OXBRIDGE RE HOLDINGS LIMITED — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Unaudited consolidated financial statements; amounts below are in U.S. dollars, generally in thousands unless stated otherwise. Oxbridge Re is a Cayman Islands property-catastrophe reinsurer operating through its wholly owned subsidiaries, including a reinsurance sidecar.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $7,029 | $259 | $8,154 | $718 |
| Net premiums earned | $370 | $247 | $755 | $646 |
| Net income (loss) | $6,526 | ($33) | $7,002 | ($232) |
| Basic and diluted earnings (loss) per share | $1.14 | ($0.01) | $1.22 | ($0.04) |
| Combined ratio | 129.5% | 107.7% | 143.8% | 129.7% |
Results were dominated by a $7,146 unrealized gain on the company’s indirect investment in Oxbridge Acquisition Corp. (OXAC), recognized in both Q3 and the nine-month period. The investment was recorded at $9,146 at September 30, versus a $2,000 purchase price. The gain is noncash and based on a Level 3 valuation. Excluding this unusual gain, reported net income does not represent a comparable measure of recurring underwriting performance.
Net premiums earned increased year over year, partly because Hurricane Ida triggered a limit loss and accelerated premium recognition on a contract, and partly due to higher reinsurance rates. The company recorded $158 of losses and loss-adjustment expense from Ida. The Q3 loss ratio was 42.7%; the nine-month loss ratio was 20.9%. Combined ratios above 100% indicate underwriting costs and losses exceeded earned premiums.
At September 30, total assets were $16,502, total liabilities $1,432, and shareholders’ equity $15,070, compared with $9,083, $1,058, and $8,025, respectively, at December 31, 2020. Cash and cash equivalents were $3,748 and restricted cash was $1,816, for combined cash of $5,564, down from $7,476 at year-end. Other investments were $9,146; equity securities were $778. Notes payable to participating noteholders were $216, unchanged from year-end; the notes are due June 1, 2023. Lease liabilities were $158.
For the first nine months, operating cash flow was negative $110, investing cash flow was negative $1,802, and financing cash flow was zero. Combined cash and restricted cash declined by $1,912. Management said it believed available cash flows were sufficient for liquidity needs; some cash is restricted as collateral for reinsurance obligations.
Material changes and notable developments
- OXAC completed an IPO on August 16, 2021, selling 11.5 million units at $10 each for $115 million gross proceeds. Oxbridge Reinsurance Limited invested $2 million in OAC Sponsor Ltd., which holds OXAC founder shares and private placement warrants. Oxbridge’s investment is valued using a 40% discount within management’s estimated 20%–40% range, incorporating forfeiture and marketability risks.
- The company’s earnings and equity rose substantially because of the OXAC fair-value gain. The reported investment is Level 3, so its valuation depends on significant unobservable assumptions and may fluctuate materially.
- Hurricane Ida caused the company’s first reported limit loss in the period. The filing describes $158 of incurred and paid losses in the reserve rollforward.
- G&A expense rose to $280 for Q3 and $845 for the nine months, from $239 and $767, respectively. The company reported no available-for-sale debt securities at either balance-sheet date.
Outlook, risks, and contingencies
- No numerical earnings, premium, or underwriting guidance is provided. Management describes underwriting as selective and opportunistic, with a stated focus on underwriting profits and long-term book-value growth; period results may fluctuate significantly.
- Management said COVID-19 had not materially disrupted operations and that operations were back to normal as of September 30, 2021. It also noted continuing uncertainty about pandemic-related industry losses, investment markets, and future business opportunities.
- Key exposures include hurricanes and other catastrophes, concentrated underwriting risks, counterparty and broker credit risk, and uncertainty in claims reserving. Management cautions that ultimate catastrophe losses can differ materially from estimates.
- The company could lose its entire $2 million investment in the OXAC sponsor if OXAC does not complete a business combination within 15 months of its IPO, subject to extension up to 21 months, or if a transaction is unsuccessful. Fair-value changes could also cause earnings and share-price volatility.
- The filing identifies a risk that the company could be deemed an investment company under U.S. law, potentially requiring registration and materially affecting its ability to operate. It also warns that the IRS could contend the company is engaged in a U.S. trade or business.
- Subsidiaries are subject to Cayman Islands minimum capital requirements of $500 each; the filing says both exceeded their requirements. No litigation or arbitration was pending, and no off-balance-sheet arrangements were reported. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Reconcile the loss figures: the balance sheet reports $158 of losses payable at September 30, while the reserve rollforward says $158 was paid and the ending loss reserve was zero.
- Assess the OXAC Level 3 valuation, including the selected 40% discount, assumptions about business-combination likelihood, and potential loss of the investment.
- Distinguish the $7,146 unrealized OXAC gain from cash generation and recurring underwriting results; review the company’s underwriting economics given combined ratios above 100%.
- Evaluate accessible liquidity separately from restricted collateral cash and consider catastrophe, counterparty, capital, and Investment Company Act risks.