Oxbridge Re Holdings Limited (NASDAQ:OXBR) Q4 2021 Results Conference Call March 30, 2022 4:30 PM ET
Company Participants
Jay Madhu – Chairman, President and CEO
Wrendon Timothy – CFO and Corporate Secretary
Conference Call Participants
Operator
Good afternoon, and welcome to Oxbridge Re’s Fourth Quarter 2021 Earnings Call. My name is Matthew, and I will be your conference operator this afternoon. At this time, all participants will be on 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 up the call for your questions.
I would like to remind everyone that this call is also being broadcast live via webcast and available via webcast replay until April 30, 2022, on the Investor Information section of the Oxbridge Re’s website at www.oxbridgere.com.
Now 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. Sir, please proceed.
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 these 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, which is contained in our Form 10-K filed with the Securities and Exchange Commission. The occurrence of any of these risks and uncertainties could have a material adverse effect on the company’s business or financial condition and volatility of our earnings which, in turn, can cause significant market price and trading volume fluctuation for 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.
In addition, on March 11, 2020, the World Health Organization characterized the outbreak of COVID-19 as a global pandemic, the disruption of global commercial activities across all market sectors and the significant declines and volatility in financial markets as a result of the COVID-19 pandemic could have a material adverse impact on our financial position, results of operations and cash flows.
Possible effects included, but are unlimited to uncertainties with respect to current and future losses, interest rates and equity market volatility and ongoing business and financial market impacts of the economy. The insurance industry is likely to experience material losses which could reduce available capital, and we expect may help to sustain the upward pricing trend for reinsurers that we tend to see across many lines of business. COVID had the ultimate impact on current business in force as well as risks and potential opportunities on future business remains highly uncertain.
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. While it appears we’re finally emerging to some degree from the global COVID-19 pandemic, we continue to monitor the situation and will adapt to any future outbreaks as we have over the last 2 years. Fortunately, the pandemic has little impact on our business.
As we do each quarter, before we get into our results, I would like to take a moment to provide a brief overview of our company. Oxbridge Re Holdings Limited was founded over 8 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 rightfully collateralize contracts, we believe we can compete effectively with large carriers.
We specialize in underwriting low-frequency, high-severity risks, where we believe sufficient data exists to effectively analyze the 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 deploy our capital with favorable return opportunities arise that can contribute to the growth of capital and surplus in our licensed reinsurance subsidiaries over time.
We are also very pleased to have completed our investment in Oxbridge Acquisition Corp. in early August last year, a special purpose acquisition company, or SPAC focused on disruptive technology. We believe innovators and entrepreneurs in such business is blockchain, insurance technology, insure tech and artificial intelligence offer a real and significant opportunity to build value for our investors over time. We look forward to keeping you updated on its progress in the quarters ahead.
Turning to our results in 2021. We are pleased to report continued growth and progress. Revenues were up and net income increased significantly with a $9.2 million unrealized gain in our investment in Oxbridge Acquisition Corp. Overall underwriting was profitable in spite of a small underwriting loss of $158,000, incurred in the third quarter on one of our reinsurance contracts due to the impact of Hurricane Ida on our book of business.
Looking ahead, we are confident our core reinsurance business will continue to grow and are excited about the potential and the investment in Oxbridge Acquisition Corp. and the continuing value that it is anticipated to bring to our shareholders in the future. In addition, we continue to make progress on our wholly-owned subsidiary, Oxbridge Re NS, our reinsurance sidecar. For the contract year end of May 31, 2021, our sidecar investors earned a healthy return of approximately 17%.
I’ll now turn things over to Wrendon to take us through our financial results. Wrendon?
Wrendon Timothy
Thank you, Jay. As a reminder to our investors, our typical contract period is from June 1 to May 31 of the following year. With respect to net premiums earned, net premiums earned increased in 2021 due primarily to the triggering of a limit loss on one of our reinsurance contracts due to the impact of Hurricane Ida on our book of business, which resulted in the acceleration of premiums earned as well as higher rates on reinsurance contracts throughout the year. Our net investment income and unrealized gains and other investments rose significantly in 2021, primarily due to the $7.1 million unrealized gain recorded in the value of the SPAC since its IPO in August 2021.
Net realized investment gains was $755,000 in 2021 compared with $374,000 in the prior year. We also recognized a $767,000 negative change in the fair value of our equity securities compared to $155,000 in the prior year. Including all these factors, total revenues rose to $10.2 million in 2021 from $1.2 million in the prior year. Total expenses, which includes loss and loss adjustment expenses, policy acquisition costs and general and admin expenses were up in 2021. The primary losses suffered during the year as a result of Hurricane Ida as well as an increase in corporate expenses.
Now turning to our ratios. As we have discussed before in our 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 our loss ratio, acquisition expense ratio, our underwriting expense ratio and our combined ratio. Our loss ratio, which measures underwriting profitability, is the ratio of loss and loss adjustment expenses, incurred to net premiums earned for the year ended December 31, 2021, our loss ratio increased to 16.4% compared to 0% in the prior year. The increase was due to the limit loss for the — of one of our reinsurance contracts from Hurricane Ida, partially offset by a higher denominator in net premiums earned compared with the prior year.
Our acquisition ratio, which measures operational efficiency compares policy acquisition costs and net premiums earned. The acquisition cost ratio remained consistent and stable at 11% in both years. Our expense ratio, which measures operating performance compares policy acquisition costs and general and admin expenses and net premiums earned. Our expense ratio increased in 2021 due to the recording of an allowance for uncollectible premiums as one of our seasoned insurers was ordered into receivership subsequent to year-end.
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 162.6% in 2021 due to the increase in our loss ration this year resulting from the limit loss suffered under one of our reinsurance contracts as well as the allowance for the uncollectible premium.
Turning to our balance sheet. Our investment portfolio decreased marginally to $577,000 at year-end from $787,000 at the end of 2020 due to the net sales of equity securities during the year as well as changes in the prices through 2021. The $11 million on the balance sheet or the investments reflect the fair value of our investment in the SPAC measured by an independent valuation expert at year-end.
Cash and cash equivalents and restricted cash and cash equivalents totaled $1.9 million at year-end, consistent with the prior year. The slight decrease was due to the withdrawal of the majority of collateral on the expiry of contracts in 2021, offset by the deposits under the 2021, 2022 3-year contract. Total shareholders’ equity was $16.7 million, up from $8 million at the end of 2020 due primarily to the unrealized gain on our investment in Oxbridge Acquisition Corp, which is measured by an independent valuation expert at year-end.
I’d now like to turn the call back to Jay to wrap up before we take your questions. Jay?
Jay Madhu
Thank you, Wrendon. Through our reinsurance sidecar, we were able to continue to add a degree of diversity to our revenue stream and risk, while still having the ability to achieve attractive returns. We were very pleased with the returns generated for the contract year ending May 31, 2021, where our sidecar investors earned an attractive 17% despite a record-breaking 2020 hurricane season following a solid return of 36% the prior year. We look for another year of strong investor returns in the current contract year.
As previously mentioned, in any given year through our reinsurance subsidiary, we look to invest close to 50% of our equity. This year was no different between insurance — between the reinsurance contracts and the investment at OAC Sponsor Ltd., the sponsor of the SPAC, we have stuck to that result. 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 that despite the fact that Oxbridge Re contributes approximately 34.7% of the risk capital, Oxbridge’s economics are significantly maximized in 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 placements warrants in the SPAC.
Thus, our investment further diversifies our business and positions us to capitalize on growth and the emerging disruptive technologies being developed. We are very excited about the future unlocking of the full market — mark-to-market value of our investment and the potential that Oxbridge Acquisition Corp. intends to bring to our shareholders over the long term.
Looking ahead, we remain optimistic about the long-term prospects for 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 and our results are solid, our sidecar investors continue to earn an attractive return. Our investment in Oxbridge Acquisition offers an entry into a new technology business with a focus on blockchain, insuretech and artificial intelligence.
We remain debt-free. We have a strong balance sheet with solid cash position, and most importantly, we have a real opportunity for growth based on a viable business model.
With that, we are ready to open the call for questions. Operator, please provide the appropriate instructions.
Question-and-Answer Session
Operator
Jay Madhu
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 continues to leverage their significant experience to manage and build our business during these challenging times.
It is their decision — pardon me, it is their dedication and expertise that will get us through these days, and we look forward to updating you on our next call. If you have any further questions, please give us a call any time, and I sincerely mean that. Thank you again for your time and attention today and your interest in Oxbridge. Operator?
Operator
Thank you, ladies and gentlemen. This concludes today’s event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.
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