Oxbridge Re Holdings Limited — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; balance-sheet comparisons are against December 31, 2020. The unaudited consolidated statements are prepared under U.S. GAAP. Unless noted otherwise, financial amounts below are in thousands of U.S. dollars.
Business context
Oxbridge is a Cayman Islands specialty 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 sidecar, issuing participating notes to support reinsurance capacity. The company reports one operating segment.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $805 | $482 | $1,125 | $459 |
| Net premiums earned | $205 | $135 | $386 | $400 |
| Net realized investment gains | $755 | $320 | $755 | $326 |
| Net income (loss) | $448 | $165 | $476 | $(199) |
| EPS, basic and diluted | $0.08 | $0.03 | $0.08 | $(0.03) |
| Combined ratio | 162.9% | 220.0% | 157.3% | 143.0% |
Q2 revenue and earnings rose year over year, principally because of higher realized investment gains and higher earned premiums. Six-month earnings turned positive, largely on higher realized gains, despite slightly lower earned premiums. Equity securities recorded a fair-value loss of $178 in Q2 and $54 for the half year; investment and other income was $23 and $38, respectively. No losses or loss adjustment expenses were incurred in either comparative period.
The six-month loss ratio was 0%, but the combined ratio remained above 100% because expenses exceeded earned premiums. The six-month expense ratio rose to 157.3% from 143.0%, mainly reflecting higher general and administrative costs. Thus reported profitability depended substantially on investment gains rather than underwriting profit.
Financial position, cash flow and liquidity
- Assets and equity: Total assets were $10,260 at June 30, versus $9,083 at year-end 2020; shareholders’ equity was $8,531, up from $8,025.
- Cash: Cash and cash equivalents were $7,621, with restricted cash of $345, for total cash and restricted cash of $7,966. Total cash and restricted cash increased from $7,476 at year-end; restricted cash fell from $1,914, primarily following release of collateral when a contract expired.
- Investments: Equity securities were carried at $790, versus $787 at year-end; the company held no available-for-sale debt securities.
- Debt and liabilities: Notes payable to participating noteholders were $216, unchanged. Total liabilities were $1,729, including $930 of unearned premiums, $404 of accounts payable and other liabilities, and $179 of lease liabilities.
- Cash flows, six months: Operating activities used $208, investing activities provided $698, and financing activities had no net cash flow. Investing cash inflow primarily reflected net sales of equity securities. In the comparable 2020 period, operating activities used $324, investing activities used $268, and financing activities used $384.
- Management stated it believed available cash flows were sufficient for liquidity needs and that cash, investment income and underwriting activity were expected to fund operations. The filing provides no specific current ratio or quantitative forward liquidity forecast.
Material changes, outlook and risks
- Q2 net premiums earned increased to $205 from $135, attributed to higher reinsurance rates; first-half net premiums earned declined to $386 from $400 due to premium adjustments.
- Six-month general and administrative expenses rose to $565 from $528. The company reported no loss reserves at June 30 because it had no reported claims or significant loss events; catastrophe losses could nevertheless materially affect results, cash flows and financial condition.
- Management described reinsurance-market pricing as supported by pandemic-related uncertainty and potential industry losses, but said the ultimate effects of COVID-19 on existing and future business remained highly uncertain. It reported operations were back to normal by June 30, 2021, with no material operational disruption to date. No company-specific earnings or revenue guidance was provided.
- Risks include exposure to natural and man-made catastrophes, concentrated underwriting tied to a limited number of entities, broker and reinsurer counterparty risk, equity-market volatility, and uncertainty in loss-reserve estimates. The filing says there were no off-balance-sheet arrangements and no current litigation or arbitration.
- Subsequent related-party developments: Oxbridge Reinsurance had advanced $177 under a non-interest-bearing note to OAC Sponsor Ltd., an affiliate involving company executives, with repayment due by September 30, 2021 or upon the SPAC’s IPO, whichever came first. After quarter-end, the SPAC completed an $115 million IPO on August 16, 2021; on August 11, Oxbridge Reinsurance agreed to acquire sponsor interests for $2 million. These transactions warrant attention to related-party terms, investment exposure and subsequent accounting.
- The 2021 Omnibus Incentive Plan was approved during Q2, with 1,000,000 shares available for awards. The company had 940,000 options outstanding and 8,230,700 warrants outstanding at June 30; the warrants had a $7.50 exercise price and were anti-dilutive in the reported periods.
Key facts for investors to verify
- Reconcile the reported $755 of first-half realized investment gains with the underlying sales, and assess whether gains of this scale are repeatable; they were the principal driver of the earnings improvement.
- Review the quality, pricing and renewal of reinsurance premiums, and the potential effect of catastrophe activity on future loss reserves and underwriting results.
- Verify regulatory capital disclosures: the filing states each subsidiary had a $500 minimum and prescribed capital requirement, but reports Oxbridge Reinsurance Limited net worth of $362 and Oxbridge Re NS net worth of $163 while also saying both exceeded the requirement. The figures and statements appear inconsistent; the filing text does not provide a clear reconciliation.
- Examine the related-party $177 note and subsequent $2 million sponsor-interest purchase, including repayment, valuation, governance and potential conflicts of interest.
- Assess available liquidity and collateral requirements, including the distinction between $7,621 of unrestricted cash and $345 of restricted cash, and the potential for released collateral to vary with contract expirations.
- Consider potential dilution from outstanding options and warrants; the filing reports 5,733,587 ordinary shares outstanding as of August 16, 2021.