Oxbridge Re Holdings Limited (NASDAQ:OXBR) Q2 2022 Earnings Conference Call August 15, 2022 4:30 PM ET
Company Participants
Jay Madhu – Chairman, President and Chief Executive Officer
Wrendon Timothy – Chief Financial Officer and Corporate Secretary
Conference Call Participants
Kent Engelke – Capitol Securities
James Hurt – Private Investor
Operator
Good afternoon. Welcome to Oxbridge Re’s Second Quarter 2022 Earnings Call. My name is Laura and I will be your conference operator this afternoon. At this time, all participants will be in a listen-only mode.
Joining us for today’s presentation is Oxbridge Re’s Chairman, President and Chief Executive Officer, Jay Madhu; and Chief Financial Officer and Corporate Secretary, Wrendon Timothy. Following their remarks, we will open the call up for your questions. I would like to remind everyone that this call is also being broadcast live and available replay until August 29, 2022 on the Investor Information section of the Oxbridge Re website at www.oxbridgere.com.
I would like to turn the call over to Wrendon Timothy, Chief Financial Officer of Oxbridge Re, who will provide the necessary cautions regarding the forward-looking statements that will be made by management during this call.
Wrendon Timothy
Thank you, operator. During today’s call, there will be forward-looking statements made regarding future events, including Oxbridge Re’s future financial performance. These forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995. Words such as anticipates, estimates, expects, intends, plans, projects; and other similar words and expressions are intended to signify forward-looking statements. Forward-looking statements are not guarantees of future results and conditions but rather are subject to various risks and uncertainties.
A detailed discussion of the risks and uncertainties that can cause actual results and events to differ materially from such forward-looking statements is included in the section entitled Risk Factors contained in our 10-K filed in March 2022 and on our Form 10-Q filed today with the Securities and Exchange Commission. The occurrence of any of these risks and uncertainties can have a material adverse effect on the company’s business, financial condition and the volatility of our earnings, which in turn can cause significant market price and trading volume fluctuation for our securities. Any forward-looking statements made on this conference call speak only as of the date of this conference call. And except as required by law, the company undertakes no obligation to update any forward-looking statements contained on this call or in any company presentation even if the company’s expectations; or any related events, conditions or circumstances change.
Now I would like to turn the call over to our Chairman, President and Chief Executive Officer, Jay Madhu. Jay?
Jay Madhu
Thank you, Wrendon. And welcome, everyone. Thank you for joining us today. Before we start, I would like to take a moment to provide a brief overview of our company. Oxbridge Re Holdings Limited was founded over 9 years ago with a mission to provide reinsurance solutions primarily to property and casualty insurers in the Gulf Coast region of the United States.
Through our licensed reinsurance subsidiary Oxbridge Reinsurance Limited and our licensed reinsurance sidecar Oxbridge Re NS, we write fully collateralized policies to cover property losses from specific catastrophes. And because we write fully collateralized contracts, we believe we can compete efficiently with large carriers. We specialize in underwriting low-frequency, high-severity risks where we believe sufficient data exists to efficiently analyze a risk-return profile of reinsurance contracts. Our objective is to achieve long-term growth in book value per share by writing business on a selective and opportunistic basis that will generate attractive underwriting profits relative to risk.
Regarding our investment portfolio, we remain opportunistic and will deploy our capital when favorable return opportunities arise that can contribute to growth of capital and surplus in our licensed reinsurance subsidiaries over time. Clearly the current volatility being experienced in the global financial markets is impacting our investment portfolio with unrealized losses through the first 6 months of 2022. However, with recent positive trends in the market, our modest portfolio seems to have made somewhat of a comeback. And since the portfolio takes a mark to market, hopefully, those gains will reflect in the next quarterly release.
As previously communicated, we are also pleased to have completed our investment in Oxbridge Acquisition Corp. in early August of last year, a special-purpose acquisition company or SPAC focusing on disruptive technology. We believe innovators and entrepreneurs in such businesses as DeFi, blockchain, insurtech, artificial intelligence and clean energy offer real and significant opportunity to build value in our investors over long term. We look forward to keeping you updated on this progress.
With the negative impact of the last 2 years of the COVID-19 pandemic finally receding, economies and businesses around the world now are faced with inflationary cost pressures and supply chain disruptions. These in turn have resulted in significant declines over the last few months in equity and capital markets around the world. And while our business is not generally impacted by these economic challenges, the equity market declines do have an impact on our net income due to unrealized losses in our equity portfolio, as Wrendon will shortly outline. Having said this, we will continue to stay in close touch with our markets and the insurance industry to ensure we continue to deliver value to our shareholders.
Over the long-term, we remain highly optimistic about the prospects of our core reinsurance business, our investment in a SPAC or Oxbridge Acquisition Corp. and the modest comeback of the equity markets, in effect which are – the effect of which are being seen in our positive on our – positively in our investment portfolio.
I will now turn things over to Wrendon to take us through our financial results. Wrendon?
Wrendon Timothy
Thank you, Jay. I would like to remind you that our typical reinsurance contract period is from June 1 to May 31 of the following year. With respect to net premiums earned, net premiums earned for the 6 months ended June 2022 increased due primarily to a higher weighted average rate on our reinsurance contracts in force during the period. In respect of losses, there were no losses reported year-to-date in 2022 or the comparable period in 2021.
Our net investment and other income rose moderately in the quarter and for 6 months of the year primarily due to the administrative fee income related to our SPAC investments. Our realized gains this period was $27,000 compared to $755,000 in the comparable period in 2021. On a positive note, we had an unrealized gain of $571,000 due to positive fair value change in our equity investment in Oxbridge Acquisition Corp. We also recognized a $342,000 negative change in the fair value of our equity investment securities as of June 30, 2022, compared to a much smaller negative change of $54,000 last year. All the factors taken together resulted in total revenue declining to $505,000 for the first 6 months of 2022 compared to $1.1 million last year.
Total expenses, including loss and loss adjustment expenses, policy acquisition costs and general and admin expenses, were up through the first 6 months of 2022 due primarily to an increase in operating expenses resulting from increased personnel and other costs, including inflationary fluctuations. We recorded net income of $77,000 for the 3 months ended June 30, 2022, compared to $448,000 in 2021. For the first 6 months of 2022, we incurred a net loss of $310,000 compared to net income of $476,000. The decline was due primarily to unrealized negative change in the fair value of our equity securities and other investments this year as well as lower net realized gains on investments this year.
Turning to our financial ratios. As we have discussed in previous investor calls, we use various measures to analyze the growth and profitability of our business operations. For our reinsurance business, we measure underwriting profitability by examining the loss ratio, acquisition ratio, expense ratio and combined ratio. Our loss rate, which measures underwriting profitability, is the ratio of loss and loss adjustment expenses incurred to net premiums earned. For the first 6 months of 2022 and 2021, our loss ratio was zero as there were no loss or loss adjustment expenses in either period.
Our acquisition cost ratio, which measures operational efficiency, compares policy acquisition costs to net premiums earned. The acquisition cost ratio remained consistent and stable at 10.9% in both the first 6 months of 2022 and 2021, with a slight increase in the second quarter of 2022 compared to the prior year. Our expense ratio, which measures operating performance, compares policy acquisition costs and general, administrative expenses with net premiums earned.
Our expense ratio has increased in 2022, again, due to an increase in our personnel expenses and higher general and admin expenses compared to last year. Our combined ratio, which is used to measure underwriting performance, is the sum of the loss ratio and the expense ratio. This ratio increased to 191.1% for the first 6 months of 2022 compared to 157.3% last year, again, due to higher general and admin expenses costs and fluctuations this year.
Now turning to the balance sheet, our investment portfolio increased $600,000 to $638,000 at June 30, 2022, from $577,000 at the year-end due primarily to the net purchase of equity securities this year, partially offset by annualized losses we experienced due to the volatile capital markets. Other investments increased, as mentioned, due to the positive change in the fair value of our investments in Oxbridge Acquisition Corp. Cash and cash equivalents and restricted cash and cash equivalents decreased to $4.6 million at June 30th compared to $5.4 million at December 31, 2021. Total shareholders’ equity at quarter end was $16.4 million.
I will now turn the call back to Jay to wrap up before we take any questions. Jay?
Jay Madhu
Thank you, Wrendon. As previously mentioned, through our reinsurance subsidiary, we look to invest close to 50% of our equity. Last year was no different. Between reinsurance contracts and through the investment in our OAC Sponsor Limited, the sponsor of a SPAC, we have stuck to that resolve. While Oxbridge Re is a lead investor in the SPAC, some of the risk capital was laid off to additional investors in the sponsor at a higher share price, the result being, and despite the fact that Oxbridge Re contributed 34.7% of the risk capital, Oxbridge’s economics have significantly maximized and that it owns approximately 49.6% and 63.1% of the ordinary shares and preferred shares, respectively, of the sponsor, which tracks the Class B shares and private placement warrants, respectively, in the SPAC. Thus, our investment in future diversifies our business and positions us to capitalize on growth in the emerging technology, disruptive technologies being developed.
We are very excited about the future value of our investments and the potential that Oxbridge Acquisition Corp. can bring to our shareholders. Looking ahead, we remain opportunistic about the long-term prospects of our business. As always, we continue to evaluate additional opportunities for growth as well as future diversification of our risk profile. So, in closing, our business is well diversified. Our investment in Oxbridge Acquisition offers an entry into new technology business, with a focus on blockchain, insurtech, artificial intelligence and clean energy. We remain debt free. We have a strong balance sheet with a solid cash position. And most importantly, we have real opportunity based on a viable business model that is based on diversification. We remain opportunistic not only in our core business, but also our broader view of the market.
And with that, we are ready to open the call for questions. Operator, please provide the appropriate instructions.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question comes from the line of Kent Engelke with Capitol Securities. You may proceed with your question.
Kent Engelke
Hey Jay. Hey Wrendon. How are you all doing?
Jay Madhu
Good. Thank you.
Kent Engelke
A couple of questions I have. There was a piece that was put out by a research organization. And you had commented about the possibility that a – on the SPAC something might be closing by year-end. Can you give us any info on that? Obviously, it’s a positive that you were unable to close late last year, beginning this year because of how the SPAC market imploded. I think that we have gone from one extreme to the other extreme. And can you give any color on that statement that was made?
Jay Madhu
Yes. Kent, I can’t talk too deep into that, but I will give you a little bit of color. So, I think where the equity markets turned and there was a pullback, it played into the positive for us. In terms of valuations and things, I think valuations are king of people are looking at valuations in a much different way, which has played out very well for us. So, in terms of that, I think and I believe we are in solid position. We also have the opportunity to go all the way out to November with two additional extensions, so time – there was plenty of time to get things done over here. And where we stand, we are feeling very positive.
Kent Engelke
November, what is that, November 2023 or ‘24?
Jay Madhu
‘22.
Kent Engelke
‘22, okay. So, the…
Wrendon Timothy
November ‘22, we have two extensions, two-month, three-month extensions, after that, so essentially it’s approximately May of 2023.
Kent Engelke
Okay. And again I share your – I am sorry.
Jay Madhu
Yes. So, plenty of runway to that point.
Kent Engelke
Okay. Other question I have, on every conference call, you had commented that you are optimistic about investment opportunities outside either the SPAC or the reinsurance industry. It’s nice statement and the like. Can you give any more color based upon those comments that you have consistently made?
Jay Madhu
Yes. So, while – again while we can’t get too deep into this, I will say that, with the investment in the SPAC and on sitting on both sides of the coin, so to speak, we have seen some tremendous opportunity in various different businesses. Especially with the focus of what the SPAC is, there are – we have seen a lot of really interesting opportunity. And we will continue to evaluate the opportunity of the Oxbridge side and trying to get into various different things, but we are always of the opinion, until we put out some solid positive news, until we have something really solid, don’t talk too much about it. But we always continue to evaluate opportunity. I think timing is everything, as they say, right. And I think we have been at the right place at the right time, so I feel good.
Kent Engelke
Okay. Thank you.
Jay Madhu
Thank you, Kent.
Operator
[Operator Instructions] Our next question comes from the line of James Hurt, Private Investor. You may proceed with your question.
James Hurt
Yes. So, I have noticed that there has been insider selling. Why is that, if the company has such a great future?
Jay Madhu
Insider selling, I am not aware of that. When was that?
James Hurt
Well, within the last couple of months, Lazar?
Jay Madhu
Yes. He is not an insider.
James Hurt
Oh, he is not, okay.
Jay Madhu
No. He is definitely not an insider. He is somebody that took a position in the company. And as he has talked to us, and in the past, we have had some conversations with him. He is definitely not an insider. And it appears he sold all or some of his position.
James Hurt
But you don’t know why, right? Is he – he is an activist investor, is he not?
Jay Madhu
You will have to talk to him about that, right. We don’t comment on other people’s investment. We are a publicly traded company. It gives people the opportunity to purchase or sell as they see fit. One thing I will comment. He is not an insider. He is not part of our corporation.
James Hurt
And then you – also you had some press releases saying that the valuation might be north of $12…
Jay Madhu
No, sir. That wasn’t us. We didn’t know this…
James Hurt
You didn’t. It was a press release. That wasn’t you…
Jay Madhu
It wasn’t us. And probably what you may want to do is – a lot of these things, when you look at these press releases, because I have had some comments on that. We didn’t take a look at various different things out there. And again it’s the Internet. People can put out anything that they want. What I would caution everybody is read the entire release and see who has put it out. And also take a look to see if it was – who has put it up. That’s all I can say. That was not something that was put out by the company.
James Hurt
Okay. Thank you.
Jay Madhu
Thank you.
Operator
At this time, this concludes our question-and-answer session. I would like to turn this call back over to Mr. Madhu for closing remarks.
Jay Madhu
Yes. Thank you for joining us on today’s call. Before we wrap up, I want to thank our employees, business partners and investors for their continued support. I especially want to express our gratitude to our Oxbridge team, who continue to leverage their significant experience to manage and build our business during these challenging times. We look forward to updating you on our next call. And if you have any further questions, please contact us anytime. Thank you again for your time and attention today and your interest in Oxbridge. Operator?
Operator
Before we conclude today’s call, I would like to remind everyone that a recording of today’s call will be available for replay via a link available in the Investors section of the company’s website. Thank you again for joining us today for our presentation. You may now disconnect your lines at this time.
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