Oxbridge Re Holdings Limited — 2015 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2015; comparisons are with 2014. This is an annual report, not a standalone fourth-quarter report. Amounts below are U.S. dollars unless stated otherwise.
Business context
Oxbridge is a Cayman Islands holding company whose subsidiary writes fully collateralized property and casualty catastrophe reinsurance, primarily for insurers in the U.S. Gulf Coast, with an emphasis on Florida. The company reports one operating segment and says it pursues selective underwriting and long-term growth in book value rather than predictable quarterly earnings. Substantially all capital backing its contracts is held as collateral in trust.
Financial performance and position
| Metric | 2015 | 2014 |
|---|---|---|
| Assumed premiums | $14.888 million | $14.293 million |
| Net premiums earned | $6.767 million | $4.819 million |
| Total revenue | $6.380 million | $5.559 million |
| Net income | $4.601 million | $4.000 million |
| Basic and diluted EPS | $0.76 | $0.82 |
| Combined ratio | 26.3% | 32.4% |
| Dividends per share | $0.48 | $0.48 |
Net premiums earned increased about 40% and net income about 15%. EPS fell because weighted-average shares rose to 6.06 million from 4.86 million. No losses or loss-adjustment expenses were incurred in either year; the 0% loss ratio means the combined ratio equaled the expense ratio. Investment results weakened: 2015 included $325,000 in net realized losses and $399,000 in other-than-temporary impairment charges, versus $641,000 in realized gains and no impairment charge in 2014. Comprehensive income was $3.110 million, including $1.491 million of other comprehensive loss.
At year-end, total assets were $52.687 million, liabilities $15.660 million and shareholders’ equity $37.027 million. Cash and cash equivalents were $8.584 million, with a further $30.368 million restricted in trust; investments were $9.348 million. The filing reports no debt outstanding and says the company had no plans to issue debt. Operating cash flow was $8.126 million in 2015; cash dividends paid were $2.908 million. Loss experience refund payable rose to $9.913 million from $7.133 million. The subsidiary reported $24.4 million of net worth, above its $500,000 stated minimum and prescribed capital requirement.
Material changes and management commentary
- General and administrative expenses increased 27% to $1.435 million, which management attributed mainly to increased activity and costs of operating as a public company.
- Acquisition and underwriting expenses declined 20% to $344,000, including the expiration of a $150,000 consulting agreement at the end of 2014.
- Available-for-sale investments declined to $9.348 million from $11.838 million, reflecting net sales and unrealized losses. Accumulated other comprehensive loss was $1.474 million at year-end.
- Management characterized the reinsurance market as overcapitalized and softening. It said the strategy is to reduce premium writings rather than accept mispriced risk, and preserve capital for better opportunities. No quantified earnings or revenue guidance was provided.
- The board declared a $0.12-per-share quarterly dividend in January 2016, payable March 30, 2016, subject to the stated record date.
Risks, contingencies and unusual items
- Catastrophe and concentration exposure: Results can be volatile because catastrophe losses are infrequent and severe, and U.S. GAAP does not allow reserves for future events before they occur. The filing says a substantial portion of business ultimately relates to two Florida-domiciled entities, including related parties.
- Related parties and conflicts: Reinsurance agreements involve Claddaugh and HCPCI, related entities through common directorships. Related-party assumed premiums were $3.340 million in 2015; related-party loss experience refund payable was $6.510 million at year-end. The filing also describes potential conflicts involving executives and directors connected with HCI Group.
- Refund provisions and reserve uncertainty: Certain contracts require premium refunds when losses are minimal or zero. The $9.913 million refund payable is a material liability and may be reduced if covered losses occur. Loss estimates and future claims remain uncertain.
- Collateral, licensing and scale: The subsidiary is licensed only in the Cayman Islands, is unrated, and generally must fully collateralize its reinsurance contracts. Restricted cash is not freely available for other uses; regulatory action or limits on subsidiary dividends could constrain growth or shareholder distributions.
- Investment and market risk: Equity-security losses drove impairment and unrealized losses. Management noted that low interest rates and competition may affect pricing and investment earnings.
- Other items: The company reported no litigation, no off-balance-sheet arrangements and no claims paid as of March 5, 2016. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not provide an internal-control attestation under the company’s emerging-growth-company exemptions.
Most important facts for investors to verify
- Review the 2015 cash-flow comparison: the cash-flow statement reports 2014 operating cash flow of $8.679 million, while the MD&A text states $8.769 million.
- Assess the extent of related-party and Florida catastrophe concentration, and the terms and renewal status of the underlying contracts.
- Examine the $9.913 million loss experience refund payable, including contract triggers, timing and potential sensitivity to future losses.
- Review investment holdings, impairment judgments and subsequent performance given 2015 realized, impairment and unrealized losses.
- Evaluate whether dividends remain supportable after collateral needs and regulatory restrictions on distributions from the reinsurance subsidiary.