Oxbridge Re Holdings Limited — Q1 2019 Form 10-Q
Business context and reporting period. The company is a Cayman Islands specialty property and casualty reinsurer focused on fully collateralized catastrophe reinsurance, primarily in the U.S. Gulf Coast and Florida, and related investments. This unaudited report covers the three months ended March 31, 2019; financial amounts below are in U.S. dollars, thousands, unless stated otherwise.
Financial performance and position
| Metric | Q1 2019 | Q1 2018 / prior balance-sheet date |
|---|---|---|
| Total revenue | $117 | $115 |
| Net premiums earned | $0 | $220 |
| Net investment income | $63 | $72 |
| Net loss | $(147); $(0.03) per share | $(211); $(0.04) per share |
| General and administrative expense | $264 | $318 |
| Operating cash flow | $(4,251) | $319 provided |
| Investing cash flow | $994 provided | $256 provided |
| Cash and cash equivalents | $7,894 | $8,074 at December 31, 2018 |
| Restricted cash | $148 | $3,225 at December 31, 2018 |
| Total assets / liabilities / equity | $8,559 / $385 / $8,174 | $12,561 / $4,247 / $8,314 at December 31, 2018 |
| Loss and loss adjustment expense reserve | $107 | $4,108 at December 31, 2018 |
Revenue was nearly flat despite no earned premiums: Q1 2019 revenue consisted principally of investment income, a $3 realized investment gain, and a $51 gain from the change in fair value of equity securities. The company reported no losses incurred in either comparison quarter. No conventional borrowing is shown as a balance-sheet liability at March 31; the $149 operating lease liability is reported separately.
The reported loss, acquisition-cost, expense, and combined ratios are not meaningful indicators of underwriting performance for Q1 2019: net premiums earned were zero, and the filing displays ratios of 0.0% on that basis. The 2018 combined ratio was 84.0%.
Material changes and cash movements
- Net loss narrowed by $64, mainly because general and administrative expenses fell $54, which management attributed to cost-saving initiatives.
- Net premiums earned fell $220 year over year. Management attributed this to prior acceleration of premium recognition after full-limit losses on all reinsurance contracts in Q4 2018, and no new contracts being written in Q1 2019.
- Cash and restricted cash together declined from $11,299 at year-end to $8,042. Operating cash outflow of $4,251 was driven largely by $4,001 of payments against prior-period loss reserves. Investing inflow of $994 primarily reflected sales of fixed-maturity securities.
- Loss reserves declined by $4,001 to $107 as previously reserved weather-event losses were settled. Management estimates that approximately 70% of the remaining reserve is incurred but not reported.
- Investments declined to $213 from $1,155, mainly reflecting sales of fixed-maturity securities. The company held no available-for-sale fixed-maturity securities at March 31.
Outlook, risks, and unusual items
- The filing gives no quantified earnings or underwriting guidance. Management says it writes selectively and opportunistically, and expects to reduce premium writings rather than accept mispriced risk if the reinsurance market softens. No new contracts were written in the quarter.
- Management stated that cash flows, investment income, and underwriting activity are expected to meet operating liquidity needs, and that the company had sufficient cash flows for its liquidity requirements at quarter-end. It reported no current plans for debt other than possible additional participating notes, and may consider future equity offerings.
- A material settlement occurred: during Q1 the company paid its $4 million maximum obligation under a 2018 inward industry loss warranty swap, which expired December 31, 2018 and was not renewed. The filing attributes the decrease in restricted cash to the withdrawal of funds for settlement of this loss.
- Oxbridge Re NS’s $2 million Series 2018-1 participating notes had been triggered and suffered a full loss in Q4 2018. The filing says the subsidiary has no further obligation of the parent to provide financial support, and its creditors and noteholders have no recourse to the parent’s general credit.
- Key risks include catastrophe severity and volatility, the ability to renew or write business after reduced surplus, uncertainty in loss-reserve estimates and delayed cedant reporting, concentration of underwriting risk relating to two entities, and counterparty, broker, retrocessionaire, and investment-market risks. Management said there were no material changes to the risk factors in the 2018 Form 10-K.
- Operating lease accounting was adopted January 1, 2019, adding a $155 right-of-use asset and $149 lease liability. The filing reports no material impact from adoption of the specified new share-based-payment standard. No litigation or arbitration was pending, and management reported effective disclosure controls.
Important facts for investors to verify
- Whether the company resumes writing reinsurance and generates earned premiums after reporting no new contracts in Q1.
- Whether the remaining $107 loss reserve, including its estimated 70% IBNR component, is adequate as claims develop.
- The effect of catastrophe losses and the loss of surplus on subsidiary regulatory capital and future underwriting capacity; both subsidiaries exceeded their $500 minimum prescribed capital requirement at quarter-end.
- How much of reported revenue and results reflects investment fair-value movements rather than recurring underwriting activity.
- Liquidity available for operations after the $4 million ILW settlement, including the distinction between unrestricted cash of $7,894 and restricted cash of $148 at quarter-end.