Blueprint
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark
One)
☒
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
quarterly period ended September 30, 2016
☐
TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
transition period from __________ to __________
Commission
File Number: 1-36346
OXBRIDGE RE HOLDINGS LIMITED
|
(Exact
name of registrant as specified in its charter)
|
Cayman
Islands
|
|
98-1150254
|
(State
or other jurisdiction of incorporation or
organization)
|
|
(I.R.S.
Employer Identification
No.)
|
Strathvale
House, 2nd
Floor90 North Church Street, Georgetown P.O. Box 469
Grand
Cayman, Cayman Islands
|
|
KY1-9006
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
Registrant’s
telephone number, including area code: (345) 749-7570
Indicate by check
mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days. Yes
☑ No ☐
Indicate by check
mark whether the registrant has submitted electronically and posted
on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes
☑ No ☐
Indicate by check
mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange
Act.
Large accelerated
filer
|
☐
|
Accelerated
filer
|
☐
|
Non-accelerated
filer
|
☐
|
Smaller reporting
company
|
☑
|
Indicate by check
mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
☐
No ☑
Indicate the number
of shares outstanding of each of the issuer’s classes of
common stock, as of the latest practicable date.
As of
October 24, 2016; 5,960,324 ordinary shares, par value $0.001 per
share, were outstanding.
OXBRIDGE RE HOLDINGS LIMITED
INDEX
PART I – FINANCIAL INFORMATION
|
Page
|
|
|
|
Item
1.
|
Financial
Statements
|
|
|
|
|
|
Consolidated
Balance Sheets September 30, 2016
(unaudited) and December 31, 2015
|
3
|
|
|
|
|
Consolidated
Statements of Income Three and Nine
months Ended September 30, 2016 and 2015 (unaudited)
|
4
|
|
|
|
|
Consolidated
Statements of Comprehensive Income Three and Nine
months Ended September 30, 2016 and 2015 (unaudited)
|
5
|
|
|
|
|
Consolidated
Statements of Cash Flows Nine months Ended
September 30, 2016 and 2015 (unaudited)
|
6
|
|
|
|
|
Consolidated
Statements of Changes in Shareholders’ Equity
Nine
months Ended September 30, 2016 and 2015 (unaudited)
|
8
|
|
|
|
|
Notes
to Consolidated Financial Statements (unaudited)
|
9
|
|
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
31
|
|
|
|
Item
3.
|
Quantitative and
Qualitative Disclosures About Market Risk
|
42
|
|
|
|
Item
4.
|
Controls and
Procedures
|
42
|
|
|
|
PART II – OTHER INFORMATION
|
|
|
|
|
Item
1.
|
Legal
Proceedings
|
43
|
|
|
|
Item
1A.
|
Risk
Factors
|
43
|
|
|
|
Item
2.
|
Unregistered Sales
of Equity Securities and Use of Proceeds
|
43
|
|
|
|
Item
3.
|
Defaults Upon
Senior Securities
|
44
|
|
|
|
Item
4.
|
Mine
Safety Disclosures
|
44
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|
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|
Item
5.
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Other
Information
|
44
|
|
|
|
Item
6.
|
Exhibits
|
44
|
|
|
|
|
Signatures
|
45
|
|
|
|
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARY
|
Consolidated Balance Sheets
|
(expressed in thousands of U.S. Dollars, except per share and share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
Investments:
|
|
|
Fixed-maturity
securities, available for sale, at fair value (amortized cost:
$6,081 and $3,080, respectively)
|
$6,074
|
3,096
|
Equity
securities, available for sale, at fair value (cost: $6,801 and
$7,742, respectively)
|
6,359
|
6,252
|
Total
investments
|
12,433
|
9,348
|
Cash
and cash equivalents
|
9,478
|
8,584
|
Restricted
cash and cash equivalents
|
26,296
|
30,368
|
Accrued
interest and dividend receivable
|
26
|
25
|
Premiums
receivable
|
9,448
|
4,117
|
Deferred
policy acquisition costs
|
162
|
90
|
Prepayment
and other receivables
|
95
|
91
|
Property
and equipment, net
|
59
|
64
|
|
$57,997
|
52,687
|
|
|
|
Liabilities and Shareholders’ Equity
|
|
|
Liabilities:
|
|
|
Reserve
for losses and loss adjustment expenses
|
$972
|
-
|
Loss
experience refund payable
|
6,818
|
9,913
|
Unearned
premiums reserve
|
9,526
|
5,571
|
Accounts
payable and other liabilities
|
212
|
176
|
Total
liabilities
|
17,528
|
15,660
|
|
|
|
Shareholders’
equity:
|
|
|
Ordinary
share capital, (par value $0.001, 50,000,000 shares authorized;
5,981,613 and 6,060,000 shares issued and outstanding at September
30, 2016 and December 31, 2015, respectively)
|
6
|
6
|
Additional
paid-in capital
|
33,348
|
33,657
|
Retained
earnings
|
7,564
|
4,838
|
Accumulated
other comprehensive loss
|
(449)
|
(1,474)
|
Total
shareholders’ equity
|
40,469
|
37,027
|
Total
liabilities and shareholders’ equity
|
$57,997
|
52,687
|
|
|
|
The
accompanying Notes to Consolidated Financial Statements are an
integral
part of
the Consolidated Financial Statements.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARY
|
Consolidated Statements of Income (unaudited)
|
(expressed in thousands of U.S. Dollars, except per share and share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
Assumed
premiums
|
$-
|
-
|
$15,065
|
14,888
|
Change
in loss experience refund payable
|
(2,089)
|
(2,089)
|
(4,465)
|
(6,204)
|
Change
in unearned premiums reserve
|
4,007
|
3,881
|
(3,955)
|
(3,708)
|
|
|
|
|
|
Net
premiums earned
|
1,918
|
1,792
|
6,645
|
4,976
|
Net
realized investment gain / (loss)
|
122
|
(303)
|
256
|
673
|
Net
investment income
|
126
|
90
|
327
|
262
|
Other-than-temporary
impairment losses
|
-
|
(399)
|
-
|
(399)
|
|
|
|
|
|
|
2,166
|
1,180
|
7,228
|
5,512
|
|
|
|
|
|
Expenses
|
|
|
|
|
Losses
and loss adjustment expenses (credit)
|
(1,248)
|
-
|
1,030
|
-
|
Policy
acquisition costs and underwriting expenses
|
83
|
85
|
211
|
259
|
General
and administrative expenses
|
346
|
353
|
1,087
|
1,024
|
|
|
|
|
|
Total
expenses (credit)
|
(819)
|
438
|
2,328
|
1,283
|
|
|
|
|
|
Net
income
|
$2,985
|
742
|
$4,900
|
4,229
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
Basic
and Diluted
|
$0.50
|
0.12
|
$0.81
|
0.70
|
|
|
|
|
|
|
|
|
|
|
Dividends paid per share
|
$0.12
|
0.12
|
$0.36
|
0.36
|
The
accompanying Notes to Consolidated Financial Statements are an
integral
part of
the Consolidated Financial Statements.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARY
|
Consolidated Statements of Comprehensive Income (unaudited)
|
(expressed in thousands of U.S. Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
$2,985
|
742
|
$4,900
|
4,229
|
Other
comprehensive income:
|
|
|
|
|
Change
in unrealized gain on investments:
|
|
|
|
|
Unrealized
gain / (loss) arising during the period
|
304
|
(1,209)
|
1,281
|
(1,967)
|
Other-than-temporary
impairment losses
|
-
|
399
|
-
|
399
|
Reclassification
adjustment for net realized (gain) / loss included in net
income
|
(122)
|
303
|
(256)
|
(673)
|
|
|
|
|
|
Net
change in unrealized gain / (loss)
|
182
|
(507)
|
1,025
|
(2,241)
|
|
|
|
|
|
Total
other comprehensive income / (loss)
|
182
|
(507)
|
1,025
|
(2,241)
|
|
|
|
|
|
Comprehensive
income
|
3,167
|
235
|
5,925
|
1,988
|
The
accompanying Notes to Consolidated Financial Statements are an
integral
part of
the Consolidated Financial Statements.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARY
|
Consolidated Statements of Cash Flows (unaudited)
|
(expressed in thousands of U.S. Dollars)
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
Net
income
|
$4,900
|
4,229
|
Adjustments to reconcile net
income to net cash provided by operating activities:
|
|
Stock-based
compensation
|
90
|
88
|
Depreciation
and amortization
|
16
|
12
|
Net
realized investment gains
|
(256)
|
(673)
|
Other-than-temporary
impairment losses
|
-
|
399
|
Change
in operating assets and liabilities:
|
|
|
Accrued
interest and dividend receivable
|
(1)
|
(6)
|
Premiums
receivable
|
(5,331)
|
(2,648)
|
Deferred
policy acquisition costs
|
(72)
|
(43)
|
Prepayment
and other receivables
|
(4)
|
(41)
|
Reserve
for loss and loss adjustment expenses
|
972
|
-
|
Loss
experience refund payable
|
(3,095)
|
691
|
Unearned
premiums reserve
|
3,955
|
3,708
|
Accounts
payable and other liabilities
|
36
|
(6)
|
|
|
|
Net
cash provided by operating activities
|
$1,210
|
5,710
|
|
|
|
Investing activities
|
|
|
Change
in restricted cash and cash equivalents
|
4,072
|
(1,974)
|
Purchase
of fixed-maturity securities
|
(3,111)
|
(1,101)
|
Purchase
of equity securities
|
(8,030)
|
(10,814)
|
Proceeds
from sale of fixed-maturity and equity securities
|
9,337
|
11,477
|
Purchase
of property and equipment
|
(11)
|
(25)
|
|
|
|
Net
cash provided by / (used in) investing activities
|
$2,257
|
(2,437)
|
|
|
|
Financing activities
|
|
|
Repurchases
of common stock under share repurchase plan
|
(399)
|
-
|
Cash
dividends paid
|
(2,174)
|
(2,182)
|
|
|
|
Net
cash used in financing activities
|
$(2,573)
|
(2,182)
|
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARY
|
Consolidated Statements of Cash Flows
|
(expressed in thousands of U.S. Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
change in cash and cash equivalents
|
894
|
1,091
|
Cash
and cash equivalents at beginning of period
|
8,584
|
5,317
|
|
|
|
Cash
and cash equivalents at end of period
|
$9,478
|
6,408
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
Interest
paid
|
-
|
-
|
Income
taxes paid
|
-
|
-
|
|
|
|
Non-cash investing activities
|
|
|
Net
change in unrealized gain (loss) on securities available for
sale
|
1,025
|
(2,241)
|
The
accompanying Notes to Consolidated Financial Statements are an
integral
part of
the Consolidated Financial Statements.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARY
|
Consolidated Statements of Changes in Shareholders' Equity
|
Nine Months Ended September 30, 2016 and 2015 (unaudited)
|
(expressed in thousands of U.S. Dollars, except number of shares
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2014
|
6,000,000
|
6
|
33,540
|
3,145
|
17
|
36,708
|
Cash
dividends
|
-
|
-
|
-
|
(2,182)
|
-
|
(2,182)
|
Net
income for the period
|
-
|
-
|
-
|
4,229
|
-
|
4,229
|
Issuance
of restricted stock
|
60,000
|
-
|
-
|
-
|
-
|
-
|
Stock-based
compensation
|
|
-
|
88
|
-
|
-
|
88
|
Total
other comprehensive loss
|
-
|
-
|
-
|
-
|
(2,241)
|
(2,241)
|
Balance
at September 30, 2015
|
6,060,000
|
6
|
33,628
|
5,192
|
(2,224)
|
36,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2015
|
6,060,000
|
6
|
33,657
|
4,838
|
(1,474)
|
37,027
|
Cash
dividends
|
-
|
-
|
-
|
(2,174)
|
-
|
(2,174)
|
Repurchase
and retirement of common stock under share repurchase
plan
|
(78,387)
|
-
|
(399)
|
-
|
-
|
(399)
|
Net
income for the period
|
-
|
-
|
-
|
4,900
|
-
|
4,900
|
Stock-based
compensation
|
-
|
-
|
90
|
-
|
-
|
90
|
Total
other comprehensive income
|
-
|
-
|
-
|
-
|
1,025
|
1,025
|
Balance
at September 30, 2016
|
5,981,613
|
6
|
33,348
|
7,564
|
(449)
|
40,469
|
The
accompanying Notes to Consolidated Financial Statements are an
integral
part of
the Consolidated Financial Statements.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARY
Notes to Consolidated Financial Statements (unaudited)
September 30, 2016
1.
ORGANIZATION
AND BASIS OF PRESENTATION
Oxbridge Re
Holdings Limited was incorporated as an exempted company on April
4, 2013 under the laws of the Cayman Islands. Oxbridge Re Holdings
Limited owns 100% of the equity interest in Oxbridge Reinsurance
Limited (the “Subsidiary”), an entity incorporated on
April 23, 2013 under the laws of the Cayman Islands and for which a
Class “C” Insurer’s license was granted on April
29, 2013 under the provisions of the Cayman Islands Insurance Law.
Oxbridge Re Holdings Limited and the Subsidiary (collectively, the
“Company”) have their registered offices at P.O. Box
309, Ugland House, Grand Cayman, Cayman Islands.
The
Company’s ordinary shares and warrants are listed on The
NASDAQ Capital Market under the symbols “OXBR” and
“OXBRW,” respectively.
The
Company operates as a single business segment through the
Subsidiary, which provides collateralized reinsurance to cover
excess of loss catastrophe risks of various affiliated and
nonaffiliated ceding insurers, including Claddaugh Casualty
Insurance Company, Ltd. (“Claddaugh”) and Homeowners
Choice Property & Casualty Insurance Company
(“HCPCI”), which are related-party entities domiciled
in Bermuda and Florida, respectively.
(b)
Basis
of Presentation
The
accompanying unaudited, consolidated financial statements of the
Company have been prepared in accordance with accounting principles
generally accepted in the United States of America
(“GAAP”) for interim financial information, and the
Securities and Exchange Commission (“SEC”) rules for
interim financial reporting. Certain information and
footnote disclosures normally included in consolidated financial
statements prepared in accordance with GAAP have been omitted
pursuant to such rules and regulations. However, in the
opinion of management, the accompanying interim consolidated
financial statements reflect all normal recurring adjustments
necessary to present fairly the Company’s consolidated
financial position as of September 30, 2016 and the consolidated
results of operations and cash flows for the periods presented. The
consolidated results of operations for interim periods are not
necessarily indicative of the results of operations to be expected
for any
subsequent interim period or for the fiscal year ended
December 31, 2016. The accompanying unaudited consolidated
financial statements and notes thereto should be read
in conjunction with the audited consolidated financial statements
for the year ended December 31, 2015 included in the
Company’s Form 10-K, which was filed with the SEC on March
17, 2016.
In
preparing the interim unaudited consolidated financial statements,
management was required to make certain estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues,
expenses and related disclosures at the financial reporting date
and throughout the periods being reported upon. Certain of the
estimates result from judgments that can be subjective and complex
and consequently actual results may differ from these estimates,
which would be reflected in future periods.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARY
Notes to Consolidated Financial Statements (unaudited)
September 30, 2016
Material estimates
that are particularly susceptible to significant change in the
near-term relate to the determination of the reserve for losses and loss adjustment
expenses, which include amounts
estimated for claims incurred but not yet reported. The Company
uses various assumptions and actuarial data it believes to be
reasonable under the circumstances to make these estimates. In
addition, accounting policies specific to valuation of investments, assessment of
other-than-temporary impairment (“OTTI”) and loss
experience refund payable involve significant
judgments and estimates material to the Company’s
consolidated financial statements. Although considerable
variability is likely to be inherent in these estimates, management
believes that the amounts provided are reasonable. These estimates
are continually reviewed and adjusted if necessary. Such
adjustments are reflected in current operations.
All
significant intercompany balances and transactions have been
eliminated.
2.
SIGNIFICANT
ACCOUNTING POLICIES
Cash and cash
equivalents: Cash and cash equivalents are comprised of cash
and short term investments with original maturities of three months
or less.
Restricted
cash and cash equivalents: Restricted cash and cash equivalents represent
funds held in accordance with the Company’s trust agreements
with ceding insurers and trustees, which require the Company to
maintain collateral with a market value greater than or equal to
the limit of liability, less unpaid premium.
Investments:
The Company’s investments consist of fixed-maturity
securities and equity securities, and are classified as
available-for-sale. The Company’s investments are carried at
fair value with changes in fair value included as a separate
component of accumulated other comprehensive loss in
shareholders’ equity.
Unrealized gains or
losses are determined by comparing the fair market value of the
securities with their cost or amortized cost. Realized gains and
losses on investments are recorded on the trade date and are
included in the consolidated statements of income. The cost of
securities sold is based on the specified identification method.
Investment income is recognized as earned and discounts or premiums
arising from the purchase of debt securities are recognized in
investment income using the interest method over the remaining term
of the security.
The
Company reviews all securities for other-than-temporary impairment
("OTTI") on a quarterly basis and more frequently when economic or
market conditions warrant such review. When the fair value of any
investment is lower than its cost, an assessment is made to see
whether the decline is temporary of other-than-temporary. If the
decline is determined to be other-than-temporary the investment is
written down to fair value and an impairment charge is recognized
in income in the period in which the Company makes such
determination. For a debt security that the Company does not intend
to sell nor is it more likely than not that the Company will be
required to sell before recovery of its amortized cost, only the
credit loss component is recognized in income, while impairment
related to all other factors is recognized in other comprehensive
income (loss). The Company considers various factors in determining
whether an individual security is other-than-temporarily impaired
(see Note 4).
OXBRIDGE
RE HOLDINGS LIMITED AND SUBSIDIARY
Notes
to Consolidated Financial Statements (unaudited)
September
30, 2016
Fair value
measurement: GAAP establishes a fair value hierarchy that
prioritizes the inputs to valuation techniques used to measure fair
value. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets (Level 1
measurements) and the lowest priority to unobservable inputs (Level
3 measurements). The three levels of the fair value hierarchy under
GAAP are as follows:
Level
1
|
Inputs
that reflect unadjusted quoted prices in active markets for
identical assets or liabilities that the Company has the ability to
access at the measurement date;
|
|
|
Level
2
|
Inputs
other than quoted prices that are observable for the asset or
liability either directly or indirectly, including inputs in
markets that are not considered to be active; and
|
|
|
Level
3
|
Inputs
that are unobservable.
|
Inputs
are used in applying the various valuation techniques and broadly
refer to the assumptions that market participants use to make
valuation decisions, including assumptions about risk. For debt
securities, inputs may include price information, volatility
statistics, specific and broad credit data, liquidity statistics,
broker quotes for similar securities and other factors. The fair
value of investments in common stocks and exchange-traded funds is
based on the last traded price. A financial instrument’s
level within the fair value hierarchy is based on the lowest level
of any input that is significant to the fair value measurement.
However, the determination of what constitutes
“observable” requires significant judgment by the
Company’s investment custodians. The investment custodians
consider observable data to be market data which is readily
available, regularly distributed or updated, reliable and
verifiable, not proprietary, and provided by independent sources
that are actively involved in the relevant markets. The
categorization of a financial instrument within the hierarchy is
based upon the pricing transparency of the instrument.
Deferred
policy acquisition costs (“DAC”): Policy acquisition costs consist of brokerage
fees, federal excise taxes and other costs related directly to the
successful acquisition of new or renewal insurance contracts, and
are deferred and amortized over the terms of the reinsurance
agreements to which they relate. The Company evaluates the
recoverability of DAC by determining if the sum of future earned
premiums and anticipated investment income is greater than the
expected future claims and expenses. If a loss is probable on the
unexpired portion of policies in force, a premium deficiency loss
is recognized. At September 30, 2016, the DAC was considered fully
recoverable and no premium deficiency loss was
recorded.
Property
and equipment: Property and equipment are recorded at cost when
acquired. Property and equipment are comprised of motor vehicles,
furniture and fixtures, computer equipment and leasehold
improvements and are depreciated, using the straight-line method,
over their estimated useful lives, which are five years for
furniture and fixtures and computer equipment and four years for
motor vehicles. Leasehold improvements are amortized over the
lesser of the estimated useful lives of the assets or remaining
lease term. The Company periodically reviews property and equipment
that have finite lives, and that are not held for sale, for
impairment by comparing the carrying value of the assets to their
estimated future undiscounted cash flows. For the three-month and
nine-month periods ended September 30, 2016, there were no
impairments in property and equipment.
OXBRIDGE
RE HOLDINGS LIMITED AND SUBSIDIARY
Notes
to Consolidated Financial Statements (unaudited)
September
30, 2016
Allowance for
uncollectible receivables: Management evaluates credit
quality by evaluating the exposure to individual counterparties;
where warranted management also considers the credit rating or
financial position, operating results and/or payment history of the
counterparty. Management establishes an allowance for amounts for
which collection is considered doubtful. Adjustments to previous
assessments are recognized as income in the year in which they are
determined. At September 30, 2016, no receivables were determined
to be overdue or impaired and, accordingly, no allowance for
uncollectible receivables has been established.
Reserves for
losses and loss adjustment
expenses: The Company determines its reserves for losses and
loss adjustment expenses on the basis of the claims reported by the
Company’s ceding insurers and for losses incurred but not
reported (“IBNR”, management uses the assistance of an
independent actuary. The reserves for losses and loss adjustment
expenses represent management’s best estimate of the ultimate
settlement costs of all losses and loss adjustment expenses.
Management believes that the amounts are adequate; however, the
inherent impossibility of predicting future events with precision,
results in uncertainty as to the amount which will ultimately be
required for the settlement of losses and loss expenses, and the
differences could be material. Adjustments are reflected in
the consolidated
statements of income in the period in which they are
determined.
Loss experience
refund payable: Certain contracts include retrospective
provisions that adjust premiums or result in profit commissions in
the event losses are minimal or zero. In accordance with GAAP, the
Company will recognize a liability in the period in which the
absence of loss experience obligates the Company to pay cash or
other consideration under the contracts. On the contrary, the
Company will derecognize such liability in the period in which a
loss experience arises. Such adjustments to the liability, which
accrue throughout the contract terms, will reduce the liability
should a catastrophic loss event covered by the Company
occur.
Premiums
assumed: The Company records premiums assumed, net of loss
experience refunds, as earned pro-rata over the terms of the
reinsurance agreements and the unearned portion at the balance
sheet date is recorded as unearned premiums reserve. A reserve is
made for estimated premium deficiencies to the extent that
estimated losses and loss adjustment expenses exceed related
unearned premiums. Investment income is not considered in
determining whether or not a deficiency exists.
Certain
contracts allow for reinstatement premiums in the event of a full
limit loss prior to the expiration of the contract. A reinstatement
premium is not due until there is a full limit loss event and
therefore, in accordance with GAAP, the Company records a
reinstatement premium as written only in the event that the
reinsured incurs a full limit loss on the contract and the contract
allows for a reinstatement of coverage upon payment of an
additional premium. For catastrophe contracts which contractually
require the payment of a reinstatement premium equal to or greater
than the original premium upon the occurrence of a full limit loss,
the reinstatement premiums are earned over the original contract
period. Reinstatement premiums that are contractually calculated on
a pro-rata basis of the original premiums are earned over the
remaining coverage period.
OXBRIDGE
RE HOLDINGS LIMITED AND SUBSIDIARY
Notes
to Consolidated Financial Statements (unaudited)
September
30, 2016
Uncertain income
tax positions: The authoritative GAAP guidance on
accounting for, and disclosure of, uncertainty in income tax
positions requires the Company to determine whether an income tax
position of the Company is more likely than not to be sustained
upon examination by the relevant tax authority, including
resolution of any related appeals or litigation processes, based on
the technical merits of the position. For income tax positions
meeting the more likely than not threshold, the tax amount
recognized in the consolidated financial statements, if any, is
reduced by the largest benefit that has a greater than fifty
percent likelihood of being realized upon ultimate settlement with
the relevant taxing authority. The application of this
authoritative guidance has had no effect on the Company’s
consolidated financial statements because the Company had no
uncertain tax positions at September 30, 2016.
Earnings per
share: Basic
earnings per share has been computed on the basis of the
weighted-average number of ordinary shares outstanding during the
periods presented. Diluted earnings per share is computed based on
the weighted-average number of ordinary shares outstanding and
reflects the assumed exercise or conversion of diluted securities,
such as stock options and warrants, computed using the treasury
stock method.
Stock-Based Compensation:
The Company
accounts for stock-based compensation under the fair value
recognition provisions of GAAP which requires the measurement and
recognition of compensation for all stock-based awards made to
employees and directors, including stock options and restricted
stock issuances based on estimated fair values. The Company measures compensation for restricted
stock based on the price of the Company’s ordinary shares at
the grant date. Determining the fair value of share purchase
options at the grant date requires significant estimation and
judgment. The Company uses an option-pricing model (Black-Scholes
option pricing model) to assist in the calculation of fair value
for share purchase options. The Company's shares have not been
publicly traded for a sufficient length of time to solely use the
Company's performance to reasonably estimate the expected
volatility. Therefore, when estimating the expected volatility, the
Company takes into consideration the historical volatility of
similar entities. The Company considers factors such as an entity's
industry, stage of life cycle, size and financial leverage when
selecting similar entities. The Company uses a sample peer group of
companies in the reinsurance industry as well as the
Company’s own historical volatility in determining the
expected volatility. Additionally, the Company uses the full life
of the options, ten years, as the estimated term of the options,
and has assumed no forfeitures during the life of the
options.
The
Company uses the straight-line attribution method for all grants
that include only a service condition. Compensation expense related
to all awards is included in general and administrative
expenses.
OXBRIDGE
RE HOLDINGS LIMITED AND SUBSIDIARY
Notes
to Consolidated Financial Statements (unaudited)
September
30, 2016
Recent accounting
pronouncements:
Accounting
Standards Update No. 2016-09. In March 2016, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards
Update No. 2016-09 (“ASU 2016-09”),
Compensation-Stock Compensation (Topic 718), which affects all
entities that issue share-based awards to their employees. Among
the amendments affecting share-based payment transactions are their
income tax consequences, classification of awards as either equity
or liabilities, and classification on the statement of cash flows.
ASU 2016-09 is effective for all public entities for reporting
periods beginning after December 15, 2016 and interim periods
within those fiscal years. For all other entities, the amendments
are effective for fiscal years beginning after December 15,
2017, and for interim periods within fiscal years beginning after
December 15, 2018. Early adoption is permitted for all
entities. The Company is currently evaluating the impact of this
guidance on the Company’s consolidated financial
statements.
Accounting
Standards Update No. 2016-02. In February 2016, the FASB issued Accounting
Standards Update No. 2016-02 (“ASU 2016-02”),
Leases (Topic 842), which supersedes Topic 840 and creates the new
lease accounting standards for lessees and lessors, primarily
related to the recognition of lease assets and liabilities by
lessees for leases classified as operating leases. ASU 2016-02 is
effective for all public entities for reporting periods beginning
after December 15, 2018 and interim periods within those
fiscal years. For all other entities, the amendments are effective
for fiscal years beginning after December 15, 2019, and for
interim periods within fiscal years beginning after
December 15, 2020. Early adoption is permitted for all
entities. The Company is currently evaluating the impact of this
guidance on the Company’s consolidated financial
statements.
Accounting
Standards Update No. 2016-01. In January 2016, the FASB issued Accounting
Standards Update No. 2016-01 (“ASU 2016-01”),
Financial Instruments (Subtopic 825-10), which addresses certain
aspects of recognition, measurement, presentation, and disclosure
of financial instruments. One of the changes is to require certain
equity investments to be measured at fair value with changes in
fair value recognized in net income. ASU 2016-01 is effective for
all public entities for reporting periods beginning after
December 15, 2017 and interim periods within those fiscal
years. For all other entities, the amendments in ASU 2016-01 are
effective for fiscal years beginning after December 15, 2018,
and for interim periods within fiscal years beginning after
December 15, 2019. Early adoption is permitted for financial
statements that have not been previously issued. The Company is
currently evaluating the impact of this guidance on the
Company’s consolidated financial
statements.
Reclassifications: Certain reclassifications of prior
period amounts have been made to conform to the current period
presentation.
OXBRIDGE
RE HOLDINGS LIMITED AND SUBSIDIARY
Notes
to Consolidated Financial Statements (unaudited)
September
30, 2016
3. CASH
AND CASH EQUIVALENTS AND RESTRICTED CASH AND CASH
EQUIVALENTS
|
|
|
|
|
|
|
|
|
|
|
Cash
on deposit
|
$5,649
|
$3,567
|
Cash
held with custodians
|
3,829
|
5,017
|
Restricted
cash held in trust
|
26,296
|
30,368
|
|
|
|
Total
|
35,774
|
38,952
|
|
|
|
Cash
and cash equivalents are held by large and reputable counterparties
in the United States of America and in the Cayman Islands.
Restricted cash held in trust is custodied with Bank of New York
Mellon and Wells Fargo Bank and is held in accordance with the
Company’s trust agreements with the ceding insurers and
trustees, which require that the Company provide collateral having
a market value greater than or equal to the limit of liability,
less unpaid premium.
OXBRIDGE
RE HOLDINGS LIMITED AND SUBSIDIARY
Notes
to Consolidated Financial Statements (unaudited)
September
30, 2016
4. INVESTMENTS
The
Company holds investments in fixed-maturity securities and equity
securities that are classified as available-for-sale. At September
30, 2016 and December 31, 2015, the cost or amortized cost, gross
unrealized gains and losses, and estimated fair value of the
Company’s available-for-sale securities by security type were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2016
|
|
|
|
|
Fixed-maturity securities
|
|
|
|
|
U.S.
Treasury and agency securities
|
$6,081
|
$29
|
$(36)
|
$6,074
|
|
|
|
|
|
|
|
|
|
|
Total
fixed-maturity securities
|
6,081
|
29
|
(36)
|
6,074
|
|
|
|
|
|
Mutual
funds
|
400
|
-
|
(10)
|
390
|
Preferred
stocks
|
963
|
25
|
(11)
|
977
|
Common
stocks
|
5,438
|
233
|
(679)
|
4,992
|
|
|
|
|
|
Total
equity securities
|
6,801
|
258
|
(700)
|
6,359
|
|
|
|
|
|
|
|
|
|
|
Total
available for sale securities
|
$12,882
|
$287
|
$(736)
|
$12,433
|
|
|
|
|
|
As of December 31, 2015
|
|
|
|
|
Fixed-maturity securities
|
|
|
|
|
U.S.
Treasury and agency securities
|
$2,969
|
$12
|
$-
|
$2,981
|
Exchange-traded
debt securities
|
111
|
4
|
-
|
115
|
|
|
|
|
|
Total
fixed-maturity securities
|
3,080
|
16
|
-
|
3,096
|
|
|
|
|
|
Preferred
stocks
|
1,674
|
15
|
(174)
|
1,515
|
Common
stocks
|
6,068
|
158
|
(1,489)
|
4,737
|
|
|
|
|
|
Total
equity securities
|
7,742
|
173
|
(1,663)
|
6,252
|
|
|
|
|
|
Total
available for sale securities
|
$10,822
|
$189
|
$(1,663)
|
$9,348
|
At
September 30, 2016 and December 31, 2015, available-for-sale
securities with fair value of $3,524,000 and $3,638,000,
respectively, are held in trust accounts as collateral under
reinsurance contacts with the Company’s ceding
insurers.
OXBRIDGE
RE HOLDINGS LIMITED AND SUBSIDIARY
Notes
to Consolidated Financial Statements (unaudited)
September
30, 2016
4.
INVESTMENTS
(continued)
Expected maturities will differ from contractual maturities as
borrowers may have the right to call or prepay obligations with or
without penalties. The scheduled contractual maturities of
fixed-maturity securities at September 30, 2016 and December 31,
2015 are as follows:
|
|
|
|
|
|
|
|
As of September 30, 2016
|
|
|
Available for sale
|
|
|
Due
after one year through five years
|
$6,081
|
$6,074
|
|
|
|
|
|
|
|
$6,081
|
$6,074
|
|
|
|
|
|
|
As of December 31, 2015
|
|
|
Available for sale
|
|
|
Due
after one year through five years
|
$2,969
|
$2,981
|
Due
after ten years
|
111
|
115
|
|
|
|
|
$3,080
|
$3,096
|
Proceeds received, and
the gross realized gains and losses from sales of
available-for-sale securities, for the three and nine-month periods
ended September 30, 2016 and 2015 were as follows:
|
Gross
proceeds
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
Three Months Ended September 30, 2016
|
|
|
|
Fixed-maturity
securities
|
$-
|
$-
|
$-
|
|
|
|
|
|
$4,099
|
$368
|
$(246)
|
|
|
|
|
Nine Months Ended September 30, 2016
|
|
|
|
Fixed-maturity
securities
|
$119
|
$8
|
$-
|
|
|
|
|
|
$9,218
|
$867
|
$(619)
|
|
|
|
|
Three Months Ended September 30, 2015
|
|
|
|
Fixed-maturity
securities
|
$-
|
$-
|
$-
|
|
|
|
|
|
$773
|
$5
|
$(308)
|
|
|
|
|
Nine Months Ended September 30, 2015
|
|
|
|
Fixed-maturity
securities
|
$775
|
$75
|
$-
|
|
|
|
|
|
$10,702
|
$914
|
$(316)
|
OXBRIDGE
RE HOLDINGS LIMITED AND SUBSIDIARY
Notes
to Consolidated Financial Statements (unaudited)
September
30, 2016
4.
INVESTMENTS
(continued)
The Company regularly reviews its individual investment securities
for OTTI. The Company considers various factors in determining
whether each individual security is other-than-temporarily
impaired, including:
●
the
financial condition and near-term prospects of the issuer,
including any specific events that may affect its operations or
income;
●
the
length of time and the extent to which the market value of the
security has been below its cost or amortized cost;
●
general market
conditions and industry or sector specific factors;
●
nonpayment by the
issuer of its contractually obligated interest and principal
payments; and
●
the
Company’s intent and ability to hold the investment for a
period of time sufficient to allow for the recovery of
costs.
Securities with gross unrealized loss positions at September 30,
2016 and December 31, 2015, aggregated by investment category and
length of time the individual securities have been in a continuous
loss position, are as follows:
|
|
|
|
|
|
|
|
As of September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury and agency securities
|
36
|
3,075
|
-
|
-
|
36
|
3,075
|
|
|
|
|
|
|
|
Total
fixed-maturity securities
|
36
|
3,075
|
-
|
-
|
36
|
3,075
|
|
|
|
|
|
|
|
Equity securities
|
|
|
|
|
|
|
Mutual
funds
|
10
|
390
|
-
|
-
|
10
|
390
|
Preferred
stocks
|
11
|
465
|
-
|
-
|
11
|
465
|
All
other common stocks
|
225
|
2,008
|
454
|
1,080
|
679
|
3,088
|
|
|
|
|
|
|
|
Total
equity securities
|
246
|
2,863
|
454
|
1,080
|
700
|
3,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
available for sale securities $
|
282
|
$5,938
|
$454
|
$1,080
|
$736
|
$7,018
|
|
|
|
|
|
|
|
At September 30, 2016, there were 22 securities in an unrealized
loss position of which 5 of these positions had been in an
unrealized loss position for 12 months or greater.
OXBRIDGE
RE HOLDINGS LIMITED AND SUBSIDIARY
Notes
to Consolidated Financial Statements (unaudited)
September
30, 2016
4.
INVESTMENTS
(continued)
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
|
|
|
|
Preferred
stocks
|
174
|
1,054
|
-
|
-
|
174
|
1,054
|
All
other common stocks
|
1,405
|
3,274
|
84
|
316
|
1,489
|
3,590
|
|
|
|
|
|
|
|
Total
equity securities
|
1,579
|
4,328
|
84
|
316
|
1,663
|
4,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
available for sale securities $
|
1,579
|
$4,328
|
$84
|
$316
|
$1,663
|
$4,644
|
|
|
|
|
|
|
|
At December 31, 2015, there were 24 securities in an unrealized
loss position of which 2 of these positions had been in an
unrealized loss position for 12 months or greater.
The Company believes
there were no fundamental issues such as credit losses or other
factors with respect to its fixed-maturity securities. It is
expected that the securities would not be settled at a price less
than the par value of the investments and because the Company has the ability and intent
to hold these securities and it is probable that the Company will
not be required to sell these securities until a market price
recovery or maturity, the Company does not consider any of its
fixed-maturity securities to be other-than-temporarily impaired at
September 30, 2016 and December 31, 2015.
In determining whether equity securities are other
than temporarily impaired, the Company considers its intent and
ability to hold a security for a period of time sufficient to allow
for the recovery of cost, along with factors including the length
of time each security had been in an unrealized loss position, the
extent of the decline and the near term prospect for recovery. In
the three and nine months ended September 30, 2015, the Company
determined that two equity securities were other-than-temporarily
impaired after considering factors such as the length of time each
security had been in an unrealized loss position, the extent of the
decline and the near term prospect for recovery alongside other
factors. As a result, the Company recognized impairment losses of
$399,000 for the three and nine months ended September 30, 2015.
There were no impairment losses recorded in the three and nine
months ended September 30, 2016. Based on management’s
evaluation, the Company does not consider any of its equity
securities to be other-than-temporarily impaired at September 30,
2016 and December 31, 2015.
OXBRIDGE
RE HOLDINGS LIMITED AND SUBSIDIARY
Notes
to Consolidated Financial Statements (unaudited)
September
30, 2016
4.
INVESTMENTS
(continued)
Assets Measured at Estimated Fair Value on a Recurring
Basis
The following table presents information about the Company’s
financial assets measured at estimated fair value on a recurring
basis that is reflected in the consolidated balance sheets at
carrying value. The table indicates the fair value hierarchy of the
valuation techniques utilized by the Company to determine such fair
value as of September 30, 2016 and December 31, 2015:
|
Fair Value Measurements Using
|
|
|
|
|
|
|
As of September 30, 2016
|
($ in thousands)
|
Financial
Assets:
|
|
|
|
|
Cash and cash equivalents
|
$9,478
|
$-
|
$-
|
$9,478
|
|
|
|
|
|
Restricted cash and cash equivalents
|
$26,296
|
$-
|
$-
|
$26,296
|
|
|
|
|
|
Fixed-maturity securities:
|
|
|
|
|
U.S.
Treasury and agency securities
|
6,074
|
-
|
-
|
6,074
|
|
|
|
|
|
|
|
|
|
|
Total
fixed-maturity securities
|
6,074
|
-
|
-
|
6,074
|
|
|
|
|
|
Mutual
funds
|
390
|
-
|
-
|
390
|
Preferred
stocks
|
977
|
-
|
-
|
977
|
All
other common stocks
|
4,992
|
-
|
-
|
4,992
|
|
|
|
|
|
Total
equity securities
|
6,359
|
-
|
-
|
6,359
|
|
|
|
|
|
Total
available for sale securities
|
12,433
|
-
|
-
|
12,433
|
|
|
|
|
|
Total
|
$48,207
|
$-
|
$-
|
$48,207
|
|
|
|
|
|
OXBRIDGE
RE HOLDINGS LIMITED AND SUBSIDIARY
Notes
to Consolidated Financial Statements (unaudited)
September
30, 2016
4.
INVESTMENTS
(continued)
|
Fair Value Measurements Using
|
|
|
|
|
|
|
As of December 31, 2015
|
($ in thousands)
|
Financial
Assets:
|
|
|
|
|
Cash and cash equivalents
|
$8,584
|
$-
|
$-
|
$8,584
|
|
|
|
|
|
Restricted cash and cash equivalents
|
$30,368
|
$-
|
$-
|
$30,368
|
|
|
|
|
|
Fixed-maturity securities:
|
|
|
|
|
U.S.
Treasury and agency securities
|
2,981
|
-
|
-
|
2,981
|
Exchange-traded
debt securities
|
115
|
-
|
-
|
115
|
|
|
|
|
|
Total
fixed-maturity securities
|
3,096
|
-
|
-
|
3,096
|
|
|
|
|
|
|
|
|
|
|
Preferred
stocks
|
1,515
|
-
|
-
|
1,515
|
All
other common stocks
|
4,737
|
-
|
-
|
4,737
|
|
|
|
|
|
Total
equity securities
|
6,252
|
-
|
-
|
6,252
|
|
|
|
|
|
Total
available for sale securities
|
9,348
|
-
|
-
|
9,348
|
|
|
|
|
|
Total
|
$48,300
|
$-
|
$-
|
$48,300
|
|
|
|
|
|
5.
TAXATION
Under
current Cayman Islands law, no corporate entity, including the
Company and the Subsidiary, is obligated to pay taxes in the Cayman
Islands on either income or capital gains. The Company and the
Subsidiary have an undertaking from the Governor-in-Cabinet of the
Cayman Islands, pursuant to the provisions of the Tax Concessions
Law, as amended, that, in the event that the Cayman Islands enacts
any legislation that imposes tax on profits, income, gains or
appreciations, or any tax in the nature of estate duty or
inheritance tax, such tax will not be applicable to the Company and
the Subsidiary or their operations, or to the ordinary shares or
related obligations, until April 23, 2033 and May 17, 2033,
respectively.
The
Company and its subsidiary intend to conduct substantially all of
their operations in the Cayman Islands in a manner such that they
will not be engaged in a trade or business in the U.S. However,
because there is no definitive authority regarding activities that
constitute being engaged in a trade or business in the U.S. for
federal income tax purposes, the Company cannot assure that the
U.S. Internal Revenue Service will not contend, perhaps
successfully, that the Company or its subsidiary is engaged in a
trade or business in the U.S. A foreign corporation deemed to be so
engaged would be subject to U.S. federal income tax, as well as
branch profits tax, on its income that is treated as effectively
connected with the conduct of that trade or business unless the
corporation is entitled to relief under an applicable tax
treaty.
OXBRIDGE
RE HOLDINGS LIMITED AND SUBSIDIARY
Notes
to Consolidated Financial Statements (unaudited)
September
30, 2016
6.
LOSSES AND LOSS ADJUSTMENT EXPENSES
The
following table summarizes the Company’s loss and loss
adjustment expenses (“LAE”) and the reserve for loss
and LAE reserve movements for the three and nine-month periods
ending September 30, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
($ in thousands)
|
|
|
|
|
|
|
|
|
|
|
Balance,
beginning of period
|
$2,250
|
-
|
$-
|
-
|
Incurred
related to:
|
|
|
|
|
Current
period
|
(1,248)
|
-
|
1,030
|
-
|
Prior
period
|
-
|
-
|
-
|
-
|
Total
incurred
|
(1,248)
|
-
|
1,030
|
-
|
Paid
related to:
|
|
|
|
|
Current
period
|
(30)
|
-
|
(58)
|
-
|
Prior
period
|
-
|
-
|
-
|
-
|
Total
paid
|
(30)
|
-
|
(58)
|
-
|
Balance,
end of period
|
$972
|
-
|
$972
|
-
|
The
reserves for losses and LAE are comprised of case reserves (which
are based on claims that have been reported) and incurred but not
reported ("IBNR") reserves (which are based on losses that are
believed to have occurred but for which claims have not yet been
reported and may include a provision for expected future
development on existing case reserves).
The
uncertainties inherent in the reserving process and potential
delays by cedants and brokers in the reporting of loss information,
together with the potential for unforeseen adverse developments,
may result in the reserve for losses and LAE ultimately being
significantly greater or less than the reserve provided at the end
of any given reporting period. The degree of uncertainty is further
increased when a significant loss event takes place near the end of
a reporting period. Reserve for losses and LAE estimates are
reviewed periodically on a contract by contract basis and updated
as new information becomes known. Any resulting adjustments are
reflected in income in the period in which they become
known.
The
Company’s reserving process is highly dependent on the timing
of loss information received from its cedants and related
brokers.
OXBRIDGE
RE HOLDINGS LIMITED AND SUBSIDIARY
Notes
to Consolidated Financial Statements (unaudited)
September
30, 2016
7.
EARNINGS PER SHARE
A summary of the numerator and denominator of the basic and diluted
earnings per share is presented below (dollars in thousands except
per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
$2,985
|
742
|
$4,900
|
4,229
|
|
|
|
|
|
Denominator:
|
|
|
|
|
Weighted
average shares - basic
|
6,026,172
|
6,060,000
|
6,048,163
|
6,054,945
|
Effect
of dilutive securities - Stock options
|
-
|
-
|
-
|
-
|
Shares
issuable upon conversion of warrants
|
-
|
-
|
-
|
-
|
Weighted
average shares - diluted
|
6,026,172
|
6,060,000
|
6,048,163
|
6,054,945
|
Earnings
per shares - basic
|
$0.50
|
0.12
|
$0.81
|
0.70
|
Earnings
per shares - diluted
|
$0.50
|
0.12
|
$0.81
|
0.70
|
For the three and nine-month periods ended September 30, 2016 and
2015, 215,000 options to purchase 215,000 ordinary shares and
180,000 options to purchase 180,000 ordinary shares, respectively,
were anti-dilutive as the sum of the proceeds, including
unrecognized compensation expense, exceeded the average market
price of the Company’s ordinary share during the periods
presented.
For the three and nine-month periods ended September 30, 2016 and
2015, 8,230,700 warrants to purchase an aggregate of 8,230,700
ordinary shares were not dilutive because the exercise price of
$7.50 exceeded the average market price of the Company’s
ordinary share during the periods presented.
GAAP requires the Company to use the two-class method in computing
basic earnings per share since holders of the Company’s
restricted stock have the right to share in dividends, if declared,
equally with common stockholders. These participating securities
effect the computation of both basic and diluted earnings per share
during periods of net income.
OXBRIDGE
RE HOLDINGS LIMITED AND SUBSIDIARY
Notes
to Consolidated Financial Statements (unaudited)
September
30, 2016
8. SHAREHOLDERS’ EQUITY
On
February 28, 2014, the Company’s Registration Statement on
Form S-1, as amended, relating to the initial public offering of
the Company’s units was declared effective by the SEC. The
Registration Statement covered the offer and sale by the Company of
4,884,650 units, each consisting of one ordinary share and one
warrant (“Unit”), which were sold to the public on
March 26, 2014 at a price of $6.00 per Unit. The ordinary shares
and warrants comprising the Units began separate trading on May 9,
2014. The ordinary shares and warrants are traded on the Nasdaq
Capital Market under the symbols “OXBR” and
“OXBRW,” respectively. One warrant may be exercised to
acquire one ordinary share at an exercise price equal to $7.50 per
share on or before March 26, 2019. At any time after September 26,
2014 and before the expiration of the warrants, the Company at its
option may cancel the warrants in whole or in part, provided that
the closing price per ordinary share has exceeded $9.38 for at
least ten trading days within any period of twenty consecutive
trading days, including the last trading day of the
period.
The
initial public offering resulted in aggregate gross proceeds to the
Company of approximately $29.3 million (of which approximately $5
million related to the fair value proceeds on the warrants issued)
and net proceeds of approximately $26.9 million after deducting
underwriting commissions and offering expenses.
The
fair value of the warrants issued in the initial public offering
and initial private placement offering of $1.04 per warrant was
determined by the Black-Scholes pricing model using the following
assumptions: volatility of 48%, an expected life of 5 years,
expected dividend yield of 8% and a risk-free interest rate of
1.69%. There were 8,230,700 warrants outstanding at September 30,
2016 and 2015. No warrants were exercised during the three and
nine-month periods ended September 30, 2016 and 2015.
On
January 20, 2016, our Board of Directors declared a quarterly cash
dividend of $0.12 per share payable on March 30, 2016 to
shareholders of record on March 1, 2016.
On May
12, 2016, our Board of Directors declared a quarterly cash dividend
of $0.12 per share payable on June 30, 2016 to shareholders of
record on June 20, 2016.
On
August 13, 2016, our Board of Directors declared a quarterly cash
dividend of $0.12 per share payable on September 30, 2016 to
shareholders of record on September 23, 2016.
On
November 12, 2016, our Board of Directors declared a quarterly cash
dividend of $0.12 per share payable on December 30, 2016 to
shareholders of record on December 23, 2016.
OXBRIDGE
RE HOLDINGS LIMITED AND SUBSIDIARY
Notes
to Consolidated Financial Statements (unaudited)
September
30, 2016
8. SHAREHOLDERS’ EQUITY (continued)
In May 2016, the Company’s Board of Directors authorized a
plan to repurchase up to $2,000,000 of the Company’s common
shares, inclusive of commissions and fees. During the nine months
ended September 30, 2016, the Company repurchased and retired a
total of 78,387 shares at a weighted average price per share of
$5.05 under this authorized repurchase plan. The total cost of
shares repurchased, inclusive of fees and commissions, during the
nine months ended September 30, 2016 was $399,000, or $5.09 per
share.
As of
September 30, 2016, none of the Company’s retained earnings
were restricted from payment of dividends to the Company’s
shareholders. However, since most of the Company’s capital
and retained earnings may be invested in the Subsidiary, a dividend
from the Subsidiary would likely be required in order to fund a
dividend to the Company’s shareholders and would require
notification to the Cayman Islands Monetary Authority
(“CIMA”).
Under
Cayman Islands law, the use of additional paid-in capital is
restricted, and the Company will not be allowed to pay dividends
out of additional paid-in capital if such payments result in
breaches of the prescribed and minimum capital requirement. See
also Note 10.
9.
SHARE-BASED COMPENSATION
The Company currently
has outstanding stock-based awards granted under the 2014 Omnibus
Incentive Plan (the “Plan”). Under the Plan, the Company has discretion to
grant equity and cash incentive awards to eligible individuals,
including the issuance of up to 1,000,000 of the Company’s
ordinary shares. At September 30, 2016,
there were 725,000 shares available for grant under the
Plan.
Stock options
The Company accounts for share-based compensation under the fair
value recognition provisions of ASC Topic 718 –
“Compensation – Stock Compensation.” Stock
options granted and outstanding under the Plan vests quarterly over
four years, and are exercisable over the contractual term of ten
years.
OXBRIDGE
RE HOLDINGS LIMITED AND SUBSIDIARY
Notes
to Consolidated Financial Statements (unaudited)
September
30, 2016
9.
SHARE-BASED COMPENSATION (continued)
A summary of the stock option activity for the three and nine-month
periods ended September 30, 2016 and 2015 is as follows (option
amounts not in thousands):
|
|
|
Weighted-
|
|
|
|
|
Average
|
|
|
|
|
Remaining
|
|
|
|
|
Contractual
|
|
|
|
|
Term
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at January 1, 2016
|
180,000
|
|
|
|
Granted
|
35,000
|
|
|
|
Outstanding
at March 31, 2016
|
215,000
|
$6
|
|
$-
|
Outstanding
at June 30, 2016
|
215,000
|
$6
|
8.7
years
|
$-
|
Outstanding
at September 30, 2016
|
215,000
|
$6
|
|
$-
|
Exercisable
at September 30, 2016
|
85,312
|
$6
|
|
$-
|
|
|
|
|
|
Outstanding
at January 1, 2015
|
-
|
|
|
|
Granted
|
180,000
|
$6
|
|
|
Outstanding
at March 31, 2015
|
180,000
|
$6
|
|
$-
|
Outstanding
at June 30, 2015
|
180,000
|
$6
|
|
$9,000
|
Outstanding
at September 30, 2015
|
180,000
|
$6
|
|
$-
|
Exercisable
at September 30, 2015
|
33,750
|
$6
|
|
$-
|
Compensation expense
recognized for the three-month periods ended September 30, 2016 and
2015 totaled $8,000 and $7,000, respectively, and for the
nine-month periods ended September 30, 2016 and 2015 totaled
$24,000 and $22,000, respectively. Compensation expense is included
in general and administrative expenses. At September 30, 2016 and
2015, there was approximately $75,000 and $94,000, respectively, of
unrecognized compensation expense related to non-vested stock
options granted under the Plan, which the Company expects to recognize over a
weighted-average period of twenty nine (29)
months.
During
the nine-month periods ended September 30, 2016 and 2015, 35,000
options and 180,000 options, respectively, were granted with fair
value estimated on the date of grant using the following
assumptions and the Black-Scholes option pricing
model:
OXBRIDGE
RE HOLDINGS LIMITED AND SUBSIDIARY
Notes
to Consolidated Financial Statements (unaudited)
September
30, 2016
9.
SHARE-BASED COMPENSATION (continued)
|
|
|
|
|
|
Expected
dividend yield
|
9.6%
|
8%
|
Expected
volatility
|
35%
|
35%
|
Risk-free
interest rate
|
2.03%
|
1.81%
|
Expected
life (in years)
|
10
|
10
|
Per
share grant date fair value of options issued
|
$0.34
|
$0.64
|
Restricted Stock Awards
The
Company has granted and may grant restricted stock awards to
eligible individuals in connection with their service to the
Company. The terms of the Company’s outstanding restricted
stock grants may include service, performance and market-based
conditions. The fair value of the awards with market-based
conditions is determined using a Monte Carlo simulation method,
which calculates many potential outcomes for an award and then
establishes fair value based on the most likely outcome. The
determination of fair value with respect to the awards with only
performance or service-based conditions is based on the value of
the Company’s stock on the grant date.
Information
with respect to the activity of unvested restricted stock awards
during the three and nine-month periods ended September 30, 2016
and 2015 is as follows (share amounts not in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested
at January 1, 2016
|
45,000
|
$5.86
|
Vested
|
(3,750)
|
|
Nonvested
at March 31, 2016
|
41,250
|
$5.86
|
|
|
|
Vested
|
(3,750)
|
|
Nonvested
at June 30, 2016
|
37,500
|
$5.86
|
|
|
|
Vested
|
(3,750)
|
|
Nonvested
at September 30, 2016
|
33,750
|
$5.86
|
|
|
|
|
|
|
Nonvested
at January 1, 2015
|
-
|
|
Granted
|
60,000
|
$5.86
|
Vested
|
(3,750)
|
|
Nonvested
at March 31, 2015
|
56,250
|
$5.86
|
|
|
|
Vested
|
(3,750)
|
|
Nonvested
at June 30, 2015
|
52,500
|
$5.86
|
|
|
|
Vested
|
(3,750)
|
|
Nonvested
at September 30, 2015
|
48,750
|
$5.86
|
|
|
|
OXBRIDGE
RE HOLDINGS LIMITED AND SUBSIDIARY
Notes
to Consolidated Financial Statements (unaudited)
September
30, 2016
9.
SHARE-BASED COMPENSATION (continued)
Compensation expense
recognized for the three-month periods ended September 30, 2016 and
2015 totaled $22,000, and for the nine-month periods ended
September 30, 2016 and 2015, totaled $66,000, and is included in
general and administrative expenses. At September 30, 2016, there
was approximately $198,000 unrecognized compensation expense
related to nonvested restricted stock granted under the Plan,
which the Company expects to
recognize over a weighted-average period of twenty seven (27)
months.
10. NET WORTH FOR REGULATORY PURPOSES
The
Subsidiary is subject to a minimum and prescribed capital
requirement as established by CIMA. Under the terms of its license,
the Subsidiary is required to maintain a minimum and prescribed
capital requirement of $500 in accordance with the
Subsidiary’s approved business plan filed with CIMA. At
September 30, 2016, the Subsidiary’s net worth of $26.5
million exceeded the minimum and prescribed capital requirement.
For the three and nine-month periods ended September 30, 2016, the
Subsidiary’s net income was approximately $2.6 million and
$4.0 million, respectively.
The
Subsidiary is not required to prepare separate statutory financial
statements for filing with CIMA, and there were no material
differences between the Subsidiary’s GAAP capital, surplus
and net income, and its statutory capital, surplus and net income
as of September 30, 2016 or for the periods then
ended.
11. FAIR VALUE AND CERTAIN RISKS AND
UNCERTAINTIES
Fair values
With
the exception of balances with respect of insurance contracts
(which are specifically excluded from fair value disclosures under
GAAP) and investment securities as disclosed in Note 4 of these
consolidated financial statements, the carrying amounts of all
other financial instruments, which consist of cash and cash
equivalents, restricted cash and cash equivalents, accrued interest
and dividends receivable, premiums receivable and other receivables
and accounts payable and accruals, approximate their fair values
due to their short-term nature.
Concentration of underwriting risk
A
substantial portion of the Company’s current reinsurance
business ultimately relates to the risks of two entities domiciled
in Florida in the United States, one of which is under common
directorship; accordingly the Company’s underwriting risks
are not significantly diversified.
OXBRIDGE
RE HOLDINGS LIMITED AND SUBSIDIARY
Notes
to Consolidated Financial Statements (unaudited)
September
30, 2016
11. FAIR VALUE AND CERTAIN RISKS AND UNCERTAINTIES
(continued)
Credit risk
The
Company is exposed to credit risk in relation to counterparties
that may default on their obligations to the Company. The amount of
counterparty credit risk predominantly relates to premiums
receivable and assets held with counterparties. The Company
mitigates its counterparty credit risk by using several
counterparties, with strong credit ratings, which decreases the
likelihood of any significant concentration of credit risk with any
one counterparty. In addition, the Company is exposed to credit
risk on fixed-maturity debt instruments to the extent that the
debtors may default on their debt obligations.
Market risk
Market
risk exists to the extent that the values of the Company’s
monetary assets fluctuate as a result of changes in market prices.
Changes in market prices can arise from factors specific to
individual securities or their respective issuers, or factors
affecting all securities traded in a particular market. Relevant
factors for the Company are both volatility and liquidity of
specific securities and markets in which the Company holds
investments. The Company has established investment guidelines that
seek to mitigate significant exposure to market risk.
12. COMMITMENTS AND CONTINGENCIES
|
The
Company has an operating lease for office space located at
Strathvale House, 2nd Floor, 90 North
Church Street, Grand Cayman, Cayman Islands. The term of the lease
is thirty-eight months and commenced on April 17, 2015. Rent
expense under this lease for the three and nine-month periods ended
September 30, 2016 was $17,200 and $43,940, respectively and lease
commitments at September 30, 2016 were $101,180.
The
Company also has an operating lease for residential space at
Britannia Villas #616, Grand Cayman, Cayman Islands that runs
through October 31, 2017. Rent expense under this lease for the
three and nine-month periods ended September 30, 2016 was $12,900
and $38,700, respectively, and lease commitments at September 30,
2016 were $55,900.
13. RELATED PARTY TRANSACTIONS
The
Company has entered into reinsurance agreements with Claddaugh and
HCPCI, both of which are related entities through common
directorships. At September 30, 2016 and December 31, 2015,
included within loss experience refund payable and unearned
premiums reserve on the consolidated balance sheets are the
following related-party amounts:
OXBRIDGE
RE HOLDINGS LIMITED AND SUBSIDIARY
Notes
to Consolidated Financial Statements (unaudited)
September
30, 2016
13. RELATED PARTY TRANSACTIONS (continued)
|
|
|
|
|
|
|
|
|
|
|
Loss
experience refund payable
|
$840
|
$6,510
|
Unearned
premiums reserve
|
$2,267
|
$1,392
|
During
the three and nine-month periods ended September 30, 2016 and 2015,
included within assumed premiums, change in loss experience refund
payable and change in unearned premiums reserve on the consolidated
statements of income are the following related-party
amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
Assumed
premiums
|
|
-
|
3,400
|
3,340
|
Change
in loss experience refund payable
|
(630)
|
(630)
|
(1,890)
|
(1,964)
|
Change
in unearned premiums reserve
|
850
|
835
|
(875)
|
(114)
|
14. SUBSEQUENT EVENTS
During October 2016, Hurricane Matthew
caused significant property damage along an extensive area of
Florida’s east coast. To date, reported claims as a
result of this storm have been limited. Accordingly, while losses
emanating from the storm cannot be accurately estimated at this
time, the Company expects that losses incurred under one of its
contracts, to negatively impact its earnings in the range of
$1,400,000 to $3,000,000 and may need to establish appropriate loss
reserves related to Hurricane Matthew in the fourth quarter of
2016.
On November 12, 2016,
our Board of Directors declared a quarterly cash dividend of $0.12
per share payable on December 30, 2016 to shareholders of record on
December 23, 2016.
Item
2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
Certain
statements in this Quarterly Report on Form 10-Q, including in this
Management’s Discussion and Analysis, other than purely
historical information, including estimates, projections,
statements relating to our business plans, objectives and expected
operating results, and the assumptions upon which those statements
are based, are “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995,
Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, as amended (the “Exchange
Act”). These forward-looking statements generally are
identified by the words “believe,”
“project,” “predict,” “expect,”
“anticipate,” “estimate,”
“intend,” “plan,” “may,”
“should,” “will,” “would,”
“will be,” “will continue,” “will
likely result, ” and similar expressions. Forward-looking
statements are based on current expectations and assumptions that
are subject to risks and uncertainties which may cause actual
results to differ materially from the forward-looking statements. A
detailed discussion of risks and uncertainties that could cause
actual results and events to differ materially from such
forward-looking statements is included in the section entitled
“Risk Factors” contained in our Form 10-K filed with
the Securities and Exchange Commission (“SEC”) on March
17, 2016. We undertake no obligation to publicly update or
revise any forward -looking statements, whether as a result of new
information, future events, or otherwise. Readers are cautioned not
to place undue reliance on the forward -looking statements which
speak only to the dates on which they were made.
GENERAL
The
following is a discussion and analysis of our results of operations
for the three- month periods ended September 30, 2016 and 2015 and
our financial condition as of September 30, 2016 and December 31,
2015. The following discussion should be read in conjunction with
our consolidated financial statements and related notes included
elsewhere in this Quarterly Report on Form 10-Q and in our
Form 10-K
filed with the Securities and Exchange Commission
(“SEC”) on March 17, 2016. References to
“we,” “us,” “our,” “our
company,” or “the Company” refer to Oxbridge Re
Holdings Limited and its wholly-owned subsidiary, Oxbridge
Reinsurance Limited, unless the context dictates
otherwise.
Overview
We are
a Cayman Islands specialty property and casualty reinsurer that
provides reinsurance solutions through our subsidiary, Oxbridge
Reinsurance Limited. We focus on underwriting fully-collateralized
reinsurance contracts primarily for property and casualty insurance
companies in the Gulf Coast region of the United States, with an
emphasis on Florida. We specialize in underwriting medium
frequency, high severity risks, where we believe sufficient data
exists to analyze effectively the risk/return profile of
reinsurance contracts.
We
underwrite reinsurance contracts on a selective and opportunistic
basis as opportunities arise based on our goal of achieving
favorable long-term returns on equity for our shareholders. Our
goal is to achieve long-term growth in book value per share by
writing business that generates attractive underwriting profits
relative to the risk we bear. Unlike other insurance and
reinsurance companies, we do not intend to pursue an aggressive
investment strategy and instead will focus our business on
underwriting profits rather than investment profits. However, we
intend to complement our underwriting profits with investment
profits on an opportunistic basis. Our primary business focus is on
fully collateralized reinsurance contracts for property
catastrophes, primarily in the Gulf Coast region of the United
States, with an emphasis on Florida. Within that market and risk
category, we attempt to select the most economically attractive
opportunities across a variety of property and casualty insurers.
As our capital base grows, however, we expect that we will consider
growth opportunities in other geographic areas and risk
categories.
Our
level of profitability is primarily determined by how adequately
our premiums assumed and investment income cover our costs and
expenses, which consist primarily of acquisition costs and other
underwriting expenses, claim payments and general and
administrative expenses. One factor leading to variation in our
operational results is the timing and magnitude of any follow-on
offerings we undertake (if any), as we are able to deploy new
capital to collateralize new reinsurance treaties and consequently,
earn additional premium revenue. In addition, our results of
operations may be seasonal in that hurricanes and other tropical
storms typically occur during the period from June 1 through
November 30. Further, our results of operations may be subject to
significant variations due to factors affecting the property and
casualty insurance industry in general, which include competition,
legislation, regulation, general economic conditions, judicial
trends, and fluctuations in interest rates and other changes in the
investment environment.
Because
we employ an opportunistic underwriting and investment philosophy,
period-to-period comparisons of our underwriting results may not be
meaningful. In addition, our historical investment results may not
necessarily be indicative of future performance. Due to the nature
of our reinsurance and investment strategies, our operating results
will likely fluctuate from period to period.
PRINCIPAL REVENUE AND EXPENSE ITEMS
Revenues
We
derive our revenues from two principal sources:
● premiums
assumed from reinsurance on property and casualty business;
and
● income
from investments.
Premiums assumed
include all premiums received by a reinsurance company during a
specified accounting period, even if the policy provides coverage
beyond the end of the period. Premiums are earned over the term of
the related policies. At the end of each accounting period, the
portion of the premiums that are not yet earned are included in the
unearned premiums reserve and are realized as revenue in subsequent
periods over the remaining term of the policy. Our policies
typically have a term of twelve months. Thus, for example, for a
policy that is written on July 1, 2016, one-half of the premiums
will be earned in 2016 and the other half will be earned during
2017.
Premiums from
reinsurance on property and casualty business assumed are directly
related to the number, type and pricing of contracts we
write.
Premiums assumed
are recorded net of change in loss experience refund, which
consists of changes in amounts due to the cedants under two of our
reinsurance contracts. These contracts contain retrospective
provisions that adjust premiums in the event losses are minimal or
zero. We recognize a liability pro-rata over the period in which
the absence of loss experience obligates us to refund premiums
under the contracts, and we will derecognize such liability in the
period in which a loss experience arises. The change in loss
experience refund is negatively correlated to loss and loss
adjustment expenses described below.
Income
from our investments is primarily comprised of interest income,
dividends and net realized gains on investment securities. Such
income is primarily from the Company’s investments, which
includes investments held in trust accounts that collateralize the
reinsurance policies that we write. The investment parameters for
trust accounts are generally be established by the cedant for the
relevant policy.
Expenses
Our
expenses consist primarily of the following:
● losses
and loss adjustment expenses;
● policy
acquisition costs and underwriting expenses; and
● general
and administrative expenses.
Loss
and loss adjustment expenses are a function of the amount and type
of reinsurance contracts we write and of the loss experience of the
underlying coverage. As described below, loss and loss adjustment
expenses are based on the claims reported by our company’s
ceding insurers, and where necessary, may include an actuarial
analysis of the estimated losses, including losses incurred during
the period and changes in estimates from prior periods. Depending
on the nature of the contract, loss and loss adjustment expenses
may be paid over a period of years.
Policy
acquisition costs and underwriting expenses consist primarily of
brokerage fees, ceding commissions, premium taxes and other direct
expenses that relate to our writing of reinsurance contracts. We
amortize deferred acquisition costs over the related contract
term.
General
and administrative expenses consist of salaries and benefits and
related costs, including costs associated with our professional
fees, rent and other general operating expenses consistent with
operating as a public company.
RESULTS
OF OPERATIONS
The following table summarizes our results of operations for the
three and nine-month periods ended September 30, 2016 and 2015
(dollars in thousands, except per share amounts):
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARY
|
Consolidated Statements of Income (unaudited)
|
(expressed in thousands of U.S. Dollars, except per share and share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
Assumed
premiums
|
$-
|
-
|
$15,065
|
14,888
|
Change
in loss experience refund payable
|
(2,089)
|
(2,089)
|
(4,465)
|
(6,204)
|
Change
in unearned premiums reserve
|
4,007
|
3,881
|
(3,955)
|
(3,708)
|
|
|
|
|
|
Net
premiums earned
|
1,918
|
1,792
|
6,645
|
4,976
|
Net
realized investment gain / (loss)
|
122
|
(303)
|
256
|
673
|
Net
investment income
|
126
|
90
|
327
|
262
|
Other-than-temporary
impairment losses
|
-
|
(399)
|
-
|
(399)
|
|
|
|
|
|
Total
revenue
|
2,166
|
1,180
|
7,228
|
5,512
|
|
|
|
|
|
Expenses
|
|
|
|
|
Losses
and loss adjustment expenses (credit)
|
(1,248)
|
-
|
1,030
|
-
|
Policy
acquisition costs and underwriting expenses
|
83
|
85
|
211
|
259
|
General
and administrative expenses
|
346
|
353
|
1,087
|
1,024
|
|
|
|
|
|
Total
expenses (credit)
|
(819)
|
438
|
2,328
|
1,283
|
|
|
|
|
|
Net
income
|
2,985
|
742
|
$4,900
|
4,229
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
Basic
and Diluted
|
$0.50
|
0.12
|
$0.81
|
0.70
|
|
|
|
|
|
|
|
|
|
|
Dividends paid per share
|
$0.12
|
0.12
|
$0.36
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance ratios to net premiums earned:
|
|
|
|
|
Loss
ratio
|
-65.1%
|
0.0%
|
15.5%
|
0.0%
|
Acquisition
cost ratio
|
4.3%
|
4.7%
|
3.2%
|
5.2%
|
Expense
ratio
|
22.4%
|
24.4%
|
19.5%
|
25.8%
|
Combined
ratio
|
-42.7%
|
24.4%
|
35.0%
|
25.8%
|
General. Net income
for the quarter ended September 30, 2016 was $2.99 million, or
$0.50 per basic and diluted share, compared to a net income of $742
thousand, or $0.12 per basic and diluted share, for the quarter
ended September 30, 2015. The increase in net income from $742
thousand to $2.99 million was primarily due to favourable loss
development during the quarter, as well as higher net premiums,
investment income and realized gains during the quarter ended
September 30, 2016 compared with the previous quarter.
Net
income for the nine months ended September 30, 2016 was $4.9
million, or $0.81 per basic and diluted share, compared to a net
income of $4.2 million, or $0.70 per basic and diluted share, for
the quarter ended September 30, 2015. The increase in net income
from $4.2 million to $4.9 million was primarily due to the net
impact of higher net premiums earned, partially offset by losses
incurred during the nine months ended September 30, 2016 compared
with the previous period.
Premium
Income. Premiums
earned reflects the pro rata inclusion into income of premiums
assumed (net of loss experience refund) over the life of the
reinsurance contracts.
Net
premiums earned for the quarter ended September 30, 2016 increased
marginally by $100 thousand, or 7%, to $1.9 million, from $1.8
million for the quarter ended September 30, 2015. The increase in
net premiums earned was primarily as a result of growth and size in
the number of reinsurance contracts placed.
Net
premiums earned for the nine months ended September 30, 2016
increased $1.7 million, or 34%, to $6.7 million, from $5 million
for the nine months ended September 30, 2015. The increase in net
premiums earned was primarily as a result of the derecognition of
approximately $1.8 million of loss experience refund reserve during
the nine months ended September 30, 2016 as the Company experienced
losses under one of its contracts. This was marginally offset by
lower rates on policies in force during the nine months ended
September 30, 2016, compared with the previous period.
Losses
Incurred. Losses incurred for the quarter ended September
30, 2016 decreased $1.25 million as a result of an actuarial review
of our reserve for losses and loss adjustment expenses for losses
on a contract by contract basis at September 30, 2016. There
were no losses incurred for the three months ended September 30,
2015.
Losses incurred for the nine months ended
September 30, 2016 increased $1.03 million as a result of
weather-related events during the nine months ended September 30,
2016 impacting our book of business. There were no losses
incurred for the nine months ended September 30, 2015.
Policy Acquisition Costs
and Underwriting Expenses. Acquisition
costs represent the amortization of the brokerage fees and federal
excise taxes incurred on reinsurance contracts placed. Policy acquisition costs and underwriting expenses
for the quarter ended September 30, 2016 decreased $2 thousand, or
2%, to $83 thousand from $85 thousand for the quarter ended
September 30, 2015. The decrease is the result of a lower
weighted-average acquisition costs on reinsurance contracts in
force during the quarter ended September 30, 2016, when compared
with the previous quarter.
Policy acquisition costs and underwriting expenses
for the nine months ended September 30, 2016 decreased $48
thousand, or 19%, to $211 thousand from $259 thousand for the nine
months ended September 30, 2015. The decrease is the result of
a lower weighted-average acquisition costs on reinsurance
contracts in force during the nine months ended September 30, 2016,
when compared with the previous period.
General and Administrative
Expenses. General and administrative expenses for the
quarter ended September 30, 2016 decreased $7 thousand, or 2%, to
$346 thousand, from $353 thousand for the quarter ended September
30, 2015. The decrease is not considered
material.
General
and administrative expenses for the nine months ended September 30,
2016 increased $63 thousand, or 6%, to $1.08 million, from $1.02
million for the nine months ended September 30, 2015. The increase
was due primarily to management bonuses paid and higher lease
rental during the nine months ending September 30, 2016, compared
with the previous period.
MEASUREMENT OF RESULTS
We use
various measures to analyze the growth and profitability of
business operations. For our reinsurance business, we measure
growth in terms of premiums assumed and we measure underwriting
profitability by examining our loss, underwriting expense and
combined ratios. We analyze and measure profitability in terms of
net income and return on average equity.
Premiums Assumed. We
use gross premiums assumed to measure our sales of reinsurance
products. Gross premiums assumed also correlates to our ability to
generate net premiums earned. See also the analysis above relating
to the growth in premiums assumed.
Loss Ratio. The loss
ratio is the ratio of losses and loss adjustment expenses incurred
to premiums earned and measures
the underwriting profitability of our reinsurance business. The
loss ratio decreased from 0% for the quarter ended September 30,
2015 to (65.1%) for the quarter ended September 30, 2016. The
decrease is wholly due to the favorable development of loss
reserves during the quarter.
The
loss ratio increased from 0% for the nine months ended September
30, 2015 to 15.5% for the quarter ended September 30, 2016. The
increase is wholly due to net effect of weather-events during the
nine months ended September 30, 2016 that affected our book of
business, as well as the favorable development of loss reserves
during the quarter as discussed above.
Acquisition Cost
Ratio. The acquisition cost ratio is the ratio of policy
acquisition costs and other underwriting
expenses to net premiums earned. The acquisition cost ratio
measures our operational efficiency in producing, underwriting and
administering our reinsurance business. The acquisition cost ratio
decreased from 4.7% for the quarter ended September 30, 2015 to
4.3% for the quarter ended September 30, 2016. The decrease is due
to the overall lower weighted-average acquisition costs on
reinsurance contracts in force during the three-month period ended
September 30, 2016, compared with three-month period ended
September 30, 2015.
The
acquisition cost ratio decreased from 5.2% for the nine months
ended September 30, 2015 to 3.2% for the nine months ended
September 30, 2016. The decrease is due to the overall lower
weighted-average acquisition costs on reinsurance contracts in
force during the nine-month period ended September 30, 2016,
compared with nine-month period ended September 30, 2015, as well
as the impact of a $1.8 million adjustment to net premiums earned
due to the derecognition of loss experience refund reserves
mentioned above.
Expense Ratio. The
expense ratio is the ratio of policy acquisition costs, other
underwriting expenses and other
administrative expenses to net premiums earned. We use the expense
ratio to measure our operating performance. The expense ratio
decreased from 24.4% for the three-month period ended September 30,
2015 to 22.4% for the three-month period ended September 30, 2016.
The decrease is due to the overall lower weighted-average
acquisition costs on reinsurance contracts in force during the
three-month period ended September 30, 2016, compared with
three-month period ended September 30, 2015, as well as marginally
lower general and admin expenses during the quarter, when compared
with the previous period..
The
expense ratio decreased from 25.8% for the nine-month period ended
September 30, 2015 to 19.5% for the nine-month period ended
September 30, 2016. The decrease is as a result of higher net
premiums earned due to derecognition of loss experience refund
reserves mentioned above. There is also no correlation between such
adjustment to net premiums earned and changes in general and
administrative expenses.
Combined Ratio. We
use the combined ratio to measure our underwriting performance. The
combined ratio is the sum of
the loss ratio and the expense ratio. If the combined ratio is at
or above 100%, we are not underwriting profitably and may not be
profitable. The combined ratio decreased from 24.4% for the
three-month period ended September 30, 2015 to (42.7%) for the
three-month period ended September 30, 2016. The decrease in the
combined ratio is wholly due to favorable loss development during
the quarter, compared to no losses incurred during the quarter
ending September 30,2015.
The
combined ratio increased from 25.8% for the nine-month period ended
September 30, 2015 to 35% for the nine-month period ended September
30, 2016. The increase in the combined ratio is due to
weather-related events during the nine months ended September 30,
2016 affecting our book of business, partially offset by the impact
of higher net premiums earned due to derecognition of loss
experience refund reserves mentioned above. There were no loss
events or premium adjustments during the nine months ending
September 30, 2015.
FINANCIAL CONDITION – SEPTEMBER 30, 2016 COMPARED TO DECEMBER
31, 2015
Investments.
As of September 30, 2016, our
available-for-sale securities increased by $3.1 million, or 33%, to
$12.4 million, from $9.3 million as of December 31, 2015. The
increase is primarily a result of net purchases of fixed-maturity
and equity securities during the nine-month period ended September
30, 2016.
Premiums
Receivable. As of September 30, 2016, our premiums receivable
increased by approximately $5.3 million, or 129%, to $9.4 million,
from $4.1 million as of December 31, 2015. The increase is due to
premiums assumed for treaty year beginning June 1, 2016 offset by
receipt of premium installments during the nine-month period ended
September 30, 2016.
Loss
Experience Refund Payable. As of September 30, 2016, our loss experience
refund payable decreased by $3.1 million, or 31%, to $6.8 million,
from $9.9 million at December 31, 2015. The decrease is due to both
the recognition of a pro-rated liability over the nine-month
period ended September 30, 2015, because the absence of loss
experience under two of our reinsurance contracts obligates us to
refund premium to two of our ceding reinsurers, offset by the cash
settlement of our loss experience refund liability under one of our
reinsurance contracts, as well as the derecognition of liability
under one of our contracts since we experienced losses during the
period.
Unearned Premiums
Reserve. As of September 30, 2016, our unearned premiums
reserve increased by $3.9 million, or 71%, to $9.5 million, from
$5.6 million at December 31, 2015. The increase is due primarily
the successful placement of reinsurance contracts for the treaty
year effective June 1, 2016.
LIQUIDITY AND CAPITAL RESOURCES
General
We are
organized as a holding company with substantially no operations at
the holding company level. Our operations are conducted through our
sole reinsurance subsidiary, Oxbridge Reinsurance Limited, which
underwrites risks associated with our property and casualty
reinsurance programs. We have minimal continuing cash needs at the
holding company level, with such expenses principally being related
to the payment of administrative expenses and shareholder
dividends. There are restrictions on Oxbridge Reinsurance
Limited’s ability to pay dividends which are described in
more detail below.
Sources and Uses of Funds
Our
sources of funds primarily consist of premium receipts (net of
brokerage fees and federal excise taxes, where applicable) and
investment income, including interest, dividends and realized
gains. We use cash to pay losses and loss adjustment expenses,
other underwriting expenses, dividends, and general and
administrative expenses. Substantially all of our surplus funds,
net of funds required for cash liquidity purposes, are invested in
accordance with our investment guidelines. Our investment portfolio
is primarily comprised of cash and highly liquid securities, which
can be liquidated, if necessary, to meet current liabilities. We
believe that we have sufficient flexibility to liquidate any
long-term securities that we own in a rising market to generate
liquidity.
As of
September 30, 2016, we believe we had sufficient cash flows from
operations to meet our liquidity requirements. We expect that our
operational needs for liquidity will be met by cash, investment
income and funds generated from underwriting activities. We have no
plans to issue debt and expect to fund our operations for the
foreseeable future from operating cash flows, as well as from
potential future equity offerings. However, we cannot provide
assurances that in the future we will not incur indebtedness to
implement our business strategy, pay claims or make
acquisitions.
Although Oxbridge
Re Holdings Limited is not subject to any significant legal
prohibitions on the payment of dividends, Oxbridge Reinsurance
Limited is subject to Cayman Islands regulatory constraints that
affect its ability to pay dividends to us and include a minimum net
worth requirement. Currently, the minimum net worth requirement for
Oxbridge Reinsurance Limited is $500. As of September 30, 2016,
Oxbridge Reinsurance Limited exceeded the minimum required. By law,
Oxbridge Reinsurance Limited is restricted from paying a dividend
if such a dividend would cause its net worth to drop to less than
the required minimum.
Cash Flows
Our
cash flows from operating, investing and financing activities for
the nine-month periods ended September 30, 2016 and 2015 are
summarized below.
Cash Flows for the Nine months ended September 30, 2016 (in
thousands)
Net
cash provided by operating activities for the nine months ended
September 30, 2016 totaled $1,210, which consisted primarily of
cash received from net written premiums less cash disbursed for
operating expenses. Net cash provided by investing activities of
$2,257 was primarily due to the release of collateral renewal or
underwriting of new reinsurance contracts, offset by the net
purchases of available for sale securities. Net cash used in
financing activities totaled $2,573 representing net cash dividend
payments and cash used to repurchase ordinary shares under the
Company’s share repurchase plan.
Cash Flows for the Nine months ended September 30, 2015 (in
thousands)
Net
cash provided by operating activities for the nine months ended
September 30, 2015 totaled $5,710, which consisted primarily of
cash received from net written premiums less cash disbursed for
operating expenses. Net cash used in investing activities of $2,437
was primarily due to the net purchases of available for sale
securities and increased collateral deposited in trust accounts.
Net cash used in financing activities totaled $2,182 representing
cash dividend payments.
Share Repurchase Program
On May 12, 2016, the
Board of Directors of Oxbridge Re Holdings Limited (the
“Company”) authorized a share repurchase program (the
“Share Repurchase Program”), pursuant to which the
Company may, from time to time, purchase shares of its common stock
for an aggregate repurchase price not to exceed $2 million. The
plan expires on December 31, 2017. Share repurchases may be
executed through various means, including, without limitation, open
market transactions, privately negotiated transactions or tender
offers. The repurchases will be
funded from cash on hand or other capital markets sources. The
stock repurchase program may be suspended or discontinued at any
time without prior notice.
The
Company has adopted a Rule 10b5-1 share repurchase plan under the
Securities Exchange Act of 1934 (the “Plan”) in
connection with the Share Repurchase Program. The Plan allows the
Company to repurchase its shares at times when it otherwise might
be prevented from doing so under insider trading laws or because of
self-imposed trading blackout periods. Because repurchases under
the Plan are subject to certain pricing parameters, there is no
guarantee as to the exact number of shares that will be repurchased
under the Plan or that there will be any repurchases pursuant to
the Plan. Subject to applicable regulations, the Company may elect
to amend or cancel the Plan at its discretion.
At
September 30, 2016, there was approximately $1,601,000 available
under the plan. See Note 8- “Shareholders’
Equity” to our unaudited consolidated financial statements
under Item 1 of this Quarterly Report on Form 10-Q.
OFF-BALANCE
SHEET ARRANGEMENTS
As of
September 30, 2016, we had no off-balance sheet arrangements as
defined in Item 303(a)(4) of Regulation S-K.
EXPOSURE
TO CATASTROPHES
As with
other reinsurers, our operating results and financial condition
could be adversely affected by volatile and unpredictable natural
and man-made disasters, such as hurricanes, windstorms,
earthquakes, floods, fires, riots and explosions. Although we
attempt to limit our exposure to levels we believe are acceptable,
it is possible that an actual catastrophic event or multiple
catastrophic events could have a material adverse effect on our
financial condition, results of operations and cash flows. As
described under “CRITICAL ACCOUNTING
POLICIES—Reserves for Losses
and Loss Adjustment Expenses” below, under GAAP, we
are not permitted to establish loss reserves with respect to losses
that may be incurred under reinsurance contracts until the
occurrence of an event which may give rise to a claim. As a result,
only loss reserves applicable to losses incurred up to the
reporting date may be established, with no provision for a
contingency reserve to account for expected future
losses.
CRITICAL ACCOUNTING POLICIES
We are
required to make estimates and assumptions in certain circumstances
that affect amounts reported in our consolidated financial
statements and related footnotes. We evaluate these estimates and
assumptions on an on-going basis based on historical developments,
market conditions, industry trends and other information that we
believe to be reasonable under the circumstances. These accounting
policies pertain to premium revenues and risk transfer, reserve for
loss and loss adjustment expenses and the reporting of deferred
acquisition costs.
Premium Revenue and Risk
Transfer. We record premiums revenue as earned pro-rata over
the terms of the
reinsurance agreements and the unearned portion at the balance
sheet date is recorded as unearned premiums reserve. A reserve is
made for estimated premium deficiencies to the extent that
estimated losses and loss adjustment expenses exceed related
unearned premiums. Investment income is not considered in
determining whether or not a deficiency exists.
We
account for reinsurance contracts in accordance with ASC 944,
‘‘Financial Services – Insurance. ” Assessing
whether or not a reinsurance contract meets the conditions for risk
transfer requires judgment. The determination of risk transfer is
critical to reporting premiums written. If we determine that a
reinsurance contract does not transfer sufficient risk, we must
account for the contract as a deposit liability.
Loss experience refund
payable. Certain
contracts include retrospective provisions that adjust premiums or
result in profit commissions in the event losses are minimal or
zero. Under such contracts, the Company expects to recognize
aggregate liabilities payable to the ceding insurers assuming no
losses occur during the contract period. In accordance with GAAP,
the Company will recognize a liability in the period in which the
absence of loss experience obligates the Company to pay cash or
other consideration under the contract. On the contrary, the
Company will derecognize such liability in the period in which a
loss experience arises. Such adjustments to the liability, which
accrue throughout the contract term, will reduce the liability
should a catastrophic loss event covered by the Company
occur.
Reserves for Losses and
Loss Adjustment Expenses. We determine our reserves for
losses and loss adjustment expenses on the basis of the claims
reported by our ceding insurers and for losses incurred but not
reported, we utilize the assistance of an independent actuary. The
reserves for losses and loss adjustment expenses represent
management’s best estimate of the ultimate settlement costs
of all losses and loss adjustment expenses. We believe that the
amounts are adequate; however, the inherent impossibility of
predicting future events with precision, results in uncertainty as
to the amount which will ultimately be required for the settlement
of losses and loss expenses, and the differences could be material.
Adjustments are reflected in the consolidated statements of income in
the period in which they are determined.
Under
GAAP, we are not permitted to establish loss reserves until the
occurrence of an actual loss event. As a result, only loss reserves
applicable to losses incurred up to the reporting date may be
recorded, with no allowance for the provision of a contingency
reserve to account for expected future losses. Losses arising from
future events, which could be substantial, are estimated and
recognized at the time the loss is incurred.
As
of September 30, 2016 our best estimate for reserves for loss and
loss adjustment expenses was $972 thousand, with IBNR representing
approximately 90% of such reserves.
Our
reserving methodology does not lend itself well to a statistical
calculation of a range of estimates surrounding the best point
estimate of our reserve for loss and loss adjustment expense. Due
to the low frequency and high severity nature of claims within much
of our business, our reserving methodology principally involves
arriving at a specific point estimate for the ultimate expected
loss on a contract by contract basis, and our aggregate loss
reserves are the sum of the individual loss reserves
established.
Deferred Acquisition
Costs. We defer certain expenses that are directly related
to and vary with producing reinsurance
business, including brokerage fees on gross premiums assumed,
premium taxes and certain other costs related to the acquisition of
reinsurance contracts. These costs are capitalized and the
resulting asset, deferred acquisition costs, is amortized and
charged to expense in future periods as premiums assumed are
earned. The method followed in computing deferred acquisition costs
limits the amount of such deferral to its estimated realizable
value. The ultimate recoverability of deferred acquisition costs is
dependent on the continued profitability of our reinsurance
underwriting. If our underwriting ceases to be profitable, we may
have to write off a portion of our deferred acquisition costs,
resulting in a further charge to income in the period in which the
underwriting losses are recognized.
Stock-Based Compensation:
The Company
accounts for stock-based compensation under the fair value
recognition provisions of GAAP which requires the measurement and
recognition of compensation for all stock-based awards made to
employees and directors, including stock options and restricted
stock issuances based on estimated fair values. The Company measures compensation for restricted
stock based on the price of the Company’s ordinary shares at
the grant date. Determining the fair value of share purchase
options at the grant date requires significant estimation and
judgment. The Company uses an option-pricing model (Black-Scholes
option pricing model) to assist in the calculation of fair value
for share purchase options. The Company's shares have not been
publicly traded for a sufficient length of time to solely use the
Company's performance to reasonably estimate the expected
volatility. Therefore, when estimating the expected volatility, the
Company takes into consideration the historical volatility of
similar entities. The Company considers factors such as an entity's
industry, stage of life cycle, size and financial leverage when
selecting similar entities. The Company uses a sample peer group of
companies in the reinsurance industry as well as the
Company’s own historical volatility in determining the
expected volatility. Additionally, the Company uses the full life
of the options, ten years, as the estimated term of the options,
and has assumed no forfeitures during the life of the
options.
The Company uses the
straight-line attribution method for all grants that include only a
service condition. Compensation expense related to all awards is
included in general and administrative expenses.
Item
3.
Quantitative
and Qualitative Disclosures About Market Risk
Because
we are a smaller reporting company, we are not required to provide
this information.
Item
4.
Controls
and Procedures
Evaluation
of Disclosure Controls and Procedures
Under
the supervision and with the participation of our Chief Executive
Officer (our principal executive officer) and our Financial
Controller (our principal financial officer), we have evaluated the
effectiveness of our disclosure controls and procedures as of the
end of the period covered by this report. Based on that evaluation,
our Chief Executive Officer and our Financial Controller have
concluded that our disclosure controls and procedures were
effective as of the end of the period covered by this
report.
Changes
in Internal Control Over Financial Reporting
There
have been no changes in our internal control over financial
reporting that occurred during the quarter ended September 30, 2016
that have materially affected, or are reasonably likely to
materially affect, our internal control over financial
reporting.
PART II – OTHER INFORMATION
Item
1.
Legal
Proceedings
We are
not currently involved in any litigation or arbitration. We
anticipate that, similar to the rest of the insurance and
reinsurance industry, we will be subject to litigation and
arbitration in the ordinary course of business.
There
have been no material changes to the risk factors previously
disclosed in the section entitled “Risk Factors” in our
Form 10-K, which was filed with the Securities and Exchange
Commission on March 17, 2016.
Item
2.
Unregistered
Sales of Equity Securities and Use of Proceeds
(a)
Sales
of Unregistered Securities
None.
(b)
Repurchases
of Equity Securities
The
table below summarizes the number of common shares repurchased
during the three months ended September 30, 2016 under a share
repurchase plan (dollar amounts in thousands, except share and per
share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Month Ended
|
|
|
|
|
|
|
|
31-Jul-16
|
10,700
|
$5.06
|
1,885,694
|
31-Aug-16
|
14,133
|
$5.06
|
1,814,230
|
30-Sep-16
|
42,024
|
$5.07
|
1,601,208
|
|
|
|
|
|
66,857
|
$5.06
|
|
|
|
|
|
(a)
The share
repurchase plan approved by our Board of Directors on May 12, 2016
commenced in June 2016.
(b)
Represents the
balances inclusive of commissions and fees at the end of each
month.
None.
Item
3.
Defaults
Upon Senior Securities
None.
Item
4.
Mine
Safety Disclosures
Not
applicable.
Item
5.
Other
Information
None.
The
following exhibits are filed herewith:
Exhibit No.
|
Document
|
|
|
|
Certifications
of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act and Rule 13a-14(a) or 15d-14(a) under the
Securities Exchange Act of 1934.
|
|
|
|
Certifications
of the Financial Controller pursuant to Section 302 of the
Sarbanes-Oxley Act and Rule 13a-14(a) or 15d-14(a) under the
Securities Exchange Act of 1934.
|
|
|
|
Written
Statement of the Chief Executive Officer and Financial Controller
pursuant to 18 U.S.C. §1350.
|
|
|
101
|
The
following materials from Oxbridge Re Holdings Limited’s
Quarterly Report on Form 10-Q for the quarter ended September 30,
2016 are filed herewith, formatted in XBRL (Extensible Business
Reporting Language): (i) the Consolidated Balance Sheets, (ii) the
Consolidated Statements of Income, (iii) the Consolidated
Statements of Comprehensive Income, (iv) the Consolidated
Statements of Cash Flows, (v) the Consolidated Statements of
Changes in Shareholders’ Equity and (vi) the Notes to
Consolidated Financial Statements.
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|
|
|
|
|
|
|
|
SIGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
|
OXBRIDGE
RE HOLDINGS LIMITED
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|
|
Date:
November 14, 2016
|
By: /s/ JAY
MADHU
|
|
Jay
MadhuChief Executive Officer and President(Principal Executive
Officer)
|
|
|
Date:
November 14, 2016
|
By: /s/ WRENDON
TIMOTHY
|
|
Wrendon
TimothyFinancial Controller and Secretary(Principal Financial
Officer and PrincipalAccounting Officer)
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45