Monolithic Power Systems, Inc.

Company Overview

Business Model: Monolithic Power Systems, Inc. (MPS) is a fabless global company specializing in high-performance, semiconductor-based power electronics solutions. The company leverages deep system-level knowledge, strong semiconductor design expertise, and innovative proprietary technologies in semiconductor processes, system integration, and packaging. This approach enables the delivery of reliable, compact, and monolithic solutions for storage and computing, enterprise data, automotive, industrial, communications, and consumer applications. MPS differentiates itself by offering highly integrated, smaller, more energy-efficient, and accurate solutions, aiming for cost-effectiveness and sustainability. The company plans to expand its product portfolio within existing families and introduce new innovative product categories.

Market Position: MPS focuses on the high-performance analog and mixed-signal integrated circuit (IC) market, which is characterized by longer product life cycles, numerous market segments, and technology that is difficult to replicate. The company targets product and market areas expected to achieve above-average long-term growth compared to the broader semiconductor industry. In 2024, Enterprise Data became the largest end market, contributing 32.5% of total revenue. Key product families include Direct Current to Direct Current, Alternating Current to Direct Current, driver metal-oxide-semiconductor field-effect transistor, power management IC, current limit switch, and lighting control products, all distinguished by high integration, high voltage operation, high load current, high switching speed, small footprint, and high energy efficiency.

Recent Strategic Developments: In January 2024, Monolithic Power Systems, Inc. acquired Axign B.V., a fabless semiconductor company based in the Netherlands specializing in class-D audio ICs for consumer and automotive applications. This acquisition is expected to enable the development of lower power consumption solutions in the consumer and automotive end markets through Axign B.V.'s digital feedback technology. In 2024, a foreign subsidiary was granted a ten-year tax incentive, effective 2025, resulting in a deferred tax benefit of approximately $1.3 billion (net of a $0.1 billion valuation allowance). Additionally, an intercompany transaction in December 2024 led to a $23.2 billion step-up in the tax basis of intangible assets for a foreign subsidiary, with a full valuation allowance recorded for the resulting deferred tax asset.

Geographic Footprint: Monolithic Power Systems, Inc.'s principal executive office is in Kirkland, Washington, with over 4,000 employees globally across Asia, Europe, and the U.S. The company's revenue is heavily concentrated in Asia, accounting for 94% of total revenue in 2024 (up from 87% in 2023). Key revenue-generating regions in 2024 included China (53.4%), Taiwan (26.2%), and South Korea (7.6%). Manufacturing, testing, assembly, and packaging operations are primarily conducted through third-party suppliers and facilities in Asia (China, Taiwan, South Korea, Singapore, and Malaysia). Long-lived assets are predominantly located in China ($237.6 million) and the U.S. ($171.5 million) as of December 31, 2024.

Financial Performance

Revenue Analysis

Profitability Metrics:

• Gross Margin: 55.3% (2024)
• Operating Margin: 24.4% (2024)
• Net Margin: 81.0% (2024)

Investment in Growth:

• R&D Expenditure: $324,748 thousand (14.7% of revenue)
• Capital Expenditures: $146,118 thousand
• Strategic Investments: $33,283 thousand cash paid for the acquisition of Axign B.V.

End Market Analysis

Enterprise Data

Financial Performance:

• Revenue: $716,264 thousand (+121.8% YoY)
• Key Growth Drivers: Primarily due to higher sales of power management solutions for AI applications.

Product Portfolio:

• Cloud-based and on-premises CPU server and workstation applications.
• Server artificial intelligence (“AI”) applications.

Market Dynamics:

• Represented 32.5% of total revenue in 2024, becoming the largest end market for Monolithic Power Systems, Inc.

Storage and Computing

Financial Performance:

• Revenue: $501,576 thousand (+2.1% YoY)
• Key Growth Drivers: Primarily driven by increased sales of products for notebooks.

Product Portfolio:

• Storage applications, notebooks, and graphics cards.

Market Dynamics:

• Represented 22.7% of total revenue in 2024.

Automotive

Financial Performance:

• Revenue: $413,973 thousand (+4.9% YoY)
• Key Growth Drivers: Primarily driven by increased sales of highly integrated applications supporting advanced driver assistance systems, partially offset by lower sales of applications supporting body electronics and infotainment.

Product Portfolio:

• Advanced driver assistance systems, infotainment, USB connectors, body electronics, motion control and lighting systems.
• Products enabling Electric Vehicle (“EV”) powertrains and EV 48V systems are a focus for future growth.

Market Dynamics:

• Represented 18.8% of total revenue in 2024.

Communications

Financial Performance:

• Revenue: $225,905 thousand (+10.2% YoY)
• Key Growth Drivers: Higher sales of power solutions for optical modules and routers, partially offset by lower sales of networking solutions.

Product Portfolio:

• Network infrastructure, satellite communications, optical modules, and other wireless applications.

Market Dynamics:

• Represented 10.2% of total revenue in 2024.

Consumer

Financial Performance:

• Revenue: $202,015 thousand (-13.9% YoY)
• Key Growth Drivers: Decrease was a result of broad market weakness.

Product Portfolio:

• Home appliances, gaming, smart TVs, lighting, monitors, and stereos.

Market Dynamics:

• Represented 9.1% of total revenue in 2024.

Industrial

Financial Performance:

• Revenue: $147,367 thousand (-14.7% YoY)
• Key Growth Drivers: Decrease primarily reflected lower sales of products related to industrial meter and security applications.

Product Portfolio:

• Power sources, industrial meter, security applications, and other industrial equipment.

Market Dynamics:

• Represented 6.7% of total revenue in 2024.

Capital Allocation Strategy

Shareholder Returns:

• Share Repurchases: Monolithic Power Systems, Inc. repurchased approximately 1.0 million shares for $636.2 million in 2024, fully utilizing the $640.0 million program approved in October 2023. In February 2025, a new program authorizing up to $500.0 million in repurchases through February 2028 was approved.
• Dividend Payments: Total cash dividends declared were $5.00 per share in 2024, with $240.6 million paid. In February 2025, the quarterly cash dividend was increased from $1.25 per share to $1.56 per share.
• Future Capital Return Commitments: The new $500.0 million stock repurchase program and the increased quarterly cash dividend demonstrate ongoing commitment to shareholder returns, funded by available working capital and cash repatriation from subsidiaries.

Balance Sheet Position:

• Cash and Equivalents: $691,816 thousand as of December 31, 2024.
• Total Debt: No material long-term debt disclosed. Total current liabilities were $294,567 thousand as of December 31, 2024.
• Net Cash Position: $862,946 thousand (Cash and cash equivalents plus short-term investments).
• Credit Rating: Not disclosed.
• Debt Maturity Profile: Not applicable as no material debt is disclosed. A transition tax liability of $6.2 million is short-term.

Cash Flow Generation:

• Operating Cash Flow: $788,410 thousand in 2024, an increase of $150.2 million from 2023.
• Free Cash Flow: $642,292 thousand (Operating Cash Flow of $788,410 thousand minus Capital Expenditures of $146,118 thousand).
• Cash Conversion Metrics: The increase in operating cash flow was primarily due to increased accounts receivable collections and the receipt of prepaid wafer expenses, partially offset by increased inventory purchases.

Operational Excellence

Production & Service Model: Monolithic Power Systems, Inc. operates a fabless business model, outsourcing manufacturing and assembly of its ICs to third parties. This strategy allows the company to concentrate its engineering and design resources on core strengths, thereby reducing fixed costs and capital expenditures. The company develops its own proprietary process and packaging technologies and collaborates closely with foundry partners to implement these technologies in their facilities, which has historically resulted in favorable yields and product performance.

Supply Chain Architecture: Key Suppliers & Partners:

• Wafer Manufacturers: Several suppliers located in China, Taiwan, South Korea, and Singapore.
• Wafer Sort Facilities: Facilities in China, Taiwan, and Singapore, utilized by Monolithic Power Systems, Inc. and its partners.
• Assembly & Packaging Subcontractors: Independent subcontractors in China, Taiwan, and Malaysia.
• Final Testing Facilities: Facilities in China, Taiwan, and Malaysia, utilized by Monolithic Power Systems, Inc. and its partners. Monolithic Power Systems, Inc. maintains a diversified supply chain. In May 2022, the company entered a four-year long-term supply agreement to secure manufacturing production capacity for silicon wafers, with $60.0 million in remaining prepayments as of December 31, 2024.

Facility Network:

• Manufacturing: Primarily in Asia, leveraging shorter manufacturing cycle times and lower labor and overhead costs.
• Research & Development: Offices in various locations across Asia, Europe, and the U.S.
• Distribution: Sales offices in various locations across Asia, Europe, and the U.S.
• Total owned facilities: 1,164,000 square feet (948,000 in Other Countries, 216,000 in U.S.).
• Total leased facilities: 325,000 square feet (302,000 in Other Countries, 23,000 in U.S.).
• Largest testing facilities in Chengdu, China, are ISO 14001 and ISO 45001 certified.

Operational Metrics:

• Typical supply chain lead times for orders range from 16 to 26 weeks.
• Inventory is built in advance based on forecasts of future customer orders.
• Gross margin in 2024 was impacted by higher inventory write-downs as a percentage of revenue.

Market Access & Customer Relationships

Go-to-Market Strategy: Distribution Channels:

• Direct Sales: To certain original equipment manufacturers (“OEMs”), original design manufacturers (“ODMs”), and end customers.
• Channel Partners: Sales through third-party distributors and value-added resellers.
• Technical Sales: Employs a highly technical sales and applications engineering team that works directly with customers' engineers to facilitate product design-ins and usage.

Customer Portfolio: Enterprise Customers:

• Top Distributors (2024 Revenue Contribution):
  • Distributor A: 31% of total revenue
  • Distributor B: 20% of total revenue
• Customer Concentration: The top three customers (all distributors) accounted for 61% of total revenue in 2024. Revenue from indirect sales to one customer, primarily for AI applications, was 17% of total revenue in 2024.
• Accounts Receivable Concentration (as of December 31, 2024):
  • Distributor A: 28% of total accounts receivable
  • Distributor B: 29% of total accounts receivable

Geographic Revenue Distribution:

• Asia: 94% of total revenue in 2024.
  • China: 53.4% of total revenue
  • Taiwan: 26.2% of total revenue
  • South Korea: 7.6% of total revenue
  • Southeast Asia: 3.6% of total revenue
  • Japan: 2.8% of total revenue
• Europe: 3.9% of total revenue.
• U.S.: 2.5% of total revenue.

Competitive Intelligence

Market Structure & Dynamics

Industry Characteristics: The semiconductor industry is highly competitive and cyclical, experiencing significant fluctuations in supply and demand. The analog and mixed-signal IC markets, where Monolithic Power Systems, Inc. operates, are characterized by longer product life cycles, numerous market segments, and complex, difficult-to-replicate technology. Monolithic Power Systems, Inc. targets areas for above-average long-term growth. The industry also sees decreasing average selling prices over a product's life and a trend towards consolidation.

Competitive Positioning Matrix:

Direct Competitors

Primary Competitors: Monolithic Power Systems, Inc. faces direct competition from a range of domestic and international semiconductor companies, many with substantially greater financial and technological resources. Key competitors include Analog Devices, Infineon Technologies, NXP Semiconductors, ON Semiconductor, Power Integrations, Renesas Electronics, ROHM Semiconductor, Semtech, STMicroelectronics, and Texas Instruments.

Emerging Competitive Threats: Competition is expected from new market entrants, disruptive technologies, and customers developing internal product solutions. Additionally, government subsidies (e.g., the U.S. CHIPS Act) benefiting some competitors, but not Monolithic Power Systems, Inc. due to its fabless model, could intensify competitive pressures.

Competitive Response Strategy: Monolithic Power Systems, Inc. aims to maintain its competitive advantage by continuously recruiting engineering talent, introducing new products at a sustained rate, meeting customer energy efficiency goals, and focusing R&D efforts on improving energy efficiency and leveraging proprietary technologies for highly integrated power management ICs.

Risk Assessment Framework

Strategic & Market Risks

Market Dynamics: Monolithic Power Systems, Inc. is highly dependent on the Asian market, which accounted for 94% of its 2024 revenue, exposing it to political, cultural, regulatory, economic, foreign currency, and operational risks, particularly in China, Taiwan, and Hong Kong. Global and Chinese economic conditions, including inflation, interest rates, and trade barriers, significantly impact operations. Demand for products is influenced by customers' end-product demand, making revenue forecasting challenging. The company faces risks from fundamental shifts in technology and potential product obsolescence if it fails to innovate quickly. Customer Concentration: A significant portion of revenue is derived from a limited number of distributors (top three accounted for 61% of 2024 revenue) and one indirect customer for AI applications (17% of 2024 revenue), posing a risk if these relationships are disrupted or orders decline.

Operational & Execution Risks

Supply Chain Vulnerabilities: Monolithic Power Systems, Inc. relies heavily on third-party suppliers for wafer manufacturing, assembly, and testing, with a substantial portion located in China. This exposes the company to risks such as capacity constraints, price increases, supplier insolvency, and geopolitical/operational disruptions (e.g., natural disasters, power shortages). Inventory Management: The practice of purchasing inventory in advance based on forecasts creates risks of insufficient or excess inventory if demand is not as expected, potentially leading to write-downs or lost sales. Commodity Price Increases: Fluctuations in the price and availability of key commodities like gold, copper, and silicon could adversely impact product delivery timelines, costs, and financial results.

Financial & Regulatory Risks

Market & Financial Risks: Fluctuations in the U.S. Dollar's value relative to other currencies, particularly the Renminbi, can affect manufacturing costs and product competitiveness. The company's tax rates, financial position, and operating results are subject to changes in tax laws (e.g., OECD Pillar Two, Bermuda Corporate Income Tax Act of 2023), interpretations, and adverse outcomes from tax examinations. Complex accounting estimates, especially for income tax provisions and inventory reserves, carry a risk of errors or restatements. Regulatory & Compliance Risks: Monolithic Power Systems, Inc. is subject to extensive U.S. and international export controls, trade policies (including tariffs and restrictions on AI technologies), and environmental regulations. Non-compliance or changes in these regulations could limit sales, increase costs, or damage reputation. Increasing regulatory and reporting standards related to ESG matters, labor, and human rights in the supply chain also pose compliance challenges and potential litigation risks. The company is also subject to anti-corruption laws, with operations in Asia presenting an elevated risk of potential violations. Legal Proceedings: The semiconductor industry's frequent intellectual property litigation is a continuous risk, potentially leading to significant legal expenses, diversion of management resources, injunctions against product sales, or substantial damages. A class action lawsuit was filed in February 2025 alleging securities law violations related to the company's business relationship with Nvidia.

Geopolitical & External Risks

Geopolitical Exposure: The concentration of revenue and operations in Asia, particularly China, Taiwan, and Hong Kong, exposes Monolithic Power Systems, Inc. to political instability, trade tensions, and potential conflicts. Natural Disasters: Operations in seismically active regions (California, Washington) and a significant presence in Asia make the company vulnerable to earthquakes, severe weather, and other natural disasters, which could disrupt operations. Pandemics: Risks associated with business continuity in the event of pandemics or other widespread health crises.

Innovation & Technology Leadership

Research & Development Focus: Core Technology Areas: Monolithic Power Systems, Inc.'s R&D efforts are concentrated on three main areas:

• Systems Architecture: Exploring novel solutions for customer system design challenges and developing systems expertise in new markets and applications aligned with core capabilities.
• Circuit Design and Implementation: Expanding the product portfolio and integrating new features into existing products.
• Process Technologies: Investing in leading-edge analog power processes for next-generation ICs, which are considered key strategic components for future growth. A primary focus across all R&D areas is the continuous improvement of product energy efficiency, aiming for lower power loss, significant reductions in circuit board space, and ultimately, lower carbon emissions.

Intellectual Property Portfolio:

• Patent Strategy: Monolithic Power Systems, Inc. actively pursues patent protection for its circuit and device designs. As of December 31, 2024, the company held 1,917 patents/applications issued or pending, with 608 patents issued in the U.S., scheduled to expire through December 2044.
• Trade Secrets: Manufacturing process technologies are protected as trade secrets.
• Other IP Protection: The company also relies on nondisclosure agreements, contractual provisions, and employee confidentiality to safeguard its technology and know-how.
• IP Litigation: The semiconductor industry is prone to frequent intellectual property infringement claims and litigation.

Technology Partnerships:

• Monolithic Power Systems, Inc. collaborates with its foundry partners to implement its proprietary process technologies.
• The acquisition of Axign B.V. in January 2024 is a strategic move to leverage Axign B.V.'s digital feedback technology for developing lower power consumption solutions in the consumer and automotive end markets.

Leadership & Governance

Executive Leadership Team

Leadership Continuity: The company's future success is substantially dependent on its executive officers and key employees, particularly those with highly skilled analog and mixed-signal design engineering expertise, who are limited in number and difficult to replace. The loss of key personnel could materially harm the business.

Board Composition: Information regarding the specific composition, independence, expertise areas, and committee structure of the Board of Directors is not explicitly detailed in the provided filing.

Human Capital Strategy

Workforce Composition:

• Total Employees: 4,017 as of December 31, 2024, an increase from 3,564 employees as of December 31, 2023.
• Geographic Distribution: Employees are located in various offices across Asia, Europe, and the U.S.
• Skill Mix: The company emphasizes the importance of highly skilled analog and mixed-signal design engineers, noting their scarcity and difficulty to replace.

Talent Management: Acquisition & Retention:

• Hiring Strategy: Monolithic Power Systems, Inc. recruits new talent from diverse candidate pools through university recruitment programs and employment websites targeting underrepresented groups. Unconscious bias training is provided to foster an inclusive environment.
• Retention Metrics: Not explicitly disclosed.
• Employee Value Proposition: The company offers competitive and fair total compensation packages designed to encourage employee investment in its future.

Diversity & Development:

• Diversity Metrics: Monolithic Power Systems, Inc. is an equal-opportunity employer and does not tolerate discrimination.
• Development Programs: Employees have access to various learning tools and resources for professional growth and skill development.
• Culture & Engagement: The company strives to maintain an innovative culture and supports employee well-being through initiatives like onsite health clinics, annual checkups, workshops, fitness centers, sports courts, private nursing rooms, and free exercise classes in some offices.

Environmental & Social Impact

Environmental Commitments: Climate Strategy:

• Mission: Monolithic Power Systems, Inc.'s mission includes reducing energy and material consumption to improve quality of life and create a sustainable future.
• Emissions Targets: Executive officers' 2024 Performance Stock Units include a goal to achieve a 25% reduction in 2026 global combined Scope 1 and Scope 2 greenhouse gas emissions against the 2022 baseline.
• Product Impact: R&D efforts are focused on continually improving the energy efficiency of products, leading to lower power loss, significant reductions in circuit board space, and ultimately, lower carbon emissions. Products typically have life cycles over 10 years, reducing the need for frequent replacements and associated manufacturing emissions.

Supply Chain Sustainability:

• Monolithic Power Systems, Inc. is subject to increasing regulatory and compliance requirements related to labor and human rights within its supply chain, including responsible sourcing of conflict minerals and adherence to the U.S. Uyghur Forced Labor Prevention Act.

Social Impact Initiatives:

• Community Investment: Not explicitly detailed.
• Product Impact: Products are designed to be more sustainable than many competing solutions.
• Employee Well-being: The company supports employee well-being through various programs and amenities, including health checkups, workshops, fitness centers, and exercise classes in certain offices.

Business Cyclicality & Seasonality

Demand Patterns: The semiconductor industry, in which Monolithic Power Systems, Inc. operates, is highly cyclical, characterized by significant downturns and wide fluctuations in supply and demand. While Monolithic Power Systems, Inc. targets product and market areas for above-average long-term growth, it remains subject to industry downturns. Historically, the company's revenue has generally been higher in the second half of the year, though this trend can be influenced by market conditions and the timing of key product introductions. Demand for Monolithic Power Systems, Inc.'s components is directly influenced by its customers' end-product demand.

Planning & Forecasting: Forecasting orders, revenue, and expenses is challenging due to the company's role as a component supplier, lengthy sales cycles (up to 12 months or more for design and manufacturing of prototypes, plus additional time for volume production), and customers' ability to cancel or reschedule orders with relatively short notice. Monolithic Power Systems, Inc. builds inventory in advance based on forecasts, which exposes it to risks if actual sales do not meet projections, potentially leading to excess inventory or write-downs.

Regulatory Environment & Compliance

Regulatory Framework: Industry-Specific Regulations: Monolithic Power Systems, Inc. is subject to international, federal, state, and local laws and regulations concerning environmental protection (e.g., discharge of substances, hazardous waste, recycling, product packaging), worker health and safety, and anti-corruption laws (e.g., U.S. Foreign Corrupt Practices Act, U.K. Bribery Act). The company states its operations materially comply with applicable environmental and worker health and safety laws. International Compliance: The company faces increasing regulatory and reporting standards related to Environmental, Social, and Governance (ESG) matters, including climate risks and social initiatives (e.g., California's greenhouse gas emissions disclosure laws).

Trade & Export Controls:

• Export Restrictions: Monolithic Power Systems, Inc. is subject to U.S. and international export control laws (e.g., Export Administration Act, Export Administration Regulations) and trade policies that can limit or restrict the export of products, supplies, and services, and transactions with certain entities. Compliance with these complex and evolving regulations is critical.
• Tariffs: The company is exposed to risks from international tariffs, particularly between the U.S. and China, which could negatively impact economic conditions and its business results.
• Sanctions Compliance: Compliance with sanctions and export controls, including those related to the U.S. Uyghur Forced Labor Prevention Act, is required. Regulatory restrictions targeting AI technologies could also impact sales of Monolithic Power Systems, Inc.'s products supporting AI applications.

Legal Proceedings: Monolithic Power Systems, Inc. is involved in legal actions and proceedings in the ordinary course of business, including intellectual property disputes and employment matters. As of December 31, 2024, there were no material pending legal proceedings. However, a purported class action lawsuit was filed in February 2025, alleging securities law violations related to the company's business relationship with Nvidia, which Monolithic Power Systems, Inc. intends to vigorously defend. Such litigation can be costly and divert management resources.

Tax Strategy & Considerations

Tax Profile:

• Effective Tax Rate: Monolithic Power Systems, Inc. reported an effective tax rate of -211.9% in 2024, significantly lower than the U.S. statutory federal rate of 21%. This was primarily driven by a $1.3 billion deferred tax benefit from a ten-year tax incentive granted to a foreign subsidiary (effective 2025) and lower statutory tax rates at certain foreign subsidiaries.
• Valuation Allowance: As of December 31, 2024, the company recorded a valuation allowance of $3.6 billion against deferred tax assets, primarily due to a step-up in the tax basis of intangible assets from an intercompany transaction and the tax incentive received by a foreign subsidiary, for which realization is not considered more likely than not for U.S. GAAP purposes.

Geographic Tax Planning:

• International Tax Structure: The company conducts international operations through wholly-owned subsidiaries, branches, and representative offices, subject to complex transfer pricing and local regulations.
• Repatriation Strategy: Monolithic Power Systems, Inc. repatriated $642 million in 2024 and $140 million in 2023 from a foreign subsidiary to the U.S. with minimal tax impact, primarily to fund stock repurchases, dividends, and ongoing U.S. operations. Earnings from other foreign subsidiaries are anticipated to be indefinitely reinvested ($2.5 billion as of December 31, 2024).
• Tax Incentives: Subsidiaries in Chengdu and Hangzhou, China, benefit from reduced tax rates through 2025 and 2024, respectively, for R&D activities.

Tax Reform Impact:

• OECD Pillar Two: Monolithic Power Systems, Inc. is evaluating the impact of the OECD's proposed global minimum tax (Pillar Two), with new Administrative Guidance released in January 2025, on its future global tax provision.
• Bermuda Corporate Income Tax Act of 2023: This act, effective 2025, introduces a 15% corporate income tax for certain multinational enterprise groups. Monolithic Power Systems, Inc. does not expect material taxable income in Bermuda in 2025, so no related changes to income tax expense were recorded in 2024.
• U.S. Inflation Reduction Act of 2022: The 1% excise tax on certain stock repurchases was not material for Monolithic Power Systems, Inc. in 2024 or 2023.

Insurance & Risk Transfer

Risk Management Framework: Monolithic Power Systems, Inc. employs a diversified approach to manage cybersecurity risks, including threat-monitoring, third-party assessments, adoption of IT security ISO standards, and proactive risk and compliance reviews. This includes real-time cybersecurity threat monitoring, penetration testing, data policy audits, and employee training. The company also monitors new technologies and evolving data protection laws to mitigate risks.

Insurance Coverage:

• Monolithic Power Systems, Inc. maintains an insurance policy that provides certain coverage for losses incurred due to data breaches and other cybersecurity incidents.
• The company also has insurance for product liability claims, though the sufficiency of coverage for all potential claims is not assured.
• Monolithic Power Systems, Inc. does not maintain earthquake insurance for its offices in California and Washington, which are located in seismically active regions.