OXBRIDGE RE HOLDINGS LIMITED — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unaudited consolidated statements, prepared under U.S. GAAP. Dollar amounts below are in thousands unless stated otherwise.
Business context
Oxbridge is a Cayman Islands property and casualty reinsurer focused on fully collateralized catastrophe reinsurance, primarily in the U.S. Gulf Coast and Florida. Its subsidiary Oxbridge Re NS operates as a reinsurance sidecar. The company also holds an indirect investment in Oxbridge Acquisition Corp. (OXAC) through its investment in the SPAC’s sponsor.
Financial results and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net premiums earned | $591 | $370 | $995 | $755 |
| Total revenue | $(696) | $7,029 | $(191) | $8,154 |
| Net income (loss) | $(2,157) | $6,526 | $(2,467) | $7,002 |
| Basic and diluted EPS | $(0.37) | $1.14 | $(0.43) | $1.22 |
| Combined ratio | 247.2% | 129.5% | 224.4% | 143.8% |
- Revenue was negative in 2022 primarily because of unrealized losses on OXAC-related investments: $1,327 in Q3 and $986 for the nine-month period. The comparable 2021 nine-month period included $7,146 of unrealized gains and $755 of realized investment gains.
- Hurricane Ian triggered limit losses on two reinsurance contracts. Loss and loss adjustment expense was $1,073 in Q3 and year to date, versus $158 for the comparable 2021 periods. The Q3 loss ratio was 181.6%; the nine-month loss ratio was 107.8%.
- At September 30, total assets were $15,929, total liabilities $1,649, and shareholders’ equity $14,280, compared with $17,689, $1,038, and $16,651, respectively, at year-end 2021. Accumulated deficit increased to $18,177.
- Cash and cash equivalents were $2,181; restricted cash was $2,179. Combined cash balances of $4,360 were down from $5,418 at December 31, 2021. Restricted cash is held as collateral and is not freely available for general use.
- Operating cash flow was $(682) and investing cash flow was $(376) for the first nine months of 2022; there was no financing cash flow. The comparable 2021 figures were $(110) from operations and $(1,802) from investing.
- Notes payable to participating noteholders were $216, unchanged from year-end. Total liabilities also included $1,073 of losses payable and $67 of operating lease liabilities. The filing does not present a clear current-liquidity ratio.
- Other investments, consisting of OXAC private placement warrants and Class B shares, were $10,187, measured using Level 3 inputs. Equity securities were $625. The company reported a $2 million cost basis in the sponsor investment at risk of loss.
Material changes, outlook and risks
- Compared with 2021, the company moved from substantial investment gains and net income to investment-related losses and net losses. Higher Hurricane Ian claims and increased general and administrative expenses also weighed on results; nine-month G&A rose to $1,050 from $845.
- Management said it believed operating cash flows, cash and investment income would meet liquidity needs and did not plan to issue debt. It provided no quantified earnings or underwriting guidance. Results are expected to fluctuate with opportunistic underwriting and investment activity, and hurricane seasonality.
- On November 9, 2022, OXAC shareholders approved extending the SPAC’s business-combination deadline to August 16, 2023. On November 14, Oxbridge invested an additional $285 in the sponsor toward a $575 extension loan to OXAC. Failure to complete a business combination, or an unsuccessful combination, could result in loss of the sponsor investment.
- The filing identifies catastrophe exposure, concentrated underwriting risks, uncertainty in claims and IBNR estimates, counterparty and market risks, and volatility from fair-valuing the OXAC investment. It also highlights the risk of being deemed an investment company under U.S. law.
- Disclosure to reconcile: The balance sheet and Note 7 report $1,073 of losses payable/reserve at September 30, attributable to Hurricane Ian. However, the critical accounting policies discussion says the company had no loss reserves at that date. These statements appear inconsistent and warrant clarification.
- The subsidiaries exceeded their stated $500 minimum and prescribed capital requirements. Management reported effective disclosure controls and no material changes in internal control during the quarter. No litigation or off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Reconcile the filing’s conflicting statements about the $1,073 Hurricane Ian loss reserve and confirm subsequent claims development and payments.
- Review the OXAC Level 3 valuation assumptions and downside exposure, including the August 16, 2023 deadline and the additional $285 sponsor investment.
- Assess usable liquidity separately from restricted collateral, and monitor cash outflows, claims obligations and subsidiary dividend restrictions.
- Confirm underwriting concentration, catastrophe exposure and whether the elevated combined ratio reflects the full expected cost of Ian losses.
- Monitor the company’s evaluation and implementation of the credit-loss accounting standard scheduled to become effective for it after December 15, 2022.