OXBRIDGE RE HOLDINGS LIMITED — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014. Unaudited consolidated financial statements; amounts below are U.S. dollars unless stated otherwise. The company is a Cayman Islands specialty reinsurer focused on fully collateralized catastrophe coverage, initially concentrated in the U.S. Gulf Coast. It began underwriting in June 2013, so there is no comparable Q1 2013 operating period.
Financial results and position
- Revenue: $648,000 of net premiums earned, including $58,000 of premiums assumed. The reported revenue also reflects a $586,000 change in loss-experience refund payable and a $1.176 million change in unearned premiums reserve.
- Profit and margins: Net income was $393,000; basic and diluted EPS were each $0.28. The reported expense ratio and combined ratio were 39.4%; the acquisition cost ratio was 6.6%. No losses or loss-adjustment expenses were incurred. The simple net margin was approximately 60.6% of revenue.
- Cash flow: Operating cash flow was $1.205 million; investing cash flow was negative $50,000, mainly for property and equipment; financing cash flow was $26.633 million, principally from the IPO, offset in part by dividends. Cash and cash equivalents rose to $28.483 million from $695,000.
- Liquidity and assets: Restricted cash was $8.865 million, making cash plus restricted cash $37.348 million. Total assets were $37.530 million. The filing says management believes available resources will cover operational needs for at least the next 12 months.
- Liabilities and capital: Total liabilities were $3.055 million, including a $1.953 million loss-experience refund payable and an $860,000 unearned-premiums reserve. No loss reserve or debt was reported. Shareholders’ equity was $34.475 million, up from $7.449 million at year-end, largely reflecting the IPO. The subsidiary reported regulatory net worth of $6.8 million against a $500,000 minimum capital requirement.
Material changes and significant events
- The March 26, 2014 IPO sold 4,884,650 units at $6.00 each, generating approximately $29.3 million gross and $26.9 million net proceeds. The filing says no offering proceeds had been used by March 31; management intended to put approximately half toward the reinsurance subsidiary’s statutory capital and surplus.
- Shares outstanding increased to 6,000,000 from 1,115,350 at December 31, 2013. There were 8,230,700 warrants outstanding, exercisable at $7.50 per share; the company reported no dilution in Q1 because the exercise price exceeded the average market price.
- Cash dividends of $268,000 were paid in Q1, equivalent to $0.24 per share as reported. The subsidiary’s ability to upstream dividends is subject to Cayman Islands regulatory constraints.
- Q1 2014 results are not meaningfully comparable with Q1 2013: the company had not yet begun underwriting in the prior-year quarter.
Outlook, risks, and unusual items
- No numerical earnings or revenue guidance was provided. Management said it expects general and administrative expenses to rise as a public company and plans selective underwriting, prioritizing underwriting profits over investment profits. It stated that it expects to fund operations through cash flow and IPO proceeds and had no current plans to issue debt.
- Catastrophe risk is material and seasonal, with hurricane activity typically occurring June through November. The company cannot establish reserves for future catastrophe events before a loss occurs under U.S. GAAP; actual losses could materially affect results and liquidity.
- Underwriting exposure was not significantly diversified: substantially all current business ultimately related to one entity under common directorship. A newly described contract with an unrelated Dallas insurer provided $250,000 of fully collateralized coverage, with an option for an additional $250,000 reinstatement.
- Contracts with retrospective premium-refund provisions make reported revenue and the refund liability sensitive to loss experience. The filing estimates aggregate payments of approximately $2.3 million from June 2013 through May 2014 if no losses occur; the liability was $1.953 million at quarter-end.
- Management identified loss reserves, refund payable, and deferred acquisition costs as estimates subject to uncertainty. No premium deficiency or impairment was recorded. The company disclosed $137,000 of lease and underwriting-advisory commitments, all due within one year, and no off-balance-sheet arrangements or current litigation.
Important facts for investors to verify
- How the $1.953 million refund payable and $860,000 unearned-premiums reserve develop as contracts expire or losses arise.
- The exact cedant concentration, related-party relationships, and collateral terms for each reinsurance contract, including the $250,000 coverage figures.
- Whether and when IPO proceeds are transferred to the subsidiary, and how that affects regulatory capital, liquidity, and capacity to write business.
- The impact of catastrophe losses, which may be large despite the absence of Q1 claims and reported loss reserves.
- Potential dilution and capital effects from the 8,230,700 warrants, including their exercise or cancellation terms.
- The sustainability of Q1 earnings and dividend levels; this is an early-stage insurer with no comparable prior-year-quarter operating results.