Oxbridge Re Holdings Limited — FY2017 Form 10-K
Reporting period: Year ended December 31, 2017; filed March 10, 2018. Amounts below are U.S. dollars. This is an annual report, not a quarterly filing.
Business context
Oxbridge is a Cayman Islands specialty property and casualty reinsurer focused on fully collateralized catastrophe reinsurance, primarily for insurers in the U.S. Gulf Coast and Florida. It reported one operating segment. At year-end it had contracts with seven cedants; the largest contract represented about 31% of collateral at risk. The filing also notes that a substantial portion of the business ultimately relates to risks of two Florida entities, including related-party relationships.
Financial results and condition
| Metric | FY2017 / Dec. 31, 2017 | FY2016 / Dec. 31, 2016 |
|---|---|---|
| Assumed premiums | $18.263 million | $15.065 million |
| Net premiums earned | $23.567 million | $18.058 million |
| Total revenue | $23.841 million | $19.062 million |
| Losses and loss adjustment expenses | $42.427 million | $14.775 million |
| Net income (loss) | $(20.592) million | $2.581 million |
| Basic and diluted EPS | $(3.55) | $0.43 |
| Loss / expense / combined ratios | 180.0% / 8.5% / 188.5% | 81.8% / 9.4% / 91.3% |
| Total assets | $21.393 million | $51.000 million |
| Shareholders’ equity | $13.918 million | $37.163 million |
| Cash and cash equivalents | $7.763 million | $12.242 million |
| Restricted cash | $3.124 million | $23.440 million |
Net investment income was $0.412 million, versus $0.450 million. Net realized investment losses were $0.138 million, compared with gains of $0.554 million. The filing lists no debt on the consolidated balance sheet. Loss reserves were $4.836 million at year-end, including approximately 27% for IBNR; there were no reinsurance recoverables on unpaid claims.
Operating cash flow was negative $26.310 million, compared with positive $0.416 million in 2016. Investing activities provided $24.983 million, mainly from investment sales and collateral withdrawals; financing activities used $3.152 million for dividends and share repurchases. Management said it believed operating cash flows and liquid investments were sufficient for near-term liquidity needs. Cash and investments together were about $17.356 million, but some cash and assets were restricted or pledged as collateral.
Material changes and key drivers
- The company moved from 2016 profit to a substantial 2017 loss after limit losses were triggered on all its reinsurance contracts, attributed to the combined effects of Hurricanes Harvey, Irma and Maria.
- Losses incurred also included $4.026 million of unfavorable prior-year development, primarily associated with Hurricane Matthew.
- Net premiums earned rose 30% to $23.567 million. The company said premium recognition was accelerated after full-limit losses eliminated the possibility of further treaty-year losses; this also accelerated recognition of acquisition costs.
- The combined ratio rose from 91.3% to 188.5%, indicating underwriting losses. The reported loss ratio exceeded 100%.
- Total assets fell to $21.393 million and equity to $13.918 million, reflecting catastrophe losses, claim payments, collateral movements, dividends and repurchases. Restricted cash fell by $20.316 million during the year.
Outlook, risks and unusual items
- Management described the reinsurance market as overcapitalized and softening. Its stated approach is to reduce premium writings rather than accept mispriced risk and to preserve capital for better opportunities. No quantified earnings or premium guidance is provided.
- Catastrophe exposure, reserve estimation and cedant/broker reporting delays are major risks. Management cautions that actual ultimate losses may materially differ from reserves.
- The company is not licensed or rated outside the Cayman Islands and generally must fully collateralize contracts. A rated retrocessionaire paid in full on hedged losses during 2017; the filing reports no year-end recoverable on unpaid claims.
- The board suspended the regular $0.12 quarterly dividend on November 12, 2017 and said it did not intend to resume payments in the foreseeable future, if at all. Dividends paid during 2017 totaled $0.36 per share. The share repurchase program was discontinued in September 2017.
- Management cited potential future capital needs, intense competition, concentration and related-party conflicts, regulatory and tax uncertainty, and possible PFIC or investment-company classification. The company had three full-time employees as of March 2018.
- A new subsidiary formed in December 2017 to facilitate potential hedging and investment activity had not commenced operations and had no assets or liabilities at year-end. The filing reports no litigation or off-balance-sheet arrangements.
- Management concluded disclosure controls and internal control over financial reporting were effective. The auditor gave an unqualified opinion on the financial statements; the auditor did not attest to internal control effectiveness.
Most important facts for investors to verify
- Whether the $4.836 million loss reserve adequately captures remaining catastrophe claims and further development, particularly for 2017 storms and Hurricane Matthew.
- How much unrestricted, available liquidity remains after collateral requirements and claim settlements, and how much capital is available to support future underwriting.
- The extent of exposure to the two Florida entities and related parties, including contract terms, renewals and any conflicts of interest.
- Whether management’s plan to reduce underwriting in a soft market can preserve capital while supporting future premium generation and operating costs.
- The dividend suspension, Cayman regulatory limits on subsidiary distributions, and the company’s potential need for additional capital or equity issuance.