OXBRIDGE RE HOLDINGS LIMITED — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; unaudited. Amounts are in U.S. dollars, generally in thousands unless otherwise noted. Oxbridge is a Cayman Islands specialty property-and-casualty reinsurer focused on fully collateralized catastrophe reinsurance, primarily in the U.S. Gulf Coast and Florida, and invests in insurance-linked securities.
Financial results and position
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| Total revenue | $115 | $1,636 |
| Net premiums earned | $220 | $1,548 |
| Net income (loss) | $(211); $(0.04) per basic and diluted share | $1,270; $0.22 per share |
| Net investment income | $72 | $86 |
| Net realized investment gains (losses) | $(173) | $2 |
| Equity-security fair-value change | $(172) | Not reported as a separate income-statement item |
| Total expenses | $326 | $366 |
| Operating cash flow | $319 provided | $12 provided |
- Underwriting ratios: loss ratio 0.0% (2017: (2.1)%); acquisition-cost ratio 3.6% (4.1%); expense ratio 84.0% (25.7%); combined ratio 84.0% (23.6%).
- At March 31, total assets were $21.130 million, total liabilities $7.395 million, and shareholders’ equity $13.735 million. Investments totaled $5.858 million.
- Cash and cash equivalents were $5.222 million and restricted cash was $6.240 million, for $11.462 million combined. Restricted funds are held as collateral under trust agreements and are not freely available for general use.
- Loss and loss-adjustment reserves were $4.154 million; unearned premiums $1.657 million; premiums receivable $3.582 million. The filing reports no debt balance and says the company has no plans to issue debt.
- Investing activities provided $256 thousand, principally from net securities sales; financing cash flow was zero. No dividend was paid in Q1 2018, versus $0.12 per share in Q1 2017.
Material changes and management commentary
- Net loss replaced prior-year profit, and revenue fell substantially. Management attributes the premium decline to reduced capital deployed and prior acceleration of premium recognition after full-limit losses on all reinsurance contracts in Q3 2017. Q1 2018 earned premium mainly related to one multi-year contract.
- Q1 2018 had no incurred losses or adverse loss development; the reserve fell by $682 thousand as previously reserved weather-event claims were settled. No loss payments arose from current-quarter events.
- Management says the $172 thousand equity-security fair-value loss affected earnings following adoption of ASU 2016-01 on January 1, 2018, which moved equity-security fair-value changes into net income. The company also recorded $173 thousand of net realized investment losses.
- In January 2018, the company entered an inward industry loss warranty swap covering specified catastrophe events through December 2018. It received a fixed $1 million payment, has a maximum potential payment obligation of $4 million, and recorded a $830 thousand fair-value liability at March 31. The company reported no triggering industry-loss event in the quarter and recognized a $168 thousand derivative gain.
- Management describes the reinsurance market as overcapitalized and says it will write less business rather than accept inadequately priced risk, preserving capital for more attractive conditions. It underwrites selectively and opportunistically; results may be volatile and seasonal, with catastrophe season generally June through November. No numerical earnings or revenue guidance is provided.
- Key risks include low-frequency, high-severity catastrophe claims; uncertainty in loss and IBNR estimates; and concentrated underwriting exposure, with a substantial portion of current business ultimately related to two Florida-domiciled entities. The subsidiary’s reported net worth of $5.7 million exceeded its $500 thousand regulatory minimum, though regulatory limits constrain dividends to the parent.
- Management stated it had sufficient operating cash flows for liquidity needs. It also noted catastrophe losses in 2017 reduced surplus and may constrain future underwriting capacity. No off-balance-sheet arrangements or current litigation were reported; management said disclosure controls were effective and there were no material changes in internal controls during the quarter.
Investor verification points
- Check the drivers and sustainability of the sharp decline in earned premiums, including the impact of prior-period accelerated recognition and lower capital deployed.
- Review the inward ILW swap’s counterparty-model valuation, $830 thousand liability, $4 million maximum exposure, and subsequent catastrophe-trigger status.
- Reconcile the reported $4.154 million balance-sheet loss reserve with MD&A’s approximately $4.2 million best estimate and 29% IBNR estimate; assess potential reserve development.
- Assess liquidity available outside restricted trust cash, collateral requirements, and the subsidiary’s ability to remit dividends under Cayman regulatory constraints.
- Monitor concentration in Florida-related exposures, catastrophe-season risk, and management’s underwriting discipline amid its stated view of market overcapacity.