Palomar Holdings, Inc. Reports Fourth Quarter & Full Year 2020 Results
LA JOLLA, Calif., Feb. 24, 2021 (GLOBE NEWSWIRE) -- Palomar Holdings, Inc. (NASDAQ:PLMR) (“Palomar” or “Company”) reported a net loss of $1.8 million, or $0.07 per diluted share, for the fourth quarter of 2020 compared to net income of $10.9 million, or $0.45 per diluted share, for the fourth quarter of 2019.
Fourth Quarter 2020 Highlights
Gross written premiums increased by 31.0% to $96.1 million compared to $73.3 million in the fourth quarter of 2019
Net loss of $1.8 million, or $0.07 per diluted share, compared to net income of $10.9 million, or $0.45 per diluted share, in the fourth quarter of 2019
Total loss ratio of 44.2% compared to 7.1% in the fourth quarter of 2019
Catastrophe loss ratio(1) of 37.2% compared to zero in the fourth quarter of 2019
Combined ratio of 112.8% compared to 63.1% in the fourth quarter of 2019
Adjusted combined ratio excluding catastrophe losses(1) of 73.8%, compared to 60.7% in the fourth quarter of 2019
Annualized return on equity of (2.0)%, compared to 20.4% in the fourth quarter of 2019
Full Year 2020 Highlights
Gross written premiums increased by 40.6% to $354.4 million compared to $252.0 million in 2019
Net income of $6.3 million, compared to $10.6 million in 2019
Adjusted net income(1) of $8.9 million, compared to $37.9 million in 2019
Total loss ratio of 41.3%, compared to 5.6% in 2019
Catastrophe loss ratio(1) of 32.9% compared to zero in 2019
Combined ratio of 102.5%, compared to 91.3% in 2019
Adjusted combined ratio excluding catastrophe losses(1) of 67.5%, compared to 63.3% in 2019
Return on equity of 2.1%, compared to 6.7% in 2019
Adjusted return on equity(1) of 3.0%, compared to 24.1% in 2019
(1) See discussion of “Non-GAAP and Key Performance Indicators” below.
“I am inspired by the efforts of our team to grow and evolve our business during the past year,” commented Mac Armstrong, Chairman and Chief Executive Officer. “We launched new products and a new insurance carrier, entered into new geographies, made key additions to our team, and continued our pursuit of the Company’s strategic vision all while navigating circumstances that few of us could have anticipated. Our newly launched E&S carrier, Palomar Excess and Surplus Insurance Company, or PESIC, represents an exciting progression in our evolution. PESIC enables us to extend the breadth and reach of our product suite and was a key contributor to the 95% year on year growth in our commercial lines gross written premiums for the full year. Overall, we grew gross written premiums by 31.0% in the fourth quarter and 40.6% for the full year while maintaining profitability in the face of an historic wind season.”
Mr. Armstrong shared, “We are committed to applying data and lessons learned to the continuous improvement of our business. During this past year we modified our approach to and participation in specific wind-exposed markets upon review of potential risk-adjusted returns, catastrophe payback and prevailing market conditions. We also made additional refinements to our risk transfer strategy. The combination of these efforts will not only reduce volatility but also further enhance visibility into our financial results. Finally, we continued investing in our technology and our team as we position Palomar for near and long-term success.”
Mr. Armstrong further offered, “Separately, I would like to address the severe weather activity throughout the country this past week, specifically Winter Storm Uri in Texas where Palomar has a considerable market presence. I want to tell our policyholders in Texas that our thoughts are with them, we stand ready to support them and we are here to help them rebound. Palomar has substantial resources in place to support both residential and commercial policyholders in Texas, including comprehensive reinsurance coverage on both an excess of loss and quota share basis. Both our commercial and residential quota shares will apply to this event from the first dollar of loss, and as such we do not expect to incur material losses from the storm.”
Underwriting Results
Gross written premiums increased 31.0% to $96.1 million compared to $73.3 million in the fourth quarter of 2019, while net earned premiums increased 25.6% compared to the prior year’s fourth quarter. Losses and loss adjustment expenses for the fourth quarter were $17.2 million including $14.5 million of catastrophe losses and $2.7 million of non-catastrophe attritional losses. The loss ratio for the quarter was 44.2%, comprised of a catastrophe loss ratio of 37.2%(1) and an attritional loss ratio of 7.0%, compared to a loss ratio of 7.1% during the same period last year comprised entirely of attritional losses. The fourth quarter losses include $0.1 million of favorable prior year development. In addition to catastrophe losses, the Company’s fourth quarter 2020 results were impacted by a reinsurance expense acceleration charge of $4.1 million and reinstatement premium of $0.8 million on backup reinsurance purchased. Underwriting loss(1) was $5.0 million resulting in a combined ratio of 112.8% compared to underwriting income of $11.4 million and a combined ratio of 63.1% during the same period last year. The fourth quarter of 2020 results include certain expenses related to stock-based compensation and catastrophe losses. The fourth quarter of 2019 results include certain expenses related to the Company’s stock offering and stock-based compensation. Without these items, the Company’s adjusted combined ratio excluding catastrophe losses(1) was 73.8% in the fourth quarter compared to 60.7% during the same period last year. This increase was significantly due to the reinsurance acceleration charge and reinstatement premium incurred in the fourth quarter of 2020.
Investment Results
Net investment income increased by 29.0% to $2.3 million compared to $1.8 million in the prior year’s fourth quarter. The year over year increase was primarily due to a higher average balance of investments held during the three months ended December 31, 2020 due to cash generated from operations as well as proceeds from the Company’s January and June 2020 stock offerings, offset by lower yields on invested assets. Funds are generally invested conservatively in high quality securities, including government agency, asset and mortgage-backed securities, municipal and corporate bonds with an average credit quality of "A2/A". The weighted average duration of the fixed-maturity investment portfolio, including cash equivalents, was 3.96 years at December 31, 2020. Cash and invested assets totaled $456.1 million at December 31, 2020. During the fourth quarter, the Company recognized realized and unrealized gains of $245 thousand related to its investment portfolio as compared to a $1.2 million gain in last year’s fourth quarter.
Tax Rate
The effective tax rate for the three months ended December 31, 2020 was 23.1% compared to 24.6% for the three months ended December 31, 2019. For the current quarter, the Company’s income tax rate differed from the statutory rate due to the tax impact of the permanent component of employee stock option exercises. The 2019 fourth quarter tax rate includes an adjustment from prior periods of $0.4 million, or approximately 3 points of the effective tax rate for the fourth quarter.
Stockholders’ Equity and Returns
Stockholders’ equity was $363.7 million at December 31, 2020, compared to $218.6 million at December 31, 2019. For the three months ended December 31, 2020, the Company’s annualized return on equity was (2.0%) compared to 20.4% for the same period last year.
Full Year 2021 Outlook
For the full year 2021, the Company expects to achieve adjusted net income of $62 million to $67 million. This adjusted net income guidance considers the impact of Winter Storm Uri in Texas.
Conference Call
As previously announced, Palomar will host a conference call February 25, 2021, to discuss its fourth quarter and full year 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 Fourth Quarter and Full Year 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 13716031. The telephonic replay will be available until 11:59 pm (Eastern Time) on March 4, 2021.
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 insurance for residential and commercial clients. Palomar’s underwriting and analytical expertise allow it to concentrate on certain markets that it believes are underserved by other insurance companies, such as the markets for earthquake, hurricane and flood insurance. Palomar’s principal insurance subsidiary, Palomar Specialty Insurance Company, is an admitted carrier in 32 states and has an A.M. Best financial strength rating of “A-” (Excellent).
Follow Palomar on Facebook, LinkedIn and Twitter: @PLMRInsurance
Non-GAAP and Key Performance Indicators
Palomar discusses certain key performance indicators, described below, which provide useful information about the Company’s business and the operational factors underlying the Company’s financial performance.
Underwriting revenue is a non-GAAP financial measure defined as total revenue, excluding net investment income and net realized and unrealized gains and losses on investments. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of total revenue calculated in accordance with GAAP to underwriting revenue.
Underwriting income (loss) 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 (loss).
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 (loss) 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.
Tangible stockholders’ equity is a non-GAAP financial measure defined as stockholders’ equity less intangible assets. See “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of stockholders’ equity calculated in accordance with GAAP to tangible stockholders’ equity.
Safe Harbor Statement
Palomar cautions you that statements contained in this press release may regard matters that are not historical facts but are forward-looking statements. These statements are based on the company’s current beliefs and expectations. The inclusion of forward-looking statements should not be regarded as a representation by Palomar that any of its plans will be achieved. Actual results may differ from those set forth in this press release due to the risks and uncertainties inherent in the Company’s business. The forward-looking statements are typically, but not always, identified through use of the words “believe,” “expect,” “enable,” “may,” “will,” “could,” “intends,” “estimate,” “anticipate,” “plan,” “predict,” “probable,” “potential,” “possible,” “should,” “continue,” and other words of similar meaning. Actual results could differ materially from the expectations contained in forward-looking statements as a result of several factors, including unexpected expenditures and costs, unexpected results or delays in development and regulatory review, regulatory approval requirements, the frequency and severity of adverse events and competitive conditions. These and other factors that may result in differences are discussed in greater detail in the Company’s filings with the Securities and Exchange Commission. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof, and the Company undertakes no obligation to update such statements to reflect events that occur or circumstances that exist after the date hereof. All forward-looking statements are qualified in their entirety by this cautionary statement, which is made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Contact
Media Inquiries
Sarah Flocken
1-240-630-0316
sarah@conwaymarketinggroup.com
Investor Relations
Shannon Devine
1-619-771-1743
investors@plmr.com
Source: Palomar Holdings, Inc.
Summary of Operating Results
The following table summarizes the Company’s results for the three months ended December 31, 2020 and 2019:
Three months ended | ||||||||||||
December 31, | Percent | |||||||||||
2020 | 2019 | Change | Change | |||||||||
($ in thousands, except per share data) | ||||||||||||
Gross written premiums | $ | 96,092 | $ | 73,342 | $ | 22,750 | 31.0 | % | ||||
Ceded written premiums | (53,839) | (29,535) | (24,304) | 82.3 | % | |||||||
Net written premiums | 42,253 | 43,807 | (1,554) | (3.5) | % | |||||||
Net earned premiums | 38,922 | 30,988 | 7,934 | 25.6 | % | |||||||
Commission and other income | 803 | 654 | 149 | 22.8 | % | |||||||
Total underwriting revenue (1) | 39,725 | 31,642 | 8,083 | 25.5 | % | |||||||
Losses and loss adjustment expenses | 17,214 | 2,195 | 15,019 | 684.2 | % | |||||||
Acquisition expenses | 18,131 | 11,070 | 7,061 | 63.8 | % | |||||||
Other underwriting expenses | 9,356 | 6,943 | 2,413 | 34.8 | % | |||||||
Underwriting income (loss) (1) | (4,976) | 11,434 | (16,410) | (143.5) | % | |||||||
Net investment income | 2,325 | 1,803 | 522 | 29.0 | % | |||||||
Net realized and unrealized gains on investments | 245 | 1,178 | (933) | (79.2) | % | |||||||
Income (loss) before income taxes | (2,406) | 14,415 | (16,821) | (116.7) | % | |||||||
Income tax expense (benefit) | (557) | 3,535 | (4,092) | NM | ||||||||
Net income (loss) | $ | (1,849) | $ | 10,880 | $ | (12,729) | (117.0) | % | ||||
Adjustments: | ||||||||||||
Expenses associated with secondary offerings | — | 307 | (307) | NM | ||||||||
Stock-based compensation expense | 710 | 426 | 284 | 66.7 | ||||||||
Tax impact | (130) | (155) | 25 | NM | ||||||||
Adjusted net income (loss) (1) | $ | (1,269) | $ | 11,458 | $ | (12,727) | (111.1) | % | ||||
Key Financial and Operating Metrics | ||||||||||||
Annualized return on equity | (2.0) | % | 20.4 | % | ||||||||
Annualized adjusted return on equity (1) | (1.4) | % | 21.5 | % | ||||||||
Loss ratio | 44.2 | % | 7.1 | % | ||||||||
Expense ratio | 68.6 | % | 56.0 | % | ||||||||
Combined ratio | 112.8 | % | 63.1 | % | ||||||||
Adjusted combined ratio (1) | 111.0 | % | 60.7 | % | ||||||||
Diluted earnings (loss) per share | $ | (0.07) | $ | 0.45 | ||||||||
Diluted adjusted earnings (loss) per share (1) | $ | (0.05) | $ | 0.48 | ||||||||
Catastrophe losses | $ | 14,474 | $ | — | ||||||||
Catastrophe loss ratio (1) | 37.2 | % | — | % | ||||||||
Adjusted combined ratio excluding catastrophe losses (1) | 73.8 | % | 60.7 | % | ||||||||
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.
The following table summarizes the Company’s results for the years ended December 31, 2020 and 2019:
Year ended | ||||||||||||
December 31, | Percent | |||||||||||
2020 | 2019 | Change | Change | |||||||||
($ in thousands, except per share data) | ||||||||||||
Gross written premiums | $ | 354,360 | $ | 251,961 | $ | 102,399 | 40.6 | % | ||||
Ceded written premiums | (155,102) | (108,332) | (46,770) | 43.2 | % | |||||||
Net written premiums | 199,258 | 143,629 | 55,629 | 38.7 | % | |||||||
Net earned premiums | 155,068 | 100,207 | 54,861 | 54.7 | % | |||||||
Commission and other income | 3,295 | 2,671 | 624 | 23.4 | % | |||||||
Total underwriting revenue (1) | 158,363 | 102,878 | 55,485 | 53.9 | % | |||||||
Losses and loss adjustment expenses | 64,115 | 5,593 | 58,522 | 1,046.3 | % | |||||||
Acquisition expenses | 64,041 | 37,259 | 26,782 | 71.9 | % | |||||||
Other underwriting expenses | 34,084 | 51,299 | (17,215) | (33.6) | % | |||||||
Underwriting income (loss) (1) | (3,877) | 8,727 | (12,604) | (144.4) | % | |||||||
Interest expense | — | (1,068) | 1,068 | (100.0) | % | |||||||
Net investment income | 8,612 | 5,975 | 2,637 | 44.1 | % | |||||||
Net realized and unrealized gains on investments | 1,488 | 4,443 | (2,955) | (66.5) | % | |||||||
Income before income taxes | 6,223 | 18,077 | (11,854) | (65.6) | % | |||||||
Income tax expense (benefit) | (34) | 7,456 | (7,490) | NM | ||||||||
Net income | $ | 6,257 | $ | 10,621 | $ | (4,364) | (41.1) | % | ||||
Adjustments: | ||||||||||||
Expenses associated with IPO, tax restructuring, secondary offerings, and one time incentive cash bonuses | 708 | 3,007 | (2,299) | NM | ||||||||
Stock-based compensation expense | 2,167 | 24,103 | (21,936) | NM | ||||||||
Expenses associated with retirement of debt | — | 1,297 | (1,297) | NM | ||||||||
Expenses associated with catastrophe bond | 399 | — | 399 | NM | ||||||||
Tax impact | (664) | (1,149) | 485 | NM | ||||||||
Adjusted net income (1) | $ | 8,867 | $ | 37,879 | $ | (29,012) | (76.6) | % | ||||
Key Financial and Operating Metrics | ||||||||||||
Return on equity | 2.1 | % | 6.7 | % | ||||||||
Adjusted return on equity (1) | 3.0 | % | 24.1 | % | ||||||||
Loss ratio | 41.3 | % | 5.6 | % | ||||||||
Expense ratio | 61.2 | % | 85.7 | % | ||||||||
Combined ratio | 102.5 | % | 91.3 | % | ||||||||
Adjusted combined ratio (1) | 100.4 | % | 63.3 | % | ||||||||
Diluted earnings per share | $ | 0.24 | $ | 0.49 | ||||||||
Diluted adjusted earnings per share (1) | $ | 0.35 | $ | 1.73 | ||||||||
Catastrophe losses | $ | 50,986 | $ | — | ||||||||
Catastrophe loss ratio (1) | 32.9 | % | — | % | ||||||||
Adjusted combined ratio excluding catastrophe losses (1) | 67.5 | % | 63.3 | % | ||||||||
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.
Condensed Consolidated Balance sheets
Palomar Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (unaudited)
(in thousands, except shares and par value data)
December 31, | December 31, | |||||
2020 | 2019 | |||||
Assets | ||||||
Investments: | ||||||
Fixed maturity securities available for sale, at fair value (amortized cost: $381,279 in 2020; $211,278 in 2019) | $ | 397,987 | $ | 217,151 | ||
Equity securities, at fair value (cost: $22,291 in 2020; $21,336 in 2019) | 24,322 | 22,328 | ||||
Total investments | 422,309 | 239,479 | ||||
Cash and cash equivalents | 33,538 | 33,119 | ||||
Restricted cash | 248 | 230 | ||||
Accrued investment income | 2,545 | 1,386 | ||||
Premium receivable | 48,842 | 36,237 | ||||
Deferred policy acquisition costs | 35,481 | 25,201 | ||||
Reinsurance recoverable on unpaid losses and loss adjustment expenses | 94,566 | 12,952 | ||||
Reinsurance recoverable on paid losses and loss adjustment expenses | 10,162 | 4,303 | ||||
Ceded unearned premiums | 35,031 | 26,105 | ||||
Prepaid expenses and other assets | 34,119 | 14,861 | ||||
Property and equipment, net | 739 | 845 | ||||
Intangible assets | 11,512 | 744 | ||||
Total assets | $ | 729,092 | $ | 395,462 | ||
Liabilities and stockholders’ equity | ||||||
Liabilities: | ||||||
Accounts payable and other accrued liabilities | $ | 20,730 | $ | 13,555 | ||
Reserve for losses and loss adjustment expenses | 129,036 | 16,821 | ||||
Unearned premiums | 183,489 | 130,373 | ||||
Ceded premium payable | 22,233 | 11,383 | ||||
Funds held under reinsurance treaty | 4,515 | 1,658 | ||||
Income and excise taxes payable | — | 1,117 | ||||
Deferred tax liabilities, net | 5,376 | 1,999 | ||||
Total liabilities | 365,379 | 176,906 | ||||
Stockholders’ equity: | ||||||
Preferred stock, $0.0001 par value, 5,000,000 shares authorized as of December 31, 2020 and December 31, 2019, 0 shares issued and outstanding as of December 31, 2020 and December 31, 2019 | — | — | ||||
Common stock, $0.0001 par value, 500,000,000 shares authorized, 25,525,796 and 23,468,750 shares issued and outstanding as of December 31, 2020 and December 31, 2019, respectively | 3 | 2 | ||||
Additional paid-in capital | 310,507 | 180,012 | ||||
Accumulated other comprehensive income | 13,246 | 4,686 | ||||
Retained earnings | 39,957 | 33,856 | ||||
Total stockholders’ equity | 363,713 | 218,556 | ||||
Total liabilities and stockholders’ equity | $ | 729,092 | $ | 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 | Year Ended | |||||||||||
December 31, | December 31, | |||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||
Revenues: | ||||||||||||
Gross written premiums | $ | 96,092 | $ | 73,342 | $ | 354,360 | $ | 251,961 | ||||
Ceded written premiums | (53,839) | (29,535) | (155,102) | (108,332) | ||||||||
Net written premiums | 42,253 | 43,807 | 199,258 | 143,629 | ||||||||
Change in unearned premiums | (3,331) | (12,819) | (44,190) | (43,422) | ||||||||
Net earned premiums | 38,922 | 30,988 | 155,068 | 100,207 | ||||||||
Net investment income | 2,325 | 1,803 | 8,612 | 5,975 | ||||||||
Net realized and unrealized gains on investments | 245 | 1,178 | 1,488 | 4,443 | ||||||||
Commission and other income | 803 | 654 | 3,295 | 2,671 | ||||||||
Total revenues | 42,295 | 34,623 | 168,463 | 113,296 | ||||||||
Expenses: | ||||||||||||
Losses and loss adjustment expenses | 17,214 | 2,195 | 64,115 | 5,593 | ||||||||
Acquisition expenses | 18,131 | 11,070 | 64,041 | 37,259 | ||||||||
Other underwriting expenses (includes stock-based compensation of $710 and $426 for the three months ended December 31, 2020 and 2019, respectively and $2,167 and $24,103 for the year ended December 31, 2020 and 2019, respectively) | 9,356 | 6,943 | 34,084 | 51,299 | ||||||||
Interest expense | — | — | — | 1,068 | ||||||||
Total expenses | 44,701 | 20,208 | 162,240 | 95,219 | ||||||||
Income (loss) before income taxes | (2,406) | 14,415 | 6,223 | 18,077 | ||||||||
Income tax expense (benefit) | (557) | 3,535 | (34) | 7,456 | ||||||||
Net income (loss) | (1,849) | 10,880 | 6,257 | 10,621 | ||||||||
Other comprehensive income, net: | ||||||||||||
Net unrealized (losses) gains on securities available for sale for the three months and years ended December 31, 2020 and 2019, respectively | 2,808 | (1,210) | 8,560 | 5,249 | ||||||||
Net comprehensive income | $ | 959 | $ | 9,670 | $ | 14,817 | $ | 15,870 | ||||
Per Share Data: | ||||||||||||
Basic earnings (loss) per share | $ | (0.07) | $ | 0.46 | $ | 0.25 | $ | 0.49 | ||||
Diluted earnings (loss) per share | $ | (0.07) | $ | 0.45 | $ | 0.24 | $ | 0.49 | ||||
Weighted-average common shares outstanding: | ||||||||||||
Basic | 25,520,111 | 23,468,750 | 24,872,251 | 21,501,541 | ||||||||
Diluted | 25,520,111 | 24,092,325 | 25,598,647 | 21,834,934 | ||||||||
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 December 31, | Year Ended December 31, | |||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
($ in thousands) | ($ in thousands) | |||||||||||||||||||||
% of | % of | % of | % of | |||||||||||||||||||
Amount | GWP | Amount | GWP | Amount | GWP | Amount | GWP | |||||||||||||||
Product | ||||||||||||||||||||||
Residential Earthquake | $ | 37,432 | 39.0 | % | $ | 35,468 | 48.4 | % | $ | 140,934 | 39.8 | % | $ | 130,473 | 51.8 | % | ||||||
Commercial Earthquake | 18,163 | 18.9 | % | 15,721 | 21.4 | % | 58,890 | 16.6 | % | 38,741 | 15.4 | % | ||||||||||
Commercial All Risk | 14,185 | 14.8 | % | 8,429 | 11.5 | % | 53,933 | 15.2 | % | 30,358 | 12.0 | % | ||||||||||
Specialty Homeowners | 11,388 | 11.9 | % | 7,796 | 10.6 | % | 49,849 | 14.1 | % | 32,788 | 13.0 | % | ||||||||||
Inland Marine | 5,676 | 5.9 | % | 1,177 | 1.6 | % | 15,423 | 4.3 | % | 2,465 | 1.0 | % | ||||||||||
Hawaii Hurricane | 3,528 | 3.7 | % | 2,714 | 3.7 | % | 13,824 | 3.9 | % | 10,764 | 4.3 | % | ||||||||||
Flood | 2,448 | 2.5 | % | 1,722 | 2.4 | % | 8,176 | 2.3 | % | 5,216 | 2.1 | % | ||||||||||
Other | 3,272 | 3.3 | % | 315 | 0.4 | % | 13,331 | 3.8 | % | 1,156 | 0.4 | % | ||||||||||
Total Gross Written Premiums | $ | 96,092 | 100.0 | % | $ | 73,342 | 100.0 | % | $ | 354,360 | 100.0 | % | $ | 251,961 | 100.0 | % | ||||||
Three Months Ended December 31, | Year Ended December 31, | |||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
($ in thousands) | ($ in thousands) | |||||||||||||||||||||
% of | % of | % of | % of | |||||||||||||||||||
Amount | GWP | Amount | GWP | Amount | GWP | Amount | GWP | |||||||||||||||
State | ||||||||||||||||||||||
California | $ | 48,857 | 50.8 | % | $ | 42,198 | 57.5 | % | $ | 172,765 | 48.8 | % | $ | 141,743 | 56.3 | % | ||||||
Texas | 12,927 | 13.5 | % | 11,409 | 15.6 | % | 67,974 | 19.2 | % | 44,087 | 17.5 | % | ||||||||||
Florida | 5,110 | 5.3 | % | — | — | % | 5,795 | 1.6 | % | — | — | % | ||||||||||
Washington | 4,326 | 4.5 | % | 3,177 | 4.3 | % | 14,328 | 4.0 | % | 9,607 | 3.8 | % | ||||||||||
Hawaii | 4,285 | 4.5 | % | 3,164 | 4.3 | % | 16,398 | 4.6 | % | 11,851 | 4.7 | % | ||||||||||
North Carolina | 4,011 | 4.2 | % | 1,240 | 1.7 | % | 11,143 | 3.1 | % | 3,894 | 1.5 | % | ||||||||||
Oregon | 2,740 | 2.9 | % | 2,117 | 2.9 | % | 10,038 | 2.8 | % | 7,396 | 2.9 | % | ||||||||||
South Carolina | 1,993 | 2.1 | % | 1,547 | 2.1 | % | 9,196 | 2.6 | % | 6,185 | 2.5 | % | ||||||||||
Other | 11,843 | 12.2 | % | 8,490 | 11.6 | % | 46,723 | 13.3 | % | 27,198 | 10.8 | % | ||||||||||
Total Gross Written Premiums | $ | 96,092 | 100.0 | % | $ | 73,342 | 100.0 | % | $ | 354,360 | 100.0 | % | $ | 251,961 | 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 | Year Ended | |||||||||||||||||||||||
December 31, | December 31, | |||||||||||||||||||||||
2020 | 2019 | Change | % Change | 2020 | 2019 | Change | % Change | |||||||||||||||||
($ in thousands) | ($ in thousands) | |||||||||||||||||||||||
Gross earned premiums | $ | 86,191 | $ | 58,967 | $ | 27,224 | 46.2 | % | $ | 301,457 | $ | 200,521 | $ | 100,936 | 50.3 | % | ||||||||
Ceded earned premiums | (47,269) | (27,979) | (19,290) | 68.9 | % | (146,389) | (100,314) | (46,075) | 45.9 | % | ||||||||||||||
Net earned premiums | $ | 38,922 | $ | 30,988 | $ | 7,934 | 25.6 | % | $ | 155,068 | $ | 100,207 | $ | 54,861 | 54.7 | % | ||||||||
Net earned premium ratio | 45.2% | 52.6% | 51.4% | 50.0% | ||||||||||||||||||||
Loss detail
The following table represents a reconciliation of changes in the ending reserve balances for losses and loss adjustment expenses:
Three Months Ended December 31, | Year ended December 31, | |||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||
(in thousands) | (in thousands) | |||||||||||
Reserve for losses and loss adjustment expenses net of reinsurance recoverables at beginning of period | $ | 39,540 | $ | 2,914 | $ | 3,869 | $ | 4,165 | ||||
Add: Incurred losses and loss adjustment expenses, net of reinsurance, related to: | — | — | ||||||||||
Current year | 17,312 | 2,114 | 64,179 | 5,774 | ||||||||
Prior years | (98) | 81 | (64) | (181) | ||||||||
Total incurred | 17,214 | 2,195 | 64,115 | 5,593 | ||||||||
Deduct: Loss and loss adjustment expense payments, net of reinsurance, related to: | ||||||||||||
Current year | 22,125 | 1,135 | 31,879 | 2,179 | ||||||||
Prior years | 159 | 105 | 1,635 | 3,710 | ||||||||
Total payments | 22,284 | 1,240 | 33,514 | 5,889 | ||||||||
Reserve for losses and loss adjustment expense net of reinsurance recoverables at end of period | 34,470 | 3,869 | 34,470 | 3,869 | ||||||||
Add: Reinsurance recoverables on unpaid losses and loss adjustment expenses at end of period | 94,566 | 12,952 | 94,566 | 12,952 | ||||||||
Reserve for losses and loss adjustment expenses gross of reinsurance recoverables on unpaid losses and loss adjustment expenses at end of period | $ | 129,036 | $ | 16,821 | $ | 129,036 | $ | 16,821 | ||||
Reconciliation of Non-GAAP Financial Measures
For the three months and years ended December 31, 2020 and 2019, the Non-GAAP financial measures discussed above reconcile to their most comparable GAAP measures as follows:
Underwriting revenue
Three Months Ended | Year Ended | |||||||||||
December 31, | December 31, | |||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||
(in thousands) | (in thousands) | |||||||||||
Total revenue | $ | 42,295 | $ | 34,623 | $ | 168,463 | $ | 113,296 | ||||
Net investment income | (2,325) | (1,803) | (8,612) | (5,975) | ||||||||
Net realized and unrealized gains on investments | (245) | (1,178) | (1,488) | (4,443) | ||||||||
Underwriting revenue | $ | 39,725 | $ | 31,642 | $ | 158,363 | $ | 102,878 | ||||
Underwriting income (loss)
Three Months Ended | Year Ended | ||||||||||||
December 31, | December 31, | ||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||
(in thousands) | (in thousands) | ||||||||||||
Income (loss) before income taxes | $ | (2,406) | $ | 14,415 | $ | 6,223 | $ | 18,077 | |||||
Net investment income | (2,325) | (1,803) | (8,612) | (5,975) | |||||||||
Net realized and unrealized gains on investments | (245) | (1,178) | (1,488) | (4,443) | |||||||||
Interest expense | — | — | — | 1,068 | |||||||||
Underwriting income (loss) | $ | (4,976) | $ | 11,434 | $ | (3,877) | $ | 8,727 | |||||
Adjusted net income (loss)
Three Months Ended | Year Ended | ||||||||||||
December 31, | December 31, | ||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||
(in thousands) | (in thousands) | ||||||||||||
Net income (loss) | $ | (1,849) | $ | 10,880 | $ | 6,257 | $ | 10,621 | |||||
Adjustments: | |||||||||||||
Expenses associated with IPO, tax restructuring, secondary offerings, and one-time incentive cash bonuses | — | 307 | 708 | 3,007 | |||||||||
Stock-based compensation expense | 710 | 426 | 2,167 | 24,103 | |||||||||
Expenses associated with retirement of debt | — | — | — | 1,297 | |||||||||
Expenses associated with catastrophe bond | — | — | 399 | — | |||||||||
Tax impact | (130) | (155) | (664) | (1,149) | |||||||||
Adjusted net income (loss) | $ | (1,269) | $ | 11,458 | $ | 8,867 | $ | 37,879 | |||||
Annualized adjusted return on equity
Three Months Ended | Year Ended | |||||||||||||
December 31, | December 31, | |||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||
($ in thousands) | ($ in thousands) | |||||||||||||
Annualized adjusted net income (loss) | $ | (5,076) | $ | 45,832 | $ | 8,867 | $ | 37,879 | ||||||
Average stockholders’ equity | $ | 362,804 | $ | 213,509 | $ | 291,135 | $ | 157,424 | ||||||
Annualized adjusted return on equity | (1.4) | % | 21.5 | % | 3.0 | % | 24.1 | % | ||||||
Adjusted combined ratio
Three Months Ended | Year Ended | |||||||||||||
December 31, | December 31, | |||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||
($ in thousands) | ($ in thousands) | |||||||||||||
Numerator: Sum of losses, loss adjustment expenses, underwriting, acquisition and other underwriting expenses, net of commission and other income | $ | 43,898 | $ | 19,554 | $ | 158,945 | $ | 91,480 | ||||||
Denominator: Net earned premiums | $ | 38,922 | $ | 30,988 | $ | 155,068 | $ | 100,207 | ||||||
Combined ratio | 112.8 | % | 63.1 | % | 102.5 | % | 91.3 | % | ||||||
Adjustments to numerator: | ||||||||||||||
Expenses associated with IPO, tax restructuring, secondary offerings, and one-time incentive cash bonuses | $ | — | $ | (307) | $ | (708) | $ | (3,007) | ||||||
Stock-based compensation expense | (710) | (426) | (2,167) | (24,103) | ||||||||||
Portion of expenses associated with retirement of debt classified as other underwriting expenses | — | — | — | (897) | ||||||||||
Expenses associated with catastrophe bond | — | — | (399) | — | ||||||||||
Adjusted combined ratio | 111.0 | % | 60.7 | % | 100.4 | % | 63.3 | % | ||||||
Diluted adjusted earnings per share
Three Months Ended | Year Ended | ||||||||||||
December 31, | December 31, | ||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||
( in thousands, except shares and per share data) | ( in thousands, except shares and per share data) | ||||||||||||
Adjusted net income (loss) | $ | (1,269) | $ | 11,458 | $ | 8,867 | $ | 37,879 | |||||
Weighted-average common shares outstanding, diluted | 25,520,111 | 24,092,325 | 25,598,647 | 21,834,934 | |||||||||
Diluted adjusted earnings per share | $ | (0.05) | $ | 0.48 | $ | 0.35 | $ | 1.73 | |||||
Catastrophe loss ratio
Three Months Ended | Year Ended | |||||||||||||
December 31, | December 31, | |||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||
($ in thousands) | ($ in thousands) | |||||||||||||
Numerator: Losses and loss adjustment expenses | $ | 17,214 | $ | 2,195 | $ | 64,115 | $ | 5,593 | ||||||
Denominator: Net earned premiums | $ | 38,922 | $ | 30,988 | $ | 155,068 | $ | 100,207 | ||||||
Loss ratio | 44.2 | % | 7.1 | % | 41.3 | % | 5.6 | % | ||||||
Numerator: Catastrophe losses | $ | 14,474 | $ | — | $ | 50,986 | $ | — | ||||||
Denominator: Net earned premiums | $ | 38,922 | $ | 30,988 | $ | 155,068 | $ | 100,207 | ||||||
Catastrophe loss ratio | 37.2 | % | 0.0 | % | 32.9 | % | 0.0 | % | ||||||
Adjusted combined ratio excluding catastrophe losses
Three Months Ended | Year ended | |||||||||||||
December 31, | December 31, | |||||||||||||
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 | $ | 43,898 | $ | 19,554 | $ | 158,945 | $ | 91,480 | ||||||
Denominator: Net earned premiums | $ | 38,922 | $ | 30,988 | $ | 155,068 | $ | 100,207 | ||||||
Combined ratio | 112.8 | % | 63.1 | % | 102.5 | % | 91.3 | % | ||||||
Adjustments to numerator: | ||||||||||||||
Expenses associated with IPO, tax restructuring, secondary offerings, and one-time incentive cash bonuses | $ | — | $ | (307) | $ | (708) | $ | (3,007) | ||||||
Stock-based compensation expense | (710) | (426) | (2,167) | (24,103) | ||||||||||
Portion of expenses associated with retirement of debt classified as other underwriting expenses | — | — | — | (897) | ||||||||||
Expenses associated with catastrophe bond | — | — | (399) | — | ||||||||||
Catastrophe losses | (14,474) | — | (50,986) | — | ||||||||||
Adjusted combined ratio excluding catastrophe losses | 73.8 | % | 60.7 | % | 67.5 | % | 63.3 | % | ||||||
Tangible Stockholders’ equity
December 31, | ||||||
2020 | 2019 | |||||
(in thousands) | ||||||
Stockholders’ equity | $ | 363,713 | $ | 218,556 | ||
Intangible assets | (11,512) | (744) | ||||
Tangible stockholders’ equity | $ | 352,201 | $ | 217,812 | ||
