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PART I
We are a rapidly growing and profitable company focused on the provision of specialty property insurance. We focus on certain markets that we believe are underserved by other insurance companies, such as the markets for earthquake, wind and flood insurance. We provide specialty property insurance products in our target markets to both individuals and businesses. We use proprietary data analytics and a modern technology platform to offer our customers flexible products with customized and granular pricing on an admitted basis. We distribute our products through multiple channels, including retail agents, program administrators, wholesale brokers, and in partnership with other insurance companies. Our business strategy is supported by a comprehensive risk transfer program with reinsurance coverage that we believe provides both consistency of earnings and appropriate levels of protection in the event of a major catastrophe. Our management team combines decades of insurance industry experience across specialty underwriting, reinsurance, program administration, distribution, and analytics.
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 for the year ended December 31, 2014, our first year of operations, to $252.0 million for the year ended December 31, 2019, a compound annual growth rate of approximately 72%. For the year ended December 31, 2019, we experienced average monthly premium retention rates above 93% for our Residential Earthquake and Hawaii Hurricane lines and approximately 88% overall across all lines of business, providing strong visibility into future revenue. In February 2014, Palomar Specialty Insurance Company was awarded an “A−” (Excellent) (Outlook Stable) rating from A.M. Best Company (“A.M. Best”), a leading rating agency for the insurance industry. In February 2019, A.M. Best affirmed our “A−” (Excellent) (Outlook Stable) rating for Palomar Specialty Insurance Company and affirmed our “A−” (Excellent) (Outlook Stable) group rating for Palomar Holdings, Inc. This rating reflects A.M. Best’s opinion of our financial strength, operating performance and ability to meet obligations to policyholders and is not an evaluation directed towards the protection of investors.
We believe that our market opportunity, distinctive products, and differentiated business model position us to grow our business profitably.
On April 22, 2019, we completed our initial public offering (the “IPO”), and the underwriters in the IPO purchased 6,468,750 shares, including the full exercise of their option to purchase additional shares of common stock. The net proceeds were approximately $87.4 million, after deducting underwriting discounts and commissions and offering costs.
On September 30, 2019, certain selling stockholders completed the registered sale (the “September 2019 Secondary Offering”) of 6,037,500 shares of our common stock. We did not receive any proceeds from the September 2019 Secondary Offering or incur underwriters’ discounts or commissions on the sale.
On January 9, 2020, we, along with certain selling stockholders, completed the registered sale (the “January 2020 Secondary Offering”) of 5,750,000 shares of common stock at a public offering price of $49.00 per share. Of the 5,750,000 shares sold, 750,000 represented the underwriters’ exercise of their option to purchase additional shares. The offering was comprised of 5,000,000 shares sold by certain selling stockholders and 750,000 shares sold by us. Our net proceeds from the January 2020 Secondary Offering were approximately $35.4 million, after deducting underwriting discounts and commissions and offering costs.
Our management team founded our company to address unmet needs that we perceived to exist in certain specialty property insurance markets. These markets have primarily been served by either large generalist insurance companies and state‑managed entities applying “one‑size‑fits‑all” pricing and policy forms across broad geographies, or excess and surplus (“E&S”) companies offering relatively volatile pricing and coverage without the backing of state
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Risk |
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Opportunity |
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Palomar Lines of Business |
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Earthquake |
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Competitors’ products have limited options and are priced in broad territorial zones. Residential earthquake is an optional coverage that many homeowners choose not to purchase due to the high price and limited coverage options. Commercial earthquake coverage is often offered through the E&S market, which is not backed by state guaranty funds. |
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Our Residential and Commercial Earthquake products are priced at a granular level and offer flexible product features. Our Residential Earthquake products seek to expand the residential earthquake insurance market by attracting buyers who may not otherwise acquire protection. Our products are admitted and backed by state guaranty funds, which we believe makes them easier to sell. |
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Wind |
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Homeowners insurance on a national level is generally highly competitive; however, we believe there are specific markets with attractive return potential that many carriers avoid due to hurricane exposure. |
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Our Specialty Homeowners products are offered in markets that we identified through detailed analysis of pricing dynamics and historical loss ratios. |
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We identified specific hurricane‑exposed geographic markets in the Southeastern United States with limited admitted commercial insurance product offerings due to the perceived risk of windstorms. |
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For our Commercial All Risk products, we use detailed technical analysis to identify a subset of target occupancies and developed a proprietary risk pricing methodology that we believe enables us to select and price risk appropriately. Our Commercial All Risk policy covers fire and wind damage (wind includes hurricane, tornado, and hail storm). Both our Specialty Homeowners and Commercial All Risk business generate fee income from underwriting on behalf of third parties. We currently do not write Florida property business due to what we perceive to be a currently unfavorable pricing and regulatory environment. |