OXBRIDGE RE HOLDINGS LIMITED — Q3 2017 Form 10-Q
Business context and reporting period
Quarter ended September 30, 2017; filed November 14, 2017. Oxbridge is a Cayman Islands property and casualty reinsurer focused on fully collateralized catastrophe risks, primarily in Florida and the U.S. Gulf Coast. The unaudited results cover the three and nine months ended September 30, 2017, with comparisons to 2016.
Financial performance and condition
Amounts below are in millions of U.S. dollars except per-share data and ratios.
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Total revenue | 19.330 | 2.166 | 23.625 | 7.228 |
| Net income (loss) | (22.954) | 2.985 | (20.568) | 4.900 |
| Basic and diluted EPS | (3.97) | 0.50 | (3.53) | 0.81 |
| Combined ratio | 219.0% | (42.7%) | 189.3% | 35.0% |
| Operating cash flow | Not separately presented for the quarter | (10.689) | 1.210 |
- Q3 net premiums earned were $19.306 million, versus $1.918 million; nine-month net premiums earned were $23.340 million, versus $6.645 million. Management says the increase principally reflects accelerated premium recognition after full-limit losses exhausted all reinsurance contracts.
- Losses and loss adjustment expenses were $41.400 million in Q3 and $42.427 million for the nine months. These included losses from Hurricanes Harvey, Irma and Maria and unfavorable prior-year development, principally Hurricane Matthew: $2.999 million in Q3 and $4.026 million year to date.
- At September 30, assets were $41.215 million, liabilities $27.296 million and shareholders’ equity $13.919 million, compared with $51.000 million, $13.837 million and $37.163 million, respectively, at December 31, 2016. Loss reserves rose to $24.758 million from $8.702 million; the balance includes a $4.000 million reinsurance recoverable, leaving a net reserve of $20.758 million. IBNR was approximately 8% of reserves.
- Cash and cash equivalents were $5.748 million and restricted cash was $18.496 million, totaling $24.244 million; restricted funds are collateral and are not freely available. Available-for-sale investments were $8.845 million, down from $10.992 million at year-end. The filing reports no debt and says the company has no plans to issue debt.
- Nine-month cash used in operations was $10.689 million; investing activities provided $7.347 million and financing activities used $3.152 million. Cash and cash equivalents declined by $6.494 million to $5.748 million.
- The subsidiary’s regulatory net worth was $1.8 million, above its $0.5 million minimum prescribed capital requirement. No premium deficiency was recorded, and the company reported no off-balance-sheet arrangements.
Material changes versus the prior period
- The company moved from profit to substantial loss, driven by catastrophe claims and prior-period adverse development. The nine-month combined ratio rose to 189.3% from 35.0%.
- Premium recognition accelerated alongside the full-limit claims. Thus, the sharp revenue increase should not be read as evidence of comparable growth in ongoing underwriting business.
- Equity fell by $23.244 million from December 31, 2016, primarily reflecting the nine-month net loss, dividends and share repurchases. The company repurchased 182,562 shares for $1.061 million year to date; the repurchase program was discontinued effective September 30.
- Restricted cash and cash equivalents, as presented in the balance sheet, declined to $18.496 million from $23.440 million. Management attributes the decrease to collateral returned and cedant withdrawals to settle claims, partly offset by premium receipts and collateral deposits.
Outlook, commentary and risks
- Management said it believed operating cash flows and liquid investments were sufficient to meet liquidity requirements. It cautioned that catastrophe losses reduced surplus and could constrain the company’s ability to write new business at future renewals. No quantitative earnings or premium guidance was provided.
- On November 12, 2017, the board decided to suspend the regular $0.12 quarterly dividend, stating there was no intention to resume payments in the foreseeable future, if at all. Non-employee director fees, previously $30,000 per director annually, were also suspended effective October 1, 2017.
- Key risks include uncertainty in loss reserving and delayed cedant or broker reporting; exposure to severe catastrophe events; concentrated underwriting risk, with a substantial portion of business ultimately tied to two Florida entities; counterparty and investment market risk; and limits on subsidiary dividends under Cayman Islands regulatory requirements.
- The filing reports no current litigation or arbitration and no material changes to the risk factors in the 2016 Form 10-K. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- How catastrophe loss estimates and the $24.758 million gross reserve develop, including the $4.000 million recoverable and the low stated IBNR share.
- Whether and when the company can renew or write new business given reduced capital, and the impact of the Florida concentration on future underwriting capacity.
- Availability of liquidity: distinguish unrestricted cash and investments from the $18.496 million of restricted collateral, and review subsequent claim payments and collateral movements.
- The status of the dividend suspension and the timing of the dividend it affects; the filing’s subsequent-event wording should be checked against the dividend declarations and payments described for 2017.
- Potential related-party exposure, including reinsurance agreements with Claddaugh and the company’s reliance on a limited number of Florida-linked risks.