Blueprint
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark
One)
[X]
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
quarterly period ended June 30, 2018
[
]
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
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(Exact
name of registrant as specified in its charter)
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|
|
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Cayman
Islands
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98-1150254
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer
Identification
No.)
|
|
|
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Strathvale
House, 2nd
Floor90 North Church Street, GeorgetownP.O. Box 469
Grand
Cayman, Cayman Islands
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KY1-9006
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(Address
of principal executive offices)
|
|
(Zip
Code)
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|
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Registrant’s
telephone number, including area code: (345) 749-7570
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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.
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).
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”, and “emerging growth company”
in Rule 12b-2 of the Exchange Act.
Large
accelerated
filer
|
|
Accelerated
filer
|
Non-accelerated
filer
|
|
Smaller
reporting
company
X
|
Emerging growth
company X
|
|
|
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ______
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).
Indicate
the number of shares outstanding of each of the issuer’s
classes of common stock, as of the latest practicable
date.
As of
August 14, 2018; 5,733,587 ordinary shares, par value $0.001 per
share, were outstanding.
OXBRIDGE RE HOLDINGS LIMITED
INDEX
PART I – FINANCIAL INFORMATION
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Page
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Item
1.
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Financial
Statements
|
|
|
|
|
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Consolidated
Balance Sheets June 30, 2018
(unaudited) and December 31, 2017
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3
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|
|
|
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Consolidated
Statements of Operations Three and Six
Months Ended June 30, 2018 and 2017 (unaudited)
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4
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Consolidated
Statements of Comprehensive Income Three and Six
Months Ended June 30, 2018 and 2017 (unaudited)
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5
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|
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|
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Consolidated
Statements of Cash Flows Six Months Ended
June 30, 2018 and 2017 (unaudited)
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6
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|
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Consolidated
Statements of Changes in Shareholders’ Equity
Six
Months Ended June 30, 2018 and 2017 (unaudited)
|
8
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|
|
|
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Notes
to Consolidated Financial Statements (unaudited)
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9
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Item
2.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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35
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Item
3.
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Quantitative and
Qualitative Disclosures About Market Risk
|
48
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Item
4.
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Controls and
Procedures
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49
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PART II – OTHER INFORMATION
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Item
1.
|
Legal
Proceedings
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49
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Item
1A.
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Risk
Factors
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49
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Item
2.
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Unregistered Sales
of Equity Securities and Use of Proceeds
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49
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Item
3.
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Defaults Upon
Senior Securities
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49
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Item
4.
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Mine
Safety Disclosures
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50
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Item
5.
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Other
Information
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50
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Item
6.
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Exhibits
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50
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Signatures
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51
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Consolidated Balance Sheets
(expressed in thousands of U.S. Dollars, except per share and share
amounts)
|
|
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Assets
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|
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Investments:
|
|
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Fixed-maturity
securities, available for sale, at fair value (amortized cost:
$4,779 and $4,450, respectively)
|
$4,758
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4,433
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Equity securities,
available for sale, at fair value (cost of $2,058 in
2017)
|
-
|
2,036
|
Equity securities,
at fair value (cost of $1,652 in 2018)
|
1,535
|
-
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Total
investments
|
6,293
|
6,469
|
Cash
and cash equivalents
|
7,053
|
7,763
|
Restricted
cash and cash equivalents
|
4,192
|
3,124
|
Accrued
interest and dividend receivable
|
28
|
39
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Premiums
receivable
|
2,338
|
3,798
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Deferred
policy acquisition costs
|
263
|
48
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Prepayment
and other assets
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140
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116
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Property
and equipment, net
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25
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36
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Total
assets
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$20,332
|
21,393
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Liabilities and Shareholders’ Equity
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Liabilities:
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Reserve
for losses and loss adjustment expenses
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$167
|
4,836 #
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Loss
experience refund payable
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-
|
135
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Losses
payable
|
796
|
386
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Notes
payable to Series 2018-1 noteholders
|
2,000
|
-
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Unearned
premiums reserve
|
2,393
|
2,012
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Accounts
payable and other liabilities
|
945
|
106
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Total
liabilities
|
6,301
|
7,475
|
|
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Shareholders’
equity:
|
|
|
Ordinary
share capital, (par value $0.001, 50,000,000 shares authorized;
5,733,587 shares issued and outstanding)
|
6
|
6
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Additional
paid-in capital
|
32,163
|
32,100
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Accumulated
Deficit
|
(18,117)
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(18,149)
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Accumulated
other comprehensive loss
|
(21)
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(39)
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Total
shareholders’ equity
|
14,031
|
13,918
|
Total
liabilities and shareholders’ equity
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$20,332
|
21,393
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The
accompanying Notes to Consolidated Financial Statements are an
integral
part of
the Consolidated Financial Statements.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
(expressed in thousands of U.S. Dollars, except per share
amounts)
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|
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|
|
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|
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Revenue
|
|
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Assumed
premiums
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$2,580
|
17,376
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2,580
|
18,256
|
Premiums
ceded
|
-
|
(147)
|
-
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(147)
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Change
in loss experience refund payable
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(90)
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(512)
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(225)
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(1,260)
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Change
in unearned premiums reserve
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(2,156)
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(14,231)
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(1,801)
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(12,815)
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|
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Net
premiums earned
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334
|
2,486
|
554
|
4,034
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Net
income from derivative instruments
|
208
|
-
|
376
|
-
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Net
investment and other income
|
108
|
127
|
180
|
213
|
Net
realized investment gains (losses)
|
-
|
46
|
(176)
|
48
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Change
in fair value of equity securities
|
73
|
-
|
(96)
|
-
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|
|
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Total
revenue
|
723
|
2,659
|
838
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4,295
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Expenses
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Losses
and loss adjustment expenses
|
-
|
1,059
|
-
|
1,027
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Net
loss on commutation
|
8
|
-
|
8
|
-
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Policy
acquisition costs and underwriting expenses
|
29
|
94
|
38
|
158
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General
and administrative expenses
|
359
|
390
|
676
|
724
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|
|
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Total
expenses
|
396
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1,543
|
722
|
1,909
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Income
before (income) attributable to Series 2018-1
noteholders
|
$327
|
1,116
|
116
|
2,386
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|
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(Income)
attributable to Series 2018-1 noteholders
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(62)
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-
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(62)
|
-
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|
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Net
income
|
265
|
1,116
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54
|
2,386
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Earnings per share
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Basic
and Diluted
|
$0.05
|
0.19
|
0.01
|
0.41
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Dividends paid per share
|
$-
|
0.12
|
-
|
0.24
|
The
accompanying Notes to Consolidated Financial Statements are an
integral
part of
the Consolidated Financial Statements.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(Unaudited)
(expressed in thousands of U.S. Dollars)
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|
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Net
income
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$265
|
1,116
|
54
|
2,386
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Other
comprehensive (loss) income:
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Change
in unrealized loss on investments:
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Unrealized
(loss) gain arising during the period
|
(1)
|
181
|
(177)
|
140
|
Reclassification
adjustment for net realized losses (gains) included in net (loss)
income
|
-
|
(46)
|
173
|
(48)
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|
|
|
|
|
Net
change in unrealized loss
|
(1)
|
135
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(4)
|
92
|
|
|
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|
Total
other comprehensive (loss)/income
|
(1)
|
135
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(4)
|
92
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Comprehensive
income
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$264
|
1,251
|
50
|
2,478
|
The
accompanying Notes to Consolidated Financial Statements are an
integral
part of
the Consolidated Financial Statements.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(expressed in thousands of U.S. Dollars)
|
|
|
|
|
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Operating activities
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|
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Net
income
|
$54
|
2,386
|
Adjustments
to reconcile net income to net cash (used in) / provided by
operating activities:
|
|
|
Stock-based
compensation
|
63
|
63
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Net
amortization of premiums on investments in fixed-maturity
securities
|
7
|
42
|
Depreciation
and amortization
|
11
|
11
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Net
realized investment losses (gains)
|
176
|
(48)
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Change
in fair value of equity securities
|
96
|
-
|
Change
in operating assets and liabilities:
|
|
|
Accrued
interest and dividend receivable
|
11
|
(8)
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Premiums
receivable
|
1,460
|
(8,074)
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Deferred
policy acquisition costs
|
(215)
|
(449)
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Unearned
premiums ceded
|
-
|
(733)
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Prepayment
and other assets
|
(24)
|
(53)
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Reserve
for losses and loss adjustment expenses
|
(4,669)
|
(5,659)
|
Loss
experience refund payable
|
(135)
|
1,260
|
Losses
payable
|
410
|
1,467
|
Unearned
premiums reserve
|
381
|
12,815
|
Accounts
payable and other liabilities
|
839
|
(52)
|
|
|
|
Net
cash (used in) / provided by operating activities
|
$(1,535)
|
2,968
|
|
|
|
Investing activities
|
|
|
Purchase
of fixed-maturity securities
|
(3,336)
|
(3,987)
|
Purchase
of equity securities
|
(5,804)
|
(10,007)
|
Proceeds
from sale of fixed-maturity and equity securities
|
9,033
|
9,678
|
Purchase
of property and equipment
|
-
|
(6)
|
|
|
|
Net
cash used in investing activities
|
$(107)
|
(4,322)
|
|
|
|
Financing activities
|
|
|
Proceeds
on issuance of notes payable to Series 2018-1
noteholders
|
2,000
|
-
|
Repurchases
of common stock under share repurchase plan
|
-
|
(671)
|
Dividends
paid
|
-
|
(1,403)
|
|
|
|
Net
cash provided by / (used in) financing activities
|
$2,000
|
(2,074)
|
|
|
|
(continued)
|
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Consolidated Statements of Cash Flows, continued
(Unaudited)
(expressed in thousands of U.S. Dollars)
|
|
|
|
|
|
|
Cash
and cash equivalents, and restricted cash and cash
equivalents:
|
|
|
Net
change during the period
|
358
|
(3,428)
|
Balance,
beginning of period
|
10,887
|
35,682
|
|
|
|
Balance,
end of period
|
$11,245
|
32,254
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
Interest
paid
|
-
|
-
|
Income
taxes paid
|
-
|
-
|
|
|
|
Non-cash investing activities
|
|
|
Net
change in unrealized gain on securities available for
sale
|
(1)
|
92
|
The
accompanying Notes to Consolidated Financial Statements are an
integral
part of
the Consolidated Financial Statements.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders’ Equity
(unaudited)
Six Months Ended June 30, 2018 and 2017
(expressed in thousands of U.S. Dollars, except per share and share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2016
|
5,916,149
|
$6
|
$33,034
|
$4,534
|
$(411)
|
$37,163
|
Cash
dividends paid
|
-
|
-
|
-
|
(1,403)
|
-
|
(1,403)
|
Repurchase
and retirement of common stock under share repurchase
plan
|
(109,815)
|
-
|
(671)
|
-
|
-
|
(671)
|
Net
income for the period
|
-
|
-
|
-
|
2,386
|
-
|
2,386
|
Stock-based
compensation
|
-
|
-
|
63
|
-
|
-
|
63
|
Total
other comprehensive loss
|
-
|
-
|
-
|
-
|
92
|
92
|
Balance
at June 30, 2017
|
5,806,334
|
6
|
32,426
|
5,517
|
(319)
|
37,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2017
|
5,733,587
|
6
|
32,100
|
(18,149)
|
(39)
|
13,918
|
Cumulative
effect of change in accounting for equity securities as of January
1, 2018
|
-
|
-
|
-
|
(22)
|
22
|
-
|
Net
income for the period
|
-
|
-
|
-
|
54
|
-
|
54
|
Stock-based
compensation
|
-
|
-
|
63
|
-
|
-
|
63
|
Total
other comprehensive loss
|
-
|
-
|
-
|
-
|
(4)
|
(4)
|
Balance
at June 30, 2018
|
5,733,587
|
$6
|
$32,163
|
$(18,117)
|
$(21)
|
$14,031
|
The
accompanying Notes to Consolidated Financial Statements are an
integral
part of
the Consolidated Financial Statements.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June
30, 2018
1.
ORGANIZATION
AND BASIS OF PRESENTATION
Oxbridge Re
Holdings Limited (the “Company”) 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, 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 also owns 100% of the equity interest
in Oxbridge Re NS, an entity incorporated as an exempted company on
December 22, 2017 under the laws of the Cayman Islands to function
as a reinsurance sidecar facility and to increase the underwriting
capacity of Oxbridge Reinsurance Limited. The Company, through its
subsidiaries (collectively “Oxbridge Re”) provides collateralized reinsurance in the
property catastrophe market and invests in various insurance-linked
securities. The Company operates as a single business segment
through its wholly-owned subsidiaries. The Company’s
headquarters and principal executive offices are located at
Strathvale House, 90 North Church Street, Georgetown, Grand Cayman,
Cayman Islands, and 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.
(b)
Basis
of Presentation and Consolidation
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 the 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 June 30, 2018 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, 2018. 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, 2017 included in the
Company’s Form 10-K, which was filed with the SEC on March
13, 2018.
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 SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June
30, 2018
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.
The
Company consolidates in these Consolidated Financial Statements the
results of operations and financial position of all voting interest
entities (“VOE”) in which the Company has a controlling
financial interest and all variable interest entities
(“VIE”) in which the Company is considered to be the
primary beneficiary. The consolidation assessment, including the
determination as to whether an entity qualifies as a VIE or VOE,
depends on the facts and circumstances surrounding each
entity.
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 requires 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 for which its fixed-maturity
securities 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 with respect to
its fixed-maturity securities. For the Company’s investment
in equity securities, the changes in fair value are recorded within
the consolidated statements of operations.
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 operations. 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.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June
30, 2018
The
Company reviews all fixed-maturity 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 operations in the period
in which the Company makes such determination. For a fixed-maturity
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 operations, while impairment related to all other
factors is recognized in other comprehensive income. The Company
considers various factors in determining whether an individual
security is other-than-temporarily impaired (see Note
4).
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
fixed-maturity 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.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June
30, 2018
Derivative Financial
Instruments
The Company may from time to time enter into underwriting contracts
such as industry loss warranty contracts (“ILW”) that
are treated as derivatives for GAAP purposes. GAAP requires that an
entity recognize all derivatives in the balance sheet at fair
value. It also requires that unrealized gains and losses resulting
from changes in fair value be included in operations or
comprehensive (loss) income. The Company’s derivative
financial instrument assets are included in prepayments and other
assets. Derivative financial instrument liabilities are included in
accounts payable and other liabilities.
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 June 30, 2018, 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 period ended June 30, 2018, there
were no impairments in property and equipment.
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 June 30, 2018, 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 operations in the period in which they are
determined.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June
30, 2018
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, or period of risk, where applicable, and
the unearned portion at the consolidated 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.
Subsequent adjustments of premiums assumed, based
on reports of actual premium by the ceding companies, or revisions
in estimates of ultimate premium, are recorded in the period in
which they are determined. Such adjustments are generally
determined after the associated risk periods have expired, in which
case the premium adjustments are fully earned when
assumed.
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.
Unearned Premiums
Ceded: The
Company reduces the risk of future losses on business assumed by
reinsuring certain risks and exposures with other reinsurers
(retrocessionaires). The Company remains liable to the extent that
any retrocessionaire fails to meet its obligations and to the
extent that the Company does not hold sufficient security for their
unpaid obligations.
Ceded
premiums are written during the period in which the risk incept and
are expensed over the contract period in proportion to the period
of protection. Unearned premiums ceded consist of the unexpired
portion of the reinsurance obtained.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June
30, 2018
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 June 30, 2018.
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.
Recent adopted
accounting pronouncements:
Accounting
Standards Update No. 2016-01. In January 2016, the FASB
revised GAAP with the issuance of Accounting Standards Update
2016-01 (“ASU 2016-01”), Financial Instruments -
Overall (Subtopic 825-10): Recognition and Measurement of Financial
Assets and Financial Liabilities to improve the recognition and
measurement of financial instruments. The new ASU requires certain
investments in equity securities to be measured at fair value with
changes in fair value reported in operations and requires changes
in instrument-specific credit risk for financial liabilities
recorded at fair value under the fair value option to be reported
in Other Comprehensive (Loss) Income. The company adopted this ASU
on January 1, 2018, and applied it prospectively without prior
period amounts restated. As a result of the adoption, $22 thousand
of unrealized losses on equity securities was reclassified on
January 1, 2018, from accumulated other comprehensive loss to
accumulated deficit. Results of operations were impacted as changes
in fair value of equity securities are now reported as a separate
component in net income instead of reported in other comprehensive
income.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June
30, 2018
Accounting
Standards Update No. 2016-18. In November 2016, the
FASB revised GAAP, Statement of Cash Flows (Topic 230): Restricted
Cash with the issuance of the ASU 2016-18, to reduce diversity in
the classification and presentation of changes in restricted cash
in the statement of cash flows. The new ASU requires that the
statement of cash flows explain the change during the period in the
total of cash, cash equivalents, and amounts generally described as
restricted cash or restricted cash equivalents. The Company is
required to reconcile such total to amounts on the Consolidated
Balance Sheets and disclose the nature of the restrictions. The
Company adopted this ASU effective January 1, 2018, which only
resulted in a change in the presentation of the Consolidated
Statements of Cash Flows.
Accounting
Standards Update No. 2017-09. In May 2017, the FASB
issued ASU 2017-09, Compensation -
Stock Compensation (Topic 718): Scope of Modification
Accounting. ASU 2017-09 clarifies when to account for a
change to the terms or conditions of a share based payment award as
a modification. Under the new guidance, modification accounting is
required only if the fair value, the vesting conditions, or the
classification of the award (as equity or liability) changes as a
result of the change in terms or conditions. The effective date of
ASU 2017-09 was for interim and annual reporting periods, beginning
after December 15, 2017, and was applied prospectively. The company
adopted this ASU effective January 1, 2018, and it did not have a
material impact on our company's consolidated financial position,
cash flows or results of operations.
Pending Accounting
Updates:
Accounting
Standards Update No. 2016-13. In June 2016, the FASB
issued ASU 2016-13, “Financial Instruments - Credit
Losses (Topic 326): Measurements of Credit Losses on Financial
Instruments” (“ASU 2016-13”). ASU 2016-13 amends the guidance
on reporting credits losses and affects loans, debt securities,
trade receivables, reinsurance recoverables and other financial
assets that have the contractual right to receive cash. The
amendments are effective for annual periods beginning after
December 15, 2019, and interim periods within those annual periods.
Early adoption is permitted for any organization for annual periods
beginning after December 15, 2018 and interim periods within those
annual periods. The Company is in the process of evaluating the
impact of the requirements of ASU 2016-13 on the Company’s
consolidated financial statements and anticipates implementing ASU
2016-13 during the first quarter of fiscal year 2020.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June
30, 2018
Accounting
Standards Update No. 2016-02. In February 2016, the FASB issued
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. 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. 2018-07. In June 2018, the FASB issued ASU No. 2018-07,
Stock Compensation (Topic 718): Improvements to Nonemployee
Share-Based Payment Accounting. The ASU is intended to reduce the
cost and complexity and to improve financial reporting for
nonemployee share-based payments. The ASU expands the scope of
Topic 718. Compensation Stock Compensation (which currently only
includes share-based payments to employees) to include share-based
payments issued to nonemployees for goods or services.
Consequently, the accounting for share-based payments to
nonemployees and employees will be substantially aligned. The ASU
supersedes Subtopic 505-50, Equity-Equity-Based payments to
Non-Employees. The ASU is effective for the Company for fiscal
years beginning after December 15, 2018, including interim periods
within that fiscal year. Early adoption is permitted, but no
earlier than a company’s adoption date of Topic 606, Revenue
from Contracts with Customers. The Company is currently evaluating
the impact of the ASU, if any, on its consolidated financial
statements
Segment
Information: Under
GAAP, operating segments are based on the internal information that
management uses for allocating resources and assessing performance
as the source of the Company’s reportable segments. The
Company manages its business on the basis of one operating segment,
Property and Casualty Reinsurance, in accordance with the
qualitative and quantitative criteria established under
GAAP.
Reclassifications: Certain reclassifications of prior
period amounts have been made to conform to the current period
presentation.
3. CASH
AND CASH EQUIVALENTS AND RESTRICTED CASH AND CASH
EQUIVALENTS
|
|
|
|
|
|
|
|
|
|
|
Cash
on deposit
|
$1,025
|
$4,052
|
Cash
held with custodians
|
6,028
|
3,711
|
Restricted
cash held in trust
|
4,192
|
3,124
|
|
|
|
Total
|
11,245
|
10,887
|
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 SunTrust 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 SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June
30, 2018
4. INVESTMENTS
The
Company holds investments in fixed-maturity securities and equity
securities, with its fixed-maturity securities classified as
available-for-sale. At June 30, 2018 and December 31, 2017, 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 June 30, 2018
|
|
|
|
|
Fixed-maturity securities
|
|
|
|
|
U.S.
Treasury and agency securities
|
$4,779
|
$2
|
$(23)
|
$4,758
|
|
|
|
|
|
|
|
|
|
|
Total
fixed-maturity securities
|
4,779
|
2
|
(23)
|
4,758
|
|
|
|
|
|
|
|
|
|
|
Total
available for sale securities
|
$4,779
|
$2
|
$(23)
|
$4,758
|
As of December 31, 2017
|
|
|
|
|
Fixed-maturity securities
|
|
|
|
|
U.S. Treasury and
agency securities
|
$4,450
|
$-
|
$(17)
|
$4,433
|
|
|
|
|
|
|
|
|
|
|
Total
fixed-maturity securities
|
4,450
|
-
|
(17)
|
4,433
|
|
|
|
|
|
Mutual
funds
|
400
|
29
|
-
|
429
|
Preferred
stocks
|
200
|
-
|
(1)
|
199
|
Common
stocks
|
1,458
|
12
|
(62)
|
1,408
|
|
|
|
|
|
Total equity securities (1)
|
2,058
|
41
|
(63)
|
2,036
|
|
|
|
|
|
|
|
|
|
|
Total available for
sale securities
|
$6,508
|
$41
|
$(80)
|
$6,469
|
(1) Effective January
1, 2018, the Company adopted ASU No. 2016-01 and equity securities
are no longer classified as available-for-sale. Prior periods have
not been restated to conform to the current presentation. See Note
2, Accounting Policies, for additional information.
At June
30, 2018 and December 31, 2017, available-for-sale securities with
fair value of $4,393,000 and $1,430,000, respectively, are held in
trust accounts as collateral under reinsurance contacts with the
Company’s ceding insurers.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June
30, 2018
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 June 30, 2018 and December 31, 2017
are as follows:
|
|
|
|
|
|
|
|
As of June 30, 2018
|
|
|
Available for sale
|
|
|
Due
within one year
|
$1,854
|
1,855
|
Due
after one year through five years
|
2,925
|
2,903
|
|
|
|
|
|
|
|
$4,779
|
$4,758
|
|
|
|
|
|
|
As of December 31, 2017
|
|
|
Available for sale
|
|
|
Due
within one year
|
$3,007
|
$3,003
|
Due
after one year through five years
|
1,443
|
1,430
|
|
|
|
|
$4,450
|
$4,433
|
Proceeds received, and the gross realized gains and losses from
sales of available-for-sale fixed-maturity securities, and equity
securities, for the three months ended June 30, 2018 and 2017 were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
|
|
|
Available-for-sale
fixed-maturity securities
|
$-
|
$-
|
$-
|
|
|
|
|
Equity
securities
|
$-
|
$-
|
$-
|
|
|
|
|
Six Months Ended June 30, 2018
|
|
|
|
Available-for-sale
fixed-maturity securities
|
$3,000
|
$3
|
$-
|
|
|
|
|
Equity
securities
|
$6,033
|
$418
|
$(594)
|
|
|
|
|
Three Months Ended June 30, 2017
|
|
|
|
Available-for-sale
fixed-maturity securities
|
$-
|
$-
|
$-
|
|
|
|
|
Equity
securities
|
$6,101
|
$540
|
$(494)
|
|
|
|
|
Six Months Ended June 30, 2017
|
|
|
|
Available-for-sale
fixed-maturity securities
|
$-
|
$-
|
$-
|
|
|
|
|
Equity
securities
|
$9,678
|
$732
|
$(684)
|
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June
30, 2018
4.
INVESTMENTS
(continued)
The
Company regularly reviews its individual fixed-maturity securities
for OTTI. The Company considers various factors in determining
whether each individual fixed-maturity 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.
Available-for-sale securities with gross unrealized loss positions
at June 30, 2018 and December 31, 2017, aggregated by investment
category and length of time the individual securities have been in
a continuous loss position, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
|
|
|
|
U.S.
Treasury and agency securities
|
$23
|
3,399
|
-
|
-
|
23
|
3,399
|
|
|
|
|
|
|
|
Total
fixed-maturity securities
|
23
|
3,399
|
-
|
-
|
23
|
3,399
|
|
|
|
|
|
|
|
Total
available for sale securities
|
$23
|
$3,399
|
$-
|
$-
|
$23
|
$3,399
|
At June 30, 2018, there were 5 securities in an unrealized loss
position of which none of these positions had been in an unrealized
loss position for 12 months or greater.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June
30, 2018
4.
INVESTMENTS
(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
|
|
|
|
U.S.
Treasury and agency securities
|
$13
|
1,428
|
4
|
3,003
|
17
|
4,431
|
|
|
|
|
|
|
|
Total
fixed-maturity securities
|
13
|
1,428
|
4
|
3,003
|
17
|
4,431
|
|
|
|
|
|
|
|
Equity securities
|
|
|
|
|
|
|
Preferred
stocks
|
1
|
199
|
-
|
-
|
1
|
199
|
All
other common stocks
|
36
|
769
|
26
|
174
|
62
|
943
|
|
|
|
|
|
|
|
Total
equity securities
|
37
|
968
|
26
|
174
|
63
|
1,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
available for sale securities
|
$50
|
$2,396
|
$30
|
$3,177
|
$80
|
$5,573
|
At December 31, 2017, there were 8 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
June 30, 2018 and December 31, 2017.
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.
Based on management’s evaluation, the Company did not
consider any of its equity securities to be other-than-temporarily
impaired at December 31, 2017. Additionally, upon
adoption of ASU 2016-01, changes in fair value of equity securities
are now recorded within the consolidation statements of operations,
and as such, OTTI considerations are no longer made with respect to
equity securities.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June
30, 2018
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 June 30, 2018 and December 31, 2017:
|
Fair Value
Measurements Using
|
|
|
|
|
|
|
As of June 30, 2018
|
|
Financial
Assets:
|
|
|
|
|
Cash and cash equivalents
|
$7,053
|
$-
|
$-
|
$7,053
|
|
|
|
|
|
Restricted cash and cash equivalents
|
$4,192
|
$-
|
$-
|
$4,192
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and
agency securities
|
4,758
|
-
|
-
|
4,758
|
|
|
|
|
|
|
|
|
|
|
Total
fixed-maturity securities
|
4,758
|
-
|
-
|
4,758
|
|
|
|
|
|
Mutual
funds
|
555
|
-
|
-
|
555
|
All other common
stocks
|
980
|
-
|
-
|
980
|
|
|
|
|
|
Total equity
securities
|
1,535
|
-
|
-
|
1,535
|
|
|
|
|
|
Total
securities
|
6,293
|
-
|
-
|
6,293
|
|
|
|
|
|
Total
|
$17,538
|
$-
|
$-
|
$17,538
|
As
disclosed in Note 5, the Company is a counterparty to an investment
in an industry loss warranty swap. The swap was valued on the basis
of models developed by the counterparty, which represent
unobservable (Level 3).
There
were no transfers between Levels 1, 2 and 3 during the three months
ended June 30, 2018.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June
30, 2018
4.
INVESTMENTS
(continued)
|
Fair Value
Measurements Using
|
|
|
|
|
|
|
As of December 31, 2017
|
|
Financial
Assets:
|
|
|
|
|
Cash and cash equivalents
|
$7,763
|
$-
|
$-
|
$7,763
|
|
|
|
|
|
Restricted cash and cash equivalents
|
$3,124
|
$-
|
$-
|
$3,124
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and
agency securities
|
4,433
|
-
|
-
|
4,433
|
|
|
|
|
|
|
|
|
|
|
Total
fixed-maturity securities
|
4,433
|
-
|
-
|
4,433
|
|
|
|
|
|
|
|
|
|
|
Mutual
funds
|
429
|
-
|
-
|
429
|
Preferred
stocks
|
199
|
-
|
-
|
199
|
All other common
stocks
|
1,408
|
-
|
-
|
1,408
|
|
|
|
|
|
Total equity
securities
|
2,036
|
-
|
-
|
2,036
|
|
|
|
|
|
Total available for
sale securities
|
6,469
|
-
|
-
|
6,469
|
|
|
|
|
|
Total
|
$17,356
|
$-
|
$-
|
$17,356
|
5.
DERIVATIVE INSTRUMENTS
Inward Industry Loss Warranty ("ILW") Swap
In
January 2018, the Company entered into an inward ILW swap (the
"2018 Inward ILW Swap") with a third-party under which qualifying
loss payments are triggered by reference to the level of losses
incurred by the insurance industry as a whole, rather than by
losses incurred by the insured. In return for a fixed payment
received of $1 million, the Company is required to make a floating
payment in the event of certain losses incurred from specified
natural catastrophes in North America, Caribbean, Europe, Japan,
Australia, New Zealand and Latin America from January 2018 to
December 2018. The Company’s maximum payment obligation under
the 2018 Inward ILW Swap is $4 million. During the quarter ending
June 30, 2018, the Company was not aware of any industry loss event
occurring that would have triggered a payment obligation under the
2018 Inward ILW Swap.
The
Inward ILW Swap was valued on the basis of models developed by the
counterparty, which represent unobservable (Level 3) inputs. As of
June 30, 2018, the fair value of the 2018 Inward ILW Swap was $0.62
million, and was recorded with "accounts payable and other
liabilities" on the Company's June 30, 2018 Consolidated Balance
Sheet.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June
30, 2018
5.
DERIVATIVE INSTRUMENTS (continued)
Inward Industry Loss Warranty ("ILW") Swap
During
the three and six months ended June 30, 2018, the Company
recognized a gain from derivative instruments of $0.2 million and
$0.37 million, respectively, pursuant to the 2018 Inward ILW
Swap.
6.
TAXATION
Under
current Cayman Islands law, no corporate entity, including the
Company and the subsidiaries, is obligated to pay taxes in the
Cayman Islands on either income or capital gains. The Company and
its subsidiaries 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
its subsidiaries or their operations, or to the ordinary shares or
related obligations, until April 23, 2033 and May 17, 2033,
respectively.
The
Company and its subsidiaries 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 SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June
30, 2018
7. VARIABLE INTEREST ENTITIES
Oxbridge Re NS. On December 22,
2017, the Company established Oxbridge Re NS, a Cayman domiciled
and licensed special purpose insurer, formed to provide additional
collateralized capacity to support Oxbridge Reinsurance
Limited’s reinsurance business. In respect of the debt issued
by Oxbridge Re NS to investors, Oxbridge Re NS has entered into a
retrocession agreement with Oxbridge Reinsurance Limited effective
June 1, 2018. Under this agreement, Oxbridge Re NS receives a quota
share of Oxbridge Reinsurance Limited’s catastrophe business.
Oxbridge Re NS is a non-rated insurer and the risks have been fully
collateralized by way of funds held in trust for the benefit of
Oxbridge Reinsurance Limited. Oxbridge Re NS is able to provide
investors with access to diversified natural catastrophe risk
backed by the distribution, underwriting, analysis and research
expertise of Oxbridge Re.
The
Company has determined that Oxbridge Re NS meets the definition of
a VIE as it does not have sufficient
equity capital to finance its activities. The Company
concluded that it is the primary beneficiary and has consolidated
the subsidiary upon its formation, as it owns 100% of the
voting shares, 100% of the issued share capital and has a
significant financial interest and the power to control the
activities of Oxbridge Re NS that most significantly impacts its
economic performance. The Company has no other obligation to
provide financial support to Oxbridge Re NS. Neither the creditors
nor beneficial interest holders of Oxbridge Re NS have recourse to
the Company’s general credit.
Upon
issuance of a series of participating notes by Oxbridge Re NS, all
of the proceeds from the issuance are deposited into collateral
accounts, to fund any potential obligation under the reinsurance
agreements entered into with Oxbridge Reinsurance Limited
underlying such series of notes. The outstanding principal amount
of each series of notes generally is expected to be returned to
holders of such notes upon the expiration of the risk period
underlying such notes, unless an event occurs which causes a loss
under the applicable series of notes, in which case the amount
returned is expected to be reduced by such noteholder's pro rata
share of such loss, as specified in the applicable governing
documents of such notes. In addition, holders of such notes are
generally entitled to interest payments, payable annually, as
determined by the applicable governing documents of each series of
notes. Oxbridge Re Holdings Limited receives an origination and
structuring fee in connection with the formation, management and
operation of Oxbridge Re NS.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June
30, 2018
7. VARIABLE INTEREST ENTITIES
(continued)
Notes Payable to Series 2018-1 noteholders
Oxbridge Re NS issued $2 million of participating notes
on June 1, 2018, all of which were issued to third parties and
which provides quota share support for Oxbridge Re’s global
property catastrophe excess of loss reinsurance business. The
operations of Oxbridge Re NS commenced on June 1, 2018. The
participating notes are due to mature on June 1, 2021. None of the
participating notes were redeemed during the period ending June 30,
2018.
The
income from Oxbridge Re NS operations that are attributable to the
participating notes noteholders for the three and six months
ended June 30, 2018 was $61,602, and are included
within accounts payable and other liabilities as
at June 30, 2018.
8.
RESERVE FOR 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 six-month periods
ending June 30, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
beginning of period
|
$4,154
|
5,684
|
$4,836
|
8,702
|
Incurred
related to:
|
|
|
|
|
Current
period
|
-
|
-
|
-
|
-
|
Prior
period 1
|
(1,012)
|
1,059
|
(1,012)
|
1,027
|
Total
incurred
|
(1,012)
|
1,059
|
(1,012)
|
1,027
|
Paid
related to:
|
|
|
|
|
Current
period
|
-
|
-
|
-
|
-
|
Prior
period
|
(2,975)
|
(3,700)
|
(3,657)
|
(6,686)
|
Total
paid
|
(2,975)
|
(3,700)
|
(3,657)
|
(6,686)
|
Balance,
end of period
|
$167
|
3,043
|
$167
|
3,043
|
The
reserves for losses and LAE are comprised of case reserves (which
are based on claims that have been reported) and IBNR reserves
(which are based on losses that are believed to have occurred but
for which claims have not yet been reported and include a provision
for expected future development on existing case reserves). The
Company uses the assistance of an independent actuary in the
determination of IBNR and expected future development of existing
case reserves.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June
30, 2018
8.
RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES (continued)
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.
1
During the three and six-month
periods ending June 30, 2018, the Company entered into final
commutation agreements with two (2) cedants under which the
Company’s liabilities were commuted at an agreed-upon fixed
price. The Company recognized a net loss on commutation of $8,000
which is presented as a separate line item in the Consolidated
Statement of Operations. Included in the net loss on commutation is
favorable loss development of $1,012 thousand on one of the
commuted contracts.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June
30, 2018
9.
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:
|
|
|
|
|
Net
earnings
|
$265
|
1,116
|
$54
|
2,386
|
|
|
|
|
|
Denominator:
|
|
|
|
|
Weighted
average shares - basic
|
5,733,587
|
5,833,192
|
5,733,587
|
5,862,376
|
Effect
of dilutive securities - Stock options
|
-
|
-
|
-
|
-
|
Shares
issuable upon conversion of warrants
|
-
|
-
|
-
|
-
|
Weighted
average shares - diluted
|
5,733,587
|
5,833,192
|
5,733,587
|
5,862,376
|
Earnings
per shares - basic
|
$0.05
|
0.19
|
$0.01
|
0.41
|
Earnings
per shares - diluted
|
$0.05
|
0.19
|
$0.01
|
0.41
|
For the three and six-month periods ended June 30, 2018 and 2017,
options to purchase 250,000 ordinary shares 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 six-month periods ended June 30, 2018 and 2017,
8,230,700 warrants to purchase an aggregate of 8,230,700 ordinary
shares were anti-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 SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June
30, 2018
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.
There
were 8,230,700 warrants outstanding at June 30, 2018 and 2017. No
warrants were exercised during the three and six-month periods
ended June 30, 2018 and 2017.
As of
June 30, 2018, 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 its subsidiaries, a
dividend from the subsidiaries 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 12.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June
30, 2018
11. 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 June 30, 2018, there
were 690,000 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.
A summary of the stock option activity for the three and six-month
periods ended June 30, 2018 and 2017 is as follows:
|
|
|
Average
|
|
|
|
|
Remaining
|
|
|
|
|
Contractual
|
|
|
|
|
Term
|
|
|
|
|
|
|
Outstanding
at January 1, 2018
|
250,000
|
$6.01
|
|
|
Outstanding
at March 31, 2018
|
250,000
|
$6.01
|
7.2
years
|
$-
|
Outstanding
at June 30, 2018
|
250,000
|
$6.01
|
6.9
years
|
$-
|
Exercisable
at June 30, 2018
|
192,500
|
$6.01
|
6.9
years
|
$-
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at January 1, 2017
|
215,000
|
$6.00
|
|
|
Granted
|
35,000
|
$6.06
|
|
|
Outstanding
at March 31, 2017
|
250,000
|
$6.01
|
8.2
years
|
$137,500
|
Outstanding
at June 30, 2017
|
250,000
|
$6.01
|
7.9
years
|
$-
|
Exercisable
at June 30, 2017
|
130,000
|
$6.01
|
8.2
years
|
$-
|
Compensation expense
recognized for the three-month periods ended June 30, 2018 and 2017
totaled $9,000, and for the six-month periods ended June 30, 2018
and 2017 totaled $19,000. Compensation expense is included in
general and administrative expenses. At June 30, 2018 and 2017,
there was approximately $35,000 and $73,000, respectively, of total
unrecognized compensation expense related to non-vested stock
options granted under the Plan. The Company expects to recognize the remaining
compensation expense over a weighted-average period of eleven (11)
months.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June
30, 2018
11. SHARE-BASED COMPENSATION
(continued)
No
options were granted during the three and six-month periods ended
June 30, 2018. During the three and six-month periods ended June
30, 2017, 35,000 options were granted with fair value estimated on
the date of grant using the following assumptions and the
Black-Scholes option pricing model:
|
|
|
|
Expected
dividend yield
|
8%
|
Expected
volatility
|
35%
|
Risk-free
interest rate
|
2.48%
|
Expected
life (in years)
|
10
|
Per
share grant date fair value of options issued
|
$0.73
|
At the
time of the grant, the dividend yield was based on the
Company’s history and expectation of dividend payouts at the
time of the grant; expected volatility was based on volatility of
similar companies’ common stock; the risk-free rate was based
on the U.S. Treasury yield curve in effect and the expected life
was based on the contractual life of the options.
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 six-month periods ended June 30, 2018 and 2017
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested
at January 1, 2018
|
15,000
|
$5.86
|
Vested
|
(3,750)
|
|
Nonvested
at March 31, 2018
|
11,250
|
$5.86
|
|
|
|
Vested
|
(3,750)
|
|
Nonvested
at June 30, 2018
|
7,500
|
$5.86
|
|
|
|
|
|
|
Nonvested
at January 1, 2017
|
30,000
|
$5.86
|
Vested
|
(3,750)
|
|
Nonvested
at March 31, 2017
|
26,250
|
$5.86
|
|
|
|
Vested
|
(3,750)
|
|
Nonvested
at June 30, 2017
|
22,500
|
$5.86
|
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June
30, 2018
11. SHARE-BASED
COMPENSATION (continued)
Compensation expense
recognized for the three-month periods ended June 30, 2018 and 2017
totaled $22,000, and for the six-month periods ended June 30, 2018
and 2017 totaled $44,000 and is included in general and
administrative expenses. At June 30, 2018 and 2017, there was
approximately $44,000 and $132,000, respectively, of total
unrecognized compensation expense related to non-vested restricted
stock granted under the Plan. The Company expects to recognize the remaining
compensation expense over a weighted-average period of six (6)
months.
12. NET WORTH FOR REGULATORY PURPOSES
The
subsidiaries are subject to a minimum and prescribed capital
requirement as established by CIMA. Under the terms of their
respective licenses, Oxbridge Reinsurance Limited and Oxbridge Re
NS are required to maintain a minimum and prescribed capital
requirement of $500 in accordance with the relevant
subsidiary’s approved business plan filed with
CIMA.
At June
30, 2018, the Oxbridge Reinsurance Limited’s net worth of
$5.7 million exceeded the minimum and prescribed capital
requirement. For the three and six-month periods ended June 30,
2018, the Subsidiary’s net income was approximately $9
thousand and $18 thousand respectively.
At June
30, 2018, the Oxbridge Re NS’ net worth of $18 thousand
exceeded the minimum and prescribed capital requirement. For the
three and six-month periods ended June 30, 2018, the
Subsidiary’s net income was approximately $18
thousand.
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 June 30, 2018 or for the period then ended.
13. FAIR VALUE AND CERTAIN RISKS AND
UNCERTAINTIES
Fair values
With
the exception of balances in respect of insurance contracts (which
are specifically excluded from fair value disclosures under GAAP)
and investment securities and derivative instruments as disclosed
in Note 4 and 5 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 assets and accounts payable and other liabilities,
approximate their fair values due to their short-term
nature.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June
30, 2018
13. FAIR VALUE AND CERTAIN RISKS AND UNCERTAINTIES
(continued)
Concentration of underwriting risk
A
substantial portion of the Company’s current reinsurance
business ultimately relates to the risks of two entities;
accordingly, the Company’s underwriting risks are not
significantly diversified.
Concentrations of Credit and Counterparty Risk
The
Company’s derivative instruments are subject to counterparty
risk. The Company routinely monitor this risk.
The
Company markets retrocessional and reinsurance policies worldwide
through its brokers. Credit risk exists to the extent that
any of these brokers may be unable to fulfill their contractual
obligations to the Company. For example, the Company is
required to pay amounts owed on claims under policies to brokers,
and these brokers, in the Company. In some jurisdictions, if a
broker fails to make such a payment, the Company might remain
liable to the ceding company for the deficiency. In addition, in
certain jurisdictions, when the ceding company pays premiums for
these policies to brokers, these premiums are considered to have
been paid and the ceding insurer is no longer liable to the Company
for those amounts, whether or not the premiums have actually been
received.
The
Company remains liable for losses it incurs to the extent that any
third-party reinsurer is unable or unwilling to make timely
payments under reinsurance agreements. The Company would also
be liable in the event that its ceding companies were unable to
collect amounts due from underlying third-party
reinsurers.
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.
The
Company mitigates its concentrations of credit and counterparty
risk by using reputable and several counterparties which decreases
the likelihood of any significant concentration of credit risk with
any one counterparty. Additionally, the Company invests in
fixed-maturity securities that are investment grade or
higher.
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.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June
30, 2018
14. 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. The lease
currently runs on a month-to-month basis. Rent expense under this
lease for the three and six-month periods ended June 30, 2018 were
$16,000 and $32,000, respectively. There are currently no lease
commitments as at June 30, 2018.
The
Company also has an operating lease for residential space at
Britannia Villas #616, Grand Cayman, Cayman Islands that currently
runs on a month-to-month basis. Rent expense under this lease for
the three and six-month periods ended June 30, 2018 were $12,900
and $25,800, respectively. There are currently no lease commitments
under this lease as at June 30, 2018.
15. RELATED PARTY TRANSACTIONS
The
Company has entered into reinsurance agreements with Claddaugh
which a related entity through common directorship is. At June 30,
2018 and December 31, 2017, included within loss experience refund
payable and unearned premiums reserve on the consolidated balance
sheets are the following related-party amounts:
|
|
|
|
|
|
|
|
Loss
experience refund payable
|
$-
|
$135
|
Unearned
premiums reserve
|
$-
|
$2,012
|
During
the three and six-month periods ended June 30, 2018 and 2017,
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
|
-
|
3,400
|
Change
in loss experience refund payable
|
(90)
|
(630)
|
(225)
|
(1,260)
|
Change
in unearned premiums reserve
|
237
|
(2,550)
|
592
|
(1,700)
|
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June
30, 2018
16. SUBSEQUENT EVENTS
We
evaluate all subsequent events and transactions for potential
recognition or disclosure in our consolidated financial statements.
There were no other events subsequent to June 30, 2018 for which
disclosure was required.
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 13, 2018. 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 and six-month periods ended
June 30, 2018 and 2017 and our financial condition as of June 30,
2018 and December 31, 2017. 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 13, 2018. References to “we,”
“us,” “our,” “our company,” or
“the Company” refer to Oxbridge Re Holdings Limited and
its wholly-owned subsidiaries, Oxbridge Reinsurance Limited and
Oxbridge Re NS, unless the context dictates
otherwise.
Overview
We are
a Cayman Islands specialty property and casualty reinsurer that
provides reinsurance solutions through our reinsurance subsidiary,
Oxbridge Reinsurance Limited. We recently organized a new
subsidiary, Oxbridge Re NS, which was incorporated on December 22,
2017 to function as a reinsurance sidecar which increases the
underwriting capacity of Oxbridge Reinsurance Limited. Oxbridge Re
NS commenced operations on June 1, 2018 and issued participating
notes to third party investors, the proceeds of which was utilized
to collateralize Oxbridge Reinsurance Limited’s reinsurance
obligations. 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
further 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.
Due
to influx of new risk capital from alternative capital market
participants such as hedge funds and pension funds, we believe that
the reinsurance industry is currently over-capitalized and will
continue in this trend for the foreseeable future. The
over-capitalization of the market is not uniform as there are a
number of insurers and reinsurers that have suffered and continue
to suffer from capacity issues. We continue to assess the
opportunities that may be available to us with insurance and
reinsurance companies with this profile. If the reinsurance market
continues to soften, our strategy is to reduce premium writings
rather than accept mispriced risk and conserve our capital for a
more opportune environment. Significant rate increases could occur
if financial and credit markets experience adverse shocks that
result in the loss of capital of insurers and reinsurers, or if
there are major catastrophic events, especially in North
America.
PRINCIPAL REVENUE AND EXPENSE ITEMS
Revenues
We
derive our most significant revenues from two principal
sources:
● premiums
assumed from reinsurance on property and casualty business;
and
● income
from investments, including Industry Loss Warranties
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, 2018, typically one-half of the
premiums will be earned in 2018 and the other half will be earned
during 2019. However, in the event of limit losses on our policies,
premium recognition will be accelerated to match losses incurred in
the period, when there is no possibility of any future treaty-year
losses under the contracts.
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 and unrealized gains (losses) 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.
Industry Loss Warranties
The
Company may buy and sell industry loss warranties as a way to
access certain risks. An industry loss warranty is a financial
instrument designed to protect insurers or reinsurers from severe
losses due to natural and man-made catastrophes and can take the
form of either an insurance contract or a swap agreement. Under
both forms, a premium is paid at the inception of the contract and,
in return, a payout is made if a catastrophic event causes loss to
the insurance industry in excess of a predetermined trigger amount.
Industry loss warranties may also be triggered by other parametric
measurements defined in the contract such as observed wind speeds,
measured seismic activity or other factors. Industry loss
warranties in the form of an insurance contract (also referred to
as the "indemnity form") are typically dual-trigger instruments
and, in addition to requiring a loss to the industry, require that
the buyer of the protection actually suffer a loss from the
triggering event. The Company may buy and sell industry loss
warranties in the form of an insurance contract or in the form of a
derivative contract.
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 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 six-month period ended June 30, 2018 and 2017 (dollars in
thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
Assumed
premiums
|
$2,580
|
17,376
|
2,580
|
18,256
|
Premiums
ceded
|
-
|
(147)
|
-
|
(147)
|
Change
in loss experience refund payable
|
(90)
|
(512)
|
(225)
|
(1,260)
|
Change
in unearned premiums reserve
|
(2,156)
|
(14,231)
|
(1,801)
|
(12,815)
|
|
|
|
|
|
Net
premiums earned
|
334
|
2,486
|
554
|
4,034
|
Net
income from derivative instruments
|
208
|
-
|
376
|
-
|
Net
investment and other income
|
108
|
127
|
180
|
213
|
Net
realized investment (losses) gains
|
-
|
46
|
(176)
|
48
|
Change
in fair value of equity securities
|
73
|
-
|
(96)
|
-
|
|
|
|
|
|
Total
revenue
|
723
|
2,659
|
838
|
4,295
|
|
|
|
|
|
Expenses
|
|
|
|
|
Losses
and loss adjustment expenses
|
-
|
1,059
|
-
|
1,027
|
(Gain)/Loss
on commutation
|
8
|
-
|
8
|
-
|
Policy
acquisition costs and underwriting expenses
|
29
|
94
|
38
|
158
|
General
and administrative expenses
|
359
|
390
|
676
|
724
|
|
|
|
|
|
Total
expenses
|
396
|
1,543
|
722
|
1,909
|
|
|
|
|
|
Income
before (income) attributable to Series 2018-1
noteholders
|
$327
|
1,116
|
116
|
2,386
|
|
|
|
|
|
(Income)
attributable to Series 2018-1 noteholders
|
(62)
|
-
|
(62)
|
-
|
|
|
|
|
|
Net
income
|
265
|
1,116
|
54
|
2,386
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
Basic
and Diluted
|
$0.05
|
0.19
|
0.01
|
0.41
|
|
|
|
|
|
|
|
|
|
|
Dividends paid per share
|
$-
|
0.12
|
-
|
0.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
ratios to net premiums earned:
|
|
|
|
|
Loss
ratio
|
0.0%
|
42.6%
|
0.0%
|
25.5%
|
Acquisition
cost ratio
|
8.7%
|
3.8%
|
6.9%
|
3.9%
|
Expense
ratio
|
73.1%
|
19.5%
|
77.6%
|
21.9%
|
Combined
ratio
|
73.1%
|
62.1%
|
77.6%
|
47.3%
|
General. Net income
for the quarter ended June 30, 2018 was $265 thousand, or $0.05 per
basic and diluted share, compared to a net income of $1.1 million,
or $0.19 per basic and diluted share, for the quarter ended June
30, 2017. The significant decrease is primarily due to lower net
premiums earned resulting from decreased capital deployed and
previous acceleration of premium recognition in prior
quarters.
Net
income for the six months ended June 30, 2018 was $54 thousand, or
$0.01 per basic and diluted share, compared to a net income of $2.4
million, or $0.41 per basic and diluted share, for the six months
ended June 30, 2017. The significant decrease is primarily due to
lower net premiums earned resulting from decreased capital deployed
and previous acceleration of premium recognition in prior quarters,
as well as recognition of unrealized losses on equity securities
due to the mandatory adoption of ASU 2016-01 as disclosed in Note 2
to the consolidated financial statements.
Premium
Income. Net premiums
earned typically 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 June 30, 2018 decreased $2.1
million, to $334 thousand, from $2.5 million for the quarter ended
June 30, 2017. The decrease is primarily due to the previous
acceleration of premium recognition due to full limit losses being
incurred on all of our reinsurance contracts during the quarter
ended September 30, 2017, as well as lower capital deployed during
the second quarter of 2018, when compared with the same quarter of
the prior fiscal year.
Net
premiums earned for the six months ended June 30, 2018 decreased
$3.5 million, to $554 thousand, from $4.0 million for the six
months ended June 30, 2017. The decrease is primarily due to the
previous acceleration of premium recognition due to full limit
losses being incurred on all of our reinsurance contracts during
the quarter ended September 30, 2017, as well as lower capital
deployed during the six-month period ended June 30, 2018, when
compared with the same period of the prior fiscal
year.
Losses
Incurred.
No
losses were incurred for the quarter ended June 30, 2018, a
decrease of $1 million, from the quarter ended June 30, 2017. The
decrease is wholly due to the fact that neither any losses nor
adverse loss development occurred during the quarter ending June
30, 2018, compared with nominal loss and loss adjustment
expenses during the same quarter of the prior fiscal
year.
No losses were incurred for the six months ended
June 30, 2018, a decrease of $1 million, from the six months ended
June 30, 2017. The decrease is wholly due to the fact that neither
any losses nor adverse loss development occurred during the six
months ending June 30, 2018, compared with nominal loss and
loss adjustment expenses during the same period of the prior fiscal
year.
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 June 30, 2018 decreased $65 thousand, to $29
thousand from $94 thousand for the quarter ended June 30, 2017. The
decrease is due wholly due to the previous acceleration of premium
recognition, as mentioned above, and the resulting acceleration of
policy acquisition costs on all but one reinsurance
contract.
Policy
acquisition costs and underwriting expenses for the six-month
period ended June 30, 2018 decreased $120 thousand, to $38 thousand
from $158 thousand for the six-month period ended June 30, 2017.
The decrease is due wholly due to the previous acceleration of
premium recognition, as mentioned above, and the resulting
acceleration of policy acquisition costs, on all but one
reinsurance contract.
General and Administrative
Expenses. General and administrative expenses for the
quarter ended June 30, 2018 decreased $31 thousand, to $359
thousand, from $390 thousand for the quarter ended June 30, 2017.
The decrease is not considered material and represents fluctuation
in general and administrative expenses between the quarters
represented.
General
and administrative expenses for the six-month period ended June 30,
2018 decreased $48 thousand, to $676 thousand, from $724 thousand
for the quarter ended June 30, 2017. The decrease is not considered
material and represents fluctuation in general and administrative
expenses between the quarters represented.
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 net premiums earned.
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 42.6% for the quarter ended June 30, 2017
to 0% for the quarter ended June 30, 2018. The decrease is due to
the nominal loss and loss adjustment expenses incurred in the prior
period quarter, compared to no loss and loss adjustment expenses in
the quarter ended June 30, 2018.
The
loss ratio decreased from 25.5% for the six-month period ended June
30, 2017 to 0% for the quarter ended June 30, 2018. The decrease is
due to the nominal loss and loss adjustment expenses incurred in
the prior period quarter, compared to no loss and loss adjustment
expenses in the quarter ended June 30, 2018.
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
increased from 3.8% for the quarter ended June 30, 2017 to 8.7% for
the quarter ended June 30, 2018. The increase is due to the overall
higher weighted-average acquisition costs on reinsurance contracts
in force during the three-month period ended June 30, 2018,
compared with three-month period ended June 30, 2017.
The
acquisition cost ratio increased from 3.9% for the six-month period
ended June 30, 2017 to 6.9% for the six-month period ended June 30,
2018. The increase is due to the overall higher weighted-average
acquisition costs on reinsurance contracts in force during the
six-month period ended June 30, 2018, compared with six-month
period ended June 30, 2017.
Expense Ratio. The
expense ratio is the ratio of policy acquisition costs, other
underwriting expenses and other
administrative expenses to net premiums earned. In addition, the expense ratio includes any gain
or loss resulting from deposit accounted contracts as well as any
amortized cost of weather derivative swaps entered into as part of
our underwriting activities. We use the expense ratio
to measure our operating performance. The expense ratio increased
from 19.5% for the three-month period ended June 30, 2017 to 73.1%
for the three-month period ended June 30, 2018. The increase is due
primarily to a lower denominator in net premiums earned and net
income from derivative instruments as recorded during the
three-month period ended June 30, 2018, when compared with the
three-month period ended June 30, 201.
The
expense ratio increased from 21.9% for the six-month period ended
June 30, 2017 to 77.6% for the six-month period ended June 30,
2018. The increase is due primarily to a lower denominator in net
premiums earned and net income from derivative instruments as
recorded during the six-month period ended June 30, 2018, when
compared with the six-month period ended June 30,
2017.
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 increased from 62.1% for the
three-month period ended June 30, 2017 to 73.1% for the three-month
period ended June 30, 2018. The increase in the combined ratio is
due to lower loss ratio during the three-month period ended June
30, 2018, more than offset by
a lower denominator in net premiums earned and net income from
derivative instruments as recorded during the quarter ended June
30, 2018, when compared with the quarter ended June 30,
2017.
The
combined ratio increased from 47.3% for the six-month period ended
June 30, 2017 to 77.6% for the six-month period ended June 30,
2018. The increase in the combined ratio is due to a lower loss
ratio during the six-month period ended June 30, 2018, more than
offset by a lower denominator in net premiums earned and net income
from derivative instruments as recorded during the six-month period
ended June 30, 2018, when compared with the six-month period ended
June 30, 2017.
FINANCIAL CONDITION – JUNE 30, 2018 COMPARED TO DECEMBER 31,
2017
Restricted
Cash and Cash Equivalents. As of June 30, 2018, our restricted cash and cash
equivalents increased by $1.1 million, or 34%, to $4.2 million,
from $3.1 million as of December 31, 2017. The increase is the net
result of premium receipts and collateral deposits during the six
months ended June 30, 2018.
Investments.
As of June 30, 2018, our
fixed-maturity and equity securities decreased by $176 thousand, or
3%, to $6.3 million, from $6.5 million as of December 31, 2017. The
decrease is primarily a result of net sales of fixed-maturity and
equity securities during the six-month period ended June 30,
2018.
Premiums
Receivable. As of June 30, 2018, our premiums receivable
decreased by approximately $1.5 million, or 38%, to $2.3 million,
from $3.8 million as of December 31, 2017. The decrease is due to
the net receipt of premium installments during the six-month period
ended June 30, 2018.
Loss
Experience Refund Payable. As of June 30, 2018, our loss experience refund
payable decreased to $Nil, from $135 thousand at December 31, 2017.
The decrease is wholly due to the commutation of our multi-year
retrospectively-rated contracts that included this element of loss
experience refunds. Such amounts were zeroed out upon commutation
which was effective June 1, 2018.
Reserve for losses and loss
adjustment expenses.
As of June 30, 2018, our reserve for
losses and loss adjustment expenses decreased by $4.7 million, or
97%, to $167 thousand, from $4.8 million at December 31, 2017. The
decrease is wholly due to the settlement of losses on
weather-related events occurring in previous quarters for which the
Company has set up appropriate reserves, as well as final
commutation on our multi-year retrospectively-rated
contracts.
Notes
Payable. As of June 30, 2018, our notes payable increased
to $2 million, from $Nil at December 31, 2017. The increase is
wholly due to the issuance of $2 million of our Series 2018-1
participating notes by our reinsurance sidecar subsidiary, Oxbridge
Re NS.
Accounts payable and other
liabilities.
As of June 30, 2018, accounts payable
and other liabilities increased by $839 thousand, or 792%, to $945
thousand, from $106 thousand at December 31, 2017. The increase is
primarily due to the recognition of the Company’s liability
under its 2018 Inward ILW Swap agreement as disclosed in Note 5 to
the consolidated financial statements.
Unearned Premiums
Reserve. As of June 30, 2018, our unearned premiums reserve
increased by $381 thousand, or 19%, to $2.4 million, from $2
million at December 31, 2017. The increase is due wholly to the
recognition of premium income on in-force reinsurance contracts
during the six-month period ended June 30, 2018, coupled with the
successful placement of reinsurance contracts for the treaty year
effective June 1, 2018.
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
reinsurance subsidiaries, Oxbridge Reinsurance Limited and Oxbridge
Re NS, 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 and Oxbridge Re NS’ 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
June 30, 2018, 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. During the
quarter ending June 30, 2018, we issued participating notes through
our reinsurance sidecar subsidiary, Oxbridge Re NS. We have no
current plans to issue further debt, other than through additional
participating notes and we 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, its subsidiaries Oxbridge
Reinsurance Limited and Oxbridge Re NS are 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 each subsidiary is
$500. As of June 30, 2018, each subsidiary exceeded the minimum
required. By law, each subsidiary is restricted from paying a
dividend if such a dividend would cause its net worth to drop to
less than the required minimum.
Our
reinsurance operations exposed us to claims arising out of
unpredictable catastrophic events during the third quarter of 2017.
The incidence and severity of catastrophes are inherently
unpredictable, but the loss experience of property catastrophe
reinsurers has been generally characterized as low frequency and
high severity. Claims from catastrophic events have reduced our
earnings and caused substantial volatility in our results of
operations, and adversely affected our financial condition. The
corresponding reduction in our surplus level will impact our
ability to write new reinsurance policies at future renewal
periods.
Cash Flows
Our
cash flows from operating, investing and financing activities for
the six-month periods ended June 30, 2018 and 2017 are summarized
below.
Cash Flows for the Six months ended June 30, 2018 (in
thousands)
Net
cash used in operating activities for the six months ended June 30,
2018 totaled $1,535 thousand, which consisted primarily of cash
received from net written premiums less cash disbursed for
operating expenses and net loss payments. Net cash used in
investing activities of $107 was primarily due to the net purchases
of available-for-sale securities. Net cash provided by financing
activities totaled $2,000 representing net proceeds on issuance of
Series 2018-1 participating notes.
Cash Flows for the Six months ended June 30, 2017 (in
thousands)
Net
cash provided by operating activities for the six months ended June
30, 2017 totaled $2,968 thousand, which consisted primarily of cash
received from net written premiums less cash disbursed for
operating expenses. Net cash used in investing activities of $4,322
was primarily due to the net purchases of available-for-sale
securities. Net cash used in financing activities totaled $2,074
representing net cash dividend payments and cash used to repurchase
ordinary shares under the Company’s share repurchase
plan.
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 has been discontinued effective September
30, 2017.
The
Company had 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. On September 28, 2017, the
Company cancelled the Plan. Through September 28, 2017, the Company
had repurchased an aggregate of 326,413 shares for an aggregate
cost of $1,803,568 under the Share Repurchase Program.
OFF-BALANCE SHEET ARRANGEMENTS
As of
June 30, 2018, 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, or period of risk, where applicable, 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 June 30, 2018, our best estimate for reserves for loss and loss
adjustment expenses was $167,000, with IBNR representing
approximately 48% 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.
JOBS ACT
The
JOBS Act contains provisions that, among other things, reduce
certain reporting requirements for an emerging growth
company. We have determined that, as an emerging growth
company, we will not: (i) provide an auditor’s
attestation report on our system of internal controls over
financial reporting pursuant to Section 404(b);
(ii) provide all of the compensation disclosure that may be
required of non-emerging growth public companies under the
Dodd-Frank Wall Street Reform and Consumer Protection Act;
(iii) comply with any requirement that may be adopted by the
Public Company Accounting Oversight Board regarding mandatory audit
firm rotation or a supplement to the auditor’s report
providing additional information about the audit and the financial
statements; (iv) disclose certain executive
compensation-related items such as the correlation between
executive compensation and performance and comparisons of our Chief
Executive Officer’s compensation to median employee
compensation; or (v) comply with new or revised accounting
standards on the relevant dates on which adoption of such standards
is required for non-emerging growth companies.
We
will continue to be an emerging growth company until the earliest
of: (i) the last day of the fiscal year during which we had
total annual gross revenues of at least $1 billion (as indexed for
inflation); (ii) the last day of the fiscal year following the
fifth anniversary of the date of our initial public offering;
(iii) the date on which we have, during the previous
three-year period, issued more than $1.0 billion in non-convertible
debt; and (iv) the date on which we are deemed to be a
“large accelerated filer,” as defined under the
Exchange Act.
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 Chief Financial
Officer (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 Chief Financial Officer 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 June 30, 2018 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 13, 2018.
Item
2.
Unregistered
Sales of Equity Securities and Use of Proceeds
(a)
Sales
of Unregistered Securities
None.
(b)
Repurchases
of Equity Securities
None.
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.
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Document
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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.
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Certifications
of the Chief Financial 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.
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Written
Statement of the Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. §1350.
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101
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The
following materials from Oxbridge Re Holdings Limited’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2018
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.
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OXBRIDGE
RE HOLDINGS LIMITED
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Date:
August 14, 2018
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By: /s/ JAY
MADHU
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Jay
Madhu
Chief
Executive Officer and President
(Principal
Executive Officer)
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Date:
August 14, 2018
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By: /s/ WRENDON
TIMOTHY
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Wrendon
Timothy
Chief
Financial Officer and Secretary
(Principal
Financial Officer and Principal
Accounting
Officer)
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