Palomar Holdings (PLMR) risk factors, FY2024 10-K

Risks Related to Our Business and Industry

1. 01We may be unable to purchase third-party reinsurance or otherwise expand our catastrophe coverage in amounts we desire on commercially acceptable terms or on terms that adequately protect us, and this inability may materially adversely affect our business, financial condition and results of operations
2. 02Claims arising from unpredictable and severe catastrophe events, including those caused by global climate change, could reduce or eliminate our earnings and stockholders’ equity and limit our ability to underwrite new insurance policies
3. 03Our reinsurers may not pay claims on a timely basis, or at all, which may materially adversely affect our business, financial condition, and results of operations
4. 04The reserve for losses and loss adjustment expenses represents our estimated ultimate cost of all reported and unreported losses and loss adjustment expenses incurred and unpaid at the balance sheet date. We seek to establish adequate reserves; however, our ultimate liability may be greater than our estimate
5. 05For further information on our loss reserving methodology, see “Management’s Discussion and Analysis-Critical Accounting Policies and Estimates- Reserve for Losses and Loss Adjustment Expenses”
6. 06We may seek similar catastrophe bond offerings in the future. However, there can be no assurance that we will be able to complete such offerings on acceptable terms, if at all
7. 07The models may not accurately reflect the impact on the economy of the area affected or the financial, judicial, political, or regulatory impacts on insurance claim payments during or following a catastrophe event
8. 08A decline in our financial strength rating may adversely affect the amount of business we write and impact compliance with our debt covenants
9. 09If A.M. Best alters its capital adequacy assessment methodology in a manner that would adversely affect our rating
10. 10Causing us to be out of compliance with the financial covenants in our credit agreement
11. 11We and our customers could be negatively and adversely impacted by pandemics, disease outbreaks and other public health crises
12. 12Our business is concentrated in California and, as a result, we are exposed more significantly to California loss activity and regulatory environments
13. 13We could be adversely affected by the loss of one or more key executives or by an inability to attract and retain qualified personnel
14. 14We rely on a select group of brokers and program administrators, and such relationships may not continue
15. 15For the year ended December 31, 2024, our largest program administrator distributed $403.4 million or 26.2% of our gross written premiums. There were no other program administrators which distributed greater than 10% of our gross written premiums for the year ended December 31, 2024
16. 16Because we provide our program administrators with specific quoting and binding authority, if any of them fail to comply with pre-established guidelines, our results of operations could be adversely affected
17. 17Because our business depends on insurance brokers and program administrators, we are exposed to certain risks arising out of our reliance on these distribution channels that could adversely affect our results
18. 18Competition for business in our industry is intense
19. 19If actual renewals of our existing policies do not meet expectations, our written premium in future years and our future results of operations could be materially adversely affected
20. 20Our failure to accurately and timely evaluate and pay claims could materially and adversely affect our business, financial condition, results of operations, and prospects
21. 21We may act based on inaccurate or incomplete information regarding the accounts we underwrite
22. 22We may change our underwriting guidelines or our strategy without stockholder approval
23. 23Our employees could take excessive risks, which could negatively affect our financial condition and business
24. 24We may require additional capital in the future, which may not be available or may only be available on unfavorable terms
25. 25We may not be able to manage our growth effectively
26. 26We face risks associated with the evaluation of potential acquisitions, the integration of acquired businesses, and the introduction of new products, lines of business, and markets
27. 27Our operating results have in the past varied from quarter to quarter and may not be indicative of our long-term prospects
28. 28Our Credit Agreement contains restrictions and covenants that limit our flexibility in operating our business and any debt borrowed under our Credit Agreement exposes us to additional risk and may adversely affect our financial condition and future financial results
29. 29Exposing us to interest rate risk since the interest rate in the credit agreement is a variable rate
30. 30Volatility in crop prices, as a result of weather conditions or other events, could adversely impact our results of operations

Risks Related to the Economic Environment

1. 31Performance of our investment portfolio is subject to a variety of investment risks that may adversely affect our financial results
2. 32We could be forced to sell investments to meet our liquidity requirements

Risks Related to Technology

1. 33The failure of our information technology and telecommunications systems could adversely affect our business
2. 34Security breaches or cyber-attacks could expose us to liability and damage our reputation and business
3. 35We employ third-party licensed software for use in our business, and the inability to maintain these licenses, problems with the software we license, or increases to the cost of software licenses could adversely affect our business
4. 36Any control weakness or failure in cloud-based software could adversely affect our business
5. 37The growth and evolution of artificial intelligence may impact our business and operations

Risks Related to Laws and Regulations

1. 38We are subject to extensive regulation, which may adversely affect our ability to achieve our business objectives. In addition, if we fail to comply with these regulations, we may be subject to penalties, including fines and suspensions, which may adversely affect our financial condition and results of operations
2. 39Unexpected changes in the interpretation of our coverage or provisions, including loss limitations and exclusions, in our policies could have a material adverse effect on our financial condition and results of operations
3. 40We may become subject to additional government or market regulation, including additional regulation around cybersecurity, which may have a material adverse impact on our business
4. 41We routinely transmit and receive personal, confidential and proprietary data and information by electronic means and are subject to numerous data privacy laws and regulations enacted in the jurisdictions in which we do business, including recent laws in California whose impact on our business are difficult to predict
5. 42Changes in tax laws as a result of the enactment of tax legislation could impact our operations and profitability
6. 43If states increase the assessments that we are required to pay, our business, financial condition and results of operations would suffer
7. 44Because we are a holding company and substantially all our operations are conducted by our insurance subsidiaries, our ability to pay dividends depends on our ability to obtain cash dividends or other permitted payments from our insurance subsidiaries
8. 45The effects of litigation on our business are uncertain and could have an adverse effect on our business
9. 46We rely on the use of credit scoring in pricing and underwriting certain of our insurance policies and any legal or regulatory requirements that restrict our ability to access credit score information could decrease the accuracy of our pricing and underwriting process and thus decrease our ability to be profitable
10. 47Any failure to protect our intellectual property rights could impair our ability to protect our intellectual property, proprietary technology platform and brand, or we may be sued by third parties for alleged infringement of their proprietary rights
11. 48Changes in accounting practices and future pronouncements may materially affect our reported financial results
12. 49We incur significant costs as a public company, and our management is required to devote substantial time to complying with public company regulations
13. 50evaluate and maintain our system of internal control over financial reporting, and report on management’s assessment thereof, in compliance with rules and regulations of the SEC and the Public Company Accounting Oversight Board
14. 51Applicable insurance laws may make it difficult to effect a change of control

Risks Related to Ownership of Our Common Stock

1. 52Future transactions where we raise capital may negatively affect our stock price
2. 53Our operating results and stock price may be volatile, or may decline regardless of our operating performance, and holders of our common stock could lose all or part of their investment
3. 54other events or factors, including those from natural disasters, war, pandemics, acts of terrorism, cyber-attacks or responses to these events
4. 55Provisions of our certificate of incorporation and bylaws could make it more difficult for a third party to acquire control of us even if such a change in control would increase the value of our common stock and prevent attempts by our stockholders to replace or remove our current Board of Directors or management
5. 56In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law. These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a period of time
6. 57any action asserting a claim governed by the internal affairs doctrine
7. 58If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline
8. 59SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
9. 60the failure to maintain effective internal controls in accordance with Sarbanes-Oxley