OXBRIDGE RE HOLDINGS LIMITED — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. Unless noted otherwise, financial amounts are in thousands of U.S. dollars. The interim financial statements are unaudited.
Business context
Oxbridge is a Cayman Islands specialty property and casualty reinsurer focused on fully collateralized catastrophe reinsurance, principally in the U.S. Gulf Coast and Florida. Its Oxbridge Re NS sidecar provides additional underwriting capacity through participating notes. The company reports one operating segment.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $259 | $350 | $718 | $577 |
| Net premiums earned | $247 | $279 | $646 | $372 |
| Net investment and other income | $32 | $54 | $90 | $182 |
| Realized investment gains/(losses) | $(2) | — | $325 | $3 |
| Change in fair value of equity securities | $(18) | $17 | $(343) | $20 |
| Net loss | $(33) | $(15) | $(232) | $(366) |
| Basic and diluted loss per share | $(0.01) | $(0.00) | $(0.04) | $(0.06) |
- No losses or loss-adjustment expenses were incurred in the periods shown. The reported loss ratio was 0%.
- Combined ratio was 107.7% for Q3 2020 versus 105.7% in Q3 2019, and 129.7% for the first nine months versus 228.2% in 2019. Ratios above 100% indicate underwriting was not profitable.
- General and administrative expense was $239 in Q3 and $767 for nine months, down from $264 and $808, respectively, attributed to cost-saving initiatives. Total expenses were $266 and $838, respectively.
- At September 30, 2020, total assets were $9,106, liabilities $1,271, and shareholders’ equity $7,835, compared with $9,495, $1,452, and $8,043 at December 31, 2019.
- Cash and cash equivalents were $5,686; restricted cash was $1,693. Together these totaled $7,379, down from $8,016 at year-end 2019. Restricted funds collateralize reinsurance obligations.
- Notes payable were $216, down from $600, following redemption of Series 2019-1 notes and issuance of Series 2020-1 notes. These are sidecar participating notes, not described as conventional corporate borrowing.
- For the nine months, operating cash flow was $(278), investing cash flow $25, and financing cash flow $(384), versus $(4,439), $592, and $600, respectively, in 2019.
Changes versus prior periods
- Q3 net loss widened by $18, primarily because of unrealized investment losses; quarterly earned premiums fell $32, which management attributed to lower capital deployed.
- Nine-month net loss narrowed by $134. Earned premiums increased $274, reflecting normal premium recognition in 2020 versus accelerated recognition in the prior-year period; lower general and administrative expenses also helped.
- Nine-month realized investment gains rose to $325, while the $343 decline in equity-security fair value more than offset those gains. Equity securities were carried at $635 versus $692 at year-end 2019.
- Operating cash use improved substantially from 2019, when cash payments included $4,001 of prior-period loss claims.
Outlook, commentary, and risks
- No specific financial guidance or quantified forecast is provided. Management says the reinsurance market had shown upward pricing trends before COVID-19 and expects pandemic-related industry losses and reduced capital to support pricing, but stresses that the ultimate impact and future opportunities remain uncertain.
- Management reported no material business disruption from COVID-19; operations returned to normal by September 30, 2020 after temporary remote work and office closure.
- Key exposures include natural and man-made catastrophes, concentrated underwriting risk tied to a limited number of entities, broker and reinsurer counterparty risk, and investment-market volatility. Loss reserves are not established for future events before a loss occurs; catastrophe losses could materially affect results and cash flows.
- Subsidiaries each had net worth above the $500 minimum regulatory capital requirement at September 30, 2020. The filing states that liquidity needs were expected to be met by cash, investment income, and underwriting activity, while noting restrictions on subsidiary dividends.
- Disclosure controls were reported effective, with no material changes in internal control during the quarter. The company reported no current litigation, no off-balance-sheet arrangements, and no material subsequent events requiring disclosure.
Important facts for investors to verify
- How catastrophe exposure, contract concentration, and cedant loss reporting may affect future claims and reserve estimates; the reported reserve was zero at quarter-end.
- Whether investment gains and losses, especially equity-security fair-value changes, remain a significant source of earnings volatility.
- The composition, collateral arrangements, maturity, and noteholder economics of the $216 Series 2020-1 participating notes, including the related-party investment of $68 by a director and officer.
- How much reported cash is restricted or otherwise unavailable, and whether subsidiary capital and dividend constraints limit holding-company liquidity.
- Potential dilution: 8,230,700 warrants were outstanding, as well as 540,000 options; none were included in diluted loss per share because they were anti-dilutive.