Oxbridge Re Holdings Limited — Q3 2019 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2019. Unaudited consolidated figures are in U.S. dollars; financial amounts below are in thousands unless stated otherwise. The company is a Cayman Islands property-catastrophe reinsurer, focused primarily on fully collateralized business in the U.S. Gulf Coast, especially Florida, with a reinsurance sidecar subsidiary, Oxbridge Re NS.
Financial performance and position
- Revenue: Q3 total revenue was $350, down from $1,254 in Q3 2018. Nine-month revenue was $577, down from $2,092. Net premiums earned were $279 and $372, respectively, versus $700 and $1,254 in the comparable periods. Management attributed the premium decline primarily to less capital deployed. No derivative income was recorded in 2019, compared with $397 in Q3 2018 and $773 for the first nine months of 2018.
- Profit: Q3 net loss was $15 (loss per share approximately $0.00), versus net income of $652 ($0.11 per share) in Q3 2018. Nine-month net loss was $366 ($0.06 per share), versus net income of $706 ($0.12 per share) in 2018. No dividends were paid.
- Expenses and underwriting: Q3 total expenses were $295 versus $368; nine-month expenses were $849 versus $1,090. General and administrative expenses fell to $264 for Q3 and $808 for nine months, from $305 and $981, respectively, which management attributed to cost-saving initiatives. The loss ratio was 0% in both years. Combined ratios rose to 105.7% for Q3 and 228.2% for nine months, from 33.5% and 53.8%; the filing attributes the increases chiefly to lower earned premiums and, for the prior year, derivative income. The nine-month expense ratio exceeded 100%.
- Cash flow and liquidity: Operating cash flow was negative $4,439 for the first nine months, versus negative $2,214 in 2018. Investing activities provided $592, versus $1,475; financing provided $600 from Series 2019-1 participating notes, versus $2,000 from Series 2018-1 notes in 2018. Cash and restricted cash totaled $8,052 at September 30, down from $11,299 at year-end 2018. Of the September balance, $6,137 was cash and equivalents and $1,915 was restricted collateral. Management stated that it believed liquidity was sufficient for operational needs.
- Balance sheet and obligations: Total assets were $9,790, compared with $12,561 at December 31, 2018; shareholders’ equity was $7,973, compared with $8,314. Loss reserves fell to $107 from $4,108, principally following payment of previously reserved catastrophe losses. Notes payable were $600, representing Series 2019-1 participating notes issued by the sidecar; the notes mature June 1, 2022. Operating lease liabilities were $140. These participating notes are associated with sidecar collateralized reinsurance, rather than described as ordinary corporate borrowing.
Changes, outlook, and risks
- Results weakened substantially year over year as lower deployed capital reduced premiums earned, while 2018 included material derivative income. The company reported no losses incurred in either the 2019 or comparable 2018 periods; the large reduction in reserves reflects payments on earlier losses, not a new-period reserve release.
- The company settled a $4 million payment obligation under its 2018 industry loss warranty swap during the first nine months of 2019. That swap expired at year-end 2018 and was not renewed.
- No quantified earnings or revenue guidance was provided. Management described selective, opportunistic underwriting and said it may reduce premium writings in a soft, overcapitalized reinsurance market rather than accept inadequately priced risk. It aims to focus on underwriting returns, with investment gains as a complement.
- Key risks include severe and unpredictable catastrophe losses, concentration in a limited number of cedants and risks, uncertainty in loss and IBNR estimates, and counterparty or broker failure. Management noted that catastrophe losses can materially affect results, capital, and future underwriting capacity. Reserves were $107, of which approximately 70% was IBNR; actual ultimate losses may differ materially.
- The company reported no material changes to the risk factors in its 2018 Form 10-K, no current litigation or arbitration, no off-balance-sheet arrangements, and no required subsequent-event disclosures. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether reduced capital deployment and premium writings continue, and what this implies for future earned premiums and expense ratios.
- The collateral, loss allocation, income distribution, and maturity terms of Series 2019-1 notes, including the director/officer’s disclosed $50 investment in the notes.
- Settlement and collateral movements associated with the expired $4 million ILW obligation, and the resulting availability of cash and restricted funds.
- Subsequent development of the $107 loss reserve, particularly the IBNR portion, and the effect of future catastrophe events on capital and underwriting capacity.
- The extent to which subsidiary regulatory capital requirements and dividend restrictions constrain cash available to the holding company.