OXBRIDGE RE HOLDINGS LIMITED — Q3 2016 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2016; unaudited. Oxbridge is a Cayman Islands specialty property-and-casualty reinsurer focused on fully collateralized catastrophe risks, primarily in Florida and the U.S. Gulf Coast. A substantial portion of its business relates to two Florida entities, including related-party business.
Financial performance and position
Amounts below are U.S. dollars in millions, except per-share figures and ratios.
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Net premiums earned | 1.918 | 1.792 | 6.645 | 4.976 |
| Total revenue | 2.166 | 1.180 | 7.228 | 5.512 |
| Net income | 2.985 | 0.742 | 4.900 | 4.229 |
| Basic and diluted EPS | $0.50 | $0.12 | $0.81 | $0.70 |
| Combined ratio | (42.7%) | 24.4% | 35.0% | 25.8% |
- Q3 losses and loss-adjustment expenses were a $1.248 million credit, reflecting favorable reserve development; the company reported $1.030 million of losses for the first nine months. Q3’s negative loss and combined ratios therefore reflect a reserve release, not solely current-period underwriting results.
- For the nine months, net income rose about 16% year over year. Management attributed the increase mainly to higher premiums earned, partly offset by weather-related losses. Premiums earned increased 34%, including the effect of approximately $1.8 million of loss-experience refund liability derecognition after losses arose under a contract.
- Net investment income was $0.126 million in Q3 and $0.327 million year to date. Net realized investment gain was $0.122 million and $0.256 million, respectively. No other-than-temporary impairment losses were recorded in 2016; 2015 included $0.399 million.
- At September 30, total assets were $57.997 million, liabilities $17.528 million, and shareholders’ equity $40.469 million. Investments were $12.433 million. Cash and cash equivalents were $9.478 million, with a further $26.296 million of restricted cash held as collateral. Premiums receivable were $9.448 million.
- No debt is reported on the balance sheet. Management said it had no plans to issue debt and expected to fund operations through cash flows and potentially future equity offerings.
- Operating cash flow was $1.210 million for the nine months, versus $5.710 million in 2015. Investing activities provided $2.257 million, and financing activities used $2.573 million, including $2.174 million of dividends and $0.399 million of share repurchases.
Changes, outlook, and risks
- Compared with December 31, 2015, investments increased $3.1 million; premiums receivable increased $5.3 million; unearned premiums reserve increased $4.0 million; and loss-experience refund payable declined $3.1 million. Restricted cash declined $4.1 million.
- After quarter-end, Hurricane Matthew caused significant property damage in Florida. The company said reported claims were limited to date, but estimated a potential $1.4–$3.0 million adverse earnings impact under one contract and anticipated that loss reserves might be needed in Q4 2016. The estimate was preliminary.
- No quantified full-year guidance was provided. Management emphasized that results can fluctuate because catastrophe losses are seasonal and unpredictable, underwriting is selective and opportunistic, and investment results vary.
- Key risks include catastrophe severity and timing, uncertain loss and IBNR reserves, dependence on timely cedant loss reporting, limited geographic and counterparty diversification, market and credit risks, and related-party underwriting exposure. Most cash collateral is restricted and unavailable for general use; subsidiary dividends are subject to regulatory capital requirements and notification.
- The company maintained a $0.12 quarterly dividend; a further $0.12 dividend for December 2016 was declared after period-end. It repurchased 78,387 shares for $0.399 million during the nine months, with approximately $1.601 million remaining under its $2 million authorization.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. No litigation or material changes to previously disclosed risk factors were reported.
Most important facts for investors to verify
- Subsequent Hurricane Matthew claims, the final loss estimate, and the resulting Q4 reserve and earnings impact.
- How much Q3 earnings depended on favorable reserve development and whether that development is repeatable; also assess the effect of the $1.8 million refund-liability adjustment on year-to-date premiums and ratios.
- Premium and underwriting concentration in Florida and related parties, including the adequacy of collateral and counterparty protections.
- Usable liquidity after excluding restricted cash, and the subsidiary’s ability to upstream funds while meeting regulatory capital requirements.
- Investment portfolio exposure: equity securities had $0.700 million of gross unrealized losses at September 30, 2016, including $0.454 million on positions held at a loss for at least twelve months.