Oxbridge Re Holdings Limited — Q2 2014 Form 10-Q
Reporting period: Three and six months ended June 30, 2014; balance-sheet comparisons are to December 31, 2013. Amounts are in U.S. dollars, generally thousands unless noted. Oxbridge is a Cayman Islands specialty property and casualty reinsurer focused on fully collateralized catastrophe coverage, primarily in Florida and the U.S. Gulf Coast.
Financial performance
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Assumed premiums | $13,767 | $4,886 | $13,825 | $4,886 |
| Net premiums earned / revenue | $899 | $212 | $1,548 | $212 |
| Total expenses | $358 | $212 | $613 | $212 |
| Net income | $541 | $0 | $935 | $0 |
| Basic and diluted EPS | $0.09 | — | $0.25 | — |
| Combined ratio | 40% | 32% | 40% | 32% |
- No losses or loss-adjustment expenses were incurred in either comparative period; the reported loss ratio was 0%. The combined ratio therefore equaled the expense ratio.
- Acquisition cost ratio rose to 14% for Q2 and 11% for the six-month period, versus 7% in each 2013 comparison. Management attributed the increases in part to a $75,000 underwriting consulting expense. General and administrative expense increased alongside expanded operations and public-company costs.
- Comparisons are affected by the company’s operating history: underwriting began in June 2013, so the 2013 periods included only one month of operations. Management also cited growth in the number and size of treaties.
Financial position, cash flow and capital
- At June 30, total assets were $50.815 million, liabilities $15.749 million, and shareholders’ equity $35.066 million. Cash and cash equivalents were $27.956 million; restricted cash held in trust was $8.876 million. The company reported no investments and no debt.
- Premiums receivable were $13.483 million, unearned premiums reserve $12.653 million, and loss-experience refund payable $3.027 million. No loss reserve was recorded at period-end.
- For the six months, operating cash flow was $633,000, investing cash outflow $54,000, and financing cash flow $26.682 million. Cash increased by $27.261 million to $27.956 million, principally reflecting the March 2014 IPO.
- The IPO sold 4,884,650 units at $6 each and generated approximately $26.9 million of net proceeds. At June 30, 6 million ordinary shares were outstanding and 8,230,700 warrants were outstanding, generally exercisable at $7.50 per share. The filing says warrants were not dilutive for the period.
- Subsidiary net worth of $7.3 million exceeded its $500,000 Cayman Islands minimum and prescribed capital requirement. Management said cash, underwriting receipts and investment income should meet liquidity needs for at least 12 months; it reported no plans to issue debt.
Material developments, outlook and risks
- Effective June 1, 2014, the company entered into three catastrophe excess-of-loss treaties providing approximately $24.5 million of fully collateralized coverage; two were with an unrelated Florida insurer. A further industry loss warranty treaty provided about $2 million of coverage effective July 1.
- After quarter-end, approximately $17.5 million of collateral was deposited into trust accounts. The boards declared a $720,000 dividend, payable to shareholders of record August 8, 2014. The filing also reports increased executive compensation and bonuses approved August 9.
- Management’s strategy is selective underwriting and a focus on underwriting rather than investment profits. It provided no numerical earnings or revenue guidance. Results are exposed to hurricane seasonality, catastrophe severity, competition and other insurance-market factors. U.S. GAAP does not permit reserves for future catastrophe losses before an insured event occurs.
- Underwriting is concentrated: substantially all current business ultimately relates to risks of two Florida entities, including related parties Claddaugh and HCPCI. Related-party balances included $4.884 million of premiums receivable, $2.568 million of loss-experience refund payable and $4.648 million of unearned premiums at June 30.
- Contracts with retrospective provisions may require premium refunds when losses are absent. The company estimated aggregate liabilities of approximately $8.2 million from June 2014 through May 2015 assuming no losses during that period; a covered loss could reduce the liability. Management identified loss reserves and refund liabilities as estimates subject to uncertainty.
- No litigation or arbitration was pending, no material changes to previously disclosed risk factors were reported, and the company reported no off-balance-sheet arrangements. Operating lease commitments totaled approximately $41,000.
Important facts for investors to verify
- How much catastrophe exposure and collateral attach to the new treaties, and whether coverage remains fully collateralized as contracts and premiums develop.
- The concentration and related-party nature of underwriting, including counterparty payment risk and the terms of agreements with Claddaugh and HCPCI.
- How refund liabilities, unearned premiums and any future catastrophe claims affect earned premiums, earnings and available liquidity.
- The effect of 8.23 million outstanding warrants, exercisable at $7.50, on potential dilution, and the subsidiary’s regulatory constraints on dividends to the holding company.
- Whether the post-quarter $17.5 million collateral transfer and $720,000 dividend leave adequate operating and claims-paying liquidity.