Oxbridge Re Holdings Limited (OXBR) Q1 2018 Earnings Report, Transcript and Summary

Good afternoon. Welcome to Oxbridge Re Holdings' First Quarter 2018 Earnings Call. My name is Tim, and I'll be your conference operator this afternoon. [Operator Instructions] Joining us for today's presentation is Oxbridge Re Chairman, President and CEO, Jay Madhu; and CFO and Corporate Secretary, Wrendon Timothy. [Operator Instructions] I would like to remind everyone that this call is also being broadcast live via webcast and available via webcast replay until June 15, 2018, on the Investor Information section of the Oxbridge Re website at www.oxbridgere.com. Now, I would like to turn the call over to Wrendon Timothy, CFO 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.

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, intend, plan, project 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. Some of these risks and uncertainties are identified in the company's filings with the SEC. The occurrence of any of these risks and uncertainties could have a material adverse effect on the company's business, financial condition and results of operations. Any forward-looking statements made on this conference call speaks 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 conference call, 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?

Thank you, Wrendon, and welcome, everyone. Thank you for joining us today. 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 5 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 a licensed reinsurance subsidiary, Oxbridge Reinsurance Limited, we write fully collateralized policies to cover property losses from specific catastrophes. And as some of you already know, because we write fully collateralized contracts, we are able to compete effectively with large carriers. We specialize in underwriting medium frequencies, high-severity risk, where we believe sufficient data exists to effectively analyze the risk/return profile of reinsurance contracts. Our objective is to achieve long-term growth and book value per share by writing business on a selective and opportunistic basis that will generate attractive underwriting profits relative to risk. With that overview now behind us and before going into our results for the first quarter as well as our outlook for the rest of 2018, I will now turn it over to Wrendon to take us through our financial results for the period. Wrendon?

Thank you, Jay. I will now get into our financial results for the 3 months ended March 31, 2018. Net premiums earned totaled $220,000 compared with $1.5 million in net premiums earned in the first quarter of 2017. The significant decrease was due to the significantly reduced capital deployed during the quarter as well as the disproportionate recognition of ILW-related income under U.S. GAAP during the quarter ended March 31, 2018. For the first quarter of 2018, the net investment income totaled $72,000, which was offset by $173,000 of net realized investment losses and $172,000 of unrealized losses recognized during the quarter as a result of the mandatory adoption of new accounting standards that required, effective Jan 1, that changes in fair value of equity securities recorded in the income statement. This compares with $86,000 of net investment income and $2,000 of net realized investment gains in the first quarter of 2017. Total expenses for the first quarter of 2018, including loss and loss adjustment expenses, policy acquisition costs, underwriting expenses, and general and admin expenses, were $326,000 compared with $366,000 in the first quarter of 2017. The decrease in total expenses was due wholly to the previous acceleration of premium recognition, due to limit losses we incurred in all the company's reinsurance contracts during the quarter ended September 30, 2017. Hence, the current quarter policy acquisition costs only reflect expenses on one multi-year contract. For the first quarter of 2018, net loss totaled $211,000 or $0.04 per basic and diluted share, compared with net income of $1.3 million or $0.22 per basic and diluted share in the first quarter of 2017. This significant decrease is primarily due to lower net premiums earned resulting from decreased capital deployed as well as the recognition of unrealized losses on equity securities due to the mandatory adoption of new accounting standards, along with the disproportionate recognition of ILW-related income on the U.S. GAAP during the quarter ended March 31, 2018. Now turning to our financial ratios for the 3 months ended March 31, 2018. 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, underwriting expense ratio and combined ratio. Our loss ratio, which measures underwriting profitability, is the ratio of losses and loss adjustment expenses incurred to net premiums earned. Our loss ratio for the first quarter of 2018 was 0% compared with negative 2.1% for the first quarter of 2017. The increase was 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 March 31, 2018. Our acquisition cost ratio, which measures operational efficiency, compares policy acquisition costs and other underwriting expenses to net premiums earned. The acquisition cost ratio was 3.6% for the first quarter of 2018 compared with 4.1% for the same year ago period. The decrease was due to the overall lower weighted-average acquisition costs on reinsurance contracts in force during the 3-month period ended March 31, 2018, compared with the 3-month period ended March 31, 2017. Our expense ratio, which measures operating performance, compares policy acquisition costs, other underwriting expenses, and general and administrative expenses to net premiums earned. The expense ratio totaled 84% during the first quarter of 2018 compared with 25.7% for the first quarter of 2017. The increase was due to a lower denominator in net premiums earned and net income from ILW as recorded during the 3-month period ended March 31, 2018, when compared with the corresponding prior year period. Our combined ratio, which is used to measure underwriting performance, is the sum of the loss ratio and the expense ratio. If the combined ratio is at or above 100%, underwriting is not profitable. For the first quarter of 2018, the combined ratio was 84% compared with 23.6% for the first quarter of 2017. The increase in the combined ratio is due wholly to a lower denominator in the net premiums earned and net income from ILWs as recorded during the 3-month period ended March 31, 2018, when compared with the 3-month period ended March 31, 2017. Now turning to the balance sheet. Total investments, which includes investments in fixed-maturity and equity securities totaled $5.9 million at March 31, 2018, compared with $6.5 million at December 31, 2017. Total shareholders' equity at March 31, 2018, was $13.7 million, down from $13.9 million at December 31, 2017. At March 31, 2018, cash and cash equivalents and restricted cash and cash equivalents totaled $11.5 million compared with $10.9 million at December 31, 2017. Now with that, I'd like to turn the call back over to Jay. Jay?

Thank you, Wrendon. Our results for the first quarter of 2018 were in line with our expectations given the severity of the prior year's hurricane history, and we have, hopefully, put the bad weather behind us. Having said that, given the devastation we experienced last year, the recovery process is going to take some time and because of that, much like last quarter, our year-over-year comparisons don't really provide an accurate or meaningful view into the current state of the business. As I said on our prior call, in the fourth quarter of 2017, our entire slate was basically wiped clean as we suffered limit losses on all our company's reinsurance contracts during the third quarter. Hurricane Irma was a colossal storm impacting Florida from coast to coast. The damage related to Harvey, Irma and Maria and others last season have been estimated in excess of $100 billion. As for how all this applies to Oxbridge Re? We along with the overall reinsurance industry have begun arduous journey back to recovery. But it's with the events right in our rearview that we also recognize the need to exercise both caution and patience in identifying new opportunity as we move forward. We are beginning anew in 2018, which in this case means going back to basics. While finding new ways to regrow our business is paramount, we understand more than ever the need to manage a reasonable risk profile. Furthermore, we have implemented even greater risk management practices to limit our further exposure to such risks as well as reviewing our existing contracts. Moving forward into 2018, we are effectively positioned to capitalize on available opportunities, while managing a reasonable risk profile for our business. We are very appreciative of our patient and loyal shareholders who have supported us and continue to support us through this period. As I've said on our last call, at Oxbridge Re, we are focused on long-term growth and that is to provide value to our shareholders. With that, we are ready to open the call for questions. Operator, please provide the appropriate instructions.

[Operator Instructions] Our first question comes from the line of Kent Engelke of Capitol Securities Management.

Can you give a little bit more color on how you're all going to go forward, recapitalizing the company, the potential growth, et cetera, et cetera?

Yes, how we're going forward. There's always conversations about recapitalizing the company. We haven't formalized anything thus far. We've been concentrating on the upcoming renewals, but as we go forward, we're going to review those even further. The other way to probably look at this is we've also talked in our prior calls or also in our filings about a new subsidiary that we've launched, and we are looking at that to do any kind of opportunistic type of business that we could do in the reinsurance slate. So that could be either special purpose vehicles or what have you. But yes, the landscape for Oxbridge has changed. And we will be moving accordingly going forward.

[Operator Instructions] If there are no further questions, I would like to turn the conference back over to management for closing remarks.

I would like to thank everybody for being on this call again, especially our shareholders as well as our employees. Thank you very much and look forward to your participation in the next call. Thank you.

This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time. Have a wonderful rest of your day.