OXBRIDGE RE HOLDINGS LIMITED — Q3 2014 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2014. Amounts are in U.S. dollars; financial statement amounts are in thousands unless stated otherwise. Oxbridge is a Cayman Islands specialty reinsurer focused on fully collateralized catastrophe reinsurance, primarily in Florida and the U.S. Gulf Coast.
Financial performance
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Total revenue | $1,851 | $635 | $3,398 | $847 |
| Net premiums earned | $1,636 | $635 | $3,183 | $847 |
| Investment income and realized gains | $215 | $0 | $215 | $0 |
| Total expenses | $475 | $162 | $1,087 | $374 |
| Net income | $1,376 | $473 | $2,311 | $473 |
| Basic and diluted EPS | $0.23 | $0.42 | $0.52 | $0.53 |
| Combined ratio | 29% | 26% | 34% | 27% |
There were no incurred losses in either comparison period, so the reported loss ratio was 0%. Acquisition cost ratios were 8% for Q3 and 9% for the nine months; expense ratios were 29% and 34%, respectively.
Financial position, cash flow and liquidity
- At September 30, 2014, total assets were $50.263 million, liabilities $14.586 million and shareholders’ equity $35.677 million. No debt is reported.
- Cash and cash equivalents were $8.115 million, with another $26.524 million held as restricted trust cash. Available-for-sale investments had a fair value of $8.986 million. Restricted cash and trust collateral are not freely available for general use.
- Operating cash flow for the nine months was $6.787 million; investing cash flow was $(25.329) million; financing cash flow was $25.962 million. Ending cash and cash equivalents were $8.115 million.
- Premiums receivable were $6.234 million; unearned premiums reserve was $9.433 million; loss experience refund payable was $5.080 million. The balance sheet reported no loss reserve at period end.
- The subsidiary’s regulatory net worth was $22.7 million, above its $500,000 minimum and prescribed capital requirement. Management said it expected cash from premiums and investment income to cover cash outflows for at least the next 12 months. It reported no plans to issue debt.
Material changes versus prior period
- Nine-month net income rose to $2.311 million from $473,000, while nine-month EPS edged down to $0.52 from $0.53. The increase in income reflected higher earned premiums, a longer operating period, no 2014 preopening costs, and investment revenue. The lower EPS primarily reflects the larger share count following the IPO.
- Nine-month assumed premiums increased to $14.293 million from $4.886 million; net premiums earned increased to $3.183 million from $847,000. The company attributed growth to additional and larger treaties and IPO-funded underwriting capacity. The 2013 nine-month comparison includes only four months of operations, which began in June 2013.
- General and administrative expense increased to $785,000 from $174,000 for the nine-month periods; the company cited increased activity after the March 2014 IPO and public-company costs. The 2014 nine-month period also included $112,000 of underwriting consulting expense.
- The March 2014 IPO generated approximately $26.9 million in net proceeds. During the first nine months, the company paid dividends of $0.36 per share; a further $0.12-per-share dividend was declared after quarter-end for payment November 28, 2014.
Outlook, risks and unusual items
- No earnings or premium guidance was provided. Management’s stated strategy is selective, fully collateralized catastrophe underwriting, with a focus on underwriting returns rather than aggressive investment gains.
- Catastrophe claims are a major uncertainty: a hurricane or multiple catastrophic events could materially harm results, financial condition and cash flows. Under GAAP, reserves are recorded for incurred losses, not potential future events; the zero loss reserve at September 30 therefore does not represent protection against future catastrophe losses.
- Underwriting is concentrated: substantially all current business ultimately relates to two Florida entities, including related parties Claddaugh and HCPCI. Related-party balances included $501,000 of premiums receivable, $3.242 million of refund payable and $3.380 million of unearned premiums reserve.
- Certain contracts provide for premium refunds or profit commissions when losses are minimal or zero. The company estimated aggregate liabilities payable of approximately $8.2 million from June 1, 2014 through May 31, 2015, assuming no losses; a covered loss could reduce the liability.
- Investments were first made during 2014. At quarter-end, available-for-sale securities had $150,000 of gross unrealized losses; management did not consider them other-than-temporarily impaired. Investment values remain exposed to market and liquidity risk.
- Dividends from the reinsurance subsidiary are subject to Cayman Islands regulatory and minimum-capital constraints. Lease commitments totaled approximately $70,000, due within one year. The company reported no litigation, material change to previously disclosed risk factors, or off-balance-sheet arrangements.
Important facts for investors to verify
- How much of the $6.234 million in premiums receivable has been collected, and what are the counterparties and payment terms?
- How do catastrophe exposures, treaty limits, collateral requirements and related-party concentrations compare with available unencumbered capital?
- How will refund liabilities and unearned premiums develop if losses occur or remain absent, and what actuarial support underlies loss-reserve estimates?
- What are the current composition, liquidity and performance of the investment portfolio, including the unrealized losses reported at quarter-end?
- What capital is available for dividends after subsidiary regulatory requirements, and how should investors assess earnings per share given the IPO-related increase in shares and outstanding warrants?