Oxbridge Re Holdings Limited — Q2 2017 Form 10-Q
Business and period: Unaudited results for the quarter and six months ended June 30, 2017, compared with 2016. The Cayman Islands-based company writes fully collateralized property and casualty catastrophe reinsurance, mainly in the U.S. Gulf Coast and Florida, and reports one reinsurance segment. Amounts below are in U.S. dollars; financial statement amounts are in thousands unless stated otherwise.
Financial performance
| Metric | Q2 2017 | Q2 2016 | First half 2017 | First half 2016 |
|---|---|---|---|---|
| Net premiums earned | $2.486m | $3.346m | $4.034m | $4.727m |
| Total revenue | $2.659m | $3.532m | $4.295m | $5.063m |
| Net income | $1.116m | $0.872m | $2.386m | $1.915m |
| Basic and diluted EPS | $0.19 | $0.14 | $0.41 | $0.32 |
| Combined ratio | 62.1% | 79.5% | 47.3% | 66.6% |
- Q2 assumed premiums increased to $17.376m from $14.562m, but earned premiums fell 26%; the company attributed the decline to unearned-premium movements and ceded premiums, including prior-period accounting adjustments.
- Loss and loss adjustment expense was $1.059m in Q2 versus $2.215m a year earlier. The 2017 charge reflected adverse/prior-period reserve development recorded in the quarter; the company attributed improved earnings and lower loss ratios to favorable development. The six-month loss expense was $1.027m versus $2.278m.
- Q2 investment income was $127,000 and realized gains were $46,000. First-half figures were $213,000 and $48,000, respectively.
- First-half operating cash flow was $2.968m, versus $1.183m in 2016. Investing used $7.378m and financing used $2.074m, leaving cash and cash equivalents of $5.758m, down from $12.242m at year-end. Restricted cash was $26.496m; it is held as collateral and is not freely available for general purposes.
Financial position and material changes
- At June 30, 2017, total assets were $61.298m, liabilities $23.668m, and shareholders’ equity $37.630m. Available-for-sale investments were $15.406m, up from $10.992m at December 31, 2016.
- Premiums receivable rose to $12.112m from $4.038m; the company cited new contracts effective June 1. Unearned-premium reserves increased to $16.276m from $3.461m, primarily reflecting placement of the new treaty year’s contracts.
- Loss reserves declined to $3.043m from $8.702m, while the loss-experience-refund payable increased to $2.730m from $1.470m. The filing reports no debt and no interest paid during the first half.
- The company repurchased 109,815 shares for approximately $671,000 in the first half; about $587,000 remained under its $2m repurchase authorization at June 30. Dividends paid were $0.24 per share for the first half.
Outlook, risks and other notable matters
- No quantified earnings or premium guidance is provided. Management describes underwriting as selective and opportunistic, with a focus on long-term book-value growth and underwriting returns; it expects liquidity needs to be met through cash, investment income and underwriting cash flows. It reported no plans to issue debt, while noting future borrowing cannot be ruled out.
- Results may fluctuate with catastrophe activity and the seasonal hurricane period (June through November). A significant catastrophe could materially affect results, cash flows and financial condition. The company cannot establish reserves for future events before a loss occurs.
- Management identifies reserve estimation, including incurred-but-not-reported claims, as a significant judgment area. The $3.043m loss reserve included an estimated 28% IBNR component; actual ultimate losses may differ materially.
- Underwriting exposure is concentrated: a substantial portion of business ultimately relates to two Florida entities. Related-party reinsurance arrangements include Claddaugh, linked through common directorship. The subsidiary’s $23.5m net worth exceeded its $500,000 regulatory minimum; dividends from the subsidiary are subject to regulatory constraints.
- Management reported effective disclosure controls, no material changes in internal control, no current litigation or arbitration, and no material changes to the risk factors in the 2016 Form 10-K. A $0.12-per-share dividend was declared August 12, 2017, payable September 30.
Important facts for investors to verify
- Confirm the drivers and sustainability of favorable reserve development, and how subsequent catastrophe claims affect the $3.043m reserve and its IBNR estimate.
- Review the terms and exposure of new June 1 treaties, premium receivables, and the large increase in unearned-premium reserves; assess the Florida and related-party concentration.
- Distinguish available liquidity from collateralized funds: $26.496m of cash was restricted, while unrestricted cash and cash equivalents were $5.758m.
- Reconcile share counts: the balance sheet lists 5,806,344 shares at June 30, while the cover reports 5,786,562 outstanding as of August 8. The filing’s cash-flow supplemental disclosure also contains a “#REF!” value for the 2017 unrealized investment change; verify against the filed statements/XBRL.