OXBRIDGE RE HOLDINGS LIMITED — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019. Financial statements are unaudited; dollar amounts below are in thousands unless stated otherwise. Oxbridge is a Cayman Islands property-catastrophe reinsurer operating through its reinsurance subsidiaries and sidecar, Oxbridge Re NS.
Financial performance and position
- Q2 revenue: $109, down from $723 in Q2 2018. Net premiums earned were $93 versus $334; investment and other income was $64 versus $108, and equity-security fair-value change was a $48 loss versus a $73 gain.
- Q2 earnings: Net loss of $205, or $(0.04) per share, compared with net income of $265, or $0.05 per share. For the first half, revenue was $227 versus $838 and net loss was $351, or $(0.06) per share, versus net income of $54, or $0.01 per share.
- Expenses and ratios: Q2 general and administrative expense fell to $280 from $359; first-half expense fell to $544 from $676. No losses were incurred in either comparable period. The combined ratio was 311.8% for Q2 and 595.7% for the first half, versus 73.1% and 77.6% in 2018; the filing attributes the sharp increase largely to much lower earned premiums and, in 2018, derivative income.
- Cash flow and liquidity: First-half operating cash use was $4,466, compared with $1,535 in 2018. Cash from investing was $592 and financing provided $600. Cash and restricted cash totaled $8,025 at June 30, down from $11,299 at year-end 2018; unrestricted cash was $6,274 and restricted cash was $1,751.
- Balance sheet: Total assets were $9,989, liabilities $2,010, and shareholders’ equity $7,979, compared with $12,561, $4,247, and $8,314 at December 31, 2018. The loss reserve declined to $107 from $4,108. Investments were $567, with no fixed-maturity securities held at quarter-end.
- Debt and capitalization: Notes payable to Series 2019-1 noteholders were $600, issued by Oxbridge Re NS and due June 1, 2022. No dividends were paid. The company reported 5,733,587 ordinary shares outstanding as of August 6, 2019.
Material changes and management commentary
- Management attributed the earnings decline primarily to lower net premiums earned, reflecting reduced capital deployed and the prior acceleration of premium recognition after full-limit losses on reinsurance contracts in Q4 2018.
- The $4.0 million reduction in loss reserves principally reflects settlement of prior-period weather-event losses. The filing says the company settled its $4 million payment obligation under the 2018 inward ILW swap during the first half of 2019; the swap expired at year-end 2018 and was not renewed.
- Management cited cost-saving initiatives for lower administrative expenses. It said operating liquidity was sufficient and expected needs to be met by cash, investment income, and underwriting activity; it also noted potential future equity offerings and no current plans for debt other than participating notes.
Outlook, risks and contingencies
- No numerical earnings, premium, or capital guidance is provided. Management described the reinsurance market as overcapitalized and said it may reduce premium writings rather than accept inadequately priced risk. Results may fluctuate, and catastrophe activity is seasonal, typically concentrated from June through November.
- Catastrophe losses are low-frequency and high-severity; future events could materially affect earnings, cash flows, capital, and capacity to write new business. Loss reserves depend on cedant reporting and actuarial estimates, and actual ultimate losses may differ materially.
- Underwriting exposure is concentrated: a substantial portion of current business ultimately relates to two entities. Counterparty, broker, retrocessionaire, investment-market, and liquidity risks are also described.
- The filing reports no litigation or arbitration currently pending, no material changes to previously disclosed risk factors, and no off-balance-sheet arrangements. Disclosure controls were assessed as effective.
- The filing states each subsidiary exceeded its $500 minimum and prescribed capital requirement, but reports Oxbridge Re NS net worth of $49,000. The units and apparent relationship between these figures are not clear from the filing text and merit verification.
Important facts for investors to verify
- Reconcile the $4 million ILW settlement, reserve release, and cash-flow presentation, including the timing and accounting treatment.
- Confirm the meaning and units of the $500 subsidiary capital requirement and Oxbridge Re NS’s reported $49,000 net worth.
- Assess the effect of sharply reduced deployed capital and earned premiums on future underwriting capacity, revenue, and expense ratios.
- Review catastrophe exposure and concentration in two underlying entities, along with the adequacy and sensitivity of loss reserves.
- Confirm collateral restrictions and the terms, loss exposure, and maturity obligations associated with Series 2019-1 participating notes.