OXBRIDGE RE HOLDINGS LIMITED — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; financial statements are unaudited and presented in U.S. dollars in thousands, except per-share data. Oxbridge is a Cayman Islands reinsurer focused on fully collateralized property catastrophe risks, particularly in Florida and the U.S. Gulf Coast. Its reinsurance subsidiary writes business for affiliated and unaffiliated insurers.
Financial performance
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Total revenue | $2,267 | $648 |
| Net premiums earned | $1,547 | $648 |
| Investment income, including realized gains | $720 | $0 |
| Total expenses | $437 | $255 |
| Net income | $1,830 | $393 |
| Basic and diluted EPS | $0.30 | $0.28 |
| Combined ratio | 28.2% | 39.4% |
| Dividend paid per share | $0.12 | $0.24 |
Net premiums earned rose $899,000 (139%), which management attributed to growth in the number and size of treaties, including a new contract. Investment results contributed $644,000 of realized gains and $76,000 of net investment income; the company began investing in fixed-maturity and equity securities in August 2014. No catastrophe losses were incurred in either comparative quarter. The reported zero loss ratio supported the low combined ratio; results therefore reflect both premium growth and investment gains, and should not be assumed to recur.
Financial position, cash flow and liquidity
- At March 31, total assets were $49.5 million, total liabilities $12.0 million, and shareholders’ equity $37.5 million. There was no reserve for losses and loss adjustment expenses recorded.
- Cash and cash equivalents were $3.8 million, with a further $30.0 million of restricted cash held in trust as reinsurance collateral. Available-for-sale investments totaled $13.4 million, up from $11.8 million at year-end; premiums receivable fell to $2.0 million from $4.1 million.
- Key liabilities included $9.2 million of loss experience refund payable, up from $7.1 million, and $2.7 million of unearned premiums, down from $5.7 million. Refund liabilities relate to contractual premium adjustments when loss experience is minimal or absent.
- Operating cash flow was $2.36 million; investing cash flow was negative $3.14 million, primarily reflecting securities purchases and increased restricted collateral; financing cash flow was negative $0.73 million, reflecting dividends. Cash and cash equivalents decreased $1.51 million during the quarter.
- No borrowings or debt are reported on the balance sheet. Management said it had no plans to issue debt and believed operating cash flows were sufficient for liquidity needs. The subsidiary’s reported net worth of $23.4 million exceeded its $500,000 regulatory minimum, but regulatory constraints apply to dividends from the subsidiary.
Material changes, outlook and risks
- Net income increased to $1.83 million from $393,000. The prior-period weighted-average share count was much lower (1.39 million versus 6.04 million), following the 2014 public offering; per-share comparisons should be considered in that context.
- Management’s stated strategy is selective underwriting aimed at long-term book-value-per-share growth, prioritizing underwriting profits while pursuing investment gains opportunistically. The filing provides no specific earnings or premium guidance and cautions that interim results may not indicate full-year performance.
- Catastrophe exposure is inherently volatile and seasonal, with hurricane and tropical-storm season generally running June through November. The company said substantially all current reinsurance business ultimately relates to risks of two Florida entities, creating limited underwriting diversification. Future catastrophe losses could materially affect results, cash flows and financial condition; GAAP does not permit reserves for future events before losses are incurred.
- Investment market and liquidity risk, counterparty credit risk, and estimation uncertainty—including loss experience refunds, loss reserves and investment valuations—are identified. Investments had $665,000 of gross unrealized losses at quarter-end; management did not consider them other-than-temporarily impaired.
- Related-party treaties with Claddaugh and HCPCI are disclosed. Related-party balances included $4.6 million of loss experience refund payable and $845,000 of unearned premiums at March 31. Management reported effective disclosure controls and no material change in internal control; no litigation was pending and no material risk-factor changes were reported.
- A 38-month office lease began April 17, 2015, after quarter-end. The filing reports $29,400 of remaining commitments on a separate residential lease at March 31.
Investor verification points
- Assess how much of Q1 earnings depended on the $644,000 realized investment gain and whether investment returns are repeatable.
- Review treaty-level catastrophe exposure, Florida concentration, collateral requirements and the sensitivity of refund liabilities to future losses.
- Verify the quality and collectability of premiums receivable, and the adequacy of loss reserves given the absence of a recorded reserve at quarter-end.
- Examine investment portfolio composition, unrealized losses, liquidity and the portion of cash restricted as collateral.
- Confirm related-party treaty terms and the subsidiary’s capacity to upstream cash for dividends under Cayman regulatory requirements.