OXBRIDGE RE HOLDINGS LIMITED — Q3 2015 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2015. Unaudited consolidated financial statements; amounts below are U.S. dollars unless stated otherwise. Oxbridge is a Cayman Islands specialty reinsurer focused on fully collateralized catastrophe risks, primarily in Florida and the U.S. Gulf Coast.
Financial performance and position
- Q3 revenue and earnings: Total revenue was $1.180 million, down from $1.851 million in Q3 2014. Net income was $742,000 versus $1.376 million; basic and diluted EPS was $0.12 versus $0.23.
- Nine-month performance: Total revenue was $5.512 million versus $3.398 million, and net income was $4.229 million versus $2.311 million. EPS was $0.70 versus $0.52.
- Premiums and underwriting: Net premiums earned were $1.792 million in Q3, up 10%, and $4.976 million for nine months, up 56% year over year. No losses were incurred in either comparable period. The combined ratio was 24.4% for Q3 and 25.8% for nine months, compared with 29.0% and 34.2%, respectively, in 2014.
- Investments: Nine-month net investment income was $262,000, compared with $50,000; net realized gains were $673,000 versus $165,000. A $399,000 impairment charge on two equity securities was recorded in Q3 and year to date. Nine-month other comprehensive loss was $2.241 million, largely reflecting investment-market declines.
- Cash flow and liquidity: Nine-month operating cash flow was $5.710 million, investing cash outflow $2.437 million and dividend payments $2.182 million. At September 30, cash and cash equivalents were $6.408 million and restricted cash was $30.152 million. Management stated operating cash flows and available liquid assets were sufficient for liquidity needs.
- Balance sheet and capital: Total assets were $53.981 million, liabilities $17.379 million and shareholders’ equity $36.602 million. The filing reports no debt. Investments were $10.309 million; premiums receivable were $6.729 million. The subsidiary reported $24 million net worth, above its $500,000 regulatory minimum.
- Dividends and shares: Dividends paid were $0.12 per share in Q3 and $0.36 per share year to date. A further $0.12 quarterly dividend was declared after quarter-end. There were 6,060,000 ordinary shares outstanding as of November 11, 2015.
Material changes versus comparable periods
- Q3 net income fell primarily because of realized investment losses and the $399,000 impairment charge, despite higher net premiums earned.
- Nine-month net income increased mainly due to higher earned premiums and investment income; the company noted it only began investing in securities in August 2014.
- From December 31, 2014, unearned premiums reserve rose $3.708 million to $9.452 million, and loss experience refund payable increased $691,000 to $7.824 million. Premiums receivable increased $2.648 million to $6.729 million.
- Available-for-sale investments declined $1.529 million to $10.309 million, while accumulated other comprehensive loss moved from income of $17,000 to a loss of $2.224 million.
Outlook, risks and notable items
- No quantified earnings or premium guidance was provided. Management described underwriting as selective and opportunistic, with a focus on underwriting returns; it stated it had no plans to issue debt and expected to fund operations from operating cash flows and existing capital, with potential future equity offerings also noted.
- Catastrophe losses are inherently volatile. The company has no reported loss reserves at period-end because no losses had been incurred; GAAP does not permit reserves for future, unincurred events. A major catastrophe or multiple events could materially affect results, cash flows and financial condition.
- Underwriting risk is concentrated: a substantial portion of business ultimately relates to two Florida entities, including related parties. Related-party loss experience refund payable was $5.880 million at quarter-end.
- Investment exposure is material: equity securities had $2.088 million of gross unrealized losses at September 30, and two securities generated the $399,000 impairment. Management said the remaining unrealized-loss securities were not considered other-than-temporarily impaired.
- Restricted cash is held as collateral under trust agreements and is not freely available for general use. Subsidiary dividend distributions are subject to Cayman regulatory constraints and notification requirements.
- The company reported no current litigation, no material changes to previously disclosed risk factors, and effective disclosure controls. Office and residential lease commitments totaled approximately $162,000 at September 30; the residential lease was subsequently extended.
Important facts for investors to verify
- Whether earned premiums and underwriting profitability persist as treaty periods develop, particularly given the absence of incurred catastrophe losses to date.
- The nature, valuation and subsequent performance of the impaired and other loss-position investment securities, and the effect of market movements on equity and comprehensive income.
- How much of the $30.152 million restricted cash and collateralized assets can be released as treaties expire, and the company’s liquidity after dividends and refund obligations.
- The concentration and related-party terms of reinsurance contracts, including the $7.824 million total loss experience refund payable.
- The sustainability of quarterly dividends given regulatory capital requirements, subsidiary distribution constraints and catastrophe exposure.