Oxbridge Re Holdings Limited — 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. This is an annual report, not a standalone fourth-quarter report. Financial amounts below are U.S. dollars; statement amounts are generally in thousands.
Business context
Oxbridge is a Cayman Islands specialty property and casualty reinsurer focused on fully collateralized catastrophe reinsurance, primarily for Gulf Coast insurers, and industry loss warranty contracts. Its new reinsurance sidecar, Oxbridge Re NS, began operations in June 2018 and issued $2 million of participating notes to third-party investors to support quota-share reinsurance capacity.
Financial performance and liquidity
| Metric | 2018 | 2017 |
|---|---|---|
| Total revenue | $3.810 million | $23.841 million |
| Net premiums earned | $2.728 million | $23.567 million |
| Losses and loss adjustment expenses | $10.006 million | $42.427 million |
| Net loss | $5.749 million | $20.592 million |
| Basic and diluted loss per share | $1.00 | $3.55 |
| Combined ratio | 310.1% | 188.5% |
| Operating cash flow | $(6.633) million | $(26.310) million |
Losses and expenses exceeded earned premiums in both years. The 2018 net loss was smaller than in 2017, but underwriting performance weakened on the reported ratios: management gives a 2018 combined ratio of 256.6% when Series 2018-1 notes are taken into consideration. Management attributes the lower dollar loss mainly to limit losses on a much smaller portfolio in 2018 after the 2017 losses curtailed capital deployment. Premium recognition was accelerated because all contracts experienced limit losses and no further treaty-year losses were possible.
At December 31, 2018, total assets were $12.561 million, total liabilities $4.247 million, and shareholders’ equity $8.314 million. Cash and cash equivalents were $8.074 million, restricted cash $3.225 million, and investments $1.155 million. The $3.225 million of restricted cash is collateral and is not freely available. The loss reserve was $4.108 million; the unearned premium reserve was zero, compared with $2.012 million at year-end 2017. The filing reports no off-balance-sheet arrangements.
Investing activities provided $5.045 million, primarily from securities sales and collateral withdrawals; financing provided $2.000 million from the Series 2018-1 note issuance. Cash, cash equivalents and restricted cash totaled $11.299 million at year-end. Management said operating needs were expected to be met by cash, investment income and underwriting-generated funds. It had no plans to issue debt, while noting possible future equity offerings.
Material changes versus 2017
- Net premiums earned fell by $20.839 million, reflecting much lower capital deployment and premium volume after prior-year catastrophe losses.
- 2018 catastrophe losses included Hurricanes Michael and Florence, California wildfires and other global events. The company said it suffered limit losses on all contracts. Losses incurred fell in dollar terms, but the loss ratio rose from 180.0% to 268.6%, largely because earned premiums were substantially lower.
- Available-for-sale securities declined to $1.0 million from $6.4 million, primarily due to net sales. Shareholders’ equity declined to $8.314 million from $13.918 million.
- The company paid no dividends in 2018; the regular quarterly dividend had been suspended in November 2017. Management said there was no intention to resume payments in the foreseeable future.
Outlook, commentary and risks
No quantified earnings or premium guidance is provided. Management described the reinsurance market as over-capitalized and said that, if pricing softens further, it may reduce writings rather than accept inadequately priced risks. It aims to preserve capital for more favorable opportunities.
The $2 million Series 2018-1 participating notes were issued in June 2018 and are due to mature in June 2021. The filing says the noteholders incurred $2 million of losses in 2018, including approximately $1.1 million associated with Hurricane Michael and $0.9 million from other catastrophes; the notes are loss-absorbing and investor principal may be reduced by covered losses. Separately, the company’s inward ILW swap had a maximum payment obligation of $4 million, which it paid on January 17, 2019 after covered industry losses.
Key risks include catastrophe severity and reserve uncertainty; concentration of a substantial portion of underwriting exposure in two entities; dependence on cedants, brokers and counterparties; limited capital and reliance on collateralized structures; competition and soft pricing; and regulatory, tax and licensing risks. The company had no current litigation or arbitration. Management concluded that disclosure controls and internal control over financial reporting were effective; the independent auditor did not attest to internal control, consistent with the company’s emerging growth company status.
Important facts for investors to verify
- Reconcile the ILW disclosure: the financial results table reports $997,000 of net income from derivative instruments, while Note 5 describes a $3 million net capital loss on the 2018 inward ILW swap and a $4 million payment in January 2019.
- Review the loss-reserve estimate and subsequent claim development: year-end reserves were $4.108 million, with IBNR about 2%, and catastrophe claims depend on information from cedants and brokers.
- Assess the post-loss underwriting capacity and the restrictions on cash: $3.225 million was restricted as collateral, and management said catastrophe losses reduced surplus and could limit future writings.
- Understand the sidecar notes’ loss allocation, maturity and remaining obligations, and how noteholder losses are reflected in consolidated results and liabilities.
- Consider the lack of an A.M. Best financial strength rating, concentration of underwriting risks, and the suspended dividend policy when evaluating growth prospects and shareholder returns.