Oxbridge Re Holdings Limited — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022; unaudited, consolidated GAAP results. Amounts are in U.S. dollars, thousands, except per-share data. The company provides collateralized property-catastrophe reinsurance, primarily in the U.S. Gulf Coast, and invests in insurance-linked and other securities.
Financial performance and position
- Q2 revenue and earnings: Total revenue was $503, down from $805 in Q2 2021. Net income was $77, or $0.01 per diluted share, versus $448, or $0.08 per share.
- First-half results: Total revenue was $505, compared with $1,125 in 2021. The company recorded a net loss of $310, or $0.05 per share, versus net income of $476, or $0.08 per share.
- Premiums and underwriting: Net premiums earned were $194 in Q2 (versus $205) and $404 for the first half (versus $386). No losses or loss-adjustment expenses were recorded in either comparable period. The first-half expense and combined ratios were 191.1%, up from 157.3%, primarily reflecting higher general and administrative expenses; the Q2 combined ratio was 211.3%, versus 162.9%.
- Investment results: First-half net realized investment gains were $27, compared with $755 in 2021. A $341 first-half unrealized gain on the OXAC-related investment was partly offset by a $342 loss from changes in equity-security fair values. Q2 included a $571 unrealized gain on the other investment and a $322 equity-security fair-value loss.
- Cash flow and liquidity: First-half operating cash flow was negative $475, versus negative $208 in 2021; investing cash flow was negative $376, versus positive $698. Cash and cash equivalents were $2.393 million and restricted cash was $2.174 million at quarter-end, totaling $4.567 million, down from $5.418 million at year-end. Restricted funds are held to collateralize reinsurance obligations.
- Balance sheet and debt: Total assets were $17.671 million and total liabilities $1.266 million at June 30. Notes payable to participating noteholders remained $216, due June 1, 2023. Shareholders’ equity was reported as $16.405 million.
Changes, outlook, and risks
- Compared with the prior-year periods, earnings declined sharply, mainly because realized investment gains were much lower and equity-security fair-value losses were larger. Higher G&A costs also drove the increase in expense and combined ratios. First-half net premiums earned rose modestly.
- Management said it believes available cash flows and liquidity are sufficient for operating needs, expects to fund operations through cash, investment income, and underwriting activity, and has no current plans to issue debt. No quantified earnings or premium guidance was provided. Management cautions that results can fluctuate with opportunistic underwriting, investment performance, and seasonal catastrophe activity.
- Material investment risk: The company’s $11.514 million OXAC-related investment is Level 3 and relies on significant valuation assumptions. The filing states the company’s $2 million cost basis is at risk if OXAC fails to complete a business combination by November 16, 2022, or by May 16, 2023 if extended. A decline in fair value could materially reduce earnings and equity.
- Other key risks include concentrated underwriting exposure, potentially severe catastrophe losses, and uncertainty in loss reporting and reserve estimates. No loss reserves were recorded at quarter-end; GAAP does not permit reserves for future events before a loss occurs. The company also identifies a risk of being deemed an investment company under U.S. law. It reported no litigation, no material risk-factor changes other than the highlighted OXAC risks, and no off-balance-sheet arrangements.
Important facts for investors to verify
- Reconcile the OXAC Level 3 valuation, its discount and other assumptions, business-combination deadline, and potential loss exposure.
- Review the cash-flow decline and distinguish unrestricted cash from cash pledged as reinsurance collateral; assess liquidity against catastrophe and operating needs.
- Assess whether premium volume and earned premiums can support the expense base, given combined ratios above 100% and rising G&A.
- Check the filing’s internal numerical differences: the primary statements report Q2 weighted-average shares of 5,781,586, while MD&A gives 5,751,586; the balance sheet and equity statement also differ on additional paid-in capital and accumulated deficit ($32.429 million and $(16.030) million versus $32.419 million and $(16.020) million).
- Monitor catastrophe exposure, claims reported after period-end, regulatory capital and dividend restrictions, and the $216 thousand Series 2020-1 notes due in 2023.