Oxbridge Re Holdings Limited — Q1 2016 Form 10-Q
Business context and reporting period
Quarter ended March 31, 2016; financial statements are unaudited and amounts below are U.S. dollars in thousands unless stated otherwise. Oxbridge is a Cayman Islands reinsurer focused on fully collateralized property-catastrophe risks, primarily in the U.S. Gulf Coast and Florida. It operates through its wholly owned reinsurance subsidiary.
Financial results and condition
| Metric | Q1 2016 | Q1 2015 / comparison |
|---|---|---|
| Total revenue | $1,531 | $2,267; down 32% |
| Net premiums earned | $1,381 | $1,547; down 11% |
| Net realized investment gains | $56 | $644 |
| Net investment income | $94 | $76 |
| Net income | $1,043 | $1,830; down 43% |
| Basic and diluted EPS, as reported on income statement | $0.17 | $0.30 |
| Operating cash flow | $2,625 | $2,359 |
| Combined ratio | 35.3% | 28.2% |
Revenue and earnings fell mainly because realized investment gains were lower; management also cited lower rates on policies in force, reducing earned premiums. Q1 2016 included $63 of loss and loss-adjustment expense, versus none in Q1 2015. General and administrative expense was $364, up from $350; policy acquisition and underwriting expense was reported as $61 in the income statement.
At March 31, total assets were $52,435 and shareholders’ equity was $37,661. Investments totaled $13,039, including $6,219 of fixed-maturity securities and $6,820 of equity securities. Cash and cash equivalents were $8,614; restricted cash held as collateral was $28,889. Total liabilities were $14,774, principally loss-experience refunds payable ($12,001) and unearned premiums ($2,606). No borrowings or debt are listed on the balance sheet.
Cash increased by $30 during the quarter: operating activities provided $2,625, investing activities used $1,868, and dividends used $727. The company paid $0.12 per share in Q1 and declared another $0.12 per share dividend for payment June 30, 2016. Subsidiary net worth was $24.6 million, above its $500 minimum regulatory capital requirement.
Outlook, risks and unusual items
- No quantitative earnings or underwriting guidance is provided. Management said it expects liquidity needs to be met through cash, investment income and underwriting activity; it reported no plans to issue debt, while noting future borrowing or equity issuance cannot be ruled out.
- Catastrophe exposure is inherently volatile, and the company cannot establish reserves for future events before a loss occurs. Loss reserves were $63 at quarter-end; management notes estimates may differ materially from ultimate claims.
- Underwriting exposure is not significantly diversified: a substantial portion of current reinsurance business ultimately relates to two Florida entities, including related parties.
- Loss-experience refund payable increased to $12.0 million, reflecting contractual refunds where losses are minimal or absent. Related-party contracts accounted for $7.14 million of this payable at quarter-end.
- Available-for-sale securities had $1.418 million of gross unrealized losses, primarily in equities. Management reported no other-than-temporary impairment. Restricted cash and collateral arrangements limit access to a substantial portion of cash resources.
- The company reported no current litigation or arbitration and no material changes to previously disclosed risk factors. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- The EPS note conflicts with the income statement: it gives a net-earnings numerator of $1.106 million and EPS of $0.18, while the income statement reports net income of $1.043 million and EPS of $0.17. Verify the correct Q1 2016 numerator and EPS.
- Check the acquisition-cost disclosures: the income statement reports $61 thousand, while MD&A describes approximately $62 thousand and gives acquisition-cost ratios of 4.4% in one table and 4.5% in the discussion.
- Assess the extent of catastrophe and related-party concentration, the adequacy and sensitivity of the $63 thousand loss reserve, and the recoverability and timing of loss-experience refunds.
- Review dividend capacity and liquidity in light of collateral restrictions, subsidiary regulatory requirements, and the company’s reliance on underwriting and investment cash flows.