OXBRIDGE RE HOLDINGS LIMITED — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022, compared with FY2021. This is an annual report, not a standalone fourth-quarter report. Oxbridge is a Cayman Islands specialty property and casualty reinsurer focused mainly on fully collateralized catastrophe reinsurance in the U.S. Gulf Coast, especially Florida. Figures below are in U.S. dollars; financial statement amounts are generally in thousands unless stated otherwise.
Financial results and condition
| Metric | FY2022 / Dec. 31, 2022 | FY2021 / Dec. 31, 2021 |
|---|---|---|
| Total revenue | $850 | $10,225 |
| Net premiums earned | $995 | $965 |
| Net income (loss) | $(1,789) | $8,565 |
| Basic and diluted earnings (loss) per share | $(0.31) | $1.49 |
| Net cash used in operating activities | $(829) | $(253) |
| Net cash used in investing activities | $(661) | $(1,805) |
| Total assets | $16,616 | $17,689 |
| Total shareholders’ equity | $14,989 | $16,651 |
- Underwriting performance: Losses and loss adjustment expenses rose to $1,073 from $158, primarily from limit losses on two contracts after Hurricane Ian. The loss ratio increased to 107.8% from 16.4%; expense ratio was 153.1% versus 146.2%; and combined ratio was 260.9% versus 162.6%. The company reported a 11.0% acquisition cost ratio in both years.
- Revenue and earnings change: Net premiums earned rose $30, but total revenue fell sharply as FY2021 included $9,173 of unrealized gains on other investments. FY2022 instead recorded a $35 unrealized loss on other investments and a $338 change in fair value of equity securities, versus a $767 loss in FY2021. Net realized investment gains were $27 in 2022 versus $755 in 2021.
- Liquidity and investments: Cash and cash equivalents were $1,207; restricted cash held in trust was $2,721, for $3,928 combined, down from $5,418. Restricted cash supports reinsurance collateral and is not freely available for general use. Other investments totaled $11,423, primarily the company’s indirect interest in Oxbridge Acquisition Corp. (OXAC), measured as Level 3 fair value. Equity securities were $642.
- Claims, debt and other liabilities: The year-end loss reserve was $1,073, described as the contractual maximum loss on the affected Hurricane Ian contracts; it was zero at year-end 2021. Unearned premiums reserve fell to zero from $350. Notes payable to participating-note holders were $216, unchanged; operating lease liabilities were $44. Total liabilities were $1,627.
- Capital and cash flows: Equity declined by $1,662. The company reported no financing cash flow in either year. Management said it believed operating cash flows, cash, investment income and underwriting activity would meet liquidity needs; it also anticipated potential future equity offerings. No current debt-issuance plan was stated.
Material developments and management commentary
- Management attributed the FY2022 net loss mainly to lower unrealized gains on the OXAC investment and higher Hurricane Ian losses. It cautioned that opportunistic underwriting and investment activity can make period-to-period results volatile and that historical investment performance may not predict future results.
- OXAC’s business-combination deadline was extended to August 16, 2023. Oxbridge invested a further $285 in the sponsor in 2022; its indirect OXAC-related investment was valued at $11,423 at year-end. The valuation uses a 25.11% discount for marketability and forfeiture risk and is Level 3. The auditor identified this fair-value measurement as a critical audit matter. Failure to complete a business combination by the deadline could result in loss of the investment.
- After year-end, OXAC announced a proposed business combination with Jet Token, with completion then expected in late Q2 2023. The filing described Oxbridge’s equivalent interest in OXAC Class B shares as potentially worth $14.262 million at closing; this was not a realized value and excludes the value of private placement warrants.
- After year-end, SurancePlus announced an offering of up to $5.0 million of DeltaCat Re Tokens at $10 each. Proceeds were intended to fund participating notes of Oxbridge Re NS and collateralized reinsurance. The filing describes a preferred return of $12 per token plus 80% of excess proceeds and a potential return of up to 196% after three years only under an assumption of no casualty losses; this is not a guaranteed return.
- An at-the-market facility entered in September 2022 allows sales of up to $6.3 million of ordinary shares, with a 3% sales commission. The company was not obligated to sell shares under it. No ordinary shares or warrants were repurchased in 2022, and no dividends were paid in 2022 or 2021; management said it did not intend to resume cash dividends in the foreseeable future.
- Management reported effective disclosure controls and effective internal control over financial reporting as of December 31, 2022. The filing includes no auditor attestation on internal controls under scaled filer requirements. The financial statements received an unqualified audit opinion.
Key risks and contingencies
- Catastrophe exposure is concentrated among a limited number of counterparties and risks, with particular vulnerability to Florida hurricanes. Claims and reserve estimates may change materially as information develops.
- The company is small, has four employees, lacks an A.M. Best financial-strength rating, and relies on fully collateralized contracts, brokers and cedant-provided underwriting and claims information. Collateral requirements can constrain growth and liquidity.
- OXAC fair-value changes can materially affect earnings and equity; the investment is subject to business-combination, forfeiture and valuation risks. The company also identifies potential Investment Company Act status as a risk.
- Additional capital may be needed; its availability and terms are uncertain and equity issuance could dilute existing shareholders. Subsidiary distributions to the holding company are subject to regulatory and capital constraints.
- Other disclosed risks include reinsurance-market cyclicality, inflation and climate-related catastrophe exposure, counterparty and broker credit risk, regulatory or license actions, and tax uncertainty, including possible U.S. tax consequences for the company or shareholders.
- The filing reported no current litigation or arbitration and no off-balance-sheet arrangements as of December 31, 2022.
Important facts for investors to verify
- Check subsequent disclosures on the Jet/OXAC business combination, its completion and the realized value of Oxbridge’s sponsor interests and warrants.
- Review the OXAC Level 3 valuation assumptions, including the 25.11% discount, and sensitivity to transaction failure or changes in market prices.
- Track Hurricane Ian claim development, payments and any revisions to the $1,073 reserve, which represented the stated contract limits for affected contracts.
- Confirm the amount of unrestricted cash versus trust-restricted collateral, and the subsidiaries’ capacity to upstream funds while meeting regulatory requirements.
- Verify whether the ATM facility or SurancePlus token offering raised capital, and review any resulting dilution, obligations and actual investor returns against the conditional terms described.
- Assess renewal premiums, catastrophe concentration and combined-ratio performance, as FY2022’s underwriting ratio was loss-making and results are inherently volatile.