OXBRIDGE RE HOLDINGS LIMITED — Q2 2015 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2015. Unaudited consolidated figures; dollar amounts below are in millions unless stated otherwise. Oxbridge is a Cayman Islands specialty property and casualty reinsurer focused on fully collateralized catastrophe reinsurance, primarily in Florida and the U.S. Gulf Coast.
Financial performance and position
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Net premiums earned | $1.636 | $0.899 | $3.184 | $1.548 |
| Total revenue | $2.065 | $0.899 | $4.332 | $1.548 |
| Net income | $1.657 | $0.541 | $3.487 | $0.935 |
| Basic and diluted EPS | $0.27 | $0.09 | $0.58 | $0.25 |
| Combined ratio | 24.9% | 39.8% | 26.5% | 39.6% |
- Revenue growth reflected higher earned premiums as the number and size of reinsurance contracts grew, plus investment income and realized investment gains. Investment income and realized gains totaled $0.429 million in Q2 and $1.148 million for the first half; the comparable 2014 periods had none.
- No losses or loss adjustment expenses were recorded in either comparable period. With no incurred losses, the combined ratio equaled the expense ratio. Acquisition-cost ratios were 5.3% for Q2 and 5.5% year to date; expense ratios were 24.9% and 26.5%, respectively.
- General and administrative expense increased 41% to $0.321 million in Q2 and 53% to $0.671 million for the first half, attributed to higher public-company and operating costs. Q2 acquisition and underwriting costs declined 33% to $0.087 million, partly because a consulting agreement expired.
- At June 30, assets were $56.282 million, liabilities $19.218 million, and shareholders’ equity $37.064 million. Investments were $11.268 million; cash and cash equivalents were $20.176 million, of which $13.386 million was restricted. The filing reports no debt balance and says the company has no current plans to issue debt.
- First-half operating cash flow was $1.735 million, investing cash flow $14.579 million, and financing cash flow was negative $1.455 million, primarily dividends. Ending unrestricted cash was $20.176 million, versus $5.317 million at year-end 2014. Investing cash flow benefited from released collateral and net securities sales.
- Available-for-sale investments had a $1.734 million net unrealized loss for the first half, recorded in other comprehensive income; accumulated other comprehensive loss was $1.717 million at quarter-end. Management did not consider the investment declines other-than-temporary.
- Loss experience refund payable was $5.736 million and unearned premiums reserve was $13.332 million. Premiums receivable rose to $10.998 million, while restricted cash fell from $28.178 million at year-end as collateral was returned on expired contracts.
Changes, outlook and key risks
- Compared with the first half of 2014, net income rose to $3.487 million from $0.935 million and net premiums earned approximately doubled. The company began investing in securities in August 2014, contributing investment revenue and realized gains in 2015.
- Management describes underwriting as selective and opportunistic, prioritizing underwriting profits over an aggressive investment strategy. It expects liquidity needs to be met from cash, investment income, and underwriting cash flows; it provided no quantified earnings or revenue guidance. Results may vary substantially between periods.
- Catastrophe exposure is a principal risk: hurricanes and other disasters can cause material losses, and loss reserves generally cannot be recorded until an insured event occurs. Management cautions that actual loss estimates may differ materially.
- Underwriting is concentrated: a substantial portion of business ultimately relates to two Florida entities, and related-party treaties involve Claddaugh and HCPCI. At quarter-end, related-party balances included $5.250 million of loss experience refund payable and $3.062 million of unearned premiums reserve.
- Investment market prices and liquidity, counterparty credit risk, and premium collection are additional risks. Most securities held in trust secure reinsurance obligations, limiting their availability for general use. Cayman regulatory requirements constrain subsidiary dividends; its reported net worth of $23.5 million exceeded the $0.5 million minimum.
- The company declared a $0.12-per-share quarterly dividend payable in September 2015 after quarter-end. It reported no litigation, material changes to previously disclosed risk factors, or off-balance-sheet arrangements. Disclosure controls were assessed as effective.
Important facts for investors to verify
- How much of the reported earnings growth is repeatable without realized investment gains and in the absence of catastrophe losses?
- Whether the $10.998 million premiums receivable is collected as expected and how collateral requirements affect usable liquidity.
- The scale and terms of related-party reinsurance, the concentration of Florida exposure, and the adequacy of loss experience refund assumptions.
- Whether investment portfolio losses deepen or become other-than-temporary, particularly given the $1.734 million first-half unrealized loss.
- Whether the dividend remains supportable after considering subsidiary capital rules, seasonal catastrophe exposure, and future underwriting commitments.