2021 Annual Report

Palomar Annual Report 2021

Table of Contents

• 2Letter from Mac Armstrong

• 7Sustained, Profitable Growth and Diversification

• 8Predictable Earnings

• 10Technology and Systems

• 10People and Culture

  

• 13Continued Progress on ESG

• 13The Year Ahead

• 15Form 10-K

Letter from Mac Armstrong

Dear Shareholders,

In last year's annual report, I shared with you Palomar's optimism about our future at the peak of the global COVID-19 pandemic. I noted how Palomar's core attributes of agility, innovation and problem-solving enable us to adapt to changed and challenging circumstances while continuing to invest in the profitable growth of our company.

One year later, it's clear that my optimism was warranted. The strategic investments that Palomar made in people, new products, risk transfer solutions and technology during the pandemic and over the course of 2021 bore fruit and drove the continued success of our company. As a result, we enter 2022 in the strongest financial and market position we have enjoyed to date.

Palomar's story is one of evolution and execution. We have and will continue to execute, leveraging analytically driven underwriting to build differentiated products in multiple specialty property markets. We have and will continue to invest in talent, risk transfer and technology to address the needs of our insureds, trading partners and the communities we serve. And we will continue to evolve, entering new lines of business and product segments, diversifying both our product mix and our overall risk exposure while continuing to reduce the volatility in our earnings base.

In short, Palomar is looking to the future while remaining mindful of our past - investing in new opportunities while nurturing the comparative advantages which have and will continue to distinguish us from our competitors. Accordingly, I'd like to begin with a short overview of the history and philosophy of our Company.

THE PALOMAR STORY

We founded Palomar in 2014 because we saw a unique opportunity to write profitable business in specialty property insurance markets, including those that had been historically underserved by the industry. Central to our thesis was the development of deep expertise in analytics, technology management, underwriting and risk transfer. Our team identified market segments where we felt competitors were mispricing risk or offering limited coverage to customers. In those initial segments, which included both Residential and Commercial Earthquake insurance and Hawaii Hurricane insurance, Palomar leveraged data and technology systems to

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assess risk and granularly price policies consistently and accurately. We continue to believe that our analytically driven underwriting process coupled with our leadership's team underwriting acumen and experience across numerous classes of specialty insurance provides better oversight of our exposure, disciplined underwriting and, ultimately, consistent bottom-line results. As we enter new geographies, launch new products, and forge new partnerships, we look to apply certain attributes of existing products-illustratively granular pricing, flexible coverage, reinsurance structures, distribution networks, and systems-to reduce the cost of entry as well as the overall execution risk.

2021 IN REVIEW

In 2021 Palomar continued its maturation from a specialty property insurer to a specialty insurance company, able to address both property and casualty markets in multiple capacities. Our financial results speak to the company's continued maturation and execution against core objectives:

• • The company's gross written premium (GWP) increased by 51.0% to $535.2 million, compared with $354.4 million in 2020

• • Our adjusted net income increased sixfold to $53.4 million from $8.9 million in 2020

• • We achieved an adjusted retuon equity of 14.1%, compared to 3.0% in 2020

As noted above, these numbers reflect both execution in existing market segments and the company's evolution into new segments and geographies. We enjoyed sustained growth in the core specialty property markets that Palomar has served since the company's founding, including both the Residential and Commercial Earthquake segments. These segments, along with our Hawaii Hurricane business, accounted for more than half of our overall GWP for the year, and we believe there is ample room for future growth in these franchise markets. Changes in public and public-private flood and earthquake insurance offerings have opened new opportunities for companies like Palomar to provide innovative products and solutions. We have deep industry-leading expertise in these markets, and with continued execution we believe these lines of business will anchor profitable growth in years to come.

In summer 2020, at the height of the COVID-19 pandemic, Palomar capitalized and launched a new Arizona-domiciled excess and surplus lines company Palomar Excess and Surplus Insurance Company (PESIC). We believed that Palomar's historic strengths in underwriting, combined with our deep industry expertise, positioned us to succeed in this new segment as we had already done in earthquake and other heritage markets. We also wanted to insure risks not addressed by Palomar's portfolio of admitted products and also expand into new geographies. PESIC would enable Palomar to write business nationwide, and enable partnerships with distributors that layered and shared national accounts in categories like Builders Risk and All Risk. Lastly, we believed that PESIC would further aid our ongoing efforts to diversify the company's product portfolio and drive predictable earnings.

I'm pleased to report that PESIC's performance in 2021 validated each of these assumptions and helped drive profitable growth across the enterprise. In its first full year of operation, PESIC wrote $152.1 million in premium, significantly exceeding our expectations. Moreover, it has enabled us to connect with new partners and establish products in business segments previously unaddressed by the company. We anticipate continued growth in 2022 and beyond, as the company launches new product lines in areas such as commercial and casualty insurance that will be distributed through PESIC.

PREDICTABLE EARNINGS

While expanding our business is important, we remain acutely focused on delivering predictable results to our investors. To this end, Palomar has taken several steps to reduce or eliminate our exposure to more volatile risk areas. In 2021 we completed a successful run-off of our admitted Commercial All Risk and Louisiana Homeowners business to reduce volatility and limit our exposure to continental wind exposure. While we believe that Palomar could continue to successfully compete in this market segment, our exit enables us to reallocate resources into more profitable lines of business. We also took meaningful rate increases across our portfolio and made continuous enhancements to our underwriting guidelines to minimize the potential for large losses. Lastly, the company purchased new aggregate reinsurance limit to protect the company from losses that could occur after multiple severe catastrophic events. These decisive actions were the product of careful analysis of trends in property markets and climate science, and they underscore the priority we place on earnings predictability.

Palomar will continue to look for opportunities to reduce volatility while also capitalizing on new opportunities for profitable growth. One new initiative launched in 2021 is PLMR-FRONT, which allows us to partner with reinsurers, carriers and MGAs and offer A.M. Best "A- (Excellent)" rated paper on both an admitted basis and on a non-admitted basis through PESIC in exchange for a fee. PLMR-FRONT should provide the company meaningful fee income in years to come and expand the number of avenues to create highly customized insurance solutions.

SCALING THE ORGANIZATION

At a time when many businesses have struggled to attract and retain talent, Palomar has significantly expanded our workforce to meet the objectives of our strategic plan. We ended 2021 with 156 employees, a 16% increase in headcount from 2020, and made significant hires in both key corporate functions and new business areas. Notable areas of human capital investment included our technology, analytics, reinsurance, claims and underwriting departments. In 2021 we hired seasoned industry leaders to launch general casualty, professional liability and excess property underwriting divisions.

NEW HIRES IN 2021

TOTAL WORKFORCE 2021

53%Millennials

20%Generation X

25%Generation Z

2%Baby Boomers

46%Millennials

34%Generation X

16%Generation Z

4%Baby BoomersFemale

MaleNon-white /

One or more races

WhiteFemale

MaleNon-white /

One or more races

White

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Palomar Holdings Inc. published this content on 14 April 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 14 April 2022 23:48:30 UTC.