Oxbridge Re Holdings Limited (OXBR) Q1 2024 Earnings Report, Transcript and Summary

Good afternoon, and welcome to Oxbridge Re's First Quarter 2024 Earnings Call. My name is Audra, and I will 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 May 23, 2024, on the Investor Information section of Oxbridge Re 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 necessary cautions regarding the forward-looking statements that will be made by management during this call. Please go ahead.

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 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 10-Q file on March 26, 2024. The occurrence of any of these risks and uncertainties could 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 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'd like to turn the call over to our Chairman, President and Chief Executive Officer, Jay Madhu. Jay?

Hi, Wrendon, and thank you so much. Welcome, everyone. Thank you for joining us today. Let me start by saying we are proud of the significant steps we have taken in last year to fortify and diversify our business. Our core business remains reinsurance where we write fully collateralized policies to cover property losses from specific catastrophes. And because we write fully collateralized 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 efficiently 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. Building on the stable reinsurance foundation, we begin to diversify our business in 2021 as the lead sponsor of Oxbridge Acquisition Corp., a special purpose acquisition company, or SPAC, focusing on investing in disruptive technology. In August of 2023, Oxbridge acquisition successfully completed its business combination with Jet.AI Inc. The company developed software and offers fractional aircraft ownership, jet card, aircraft brokerage and charter through its fleet of private aircraft and those of its operating partner. It operates in 2 segments: Software and Aviation. The Software segment features the B2C CharterGPT app and the B2B Jet.AI operator platform. The CharterGPT app uses natural language processing and machine learning to improve the private jet booking experience. The Jet.AI operator platform offers a suite of stand-alone software products such as Reroute and DynoFlight which are carbon credits to enable FAA Part 135 charter operators to add revenue, maximize efficiency and reduce environment impact. The Aviation segment featured jet aircraft fractions, jet cards, on-fleet charter management and buyers brokerage. With the completion of the business combination in 2023, the company began trading on the NASDAQ Stock Exchange. Our interest in Jet.AI is recognized at fair value in other investments on our balance sheet. In 2020, we expanded our business portfolio by establishing SurancePlus Inc., our new subsidiary focused on Web3 technology. SurancePlus specializes in democratizing tokenized real-world assets or RWAs, offering tokenized reinsurance securities as alternative investment opportunities. These securities leverage blockchain technology to ensure complete transparency and compliance with SEC guidelines, representing a significant advancement in the digital security market. Consequently, this initiative aims to broaden investor participation, extending opportunities beyond what traditionally has been a select group of ultra-high-net-worth individuals. Crucially, the establishment of SurancePlus was achieved without incurring new debt or diluting equity for our shareholders, reflecting our efficient approach to diversification. We are enthusiastic about the prospects of the new investment and remain committed to keeping our shareholders informed of their progress in the upcoming quarters. Looking forward, we intend to reposition Oxbridge as a prominent player in the real-world asset or RWA Web3 sector. Further details on the strategic direction will be shared later in the call. In summary, we maintain a strong sense of optimism regarding the long-term outlook of our core reinsurance business, alongside the successful integration of our new venture, Jet.AI and SurancePlus as we embrace the RWA market more comprehensively. Now I'll turn things over to Wrendon to take us through our financial results. Wrendon?

Thank you, Jay. I'd like to remind you that our typical contract period for reinsurance contract is from June 1 to May 31 of the following year. Our cash and cash equivalents and restricted cash and cash equivalents increased to $4.3 million at March 31, 2024, compared to $3.7 million at December 31, 2023. Net premiums earned for the quarter ended March 31, 2024, increased to $549,000 compared to $0 in last year's first quarter. The increase is due to the contracts in force during the quarter ended March 31, 2024, as opposed to the prior period in which premiums were accelerated prior to the quarter ended March 31, 2023, as a result of losses incurred from Hurricane Ian. There have been no losses incurred to date in 2024. Our net investment and other income decreased in the quarter to $62,000 from $89,000 in the prior year's first quarter. We also recorded an unrealized loss of $688,000 on our other investments, the result of our remeasurement of our investment in Jet.AI at fair value. We also recognized an $89,000 negative change in the fair value of our equity securities as of March 31, 2024, decreasing from $76,000 positive change in the prior year first quarter. All of these factors taken together resulted in total revenues of negative $125,000 for 3 months ending March 31, 2024, compared to $546,000 in the prior year's first quarter. Total expenses, including loss and loss adjustment expenses, policy acquisition costs and general and admin expenses were up in the first quarter of 2024 to $548,000 from $404,000 last year. The increase in 2024 was due to higher professional and legal expenses incurred during the 3-month period ended March 31, 2024, as well as no policy acquisition costs recorded in the prior period. Primarily due to the negative change in the fair value of our equity securities and investment in Jet.AI, during the quarter, we generated a net loss of $905,000 or $0.15 per share for the 3 months ended March 31, 2024, compared to net income of $142,000 or $0.02 per share in last year's first quarter. As we have discussed before on 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 ratio, expense ratio and combined ratio. Our loss ratio, which measures underwriting profitability, is the ratio of loss and loss adjustment expenses incurred to net premiums earned. With no loss or loss adjustment expenses in either of the first quarter of 2024 or 2023, the loss ratio was 0% for both periods. Our acquisition cost ratio, which measures operational efficiency, compares policy acquisition costs and net premiums earned. The acquisition cost ratio increased to 10.9% for the 3-month period ending March 31, 2024, from 0% for the same period last year. The increase is due primarily to premiums being earned and acquisition cost being expensed during the period ended March 31, 2024, when compared with the prior period. Our expense ratio, which measures operating performance, compared to policy acquisition costs and general and admin expenses with net premiums earned. Our expense ratio increased to 99.3% (sic) [ 99.8% ] in the first quarter compared to 0% in the first quarter of 2023. The increase is due to higher general and admin expenses and policy acquisition costs during the first quarter of 2024. The combined ratio, which is used to measure underwriting performance, is the sum of the loss ratio and the expense ratio. This ratio increased to 99.8% compared to 0% in the last year's first quarter. The increase is due to the higher general and administrative expenses and policy acquisition cost incurred during the first quarter of 2024. Our investment portfolio decreased to $284,000 at March 31, 2024, from $680,000 at the prior period end, primarily the result of the sale of equity securities and a decrease in fair value of the equity securities during the quarter. Our investment decreased due to the fair value change of our investment in Jet.AI in which the company has an equity investment measured at fair value. I'll now turn the call back over to Jay to wrap up before we take your questions. Jay?

Thank you, Wrendon. As highlighted earlier in today's discussion, we have implemented decisive and substantial measures throughout this year and last, to fortify and diversify our operations. In December of 2022, we established SurancePlus, our wholly-owned subsidiary with the objective of tokenized securities, representing fractionalized interest in reinsurance contracts underwritten by our reinsurance subsidiary. In the second quarter of 2023, we successfully concluded the initial offering on these tokens through a $2.4 million private placement. . Furthermore, as previously reported, investors in our Delta CatRe tokens are poised to achieve returns exceeding 45%, beating the initial 42% projected. And despite the challenges posed by Hurricane Idalia, which made landfall as a Category 3 hurricane in 2023, we believe these are the first tokenized reinsurance securities backed by a publicly traded company. SurancePlus is poised to democratize access to reinsurance as an alternate investment avenue, leveraging the inherent advantage of blockchain technology to craft sophisticated digital securities. Our tokens aim to facilitate broader investor participation, ensuring that interests are securely and transparently recorded on the blockchain. These opportunities, previously out of reach for many investors due to extremely high barriers to entry, are now accessible through our innovative approach. Essentially, while repeating myself, we have democratized access to reinsurance. Subsequent to this, in mid-August of 2023, our investment in special purpose acquisition company, Oxbridge Acquisition Corp., culminated in a business merger with Jet.AI, a company specializing in fractional aircraft ownership, jet card service, aircraft brokerage and charter services, facilitated by its fleet of private aircraft. Notably, our wholly owned subsidiary, Oxbridge Reinsurance Limited, assumed the role of lead investor in the SPAC sponsorship. Concurrently, with the finalizing of the business merger, the company successfully listed its common shares and warrants on the NASDAQ. These compelling opportunities not only augmented our business but also enhanced our risk profile, strategically positioning us to capitalize on the growth with emerging technologies. We are especially enthusiastic about the anticipated value of these investments hold and the benefits they offer to our shareholders. As previously mentioned, we are currently in the process of rebranding Oxbridge as an RWA Web3-focused company, leveraging the significant progress we have achieved this year. Forecast suggests an extraordinary expansion in the tokenized RWA market over the next decade, with estimates exceeding $10 trillion. This has been reinforced further recently, as securitized offer, they had secured $47 million funding led by Blackrock to expand RWA tokenization. This growth trajectory is fueled by the escalating adoption of blockchain technology across various traditional financial sectors, including fiat currency, equities, government bonds and real estate. Endorsements from institutions like Blackrock and Bank of America further affirm the transformative potential of tokenization in enhancing financial infrastructure efficiency, reducing costs and optimizing supply chain. Moreover, industry analysis from firms such as Boston Consulting Group anticipates a substantial surge in the tokenized asset market, potentially reaching $16 trillion by the year 2030. As pioneers in this evolving landscape, we hold a strong sense of optimism regarding the value our rebranding efforts will unlock for our shareholders. We remain steadfast in our commitment to seizing the opportunities presented by this dynamic market shift. With that, we are ready to address any questions you may have. Operator, please provide the appropriate instructions.

[Operator Instructions] We do have a question from Duane Roberts at Rock Fleet Financial.

The first RWA, has it closed yet? Have you already repaid that capital on the first tranche?

Yes. So the first one was last year. Those contracts were written June 1 of last year to May 31st of this year. That's a 1-year contract. They were written was it was based on a 3-year contract with a 1-year out. So the year hasn't finished. It's -- the contract year hasn't finished that is. So after the end of this month is when those monies would be due, which we are on track to paying a 45% return.

And that does conclude our Q&A session. I will now turn the conference back over to Mr. Madhu for his closing remarks.

Thank you for joining us on today's call. Before we conclude, I would like to extend my gratitude to our employees, business partners and investors of their unwavering support. I particularly want to acknowledge our dedicated Oxbridge team, whose extensive expertise has been instrumental in navigating and advancing our business amidst these challenging circumstances. We anticipate providing you with further updates on our progress during our next call. And should you have any additional questions, please do not hesitate to reach out to us any time. Once again, thank you for your time and attention today and for your ongoing interest in Oxbridge. Operator?

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