Oxbridge Re Holdings Limited (OXBR) Q1 2021 Earnings Report, Transcript and Summary

Good afternoon. Welcome to Oxbridge Re's First Quarter 2021 Earnings Call. My name is Matthew, and I'll be your conference operator this afternoon. [Operator Instructions] 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 June 13, 2021, on the Investor Information section of the Oxbridge Re website at www.oxbridge.re.com (sic) [ www.oxbridgere.com ]. Now I'd like to turn the call over to Wrendon Timothy, Chief Financial Officer of Oxbridge Re, who will be providing 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, 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. 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 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 may 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 result in a material adverse impact from our financial position, results of operations and cash flows. Possible effects may include, but are not limited to, uncertainties with respect to current and future losses, reduction in interest rates and equity market volatility and ongoing business and financial market impacts of an economic downturn. The insurance industry is likely to experience material losses resulted from COVID-19, which will reduce available capital, and we expect will help to sustain the upward pricing trends for reinsurers that we have seen across many lines of businesses before COVID-19. However, the ultimate impact on current business in force as well as risks and potential opportunities on future business remain highly uncertain. 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 all know, the world has been dealing with issues created by the COVID-19 pandemic for over 18 months now. And while vaccines have been deployed aggressively in most markets, we are not out of the woods yet. We all hope for return to our normal lives and businesses soon, but we must remain vigilant and cautious over the near term. Fortunately, the pandemic has had a little negative impact on our business. If anything, it taught us how to work remotely and stress test certain process and procedure in the event of a catastrophe in Cayman. We continue to monitor our markets and the insurance industry in general to ensure we continue to deliver value to our shareholders. As we do each quarter, before we get to our results, I would like to take a moment to provide a brief overview of our company. Oxbridge Re Holdings Limited was founded 7 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 SPV, Oxbridge RE NS, we write fully collateralized policies to cover property -- to cover property losses from specific catastrophes. And as some of you already know, because we write fully collateralized contracts, we can compete effectively with large carriers. We specialize in underwriting low-frequency, high-severity risks, where we believe sufficient data exist 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 would generate attractive underwriting profits relative to risk. Regarding our investment portfolio, we remain opportunistic and will deploy our capital where favorable return opportunities arise, which we believe, in turn, drive our results through supplemental investment income. Looking at our first quarter results for the new year. We were pleased to return to profitability after a loss in the first quarter of 2020. We did this despite 2020 setting records for being the most active hurricane season and also deploying significantly less capital. Our liquidity position remains strong, and we incurred no losses in the period. We look for the stability to continue as we await the negative impacts of the pandemic to recede, and we all return to normal lives. In addition, we continue to make progress with our wholly owned subsidiary, Oxbridge RE NS, our Re, which is our reinsurance SPV. For the contract year end of May 31, 2020, our SPV investors earned an attractive return of approximately 36%. Despite 2020 setting records for being the most active hurricane season resulting in significant insurance and reinsurance losses globally, we believe we are on track to deliver investors of our Series 2020-1 participating notes of possible double-digit return for the contract year ended May 31, 2021. I'll now turn things over to Wrendon and take us through our financial results. Wrendon?

Thank you, Jay. First, I want to remind you that our typical contract period is on June 1 to May 31 of the following year. Net premiums earned for the quarter ended March 31, 2021, we were $181,000 compared to $264,000 in the prior year. The change is due to lower capital deployed in the current year. Net investments and other income in the first quarter totaled $14,000 compared to $33,000 last year. Net realized investment gains were minimal in both periods. Total expenses, which includes policy acquisition costs as well as general and admin expenses was $222,000 (sic) [ $272,000 ], which was consistent with prior year first quarter at approximately $275,000. For the first quarter of 2021, we recognized a fair value gain in equity securities of $124,000 compared to a loss of $326,000 last year. The change was due primarily to depressed capital market experience [ due to decreased ] opportunity and due to the uncertainty created by the onset of the COVID-19 pandemic. With this change, this positive change in fair value of our equity securities in the first quarter of the new year, we are pleased to generate net income of $28,000 compared to a loss of $364,000 from last year's first quarter. And as Jay mentioned, we experienced no underwriting losses for the first 3 months ended March 31, 2021. With respect to our financial ratios, as we discussed before, we use various measures to analyze the growth and profitability of our business operations. For reinsurance business, we measure underwriting profitability by examining our loss ratio, our acquisition ratio, our 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. For the 3 months ended March 31, 2021, and 2020, the loss ratio was 0% in this period due to no losses or loss adjustment expenses in the period. Our acquisition cost ratio, which measures operational efficiency, compares policy acquisition costs with net premiums earned. Our acquisition cost ratio for the 3 months ended March 31, 2021, was 11%, which is consistent with the same period last year. Our expense ratio, which measures operating performance, compares policy acquisition costs and general and admin expenses with net premiums earned. The expense ratio for the 3 months ended March 31, 2021, was 150.3% compared to 104.2% for the same period in 2020. The increase was due to the lower denominator in net premiums in this quarter resulting from the lower capital deployed when compared with the first quarter of 2020. Our combined ratio, which is used to measure underwriting performance, is the sum of the loss ratio and the expense ratio. Our combined ratio for the 3 months ended March 31, 2021, increased to 150.3% from 104.2% last year. Again, the change is due to a lower denominator in net premiums earned resulting from lower capital deployed compared with the prior year. Now turning to the balance sheet. Total investments totaled $1.6 million, up from 784 -- $787,000 at December 31, 2020. The increase is due to the purchase of equity securities during the period. At March 31, 2021, cash and cash equivalents and restricted cash and cash equivalents totaled $6.8 million, stable with $7.5 million at December 31, 2020. Total shareholders' equity at March 31, 2021, was $8 million, which was consistent with $8 million at the end of 2020. Now I'd like to turn the call back over to Jay to wrap up before we take your questions. Jay?

Thank you, Wrendon. Through our reinsurance SPV, Oxbridge RE NS, we were able to add a degree of diversity to our revenue stream and risk while still having the ability to achieve attractive returns. Looking ahead, we remain opportunistic about the long-term prospects of both our core business and our reinsurance SPV. We also continue to pursue and evaluate additional opportunities for growth as well as diversification of our risk profile. So in closing, G&A costs have been reduced over the last year and remained stable at these levels. Our SPV investors continue to earn an attractive return. Our book value per share is $1.41, mostly in cash. We are debt-free. We have a strong balance sheet with a strong cash position. And most importantly, we have real opportunity for growth based on a stable and viable business model. With that, we are ready to open the call for questions. Operator, please provide the appropriate instructions.

[Operator Instructions] Your first question is coming from Kent Engelke from Capitol Securities Management.

I was just wondering how is the marketing going for the sidecar for this season coming up?

Yes. Ken, marketing is going fine. It's more -- what we actually look for is not one or the other, but we actually look for the contracts, we look for specific contracts that will really add value to Oxbridge thought process. And based on those contracts is the amount of capital that we go in. And just adding a little bit more to your question over there, as an example, last year, we were very opportunistic in how much we actually wrote in the market. And that actually panned out extremely well. Given last year's hurricane situation, it was the worst in history, right? So by deploying capital very opportunistically, we were able to avoid some of the pitfalls that we may have gotten into in years gone by. So long story short, things are going well, the marketing is going well. And we look for attractive contracts, which will drive the other.

[Operator Instructions] At this time, this concludes our question-and-answer session. I'd now like to turn the call back to Mr. Madhu for his closing remarks.

I would like to thank everybody that joined our call and bearing with us during all these various different years. Our friends, family, our employees, thank you very much. And more importantly, thank you for our shareholders.

Thank you. 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 on the Investors section of the company's website. Thank you for joining us today for our presentation. You may now disconnect.