OXBRIDGE RE HOLDINGS LIMITED — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; balance-sheet figures are compared with December 31, 2022. Unaudited consolidated results are in U.S. dollars; financial statement amounts below are in thousands unless stated otherwise. Oxbridge is a Cayman Islands property and casualty reinsurer focused on fully collateralized catastrophe risks, primarily in the U.S. Gulf Coast, and reports one operating segment.
Financial results and position
- Revenue: $546, versus $0 in Q1 2022. Net premiums earned were $0, down from $210; investment and other income was $89, unrealized gain on other investments was $381, and the change in fair value of equity securities was a $76 gain. The filing attributes the absence of premiums to accelerated recognition on two contracts following a limit loss in Q3 2022.
- Profit: Net income was $142, or $0.02 per diluted share, versus a net loss of $387, or $0.07 per share. The improvement was primarily due to positive fair-value changes in investments. General and administrative expenses rose to $404 from $338.
- Underwriting and margins: No losses were incurred in either quarter. The filing reports a 0% combined ratio for Q1 2023 and 171.9% for Q1 2022, but the 2023 ratio is not informative as a measure of underwriting performance because earned premiums were zero. Q1 2022 acquisition costs were $23; Q1 2023 acquisition costs were zero.
- Cash flow: Operating cash used was $140, compared with $69 used in Q1 2022; investing cash used was $5, versus $201; financing cash used was $163, versus none. Cash and restricted cash together declined $308 to $3,620.
- Liquidity and assets: Cash and cash equivalents were $729; restricted cash held in trust was $2,891 and is subject to collateral requirements. Total assets were $16,848, including $11,804 of other investments and $718 of equity securities. Shareholders’ equity was $15,185.
- Debt and liabilities: Notes payable to noteholders declined to $172 from $216 after a $44 partial redemption; Series 2020-1 notes mature June 1, 2023. Total liabilities were $1,663. The loss reserve remained $1,073.
Material changes and developments
- The company moved from a Q1 2022 loss to Q1 2023 profit, largely on investment valuation gains rather than premium revenue. Its $381 gain on other investments reflects remeasurement of its indirect interest in Oxbridge Acquisition Corp. (OXAC); this is a Level 3 valuation using significant unobservable inputs.
- Oxbridge Re NS recorded a $1.073 million reserve related to Hurricane Ian, equal to the contractual maximum loss on affected contracts. The company reported no losses incurred during Q1 2023; the reserve was unchanged during the quarter.
- Cash and cash equivalents fell from $1,207 to $729, while restricted cash increased from $2,721 to $2,891. Other investments rose $381 and equity securities rose $76, primarily from fair-value changes.
- The company granted 96,647 restricted shares during the quarter. Ordinary shares issued and outstanding were 5,866,234 at March 31, 2023; 5,870,234 were outstanding as of May 12, 2023.
Outlook, risks and contingencies
- No specific financial guidance was provided. Management said it believes available cash flows and investments provide sufficient liquidity for operating needs and expects to fund operations through operating cash flows and potentially future equity offerings. It has no current plans to issue debt.
- Management describes results as potentially volatile and seasonal, with hurricane and tropical-storm activity typically occurring June through November. Catastrophe losses, limited underwriting diversification, claims-reporting delays, broker or reinsurer counterparty failure, and investment-market volatility are material risks. Future catastrophe losses are not reserved until an insured event occurs.
- OXAC’s business combination with Jet Token Inc., with the combined company expected to be named Jet.AI Inc., was expected to close late in Q2 2023. OXAC’s deadline to complete a business combination was extended to August 16, 2023; failure to complete one could put the value of Oxbridge’s investment at risk.
- SurancePlus began an offering of up to $5 million of DeltaCat Re tokenized reinsurance securities. The filing describes a preferred return and potential additional proceeds, and states that investors could receive up to 196% of their original purchase price after three years assuming no casualty losses. This is conditional, not company guidance or a guaranteed return. The securities are unregistered and offered under exemptions to eligible investors.
- The company also disclosed an equity distribution agreement to offer up to $6.3 million of ordinary shares. At quarter-end, prepaid offering costs totaled $252,000 for the two offerings. The filing reported no off-balance-sheet arrangements, current litigation or arbitration, and no changes in internal control that materially affected, or were reasonably likely to materially affect, financial reporting controls; management considered disclosure controls effective.
Important facts for investors to verify
- Subsequent status and terms of the Jet.AI business combination, OXAC’s August 16, 2023 deadline, and the value and valuation assumptions for Oxbridge’s Level 3 OXAC investment.
- Whether the DeltaCat Re and ordinary-share offerings proceeded, the amount raised, dilution, and the risks and conditions underlying the tokenized securities’ stated potential returns.
- Development of the $1.073 million Hurricane Ian reserve, including claims reported after quarter-end and any reserve revisions.
- Repayment or other settlement of the $172,000 Series 2020-1 notes due June 1, 2023, and the company’s unrestricted liquidity after restricted collateral requirements.
- Underlying underwriting activity and earnings excluding noncash fair-value gains, given zero earned premiums in Q1 2023 and the company’s exposure to severe catastrophe events.