown our business and have generated attractive returns. We have organically increased gross written premiums from $16.6 million in our first year of operations to $1.1 billion for the year ended December 31, 2023, which reflects a compound annual growth rate of approximately 60%. We have also been profitable since 2016 and our net income growth since 2016 reflects a compound annual growth rate of 43%.

Current wording

Founded in 2014, we have significantly grown our business and have generated attractive returns. We have organically increased gross written premiums from $16.6 million in our first year of operations to $1.5 billion for the year ended December 31, 2024, which reflects a compound annual growth rate of approximately 57%. We have also been profitable since 2016 and our net income growth since 2016 reflects a compound annual growth rate of 43%.

Previous wording

We seek to continuously grow our income by developing product offerings for lines of business that harness our core competencies and where we believe we can generate attractive risk adjusted returns. In recent years, we have introduced several new products including Fronting, Excess Property, and Crop, as well as products targeting niche Casualty segments such as Real Estate Agent Errors and Omissions, Excess Liability, and Environmental Liability. These new products diversify our book of business and broaden our product portfolio. We believe that our market opportunity, distinctive products, and differentiated business model position us to grow our business profitably.

Current wording

We seek to continuously grow our income by developing product offerings for lines of business that harness our core competencies and where we believe we can generate attractive risk adjusted returns. In recent years, we have introduced several new products including Crop, Environmental Liability, and E&S Casualty. These new products diversify our book of business and broaden our product portfolio. We believe that our market opportunity, distinctive products, and differentiated business model position us to grow our business profitably.

Previous wording

Our gross written premiums are also impacted when we assume unearned in-force premiums due to new partnerships or other business reasons. In periods where we assume a large volume of unearned premiums, our gross written premiums may increase significantly compared to prior periods and the increase may not be indicative of future trends.

Current wording

Our gross written premiums are also impacted when we assume unearned in-force premiums due to new partnerships or other business reasons. In periods where we assume a large volume of unearned premiums, our gross written premiums may increase significantly compared to prior periods and the increase may not be indicative of future trends. The majority of our Crop written premiums are recognized in the third quarter, as we receive the requisite reporting from insureds at that time.

Previous wording

Net earned premiums represent the earned portion of our gross written premiums, less the earned portion that is ceded to third-party reinsurers under our reinsurance agreements. The majority of our insurance policies have a term of one year and premiums are earned pro rata over the terms of the policies.

Current wording

Net earned premiums represent the earned portion of our gross written premiums, less the earned portion that is ceded to third-party reinsurers under our reinsurance agreements. The majority of our insurance policies have a term of one year and premiums are earned pro rata over the terms of the policies. Crop premiums are earned ratably over the risk period. The requisite reporting of Crop premiums is primarily received in the third quarter, after the start of the risk period, and earned premium is caught up to cover the period between the start of the risk period and receipt of reporting. Generally, this process results in most of the Crop earned premiums being recognized in the third quarter of each year.

Previous wording

Losses and loss adjustment expenses represent the costs incurred for losses, net of any losses ceded to reinsurers. These expenses are a function of the size and term of the insurance policies we write and the loss experience associated with the underlying coverage. Certain policies we write subject us to attritional losses such as building fires. In addition, many of the policies we write subject us to catastrophe losses. Catastrophe losses are certain losses resulting from events involving multiple claims and policyholders, including earthquakes, hurricanes, floods, convective storms, terrorist acts or other aggregating events. Our losses and loss adjustment expenses are generally affected by:

Current wording

Losses and loss adjustment expenses represent the costs incurred for losses, net of any losses ceded to reinsurers. These expenses are a function of the size and term of the insurance policies we write and the loss experience associated with the underlying coverage. Certain policies we write subject us to attritional losses such as building fires or casualty claims. In addition, many of the policies we write subject us to catastrophe losses. Catastrophe losses are certain losses resulting from events involving multiple claims and policyholders, including earthquakes, hurricanes, floods, convective storms, terrorist acts or other aggregating events. Our losses and loss adjustment expenses are generally affected by:

Previous wording

Gross written premiums increased $101.0 million, or 32.2% to $415.0 million for the three months ended September 30, 2024 compared to $314.0 million for the three months ended September 30, 2023. Premium growth was primarily due to an increased volume of policies written across our lines of business which was driven by new business generated with existing partners, strong premium retention rates for existing business, expansion of our distribution footprint, and new partnerships. 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 $74.1 million, or 20.1%, to $442.2 million for the three months ended March 31, 2025 compared to $368.1 million for the three months ended March 31, 2024. Premium growth was primarily due to an increased volume of policies in the majority of our lines of business which was driven by new business generated with existing partners, strong premium retention rates for existing business, expansion of our distribution footprint, and new partnerships. 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

Fronting premiums represent premium where we subsequently cede the majority of the premium and risk in exchange for a fronting fee, which is our primary source of profit in the arrangement. The volume of fronting premiums written each period may vary due to the timing of entering new fronting partnerships and terminations of existing fronting partnerships.

Current wording

Fronting premiums represent premium where we subsequently cede the majority of the premium and risk in exchange for a fronting fee, which is our primary source of profit in the arrangement. The volume of fronting premiums written each period may vary due to the timing of entering new fronting partnerships and terminations of existing fronting partnerships. A large fronting partnership terminated in the third quarter of 2024, causing the decline in fronting premiums shown above.

Previous wording

Although our volume of ceded written premiums increased, ceded written premiums as a percentage of gross written premiums decreased to 61.5% for the three months ended September 30, 2024 from 64.8% for the three months ended September 30, 2023. 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 52.2% for the three months ended March 31, 2025 from 62.0% for the three months ended March 31, 2024. 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 $49.0 million, or 44.3%, to $159.7 million for the three months ended September 30, 2024 from $110.7 million for the three months ended September 30, 2023. The increase was primarily due to an increase in gross written premiums, primarily in our Casualty and Earthquake lines, partially offset by increased ceded written premiums.

Current wording

Net written premiums increased $71.5 million, or 51.1%, to $211.4 million for the three months ended March 31, 2025 from $139.9 million for the three months ended March 31, 2024. The increase was primarily due to an increase in gross written premiums, primarily in our Casualty and Earthquake lines, partially offset by increased ceded written premiums.

Previous wording

Net earned premiums increased $49.8 million, or 58.1%, to $135.6 million for the three months ended September 30, 2024 from $85.8 million for the three months ended September 30, 2023 due primarily to the earning of increased gross written premiums offset by the earning of ceded written premiums under reinsurance agreements. The table below 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 $56.2 million, or 52.1%, to $164.1 million for the three months ended March 31, 2025 from $107.9 million for the three months ended March 31, 2024 due primarily to the earning of increased gross written premiums offset by the earning of ceded written premiums under reinsurance agreements. The table below 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

Commission and other income increased $0.2 million to $0.7 million for the three months ended September 30, 2024 from $0.5 million for the three months ended September 30, 2023. The balance increased due to an increase in commissions and policy related fees driven by increased premiums written.

Current wording

Commission and other income increased $0.3 million to $0.8 million for the three months ended March 31, 2025 from $0.5 million for the three months ended March 31, 2024. The balance increased due to an increase in commissions and policy related fees driven by increased premiums written.

Previous wording

Losses and loss adjustment expenses increased $24.2 million, or 149.8% to $40.3 million for the three months ended September 30, 2024 from $16.1 million for the three months ended September 30, 2023. Losses and loss adjustment expenses consisted of the following elements during the respective periods:

Current wording

Losses and loss adjustment expenses increased $11.9 million, or 44.4% to $38.7 million for the three months ended March 31, 2025 from $26.8 million for the three months ended March 31, 2024. Losses and loss adjustment expenses consisted of the following elements during the respective periods:

Previous wording

Catastrophe loss activity for the quarter ended September 30, 2023 was primarily related to favorable development on severe convective storms that occurred during the second quarter of 2023 and favorable development on prior year hurricanes.

Current wording

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

Previous wording

Catastrophe losses for the quarter ended September 30, 2024 were related to Hurricanes Beryl, Debby, and Helene.

Current wording

Catastrophe loss activity for the quarter ended March 31, 2024 was primarily related to flood losses.

Previous wording

Non-catastrophe losses increased for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 due mainly to higher attritional losses on lines of business subject to attritional losses such as Casualty and Inland Marine and Other Property due to premium growth in these lines of business.

Current wording

Non-catastrophe losses increased for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 due mainly to higher attritional losses driven by premium growth on lines of business subject to attritional losses such as Casualty and Inland Marine and Other Property.

Previous wording

Acquisition expenses increased $14.5 million, or 53.6%, to $41.5 million for the three months ended September 30, 2024 from $27.0 million for the three months ended September 30, 2023. The increase was primarily due to higher commissions and premium-related taxes resulting from higher gross earned premiums. This was partially offset by higher earned ceding commissions and fronting fees due to an increase in premiums subject to a quota share or fronting agreement. Acquisition expenses as a percentage of gross earned premiums were 10.5% for the three months ended September 30, 2024 compared to 9.9% for the three months ended September 30, 2023. Acquisition expenses as a percentage of gross earned premiums increased due to higher commissions and premium-related taxes as a percentage of gross earned premiums and lower ceded commissions and fronting fees as a percentage of gross earned premiums due to changes in the composition of our business.

Current wording

Acquisition expenses increased $14.6 million, or 45.8%, to $46.4 million for the three months ended March 31, 2025 from $31.8 million for the three months ended March 31, 2024. 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 12.3% for the three months ended March 31, 2025 compared to 10.5% for the three months ended March 31, 2024. Acquisition expenses as a percentage of gross earned premiums increased due to higher commissions and premium-related taxes as a percentage of gross earned premiums and lower ceded commissions and fronting fees as a percentage of gross earned premiums due to changes in the composition of our business.

Previous wording

Other underwriting expenses increased $5.7 million, or 25.6%, to $28.1 million for the three months ended September 30, 2024 from $22.4 million for the three months ended September 30, 2023. The increase was primarily due to the Company incurring higher payroll, technology, and stock-based compensation expenses associated with growth of the Company.

Current wording

Other underwriting expenses increased $10.9 million, or 44.1%, to $35.7 million for the three months ended March 31, 2025 from $24.8 million for the three months ended March 31, 2024. The increase was primarily due to the Company incurring higher payroll, technology, and stock-based compensation expenses associated with growth of the Company.

Previous wording

Other underwriting expenses as a percentage of gross earned premiums were 7.1% for the three months ended September 30, 2024 compared to 8.2% for the three months ended September 30, 2023. 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 5.9% for the three months ended September 30, 2024 compared to 6.7% for the three months ended September 30, 2023. Other underwriting expenses as a percentage of gross earned premiums may fluctuate 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 9.5% for the three months ended March 31, 2025 compared to 8.2% for the three months ended March 31, 2024. 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 7.5% for the three months ended March 31, 2025 compared to 6.8% for the three months ended March 31, 2024. Other underwriting expenses as a percentage of gross earned premiums may fluctuate period over period based on timing of certain expenses relative to premium growth.

Previous wording

Net investment income increased $3.4 million, or 56.0%, to $9.4 million for the three months ended September 30, 2024 from $6.0 million for the three months ended September 30, 2023. The increase was primarily due to a higher average balance of investments during the three months ended September 30, 2024 due primarily to the use of proceeds from our August 2024 secondary offering and also due to higher yields on invested assets versus the prior year.

Current wording

Net investment income increased $4.9 million, or 69.1%, to $12.1 million for the three months ended March 31, 2025 from $7.1 million for the three months ended March 31, 2024. The increase was primarily due to a higher average balance of investments during the three months ended March 31, 2025 due primarily to the use of proceeds from our August 2024 secondary offering and also due to higher yields on invested assets versus the prior year.

Previous wording

The Company incurred $2.7 million of net realized and unrealized gains on investments for the three months ended September 30, 2024 compared to $1.4 million of net realized and unrealized losses for the three months ended September 30, 2023 In both periods, the balance was primarily driven by unrealized gains and 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

The Company incurred $2.3 million of net realized and unrealized losses on investments for the three months ended March 31, 2025 compared to $3.0 million of net realized and unrealized gains for the three months ended March 31, 2024 In both periods, the balance was primarily driven by unrealized gains and 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 increased $1.9 million to $8.0 million for the three months ended September 30, 2024 from $6.1 million for the three months ended September 30, 2023 due to higher pre-tax income for the period ended September 30, 2024. During the three months ended September 30, 2024, our income tax rate of 20.8% was lower than the statutory rate of 21% due primarily to permanent component of employee stock option exercises. During the three months ended September 30, 2023, our income tax rate of 24.9% was higher than the statutory rate of 21% due primarily to non-deductible executive compensation expense.

Current wording

Income tax expense increased $2.8 million to $10.8 million for the three months ended March 31, 2025 from $8.0 million for the three months ended March 31, 2024 due to higher pre-tax income for the period ended March 31, 2025. During the three months ended March 31, 2025, our income tax rate of 20.1% was lower than the statutory rate of 21% due primarily to permanent component of employee stock option exercises offset by non-deductible executive compensation expense. During the three months ended March 31, 2024, our income tax rate of 23.2% was higher than the statutory rate of 21% due primarily to non-deductible executive compensation expense.

Previous wording

The Company’s U.S. insurance company subsidiaries, PSIC and PESIC, are restricted by the statutes as to the amount of dividends that they may pay without prior approval by state insurance commissioners.

Current wording

The Company’s U.S. insurance company subsidiaries, PSIC, PESIC and FIA, are restricted by the statutes as to the amount of dividends that they may pay without prior approval by state insurance commissioners.

Previous wording

Under California and Oregon statute which govern PSIC, dividends paid in a consecutive twelve month period cannot exceed the greater of (i) 10% of an insurance company’s statutory policyholders’ surplus as of December 31 of the preceding year or (ii) 100% of its statutory net income for the preceding calendar year. Any dividends or distributions in excess of these amounts would require regulatory approval. In addition, under Oregon statute PSIC may only declare a dividend from earned surplus, which does not include contributed capital. Surplus arising from unrealized capital gains or revaluation of assets is not considered part of earned surplus. Based on the above restrictions, PSIC may pay a dividend or distribution of no greater than $96.0 million in 2024 without approval by the California and Oregon Insurance Commissioners. During October 2024, PSIC elected to pay a dividend of $95.0 million to its parent company.

Current wording

Under California and Oregon statutes which govern PSIC, dividends paid in a consecutive twelve month period cannot exceed the greater of (i) 10% of an insurance company’s statutory policyholders’ surplus as of December 31 of the preceding year, or (ii) 100% of its statutory net income for the preceding calendar year. Any dividends or distributions in excess of these amounts would require regulatory approval. In addition, under Oregon statute PSIC may only declare a dividend from earned surplus, which does not include contributed capital. Surplus arising from unrealized capital gains or revaluation of assets is not considered part of earned surplus. Based on the above restrictions, PSIC may pay a dividend or distribution of no greater than $99.6 million in 2025 without approval by the California and Oregon Insurance Commissioners.

Previous wording

Under Arizona statute which governs PESIC, dividends paid in a consecutive twelve month period cannot exceed the lesser of (i) 10% of an insurance company’s statutory policyholders’ surplus as of December 31 of the preceding year or (ii) 100% of its statutory net income for the preceding calendar year. Based on the above restrictions, PESIC may pay a dividend or distribution of no greater than $1.5 million in 2024 without approval of the Arizona Insurance Commissioner.

Current wording

Under Arizona statute which governs PESIC, dividends paid in a consecutive twelve month period cannot exceed the lesser of (i) 10% of an insurance company’s statutory policyholders’ surplus as of December 31 of the preceding year, or (ii) 100% of its statutory net income for the preceding calendar year. Based on the above restrictions, PESIC may pay a dividend or distribution of no greater than $4.2 million in 2025 without approval of the Arizona Insurance Commissioner.

Previous wording

Bermuda regulations limit the amount of dividends and return of capital paid by a regulated entity. A Class 3A insurer is prohibited from declaring or paying a dividend if it is in breach of its minimum solvency margin, its enhanced capital requirement, or its minimum liquidity ratio, or if the declaration or payment of such dividend would cause such a breach. If a Class 3A insurer has failed to meet its minimum solvency margin on the last day of any financial year, it will also be prohibited, without the approval of the BMA, from declaring or paying any dividends during the next financial year. Furthermore, the Insurance Act limits the ability of PSRE to pay dividends or make capital distributions by stipulating certain margin and solvency requirements and by requiring approval from the BMA prior to a reduction of 15% or more of a Class 3A insurer’s total statutory capital as reported on its prior year statutory balance sheet. Moreover, an insurer must submit an affidavit to the BMA, sworn by at least two directors and the principal representative in Bermuda of the Class 3A insurer, at least seven days prior to payment of any dividend which would exceed 25% of that insurer’s total statutory capital and surplus as reported on its prior year statutory balance sheet. The affidavit must state that in the opinion of those swearing the declaration of such dividend has not caused the insurer to fail to meet its relevant margins.

Current wording

Bermuda regulations limit the amount of dividends and return of capital paid by a regulated entity. A Class 3A insurer is prohibited from declaring or paying a dividend if it is in breach of its minimum solvency margin, its enhanced capital requirement, or its minimum liquidity ratio, or if the declaration or payment of such dividend would cause such a breach. If a Class 3A insurer has failed to meet its minimum solvency margin on the last day of any financial year, it will also be prohibited, without the approval of the Bermuda Monetary Authority ("BMA"), from declaring or paying any dividends during the next financial year. Furthermore, the Insurance Act limits the ability of PSRE to pay dividends or make capital distributions by stipulating certain margin and solvency requirements and by requiring approval from the BMA prior to a reduction of 15% or more of a Class 3A insurer’s total statutory capital as reported on its prior year statutory balance sheet. Moreover, an insurer must submit an affidavit to the BMA, sworn by at least two directors and the principal representative in Bermuda of the Class 3A insurer, at least seven days prior to payment of any dividend which would exceed 25% of that insurer’s total statutory capital and surplus as reported on its prior year statutory balance sheet. The affidavit must state that in the opinion of those swearing the declaration of such dividend, such dividend has not caused the insurer to fail to meet its relevant margins.

Previous wording

Further, under the Companies Act, PSRE may only declare or pay a dividend, or make a distribution out of contributed surplus, if it has no reasonable grounds for believing that: (1) it is, or would after the payment be, unable to pay its liabilities as they become due or (2) the realizable value of its assets would be less than its liabilities.

Current wording

Further, under the Companies Act (as defined below), PSRE may only declare or pay a dividend, or make a distribution out of contributed surplus, if it has no reasonable grounds for believing that: (1) it is, or would after the payment be, unable to pay its liabilities as they become due or (2) the realizable value of its assets would be less than its liabilities.

Previous wording

Pursuant to Bermuda regulations, the maximum amount of dividends and return of capital available to be paid by a reinsurer is determined pursuant to a formula. Under this formula, the maximum amount of dividends and return of capital available from PSRE during 2024 is calculated to be approximately $4.1 million. However, this dividend amount is subject to annual enhanced solvency requirement calculations.

Current wording

Pursuant to Bermuda regulations, the maximum amount of dividends and return of capital available to be paid by a reinsurer is determined pursuant to a formula. Under this formula, the maximum amount of dividends and return of capital available from PSRE during 2025 is calculated to be approximately $4.2 million. However, this dividend amount is subject to annual enhanced solvency requirement calculations.

Previous wording

The following table summarizes our cash flows for the nine months ended September 30, 2024 and 2023:

Current wording

The following table summarizes our cash flows for the three months ended March 31, 2025 and 2024:

Previous wording

Our cash flow from operating activities was positive during the nine months ended September 30, 2024 and 2023 due to net income and a decrease in net operating assets in each period.

Current wording

Our cash flow from operating activities was positive during the three months ended March 31, 2025 and 2024 due to net income and a decrease in net operating assets in each period.

Previous wording

Cash used in investing activities for the nine months ended September 30, 2024 and 2023 related primarily to purchases of fixed maturity securities in excess of sales and maturities in each period.

Current wording

Cash used in investing activities for the three months ended March 31, 2025 and 2024 related primarily to purchases of fixed maturity securities in excess of sales and maturities in each period.

Previous wording

Cash provided by financing activities for nine months ended September 30, 2024 was related to the receipt of $115.7 million in net proceeds from the August 2024 Secondary Offering, the receipt of $5.0 million in proceeds from stock option exercises, the receipt of $0.9 million in proceeds from our employee stock purchase plan and the receipt of $2.0 million in proceeds from policy holder contributions of surplus, offset by $52.6 million in payments on our lines of credit. Cash used in financing activities for nine months ended September 30, 2023 was related to the repurchase of $22.1 million of our common stock, offset by $16.2 million in borrowings from our FHLB line of credit, the receipt of $0.6 million in proceeds from stock option exercises and the receipt of $0.8 million in proceeds from our employee stock purchase plan.

Current wording

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 $0.5 million in proceeds from our employee stock purchase plan and the receipt of $0.8 million in proceeds from policy holder contributions of surplus, offset by $0.1 million in offering costs from the August 2024 Secondary Offering. Cash used in financing activities for three months ended March 31, 2024 was related to $9.6 million in payments on our FHLB line of credit, offset by the receipt of $1.9 million in proceeds from stock option exercises and the receipt of $0.4 million in proceeds from our employee stock purchase plan.

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 $1,017.5 million in cash and investment securities available at September 30, 2024. 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 $1,168.7 million in cash and investment securities available at March 31, 2025. 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

In December 2021, we entered into a Credit Agreement (the “Credit Agreement”) with U.S. Bank National Association which provides a revolving credit facility of up to $100 million through December 8, 2026. Interest on the credit facility accrues on each SOFR rate loan at the applicable SOFR (as defined in the Credit Agreement) plus 1.75% and on each base rate loan at the applicable Alternate Base Rate (as defined in the Credit Agreement) plus 0.75%. A loan may be either a SOFR rate loan or a base rate loan, at our discretion. Outstanding amounts under the Credit Agreement may be prepaid in full or in part at any time with no prepayment premium and may be reduced in full or in part at any time upon prior notice. Currently, $15 million of the borrowing capacity of the Credit Agreement is pledged as collateral and not able to be utilized.

Current wording

In December 2021, we entered into a Credit Agreement (the “Credit Agreement”) with U.S. Bank National Association which provides a revolving credit facility of up to $100 million through December 8, 2026. Interest on the credit facility accrues on each SOFR rate loan at the applicable SOFR (as defined in the Credit Agreement) plus 1.75% and on each base rate loan at the applicable Alternate Base Rate (as defined in the Credit Agreement) plus 0.75%. A loan may be either a SOFR rate loan or a base rate loan, at our discretion. Outstanding amounts under the Credit Agreement may be prepaid in full or in part at any time with no prepayment premium and may be reduced in full or in part at any time upon prior notice. Currently, $5.6 million of the borrowing capacity of the Credit Agreement is pledged as collateral and not able to be utilized.

Previous wording

At September 30, 2024 total stockholders’ equity was $703.3 million and tangible stockholders’ equity was $692.2 million, compared to total stockholders’ equity of $471.3 million and tangible stockholders’ equity of $458.9 million as of December 31, 2023. Stockholder’s equity increased primarily due to the receipt of $115.7 million in net proceeds from our August 2024 Secondary Offering. In addition, 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 March 31, 2025 total stockholders’ equity was $790.4 million and tangible stockholders’ equity was $765.5 million, compared to total stockholders’ equity of $729.0 million and tangible stockholders’ equity of $715.8 million as of December 31, 2024. 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 Board of Directors approves our investment guidelines in compliance 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 September 30, 2024, the majority of our investment portfolio, or $883.0 million, was comprised of fixed maturity securities that are classified as available‑for‑sale and carried at fair value with unrealized gains and losses on these securities, net of applicable taxes, reported as a separate component of accumulated other comprehensive income. Also included in our investment portfolio were $40.2 million of equity securities, $2.5 million of equity method investments and $5.2 million of investments in limited partnerships. In addition, we maintained a non‑restricted cash and cash equivalent balance of $86.5 million at September 30, 2024. Our fixed maturity securities, including cash equivalents, had a weighted average effective duration of 3.86 and 3.48 years and an average rating of “A1/A+” and “Aa3/A+” at September 30, 2024 and December 31, 2023, respectively. Our fixed income investment portfolio had a book yield of 4.58% as of September 30, 2024, compared to 4.07% as of December 31, 2023.

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 Board of Directors approves our investment guidelines in compliance 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, 2025, the majority of our investment portfolio, or $991.8 million, was comprised of fixed maturity securities that are classified as available‑for‑sale and carried at fair value with unrealized gains and losses on these securities, net of applicable taxes, reported as a separate component of accumulated other comprehensive income. Also included in our investment portfolio were $44.4 million of equity securities, $2.3 million of equity method investments and $11.0 million of investments in limited partnerships. In addition, we maintained a non‑restricted cash and cash equivalent balance of $119.3 million at March 31, 2025. Our fixed maturity securities, including cash equivalents, had a weighted average effective duration of 4.09 and 4.04 years and an average rating of “A1/A+” and “A1/A+” at March 31, 2025 and December 31, 2024, respectively. Our fixed income investment portfolio had a book yield of 4.65% as of March 31, 2025, compared to 4.59% as of December 31, 2024.

Previous wording

Our catastrophe event retention is $20 million for earthquake events and $15.5 million for hurricane events and all other perils. Our reinsurance coverage exhausts at $3.06 billion for earthquake events, $735 million for Hawaii hurricane events, and $117.5 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 $15.5 million for hurricane events and all other perils. Our reinsurance coverage exhausts at $3.2 billion for earthquake events, $735 million for Hawaii hurricane events, and $117.5 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.

Previous wording

There have been no significant changes in our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in Management’s Discussion and Analysis of Financial Condition and Operations included in our 2023 Annual Report on Form 10-K

Current wording

There have been no material changes in our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in Management’s Discussion and Analysis of Financial Condition and Operations included in our 2024 Annual Report on Form 10-K.