Oxbridge Re Holdings Limited — 2019 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2019; comparisons are with 2018. Unless noted, amounts are in U.S. dollars and financial statement amounts are in thousands. Oxbridge is a Cayman Islands specialty property and casualty reinsurer focused on fully collateralized catastrophe reinsurance, primarily in the U.S. Gulf Coast, with a sidecar subsidiary and occasional industry loss warranty (ILW) exposure.
Financial performance and position
| Metric | 2019 | 2018 |
|---|---|---|
| Total revenue | $981 | $3,802 |
| Net premiums earned | $617 | $2,728 |
| Losses and loss adjustment expenses | $0 | $10,006 |
| General and administrative expenses | $1,067 | $1,282 |
| Net loss | $(305), or $(0.05) per share | $(5,749), or $(1.00) per share |
| Combined ratio | 183.3% | 310.1% |
| Net cash used in operating activities | $(4,371) | $(6,633) |
- Premiums assumed fell to $1.057 million from $2.361 million, primarily because the Company deployed less capital in 2019. Total revenue also reflected no derivative income in 2019, versus $997,000 in 2018.
- The 2019 loss was much smaller than in 2018 because no losses were incurred on 2019 business; 2018 included limit losses. Despite a zero loss ratio, the 2019 combined ratio remained above 100% because earned premiums were low relative to acquisition and operating expenses.
- Investment and other income was $230,000, compared with $366,000 in 2018. The Company recorded a $106,000 gain on commutation of a prior contract.
- At year-end, total assets were $9.495 million, liabilities $1.452 million, and shareholders’ equity $8.043 million. Cash and cash equivalents were $5.962 million, plus $2.054 million of restricted cash; investments totaled $692,000. Cash and restricted cash together were $8.016 million, down from $11.299 million.
- Loss reserves declined from $4.108 million to zero following settlement of prior losses and a commutation; the Company reported no significant 2019 events or claims requiring reserves. Unearned premiums were $440,000 at year-end.
- Notes payable to participating-note investors were $600,000, due June 1, 2022. Operating lease liabilities were $133,000. No off-balance-sheet arrangements were reported.
Changes, outlook, and material risks
- Management described underwriting as selective and opportunistic, prioritizing long-term book-value growth and underwriting profits over investment returns. It said it would reduce premium writings rather than accept mispriced risks if the market softens. No quantified earnings or revenue guidance was provided.
- Management said it believed operating cash flows, investment income, and underwriting activity would meet foreseeable liquidity needs; it also cited potential future equity offerings as a funding source. It had no current plans to issue debt, while acknowledging future borrowing could not be ruled out.
- The $4 million maximum payment obligation under a 2018 inward ILW swap was settled during 2019. The swap expired at the end of 2018 and was not renewed. The filing also reports issuance of $600,000 of Series 2019-1 participating notes; the CEO invested $50,000 in that series.
- Underwriting concentration is material: the filing says a substantial portion of current business ultimately relates to two entities. Catastrophe claims, reserve estimation and cedant-reported loss information can cause substantial volatility.
- The subsidiaries are Cayman-licensed but not licensed or rated in other jurisdictions; contracts are fully collateralized, tying up capital. The Company identifies risks from competition and market overcapacity, capital needs, broker and counterparty credit, regulatory limits, and potential conflicts related to HCI Group relationships.
- No cash dividends were paid in 2019 or 2018. The regular quarterly dividend was suspended in 2017, and management said it did not expect to resume payments in the foreseeable future. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not provide an internal-control attestation under the applicable scaled requirements.
Important facts for investors to verify
- Review the detailed notes on the two-entity underwriting concentration, contract limits, collateral arrangements, and the 2019 commutation and ILW settlement.
- Assess whether the reduced 2019 premium base can support operating expenses and whether new business can be written at adequate risk-adjusted prices.
- Reconcile the $4.371 million operating cash outflow with year-end cash, restricted collateral, premiums receivable, and the sidecar’s participating-note obligations.
- Monitor subsidiary capital and solvency requirements, restrictions on upstream dividends, and any future need for equity or debt funding.
- Consider dilution and market overhang: 5,733,587 ordinary shares were outstanding at March 23, 2020, and 8,230,700 warrants were outstanding with a $7.50 exercise price and a March 2024 expiration date.