OXBRIDGE RE HOLDINGS Ltd 10-Q for FY2022 Q2
OXBRIDGE RE HOLDINGS Ltd (OXBR)
About this 10-Q
OXBRIDGE RE HOLDINGS Ltd filed this 10-Q on August 15, 2022, covering the quarter ended June 30, 2022 (FY2022 Q2).
Headline figures
Quarter ended June 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $503K
- down 37.5% from $805K a year earlier
- Net income
- $77K
- down 82.8% from net income of $448K a year earlier
- Diluted EPS
- $0.01
- down 87.5% from $0.08 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to __________
Commission
File Number:
| (Exact name of registrant as specified in its charter) |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
|
||
| (Address of principal executive offices) | (Zip Code) | |
| Registrant’s
telephone number, including area code: | ||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
| No ☐ |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
| No ☐ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Smaller
reporting company |
||
| Emerging
growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ______
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
| Yes ☐ |
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of August 15, 2022; ordinary shares, par value $0.001 per share, were outstanding.
OXBRIDGE RE HOLDINGS LIMITED
INDEX
| 2 |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Consolidated Balance Sheets
(expressed in thousands of U.S. Dollars, except per share and share amounts)
| At June 30, 2022 | At December 31, 2021 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Investments: | ||||||||
| Equity securities, at fair value (cost: $ | $ | |||||||
| Cash and cash equivalents | ||||||||
| Restricted cash and cash equivalents | ||||||||
| Premiums receivable | ||||||||
| Other investments | ||||||||
| Due from related party | ||||||||
| Deferred policy acquisition costs | ||||||||
| Operating lease right-of-use assets | ||||||||
| Prepayment and other assets | ||||||||
| Property and equipment, net | ||||||||
| Total assets | $ | |||||||
| Liabilities and Shareholders’ Equity | ||||||||
| Liabilities: | ||||||||
| Notes payable to noteholders | ||||||||
| Unearned premiums reserve | ||||||||
| Operating lease liabilities | ||||||||
| Accounts payable and other liabilities | ||||||||
| Total liabilities | ||||||||
| Shareholders’ equity: | ||||||||
| Ordinary share capital, (par value $, shares authorized; and shares issued and outstanding) | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated Deficit | ( | ) | ( | ) | ||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | |||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of the Consolidated Financial Statements.
| 3 |
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
(expressed in thousands of U.S. Dollars, except per share amounts)
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue | ||||||||||||||||
| Assumed premiums | $ | |||||||||||||||
| Premiums ceded | ( | ) | ( | ) | ||||||||||||
| Change in unearned premiums reserve | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net premiums earned | ||||||||||||||||
| Net investment and other income | ||||||||||||||||
| Net realized investment gains | ||||||||||||||||
| Unrealized gain on other investment | ||||||||||||||||
| Change in fair value of equity securities | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total revenue | ||||||||||||||||
| Expenses | ||||||||||||||||
| Policy acquisition costs and underwriting expenses | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Total expenses | ||||||||||||||||
| Income (Loss) before income attributable to noteholders | ( | ) | ||||||||||||||
| Income attributable to noteholders | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income (loss) | $ | ( | ) | |||||||||||||
| Earnings (Loss) per share | ||||||||||||||||
| Basic and Diluted | $ | ( | ) | |||||||||||||
| Weighted-average shares outstanding | ||||||||||||||||
| Basic and Diluted | ||||||||||||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of the Consolidated Financial Statements.
| 4 |
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(expressed in thousands of U.S. Dollars)
| Six Month Ended | ||||||||
| June 30, | ||||||||
| 2022 | 2021 | |||||||
| Operating activities | ||||||||
| Net (loss) income | $ | ( | ) | |||||
| Adjustments to reconcile net (loss) income to net cash used in operating activities: | ||||||||
| Stock-based compensation | ||||||||
| Depreciation and amortization | ||||||||
| Net realized investment gains | ( | ) | ( | ) | ||||
| Change in fair value of other investments | ( | ) | ||||||
| Change in fair value of equity securities | ||||||||
| Change in operating assets and liabilities: | ||||||||
| Accrued interest and dividend receivable | ||||||||
| Premiums receivable | ( | ) | ( | ) | ||||
| Due from related party | ( | ) | ( | ) | ||||
| Deferred policy acquisition costs | ( | ) | ( | ) | ||||
| Prepayment and other assets | ( | ) | ( | ) | ||||
| Unearned premiums reserve | ||||||||
| Accounts payable and other liabilities | ||||||||
| Net cash used in operating activities | $ | ( | ) | ( | ) | |||
| Investing activities | ||||||||
| Purchase of equity securities | ( | ) | ( | ) | ||||
| Proceeds from sale of equity securities | ||||||||
| Net cash (used in)/ provided by investing activities | $ | ( | ) | |||||
| 5 |
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Consolidated Statements of Cash Flows, continued
(Unaudited)
(expressed in thousands of U.S. Dollars)
| Six Months Ended | ||||||||
| June 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash and cash equivalents, and restricted cash and cash equivalents: | ||||||||
| Net change during the period | $ | ( | ) | |||||
| Balance at beginning of period | $ | |||||||
| Balance at end of period | $ | |||||||
| Supplemental disclosure of cash flow information | ||||||||
| Interest paid | $ | |||||||
| Income taxes paid | $ | |||||||
| Cash paid to noteholders | $ | |||||||
| Non-cash investing activities | ||||||||
| Operating lease right-of-use assets | $ | |||||||
| Operating lease liability | $ | |||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of the Consolidated Financial Statements.
| 6 |
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders’ Equity (unaudited)
Three and Six Months Ended June 30, 2022 and 2021
(expressed in thousands of U.S. Dollars, except share amounts)
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Ordinary Share Capital | Additional Paid-in | Accumulated | Total Shareholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance at December 31, 2020 | $ | | ( | ) | ||||||||||||||||
| Net income for the period | - | |||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Balance at March 31, 2021 | ( | ) | ||||||||||||||||||
| Net income for the period | - | |||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Balance at June 30, 2021 | $ | ( | ) | |||||||||||||||||
| Balance at December 31, 2021 | $ | ( | ) | |||||||||||||||||
| Net loss for the period | - | ( | ) | ( | ) | |||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Issuance of restricted stock | ||||||||||||||||||||
| Balance at March 31, 2022 | $ | ( | ) | |||||||||||||||||
| Net income for the period | - | |||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Balance at June 30, 2022 | ( | ) | ||||||||||||||||||
| Ending balance, value | ( | ) | ||||||||||||||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of the Consolidated Financial Statements.
| 7 |
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June 30, 2022
1. ORGANIZATION AND BASIS OF PRESENTATION
(a) Organization
Oxbridge Re Holdings Limited (the “Company”) was incorporated as an exempted company on April 4, 2013 under the laws of the Cayman Islands. Oxbridge Re Holdings Limited owns 100% of the equity interest in Oxbridge Reinsurance Limited, an exempted entity incorporated on April 23, 2013 under the laws of the Cayman Islands and for which a Class “C” Insurer’s license was granted on April 29, 2013 under the provisions of the Cayman Islands Insurance Law. Oxbridge Re Holdings Limited also owns 100% of the equity interest in Oxbridge Re NS, an entity incorporated as an exempted company on December 22, 2017 under the laws of the Cayman Islands to function as a reinsurance sidecar facility and to increase the underwriting capacity of Oxbridge Reinsurance Limited. The Company, through its subsidiaries (collectively “Oxbridge Re”) provides collateralized reinsurance in the property catastrophe market and invests in various insurance-linked securities. The Company operates as a single business segment through its wholly-owned subsidiaries. The Company’s headquarters and principal executive offices are located at Suite 201, 42 Edward Street, Georgetown, Grand Cayman, Cayman Islands, and have their registered offices at P.O. Box 309, Ugland House, Grand Cayman, Cayman Islands.
The Company’s ordinary shares and warrants are listed on The NASDAQ Capital Market under the symbols “OXBR” and “OXBRW,” respectively.
(b) Basis of Presentation and Consolidation
The accompanying unaudited, consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information, and the Securities and Exchange Commission (“SEC”) rules for interim financial reporting. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with GAAP have been omitted pursuant to such rules and regulations. However, in the opinion of management, the accompanying interim consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the Company’s consolidated financial position as of June 30, 2022 and the consolidated results of operations and cash flows for the periods presented. The consolidated results of operations for interim periods are not necessarily indicative of the results of operations to be expected for any subsequent interim period or for the fiscal year ended December 31, 2022. The accompanying unaudited consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2021 included in the Company’s Form 10-K, which was filed with the SEC on March 30, 2022.
In preparing the interim unaudited consolidated financial statements, management was required to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures at the financial reporting date and throughout the periods being reported upon. Certain of the estimates result from judgments that can be subjective and complex and consequently actual results may differ from these estimates, which would be reflected in future periods.
Material estimates that are particularly susceptible to significant change in the near-term relate to the fair value of the Company’s investment in Oxbridge Acquisition Corp., and the determination of the reserve for losses and loss adjustment expenses (if any), which may include amounts estimated for claims incurred but not yet reported. The Company uses various assumptions and actuarial data it believes to be reasonable under the circumstances to make these estimates. In addition, accounting policies specific to valuation of investments involve significant judgments and estimates material to the Company’s consolidated financial statements. Although considerable variability is likely to be inherent in these estimates, management believes that the amounts provided are reasonable. These estimates are continually reviewed and adjusted if necessary. Such adjustments are reflected in current operations.
| 8 |
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June 30, 2022
1. ORGANIZATION AND BASIS OF PRESENTATION (Continued)
The Company consolidates in these consolidated financial statements the results of operations and financial position of all voting interest entities (“VOE”) in which the Company has a controlling financial interest and all variable interest entities (“VIE”) in which the Company is considered to be the primary beneficiary. The consolidation assessment, including the determination as to whether an entity qualifies as a VIE or VOE, depends on the facts and circumstances surrounding each entity.
All significant intercompany balances and transactions have been eliminated.
2. SIGNIFICANT ACCOUNTING POLICIES
Cash and cash equivalents: Cash and cash equivalents are comprised of cash and short- term investments with original maturities of three months or less.
Restricted cash and cash equivalents: Restricted cash and cash equivalents represent funds held in accordance with the Company’s trust agreements with ceding insurers and trustees, which requires the Company to maintain collateral with a market value greater than or equal to the limit of liability, less unpaid premium.
Investments: The Company from time to time invests in fixed-maturity securities and equity securities, and for which its fixed-maturity securities are classified as available-for- sale. The Company’s available for sale debt investments are carried at fair value with changes in fair value included as a separate component of accumulated other comprehensive income (loss) in shareholders’ equity. For the Company’s investment in equity securities, and for the Company’s investment in the special purpose acquisition company Oxbridge Acquisition Corp. classified as “other investments”, the changes in fair value are recorded within the consolidated statements of operations.
Unrealized gains or losses are determined by comparing the fair market value of the securities with their cost or amortized cost. Realized gains and losses on investments are recorded on the trade date and are included in the consolidated statements of operations. The cost of securities sold is based on the specified identification method. Investment income is recognized as earned and discounts or premiums arising from the purchase of debt securities are recognized in investment income using the interest method over the remaining term of the security.
Fair value measurement: GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under GAAP are as follows:
| Level 1 | Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date; |
| Level 2 | Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly, including inputs in markets that are not considered to be active; and |
| Level 3 | Inputs that are unobservable. |
| 9 |
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June 30, 2022
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair value measurement (continued)
Inputs are used in applying the various valuation techniques and broadly refer to the assumptions that market participants use to make valuation decisions, including assumptions about risk. For fixed maturity securities, inputs may include price information, volatility statistics, specific and broad credit data, liquidity statistics, broker quotes for similar securities and other factors. The fair value of investments in stocks and exchange-traded funds is based on the last traded price. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes “observable” requires significant judgment by the Company’s investment custodians and management. The investment custodians consider observable data to be market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant markets.
Deferred policy acquisition costs (“DAC”): Policy acquisition costs consist of brokerage fees, federal excise taxes and other costs related directly to the successful acquisition of new or renewal insurance contracts and are deferred and amortized over the terms of the reinsurance agreements to which they relate. The Company evaluates the recoverability of DAC by determining if the sum of future earned premiums and anticipated investment income is greater than the expected future claims and expenses. If a loss is probable on the unexpired portion of policies in force, a premium deficiency loss is recognized. At June 30, 2022, the DAC was considered fully recoverable and no premium deficiency loss was recorded.
Reserves for losses and loss adjustment expenses: The Company determines its reserves for losses and loss adjustment expenses, if any, on the basis of the claims reported by the Company’s ceding insurers and for losses incurred but not reported (“IBNR”), management uses the assistance of an independent actuary, if needed. The reserves for losses and loss adjustment expenses represent management’s best estimate of the ultimate settlement costs of all losses and loss adjustment expenses. Management believes that the amounts are adequate; however, the inherent impossibility of predicting future events with precision, results in uncertainty as to the amount which will ultimately be required for the settlement of losses and loss expenses, and the differences could be material. Adjustments are reflected in the consolidated statements of operations in the period in which they are determined.
Loss experience refund payable: Certain contracts may include retrospective provisions that adjust premiums or result in profit commissions in the event losses are minimal or zero. In accordance with GAAP, the Company will recognize a liability in the period in which the absence of loss experience obligates the Company to pay cash or other consideration under the contracts. On the contrary, the Company will derecognize such liability in the period in which a loss experience arises. Such adjustments to the liability, which accrue throughout the contract terms, will reduce the liability should a catastrophic loss event covered by the Company occur.
Premiums assumed: The Company records premiums assumed, net of loss experience refunds, as earned pro-rata over the terms of the reinsurance agreements, or period of risk, where applicable, and the unearned portion at the consolidated balance sheet date is recorded as unearned premiums reserve. A reserve is made for estimated premium deficiencies to the extent that estimated losses and loss adjustment expenses exceed related unearned premiums. Investment income is not considered in determining whether or not a deficiency exists.
| 10 |
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June 30, 2022
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Subsequent adjustments of premiums assumed, based on reports of actual premium by the ceding companies, or revisions in estimates of ultimate premium, are recorded in the period in which they are determined. Such adjustments are generally determined after the associated risk periods have expired, in which case the premium adjustments are fully earned when assumed.
Certain contracts allow for reinstatement premiums in the event of a full limit loss prior to the expiration of the contract. A reinstatement premium is not due until there is a full limit loss event and therefore, in accordance with GAAP, the Company records a reinstatement premium as written only in the event that the reinsured incurs a full limit loss on the contract and the contract allows for a reinstatement of coverage upon payment of an additional premium. For catastrophe contracts which contractually require the payment of a reinstatement premium equal to or greater than the original premium upon the occurrence of a full limit loss, the reinstatement premiums are earned over the original contract period. Reinstatement premiums that are contractually calculated on a pro-rata basis of the original premiums are earned over the remaining coverage period.
Unearned Premiums Ceded: The Company may reduce the risk of future losses on business assumed by reinsuring certain risks and exposures with other reinsurers (retrocessionaires). The Company remains liable to the extent that any retrocessionaire fails to meet its obligations and to the extent that the Company does not hold sufficient security for their unpaid obligations.
Ceded premiums are written during the period in which the risk incept and are expensed over the contract period in proportion to the period of protection. Unearned premiums ceded consist of the unexpired portion of the reinsurance obtained. There were no unearned premiums ceded at June 30, 2022.
Uncertain income tax positions: The authoritative GAAP guidance on accounting for, and disclosure of, uncertainty in income tax positions requires the Company to determine whether an income tax position of the Company is more likely than not to be sustained upon examination by the relevant tax authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. For income tax positions meeting the more likely than not threshold, the tax amount recognized in the consolidated financial statements, if any, is reduced by the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant taxing authority. The application of this authoritative guidance has had no effect on the Company’s consolidated financial statements because the Company had no uncertain tax positions at June 30, 2022.
| 11 |
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June 30, 2022
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Additionally, the Company uses the guidance in the SEC’s Staff Accounting Bulletin No. 107 to determine the estimated life of options issued and has assumed no forfeitures during the life of the options.
The Company uses the straight-line attribution method for all grants that include only a service condition. Compensation expense related to all awards is included in general and administrative expenses.
Pending Accounting Updates:
Accounting Standards Update No. 2016-13. In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurements of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 amends the guidance on reporting credits losses and affects loans, debt securities, trade receivables, reinsurance recoverable and other financial assets that have the contractual right to receive cash. The amendments are effective for annual periods beginning after December 15, 2022 (as amended), and interim periods within those annual periods. The Company is in the process of evaluating the impact of the requirements of ASU 2016-13 on the Company’s consolidated financial statements.
Segment Information: Under GAAP, operating segments are based on the internal information that management uses for allocating resources and assessing performance as the source of the Company’s reportable segments. The Company manages its business on the basis of one operating segment, Property and Casualty Reinsurance, in accordance with the qualitative and quantitative criteria established under GAAP.
| 12 |
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June 30, 2022
3. CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AND CASH EQUIVALENTS
SUMMARY OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AND CASH EQUIVALENTS
| At June 30, | At December 31, | |||||||
| 2022 | 2021 | |||||||
| (in thousands) | ||||||||
| Cash on deposit | $ | $ | ||||||
| Restricted cash held in trust | ||||||||
| Total | $ | $ | ||||||
Cash and cash equivalents are held by large and reputable counterparties in the United States of America and in the Cayman Islands. Restricted cash held in trust is custodied with Truist Bank, and is held in accordance with the Company’s trust agreements with the ceding insurers and trustees, which require that the Company provide collateral having a market value greater than or equal to the limit of liability, less unpaid premium.
4. INVESTMENTS
The Company from time to time invests in fixed-maturity securities and equity securities, with its fixed-maturity securities classified as available-for-sale. At June 30, 2022 and December 31, 2021, the Company did not hold any available-for-sale securities.
Proceeds received, and the gross realized gains and losses from sale of equity securities, for the three and six months ended June 30, 2022 and 2021, are as follows:
SCHEDULE OF GROSS REALIZED GAINS AND LOSSES FROM SALE OF EQUITY SECURITIES
| Gross proceeds from sales | Gross Realized Gains | Gross Realized Losses | ||||||||||
| ($ in thousands) | ||||||||||||
| Three Months Ended June 30, 2022 | ||||||||||||
| Equity securities | $ | $ | $ | |||||||||
| Six Months Ended June 30, 2022 | ||||||||||||
| Equity securities | $ | $ | $ | |||||||||
| Three Months Ended June 30, 2021 | ||||||||||||
| Equity securities | $ | $ | ||||||||||
| Six Months Ended June 30, 2021 | ||||||||||||
| Equity securities | $ | $ | ||||||||||
| 13 |
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June 30, 2022
4. INVESTMENTS (continued)
Other Investments
In
connection with Oxbridge Acquisition Corp. (“OXAC”) initial public offering (“IPO”) in August 2021, the Company’s
affiliate OAC Sponsor Ltd. (“Sponsor”) purchased an aggregate
On
August 11, 2021, the Company acquired an aggregate of ordinary shares and preferred shares of Sponsor for an aggregate
purchase price of $
The
registration statement for OXAC’s IPO was declared effective on August 11, 2021 and on August 16, 2021, OXAC consummated the IPO
with the sale of units (the “Units”) at $ per Unit, generating gross proceeds of $
The
Company’s beneficial interests in OXAC’s Class B shares and the Private Placement Warrants are recorded at fair value and
are classified in “Other Investments” on the consolidated balance sheets.
As
a result of the re-measurement of our investment in OXAC, we recognize for the six-months ended June 30, 2022, an unrealized gain on
other investments of $
| 14 |
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June 30, 2022
4. INVESTMENTS (continued)
Other investments as of June 30, 2022 consist of the following (in thousands):
SCHEDULE OF OTHER INVESTMENT
At June 30, 2022 | ||||
| Oxbridge Acquisition Corp. Private Placement Warrants | $ | |||
| Oxbridge Acquisition Corp. Class B Ordinary Shares | ||||
| Total | $ | |||
Six Months ended June 30, 2022 | ||||
| Beginning of year | $ | |||
| Unrealized gain on investment in affiliate | ||||
| End of period | $ | |||
If
OXAC does not complete a business combination by November 16, 2022 (or through to May 16, 2023 if OXAC extends the period of time to
consummate a business), the proceeds from the sale of the Private Placement Warrants (after OXAC IPO transaction costs) will be used
to fund the redemption of the shares sold in the OXAC IPO (subject to the requirements of applicable law), and the Private Placement
Warrants will expire without value. The Sponsor holds approximately % of the total ordinary shares (Class A and Class B) in OXAC along
with the
The
Company’s cost basis in these securities is $
Assets Measured at Estimated Fair Value on a Recurring Basis
The following table presents information about the Company’s financial assets measured at estimated fair value on a recurring basis that is reflected in the consolidated balance sheets at carrying value. The table indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value as of June 30, 2022 and December 31, 2021:
SCHEDULE OF FAIR VALUE OF ASSETS MEASURED ON RECURRING BASIS
| Fair Value Measurements Using | ||||||||||||||||
| (Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
| As of June 30, 2022 | ($ in thousands) | |||||||||||||||
| Financial Assets: | ||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | ||||||||||||
| Restricted cash and cash equivalents | $ | $ | $ | $ | ||||||||||||
| Other investments | $ | $ | $ | $ | ||||||||||||
| Equity securities | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| As of December 31, 2021 | ||||||||||||||||
| Financial Assets: | ||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | ||||||||||||
| Restricted cash and cash equivalents | $ | $ | $ | $ | ||||||||||||
| Other investments | $ | $ | $ | $ | ||||||||||||
| Equity securities | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| 15 |
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June 30, 2022
4. INVESTMENTS (continued)
Assets Measured at Estimated Fair Value on a Recurring Basis (continued)
At December 31, 2021, the Company utilized the services of an independent valuation expert (“Valuation Expert”) to determine the fair value of the Company’s indirect investment in OXAC. The Valuation Expert observed that the Class A shares of OXAC trades in a relatively liquid market at the measurement date, and the Company’s share of OXAC’s Class B shares were convertible to OXAC’s Class A Shares on a 1 to 1 basis. The Valuation Expert applied this ratio to the value of OXAC’s Class A shares and then applied an additional 30% discount to account for the lack of marketability and the inherent risk of forfeiture should a business combination not occur. At June 30, 2022, management determined the discount rate of 30% was reasonable due to market condition and the possibility of extending the time to consummate a business combination until May 16, 2023.
The
Black-Scholes option pricing model is used by management to determine the fair value of the Company’s beneficial interest in
OXAC’s private placement warrants with a strike price of $
The following table provides quantitative information regarding Level 3 fair value measurements inputs for private placement warrants at their measurement dates:
SCHEDULE OF FAIR VALUE MEASUREMENTS INPUTS FOR PRIVATE PLACEMENT WARRANTS
| At June 30, 2022 | At December 31, 2021 | |||||||
| Share price | $ | $ | ||||||
| Exercise price | $ | $ | ||||||
| Expected dividend yield | % | % | ||||||
| Expected volatility | % | % | ||||||
| Risk-free interest rate | % | % | ||||||
| Expected life (in years) | ||||||||
There were no transfers between Levels 1, 2 or 3 during the six months ended June 30, 2022 and year ended December 31, 2021.
The following table provides a reconciliation of changes in fair value of the beginning and ending balances for the other investments classified as Level 3:
SCHEDULE OF RECONCILIATION OF CHANGES IN FAIR VALUE
| Other | ||||
| Investments | ||||
| (in thousands) | ||||
| Fair value of Level 3 other investment at January 1, 2022 | $ | |||
| Change in valuation inputs or other assumptions | ||||
| Fair value of Level 3 other investment at June 30, 2022 | $ | |||
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OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June 30, 2022
5. TAXATION
Under current Cayman Islands law, no corporate entity, including the Company and the subsidiaries, is obligated to pay taxes in the Cayman Islands on either income or capital gains. The Company and Oxbridge Reinsurance Limited have an undertaking from the Governor-in-Cabinet of the Cayman Islands, pursuant to the provisions of the Tax Concessions Law, as amended, that, in the event that the Cayman Islands enacts any legislation that imposes tax on profits, income, gains or appreciations, or any tax in the nature of estate duty or inheritance tax, such tax will not be applicable to the Company and Oxbridge Reinsurance Limited or their operations, or to the ordinary shares or related obligations, until April 23, 2033 and May 17, 2033, respectively.
The Company and its subsidiaries intend to conduct substantially all of their operations in the Cayman Islands in a manner such that they will not be engaged in a trade or business in the U.S. However, because there is no definitive authority regarding activities that constitute being engaged in a trade or business in the U.S. for federal income tax purposes, the Company cannot assure that the U.S. Internal Revenue Service will not contend, perhaps successfully, that the Company or its subsidiary is engaged in a trade or business in the U.S. A foreign corporation deemed to be so engaged would be subject to U.S. federal income tax, as well as branch profits tax, on its income that is treated as effectively connected with the conduct of that trade or business unless the corporation is entitled to relief under an applicable tax treaty.
6. VARIABLE INTEREST ENTITIES
Oxbridge Re NS. On December 22, 2017, the Company established Oxbridge Re NS, a Cayman domiciled and licensed special purpose insurer, formed to provide additional collateralized capacity to support Oxbridge Reinsurance Limited’s reinsurance business. In respect of the participating notes issued by Oxbridge Re NS to investors, Oxbridge Re NS has entered into a retrocession agreement with Oxbridge Reinsurance Limited effective June 1, 2020. Under this agreement, Oxbridge Re NS receives a quota share of Oxbridge Reinsurance Limited’s catastrophe business. Oxbridge Re NS is a non-rated insurer and the risks have been fully collateralized by way of funds held in trust for the benefit of Oxbridge Reinsurance Limited. Oxbridge Re NS is able to provide investors with access to natural catastrophe risk backed by the distribution, underwriting, analysis and research expertise of Oxbridge Re.
The
Company has determined that Oxbridge Re NS meets the definition of a VIE as it does not have sufficient equity capital to finance its
activities. The Company concluded that it is the primary beneficiary and has consolidated the subsidiary upon its formation, as it owns
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OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June 30, 2022
6. VARIABLE INTEREST ENTITIES (continued)
Upon issuance of a series of participating notes by Oxbridge Re NS, all of the proceeds from the issuance are deposited into collateral accounts, to fund any potential obligation under the reinsurance agreements entered into with Oxbridge Reinsurance Limited underlying such series of notes. The outstanding principal amount of each series of notes generally is expected to be returned to holders of such notes upon the expiration of the risk period underlying such notes, unless an event occurs which causes a loss under the applicable series of notes, in which case the amount returned is expected to be reduced by such noteholder’s pro rata share of such loss, as specified in the applicable governing documents of such notes. In addition, holders of such notes are generally entitled to interest payments, payable annually, as determined by the applicable governing documents of each series of notes.
Oxbridge Re Holdings Limited receives an origination and structuring fee in connection with the formation, operation and management of Oxbridge Re NS.
In addition, holders of such notes are generally entitled to interest payments, payable annually, as determined by the applicable governing documents of each series of notes. Oxbridge Re Holdings Limited receives an origination and structuring fee in connection with the formation, operation and management of Oxbridge Re NS.
Notes Payable to Series 2020-1 noteholders
Oxbridge
Re NS entered into a retrocession agreement with Oxbridge Reinsurance Ltd on June 1, 2020 and issued $
The
income from Oxbridge Re NS operations that are attributable to the participating notes noteholders for the three and six-month ended
June 30, 2022 was $
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OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June 30, 2022
7. RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES
There were no losses and loss adjustment expenses (“LAE”) or reserves for loss and LAE reserve movements for the six-month periods ending June 30, 2022 and 2021:
When losses do occur, the reserves for losses and LAE are typically comprised of case reserves (which are based on claims that have been reported) and IBNR reserves (which are based on losses that are believed to have occurred but for which claims have not yet been reported and include a provision for expected future development on existing case reserves). The Company uses the assistance of an independent actuary in the determination of IBNR and expected future development of existing case reserves.
The uncertainties inherent in the reserving process and potential delays by cedants and brokers in the reporting of loss information, together with the potential for unforeseen adverse developments, may result in the reserve for losses and LAE ultimately being significantly greater or less than the reserve provided at the end of any given reporting period. The degree of uncertainty is further increased when a significant loss event takes place near the end of a reporting period. Reserve for losses and LAE estimates are reviewed periodically on a contract-by-contract basis and updated as new information becomes known. Any resulting adjustments are reflected in income in the period in which they become known.
The Company’s reserving process is highly dependent on the timing of loss information received from its cedants and related brokers.
COMPUTATION OF BASIC AND DILUTED EARNINGS (LOSS) PER SHARE
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Numerator: | ||||||||||||||||
| Net Earnings (loss) | $ | $ | ( | ) | ||||||||||||
| Denominator: | ||||||||||||||||
| Weighted average shares - basic | ||||||||||||||||
| Effect of dilutive securities - Stock options | ||||||||||||||||
| Shares issuable upon conversion of warrants | ||||||||||||||||
| Weighted average shares - diluted | ||||||||||||||||
| Earnings (loss) per share - basic | $ | $ | ( | ) | ||||||||||||
| Earnings (loss) per share - basic | $ | $ | ( | ) | ||||||||||||
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OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June 30, 2022
8. EARNINGS (LOSS) per share (continued)
For the three-month and six-month period ended June 30, 2022, options to purchase ordinary shares were anti-dilutive due to net ordinary shares were anti-dilutive due to the sum of the proceeds, including unrecognized compensation expense, exceeded the average market price of the Company’s ordinary share during the period presented
For the six-month period ended June 30, 2022, warrants to purchase an aggregate of ordinary shares were anti-dilutive due to the net loss during the six-month period presented. For the three months ended June 30, 2022 and for the three-month and six-month period ended June 30, 2021, warrants to purchase an aggregate of ordinary shares were anti-dilutive because the exercise price of $ exceeded the average market price of the Company’s ordinary share during the period presented
GAAP requires the Company to use the two-class method in computing basic earnings (loss) per share since holders of the Company’s restricted stock have the right to share in dividends, if declared, equally with common stockholders. These participating securities effect the computation of both basic and diluted earnings (loss) per share during periods of net income (loss).
9. WARRANTS
There
were
10. DIVIDENDS
As of June 30, 2022, none of the Company’s retained earnings were restricted from payment of dividends to the company’s shareholders. However, since most of the Company’s capital and retained earnings may be invested in its subsidiaries, a dividend from the subsidiaries would likely be required in order to fund a dividend to the Company’s shareholders and would require notification to the Cayman Islands Monetary Authority (“CIMA”).
Under Cayman Islands law, the use of additional paid-in capital is restricted, and the Company will not be allowed to pay dividends out of additional paid-in capital if such payments result in breaches of the prescribed and minimum capital requirement.
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OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June 30, 2022
The Company currently has outstanding stock-based awards granted under the 2014 Omnibus Incentive Plan (the “2014 Plan”) and the 2021 Omnibus Incentive Plan (the “2021 Plan”) (hereinafter collectively referred to as “the Plans”). Under each of the Plans, the Company has discretion to grant equity and cash incentive awards to eligible individuals, including the issuance of up to of the Company’s ordinary shares. During the period ended June 30, 2022, the Company granted restricted stock to directors under the 2021 Plan. At June 30, 2022, there were shares and shares available for grant under the 2021 Plan and the 2014 Plan, respectively.
Stock options
Stock options granted and outstanding under the Plan vests quarterly over four years and are exercisable over the contractual term of .
SUMMARY OF STOCK OPTION ACTIVITY
Number of Options | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||||
| Outstanding at January 1, 2022 | $ | years | $ | |||||||||||
| Outstanding at March 31, 2022 | $ | years | $ | |||||||||||
| Exercisable at March 31, 2022 | $ | years | $ | |||||||||||
| Outstanding at June 30, 2022 | $ | years | $ | |||||||||||
| Exercisable at June 30, 2022 | $ | years | $ | |||||||||||
| Outstanding at January 1, 2021 | $ | years | ||||||||||||
| Granted | $ | |||||||||||||
| Outstanding at March 31, 2021 | $ | years | $ | |||||||||||
| Outstanding at June 30, 2021 | $ | years | $ | |||||||||||
| Exercisable at June 30, 2021 | $ | years | $ | |||||||||||
Compensation expense recognized for the three-month periods ended June 30, 2022 and 2021 totaled $and for the six-month periods ended June 30, 2022 and 2021, totaled $Compensation expense is included in general and administrative expenses. At June 30, 2022 and 2021, there was approximately $and $, respectively, of total unrecognized compensation expense related to non-vested stock options granted under the Plans. The Company expects to recognize the remaining compensation expense over a weighted-average period of twenty-three () months.
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OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June 30, 2022
11. SHARE-BASED COMPENSATION (continued)
Stock options (continued)
During the six-month period ended June 30, 2021 the Company granted options (of which was subsequently forfeited) with fair value estimated on the date of grant using the following assumptions and the Black-Scholes option pricing model:
| 2021 | ||||
| Expected dividend yield | ||||
| Expected volatility | % | |||
| Risk-free interest rate | % | |||
| Expected life (in years) | ||||
| Per share grant date fair value of options issued | $ | |||
At the time of the grant, the dividend yield was based on the Company’s history and expectation of dividend payouts at the time of the grant; expected volatility was based on volatility of similar companies’ common stock; the risk-free rate was based on the U.S. Treasury yield curve in effect.
The Company examined its historical pattern of option exercises in an effort to determine if there were any pattern based on certain employee populations. From this analysis, the Company could not identify any patterns in the exercise of options. As such, the Company used the guidance in the SEC’s Staff Accounting Bulletin No. 107 to determine the estimated life of options issued.
Restricted Stock Awards
The Company may grant restricted stock awards to eligible individuals in connection with their service to the Company. The terms of the Company’s outstanding restricted stock grants may include service, performance and market-based conditions. The fair value of the awards with market-based conditions is determined using a Monte Carlo simulation method, which calculates many potential outcomes for an award and then establishes fair value based on the most likely outcome. The determination of fair value with respect to the awards with only performance or service-based conditions is based on the value of the Company’s stock on the grant date.
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OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June 30, 2022
11. SHARE-BASED COMPENSATION (continued)
During the period ended June 30, 2021, no restricted stock awards were granted. Information with respect to the activity of unvested restricted stock awards during the period ended June 30, 2022 is as follows (share amounts not in thousands):
Weighted- Number of Restricted Stock Awards | Weighted- Average Grant Date Fair Value | |||||||
| Nonvested at January 1, 2022 | $ | |||||||
| Granted | $ | |||||||
| Vested | ( | ) | $ | |||||
| Nonvested at March 31, 2022 | $ | |||||||
| Vested | ( | ) | $ | |||||
| Nonvested at June 30, 2022 | $ | |||||||
Restricted stock awards (continued)
Compensation expense recognized for the three and six-month periods ended June 30, 2022 totaled $, and $, respectively, and is included in general and administrative expenses. At June 30, 2022, there was approximately $ unrecognized compensation expense related to non-vested restricted stock granted under the Plan, which the Company expects to recognize over a weighted-average period of forty-one () months.
12. NET WORTH FOR REGULATORY PURPOSES
The
subsidiaries are subject to a minimum and prescribed capital requirement as established by CIMA.
At
June 30, 2022, the Oxbridge Reinsurance Limited’s net worth of $
At
June 30, 2022, the Oxbridge Re NS’ net worth of $
The Subsidiaries are not required to prepare separate statutory financial statements for filing with CIMA, and there were no material differences between the Subsidiaries’ GAAP capital, surplus and net (loss) income, and its statutory capital as of June 30, 2022 or for the period then ended.
13. FAIR VALUE AND CERTAIN RISKS AND UNCERTAINTIES
Fair values
With the exception of balances in respect of insurance contracts (which are specifically excluded from fair value disclosures under GAAP) and investment securities as disclosed in Note 4 of these consolidated financial statements, the carrying amounts of all other financial instruments, which consist of cash and cash equivalents, restricted cash and cash equivalents, accrued interest and dividends receivable, premiums receivable and other assets, notes payable and accounts payable and other liabilities, approximate their fair values due to their short-term nature.
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OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June 30, 2022
13. FAIR VALUE AND CERTAIN RISKS AND UNCERTAINTIES (continued)
Concentration of underwriting risk
A substantial portion of the Company’s current reinsurance business ultimately relates to the risks of a limited number of entities; accordingly, the Company’s underwriting risks are not significantly diversified.
Concentrations of Credit and Counterparty Risk
The Company markets retrocessional and reinsurance policies worldwide through its brokers. Credit risk exists to the extent that any of these brokers may be unable to fulfill their contractual obligations to the Company. For example, the Company is required to pay amounts owed on claims under policies to brokers, and these brokers, in the Company. In some jurisdictions, if a broker fails to make such a payment, the Company might remain liable to the ceding company for the deficiency. In addition, in certain jurisdictions, when the ceding company pays premiums for these policies to brokers, these premiums are considered to have been paid and the ceding insurer is no longer liable to the Company for those amounts, whether or not the premiums have actually been received.
The Company remains liable for losses it incurs to the extent that any third-party reinsurer is unable or unwilling to make timely payments under reinsurance agreements. The Company would also be liable in the event that its ceding companies were unable to collect amounts due from underlying third-party reinsurers.
The Company mitigates its concentrations of credit and counterparty risk by using reputable and several counterparties which decreases the likelihood of any significant concentration of credit risk with any one counterparty.
Market risk
Market risk exists to the extent that the values of the Company’s monetary assets fluctuate as a result of changes in market prices. Changes in market prices can arise from factors specific to individual securities or their respective issuers, or factors affecting all securities traded in a particular market. Relevant factors for the Company are both volatility and liquidity of specific securities and markets in which the Company holds investments. The Company has established investment guidelines that seek to mitigate significant exposure to market risk.
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OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June 30, 2022
14. LEASES
Operating lease right-of-use assets and operating lease liabilities are disclosed as line in the consolidated balance sheet. We determine if a contract contains a lease at inception and recognize operating lease right-of-use assets and operating lease liabilities based on the present value of the future minimum lease payments at the commencement date. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. Lease agreements that have lease and non-lease components, are accounted for as a single lease component. Lease expense is recognized on a straight-line basis over the lease term.
The Company has two operating lease obligations namely for the Company’s office facilities located at Suite 201, 42 Edward Street Grand Cayman, Cayman Islands and residential space at Turnberry Villas in Grand Cayman, Cayman Islands. The office lease has a remaining lease term of approximately twenty (20) months and includes an option to extend the lease. Under the terms of the lease, the Company also has the right to terminate the lease after thirty-six (36) months upon giving appropriate notice in writing to the Lessor. The residential lease has a remaining lease term of approximately six (6) months.
The components of lease expense and other lease information as of and during the six-month periods ended June 30, 2022 and 2021 are as follows:
SCHEDULE OF OPERATING LEASE COST
| for the Six-Month | for the Six-Month | |||||||
| (in thousands) | Ended June 30, 2022 | Ended June 30, 2021 | ||||||
| Operating Lease Cost (1) | $ | $ | ||||||
| Cash paid for amounts included in the measurement of lease liabilities | ||||||||
| Operating cash flows from operating leases | $ | $ | ||||||
| (1) |
SCHEDULE OF OPERATING LEASE OBLIGATIONS
| (in thousands) | At June 30, 2022 | At December 31, 2021 | ||||||
| Operating lease right-of-use assets | $ | $ | ||||||
| Operating lease liabilities | $ | $ | ||||||
| Weighted-average remaining lease term - operating leases | ||||||||
| Weighted-average discount rate - operating leases | % | % | ||||||
| 25 |
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June 30, 2022
14. leases (continued)
Future minimum lease payments under non-cancellable leases as of June 30, 2022 and December 31, 2021, reconciled to our discounted operating lease liability presented on the consolidated balance sheet are as follows:
SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS
| (in thousands) | At June 30, 2022 | At December 31,2021 | ||||||
| Remainder of 2022 | $ | |||||||
| 2023 | ||||||||
| 2024 | ||||||||
| Total future minimum lease payments | $ | $ | ||||||
| Less imputed interest | ( | ) | ( | ) | ||||
| Total operating lease liability | $ | |||||||
15. RELATED PARTY TRANSACTIONS
Administrative Services Agreement
Included
within “due from related party” on the consolidated balance sheets is a balance of $
Participating Notes
During
the year ending December 31, 2021, Mr. Jay Madhu, a director and officer of the Company and its subsidiaries, invested a principal amount
of $
16. SUBSEQUENT EVENTS
We evaluate all subsequent events and transactions for potential recognition or disclosure in our consolidated financial statements. There were no other events subsequent to June 30, 2022 for which disclosure was required.
| 26 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
Certain statements in this Quarterly Report on Form 10-Q, including in this Management’s Discussion and Analysis, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements generally are identified by the words “believe,” “project,” “predict,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. 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 Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 30, 2022. We undertake no obligation to publicly update or revise any forward -looking statements, whether as a result of new information, future events, or otherwise. Readers are cautioned not to place undue reliance on the forward -looking statements which speak only to the dates on which they were made.
GENERAL
The following is a discussion and analysis of our results of operations for the three and six-month periods ended June 30, 2022 and 2021 and our financial condition as of June 30, 2022 and December 31, 2021. The following discussion should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and in our Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 30, 2022. References to “we,” “us,” “our,” “our company,” or “the Company” refer to Oxbridge Re Holdings Limited and its wholly-owned subsidiaries, Oxbridge Reinsurance Limited and Oxbridge Re NS, unless the context dictates otherwise.
Overview and Trends
We are a Cayman Islands specialty property and casualty reinsurer that provides reinsurance solutions through our reinsurance subsidiaries, Oxbridge Reinsurance Limited and Oxbridge Re NS. Oxbridge Re NS functions as a reinsurance sidecar which increases the underwriting capacity of Oxbridge Reinsurance Limited. Oxbridge Re NS issues participating notes to third party investors, the proceeds of which are utilized to collateralize Oxbridge Reinsurance Limited’s reinsurance obligations. We focus on underwriting fully collateralized reinsurance contracts primarily for property and casualty insurance companies in the Gulf Coast region of the United States, with an emphasis on Florida. We specialize in underwriting medium frequency, high severity risks, where we believe sufficient data exists to analyze effectively the risk/return profile of reinsurance contracts.
We underwrite reinsurance contracts on a selective and opportunistic basis as opportunities arise based on our goal of achieving favorable long-term returns on equity for our shareholders. Our goal is to achieve long-term growth in book value per share by writing business that generates attractive underwriting profits relative to the risk we bear. Additionally, we intend to complement our underwriting profits with investment profits on an opportunistic basis. Our underwriting business focus is on fully collateralized reinsurance contracts for property catastrophes, primarily in the Gulf Coast region of the United States. Within that market and risk category, we attempt to select the most economically attractive opportunities across a variety of property and casualty insurers. As we attempt to grow our capital base, we expect that we will consider further growth opportunities in other geographic areas and risk categories.
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Our level of profitability is primarily determined by how adequately our premiums assumed and investment income cover our costs and expenses, which consist primarily of acquisition costs and other underwriting expenses, claim payments and general and administrative expenses. One factor leading to variation in our operational results is the timing and magnitude of any follow-on offerings we undertake (if any), as we are able to deploy new capital to collateralize new reinsurance treaties and consequently, earn additional premium revenue. In addition, our results of operations may be seasonal in that hurricanes and other tropical storms typically occur during the period from June 1 through November 30. Further, our results of operations may be subject to significant variations due to factors affecting the property and casualty insurance industry in general, which include competition, legislation, regulation, general economic conditions, judicial trends, and fluctuations in interest rates and other changes in the investment environment.
Because we employ an opportunistic underwriting and investment philosophy, period-to-period comparisons of our underwriting results may not be meaningful. In addition, our historical investment results may not necessarily be indicative of future performance. Due to the nature of our reinsurance and investment strategies, our operating results will likely fluctuate from period to period.
Compared to most of our competitors, we are small and have low overhead expenses. We believe that our expense efficiency, agility and existing relationships support our competitive position and allows us to profitably participate in lines of business that fit within our strategy. Over time we expect our expense advantage to erode as the industry acts to reduce frictional costs.
Recent Developments
Oxbridge Acquisition Corp.
On August 16, 2021, Oxbridge Acquisition Corp. (“Oxbridge Acquisition” or “the SPAC”), a Cayman Islands special purpose acquisition company in which the Company has an indirect investment through its wholly-owned licensed reinsurance subsidiary Oxbridge Reinsurance Limited (“OXRE”), announced the closing of an initial public offering of units (“Units”). In the initial public offering, Oxbridge Acquisition sold an aggregate of 11,500,000 Units at a price of $10.00 per unit, resulting in total gross proceeds of $115,000,000. Each Unit consisted of one Class A ordinary share and one redeemable warrant, with each warrant entitling the holder thereof to purchase one Class A ordinary share of Oxbridge Acquisition at a price of $11.50 per share.
The initial public offering of Oxbridge Acquisition was sponsored by OAC Sponsor Ltd. (“Sponsor”). In connection with Oxbridge Acquisition’s initial public offering, Sponsor purchased from Oxbridge Acquisition, simultaneous with the closing of the initial public offering, an aggregate of 4,897,500 warrants at a price of $1.00 per warrant ($4,897,500 in the aggregate) in a private placement (the “Private Placement Warrants”). Each Private Placement Warrant is exercisable to purchase one Class A ordinary share of Oxbridge Acquisition at $11.50 per share. In addition, Sponsor holds 2,875,000 shares of the Class B ordinary shares of Oxbridge Acquisition, representing 20% of the outstanding shares of Oxbridge Acquisition (the “Class B Shares”).
In connection with the organization of Sponsor, OXRE placed approximately 34.7% of the risk capital and owns approximately 49.6% and 63.1% of the ordinary shares and preferred shares, respectively, of the Sponsor (the “Sponsor Equity Interest”). The preferred shares of Sponsor are nonvoting shares and generally entitle the holders thereof to receive the net proceeds, if any, received by Sponsor from the sale, exchange, or disposition of the Private Placement Warrants or the shares issuable upon the exercise thereof, and the ordinary shares of Sponsor (which are voting shares in Sponsor) will generally be equivalent to the value of the Class B Shares of Oxbridge Acquisition held by Sponsor.
On August 11, 2021, OXRE entered into a Share Purchase Agreement with Sponsor (the “Share Purchase Agreement”) under which OXRE purchased the Sponsor Equity Interest for an aggregate purchase price of $2,000,000 (the “Share Purchase Agreement”). Under the Share Purchase Agreement, OXRE acquired an aggregate of 1,500,000 ordinary shares and 3,094,999 preferred shares of Sponsor. The preferred shares of Sponsor generally entitle the holders thereof to receive the net proceeds, if any, received by Sponsor from the sale, exchange, or disposition of the Private Placement Warrants or the shares issuable upon the exercise thereof, and the ordinary shares of Sponsor are equivalent to the value of the Class B Shares of Oxbridge Acquisition held by Sponsor. In addition to the foregoing, the Share Purchase Agreement contains customary representations, warranties, and covenants.
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PRINCIPAL REVENUE AND EXPENSE ITEMS
Revenues
We derive our most significant revenues from three principal sources:
| ● | premiums assumed from reinsurance on property and casualty business; | |
| ● | income from investments and unrealized gain (loss) on other investments; | |
| ● | income under our Administrative Services Agreement |
Premiums Assumed
Premiums assumed include all premiums received by a reinsurance company during a specified accounting period, even if the policy provides coverage beyond the end of the period. Premiums are earned over the term of the related policies. At the end of each accounting period, the portion of the premiums that are not yet earned are included in the unearned premiums reserve and are realized as revenue in subsequent periods over the remaining term of the policy. Our policies typically have a term of twelve months. Thus, for example, for a policy that is written on July 1, 2022, typically one-half of the premiums will be earned in 2022 and the other half will be earned during 2023. However, in the event of limit losses on our policies, premium recognition will be accelerated to match losses incurred in the period, when there is no possibility of any future treaty-year losses under the contracts.
Premiums from reinsurance on property and casualty business assumed are directly related to the number, type and pricing of contracts we write.
Premiums assumed are recorded net of change in loss experience refund, which consists of changes in amounts due to the cedants under two of our reinsurance contracts. These contracts contain retrospective provisions that adjust premiums in the event losses are minimal or zero. We recognize a liability pro-rata over the period in which the absence of loss experience obligates us to refund premiums under the contracts, and we will derecognize such liability in the period in which a loss experience arises. The change in loss experience refund is negatively correlated to loss and loss adjustment expenses described below.
Investment Income
Income from our investments is primarily comprised of net realized and unrealized gains (losses) interest income and dividends on investment securities. Such income is primarily from the Company’s investments, which includes other investments in Oxbridge Acquisition Corp. and investments held in trust accounts that collateralize the reinsurance policies that we write. The investment parameters for trust accounts are generally be established by the cedant for the relevant policy.
Administrative Services Agreement
Commencing on the effective date of the SPAC’s IPO, the Sponsor agreed to pay the Company a total of up to $10,000 per month, through to November 16, 2022, for office space, utilities, secretarial and administrative support to the Sponsor and the SPAC. Upon completion of the SPAC’s initial Business Combination or the SPAC’s liquidation, the Sponsor will cease paying these monthly fees. For the period ended June 30, 2022, the Company recorded other income of $60,000, and a corresponding receivable of $60,000 from the Sponsor under the Administrative Services Agreement, which is included in “net investment and other income” in the consolidated statements of operations, and “Due from related party” in the consolidated balance sheet, respectively. The receivable was received by the Company subsequent to the period end.
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Expenses
Our expenses consist primarily of the following:
| ● | losses and loss adjustment expenses; | |
| ● | policy acquisition costs and underwriting expenses; and | |
| ● | general and administrative expenses. |
Loss and Loss Adjustment Expenses
Loss and loss adjustment expenses are a function of the amount and type of reinsurance contracts we write and of the loss experience of the underlying coverage. As described below, loss and loss adjustment expenses are based on the claims reported by our Company’s ceding insurers, and may include an actuarial analysis of the estimated losses, including losses incurred during the period and changes in estimates from prior periods. Depending on the nature of the contract, loss and loss adjustment expenses may be paid over a period of years.
Policy Acquisition Costs and Underwriting Expenses
Policy acquisition costs and underwriting expenses consist primarily of brokerage fees, ceding commissions, premium taxes and other direct expenses that relate to our writing of reinsurance contracts. We amortize deferred acquisition costs over the related contract term.
General and Administrative Expenses
General and administrative expenses consist of salaries and benefits and related costs, including costs associated with our professional fees, rent and other general operating expenses consistent with operating as a public company.
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RESULTS OF OPERATIONS
The following is our consolidated statement of operations and performance ratios for the three and six-month periods ended June 30, 2022 and 2021 (dollars in thousands, except per share amounts):
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue | ||||||||||||||||
| Assumed premiums | $ | 669 | 1,014 | 705 | 904 | |||||||||||
| Premiums ceded | (24 | ) | (60 | ) | ||||||||||||
| Change in unearned premiums reserve | (451 | ) | (809 | ) | (241 | ) | (518 | ) | ||||||||
| Net premiums earned | 194 | 205 | 404 | 386 | ||||||||||||
| Net investment and other income | 41 | 23 | 75 | 38 | ||||||||||||
| Net realized investment gains | 19 | 755 | 27 | 755 | ||||||||||||
| Unrealized gain on other investment | 571 | - | 341 | - | ||||||||||||
| Change in fair value of equity securities | (322 | ) | (178 | ) | (342 | ) | (54 | ) | ||||||||
| Total revenue | 503 | 805 | 505 | 1,125 | ||||||||||||
| Expenses | ||||||||||||||||
| Policy acquisition costs and underwriting expenses | 21 | 22 | 44 | 42 | ||||||||||||
| General and administrative expenses | 389 | 312 | 728 | 565 | ||||||||||||
| Total expenses | 410 | 334 | 772 | 607 | ||||||||||||
| Income (Loss) before income attributable to noteholders | 93 | 471 | (267 | ) | 518 | |||||||||||
| Income attributable to noteholders | (16 | ) | (23 | ) | (43 | ) | (42 | ) | ||||||||
| Net income (loss) | $ | 77 | 448 | (310 | ) | 476 | ||||||||||
| Earnings (Loss) per share | ||||||||||||||||
| Basic and Diluted | $ | 0.01 | 0.08 | (0.05 | ) | 0.08 | ||||||||||
| Weighted-average shares outstanding | ||||||||||||||||
| Basic and Diluted | 5,751,586 | 5,733,587 | 5,766,382 | 5,733,587 | ||||||||||||
| Performance ratios to net premiums earned: | ||||||||||||||||
| Loss ratio | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | ||||||||
| Acquisition cost ratio | 10.8 | % | 10.7 | % | 10.9 | % | 10.9 | % | ||||||||
| Expense ratio | 211.3 | % | 162.9 | % | 191.1 | % | 157.3 | % | ||||||||
| Combined ratio | 211.3 | % | 162.9 | % | 191.1 | % | 157.3 | % | ||||||||
General. Net Income for the quarter ended June 30, 2022 was $77 thousand, or $0.01 basic and diluted earning per share compared to a net income of $448 thousand, or $0.08 basic and diluted earnings per share, for the quarter ended June 30, 2021. The decline is due primarily to the negative change in fair value of equity securities and decreased net realized investment gain during the quarter ended June 30, 2022 when compared with the prior period
Net loss for the six months ended June 30, 2022 was $310 thousand, or ($0.05) per basic or diluted loss per share compared to a net income of $476, or $0.08 per basic and diluted earnings per share, for the six months ended June 2021. The decrease is mainly due to a significantly decline in net realized investment gains during the six months ended June 30, 2022 when compared with the prior period
Premium Income. Net premiums earned typically reflects the pro rata inclusion into income of premiums assumed over the life of the reinsurance contracts.
Net premiums earned for the quarter ended June 30, 2022 marginally decreased to $194 thousand from $205 thousand for the quarter ended June 30, 2021.
Net premiums earned for the six months ended June 30, 2022 increased to $404 thousand from $386 thousand for the six months ended June 30, 2021. The increase is due to higher weighted average rate on reinsurance contracts in force during the quarter ended June 30, 2022, when compared to the prior period.
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Losses Incurred. There were no losses incurred during the three and six-month periods ending June 30, 2022 and 2021.
Policy Acquisition Costs and Underwriting Expenses. Acquisition costs represent the amortization of the brokerage fees and federal excise taxes incurred on reinsurance contracts placed. Policy acquisition costs and underwriting expenses for the quarter ended June 30, 2022 decreased marginally to $21 thousand from $22 thousand for the quarter ended June 30, 2021.
Policy acquisition costs and underwriting expenses for the six months ended June 30, 2022 increased marginally to $44 thousand from $42 thousand for the six months ended June 30, 2021.
General and Administrative Expenses. General and administrative expenses for the quarter ended June 30, 2022 increased $77 thousand, to $389 thousand, from $312 thousand for the quarter ended June 30, 2021. The increase is due to inflationary expense fluctuations during the quarter.
General and administrative expenses for the six months ended June 30, 2022 increased to $728 thousand, from $565 thousand for the quarter ended June 30, 2021. The increase is due to expense fluctuations during the six-month period ending June 30, 2022.
MEASUREMENT OF RESULTS
We use various measures to analyze the growth and profitability of business operations. For our reinsurance business, we measure growth in terms of premiums assumed and we measure underwriting profitability by examining our loss, underwriting expense and combined ratios. We analyze and measure profitability in terms of net income and return on average equity.
Premiums Assumed. We use gross premiums assumed to measure our sales of reinsurance products. Gross premiums assumed also correlates to our ability to generate net premiums earned.
Loss Ratio. The loss ratio is the ratio of losses and loss adjustment expenses incurred to premiums earned and measures the underwriting profitability of our reinsurance business. The loss ratio for the three and six-month ended June 30, 2022 and 2021 was 0%. This is due to no loss and loss adjustment expenses incurred in the quarters and six-month periods ended June 30, 2022 and 2021.
Acquisition Cost Ratio. The acquisition cost ratio is the ratio of policy acquisition costs and other underwriting expenses to net premiums earned. The acquisition cost ratio measures our operational efficiency in producing, underwriting and administering our reinsurance business. The acquisition cost ratio marginally increased from 10.7% for the quarter ended June 30, 2021 to 10.8% for the quarter ended June 30, 2022.
The acquisition cost ratio remained consistent at 10.9% for the six-month period ended June 30, 2022 and June 30, 2021.
Expense Ratio. The expense ratio is the ratio of policy acquisition costs, and general and administrative expenses to net premiums earned. We use the expense ratio to measure our operating performance. The expense ratio increased from 162.9% for the three-month period ended June 30, 2021 to 211.3% for the three-month period ended June 30, 2022. The increase is primarily to higher general and administrative expenses during the period, as a result of increased personnel and other expenses during the quarter ending June 30, 2022, when compared with the prior period.
The expense ratio increased from 157.3% for the six-month period ended June 30, 2021 to 191.1% for the six-month period ended June 30, 2022. The increase is due to higher general administrative expenses incurred during the six-month period ended June 30, 2022, when compared with the prior period
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Combined Ratio. We use the combined ratio to measure our underwriting performance. The combined ratio is the sum of the loss ratio and the expense ratio. The combined ratio increased from 162.9% for the three-month period ended June 30, 2021 to 211.3% for the three-month period ended June 30, 2022. The increase is primarily to higher general and administrative expenses during the period, as a result of increased personnel and other expenses during the quarter ending June 30, 2022, when compared with the prior period.
The combined ratio increased from 157.3% for the six-month period ended June 30, 2021 to 191.1% for the six-month period ended June 30, 2022. The increase is due to higher general administrative expenses incurred during the six-month period ended June 30, 2022, when compared with the prior period
FINANCIAL CONDITION – JUNE 30, 2022 COMPARED TO DECEMBER 31, 2021
Restricted Cash and Cash Equivalents. As of June 30, 2022, our restricted cash and cash equivalents increased by $281 thousand, or 15%, to $2.17 million, from $1.89 million as of December 31, 2021. The increase is the result of premium deposits made during the six months ended June 30, 2022.
Investments. As of June 30, 2022, our equity investments increased by $61 thousand or 11% to $638 thousand, from $577 thousand as of December 31, 2021. The increase is primarily a result of purchase of equity securities during the six-month period ended June 30, 2022.
Other Investments. As of June 30, 2022, our other investments increased $341 thousand to $11.5 million from $10.9 million at December 31, 2021. The increase is due to fair value changes of our investment in Oxbridge Acquisition Corp., a special purpose acquisition company in which the Company has an equity investment measured at fair value.
Notes Payable to Noteholders. As of June 30, 2022, our notes payable remained the same at $216 thousand. These notes relate to Series 2020-1 participating notes issued by our reinsurance sidecar subsidiary, Oxbridge Re NS during the quarter ending June 30, 2020.
Unearned Premiums Reserve. As of June 30, 2022, our unearned premiums reserve increased by $241 thousand, or 69%, to $591 thousand, from $350 at December 31, 2021. The increase is due wholly to the recognition of premium income on in-force reinsurance contracts during the period ending June 30, 2022 along with a new reinsurance contracts being in-forced on June 1,, 2022.
LIQUIDITY AND CAPITAL RESOURCES
General
We are organized as a holding company and provide administrative and management services to our subsidiaries, as well as to Oxbridge Acquisition Corp., a special purpose acquisition company Our operations are conducted through our reinsurance subsidiaries, Oxbridge Reinsurance Limited and Oxbridge Re NS, which underwrites risks associated with our property and casualty reinsurance programs. We have minimal continuing cash needs at the holding company level, with such needs principally being related to the payment of administrative expenses and shareholder dividends. There are restrictions on Oxbridge Reinsurance Limited’s and Oxbridge Re NS’ ability to pay dividends which are described in more detail below.
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Sources and Uses of Funds
Our sources of funds primarily consist of premium receipts (net of brokerage fees and federal excise taxes, where applicable) and investment income, including interest, dividends and realized gains. We use cash to pay losses and loss adjustment expenses, other underwriting expenses, dividends, and general and administrative expenses. Substantially all of our surplus funds, net of funds required for cash liquidity purposes, are invested in accordance with our business plan and investment guidelines. Our investment portfolio, except for our investment in OAC sponsor Ltd., is primarily comprised of cash and highly liquid securities, which can be liquidated, if necessary, to meet current liabilities. We believe that we have sufficient flexibility to liquidate any securities that we own to generate liquidity.
As of June 30, 2022, we believe we had sufficient cash flows from operations to meet our liquidity requirements. We expect that our operational needs for liquidity will be met by cash, investment income and funds generated from underwriting activities. We have no plans to issue debt, and we expect to fund our operations for the foreseeable future from operating cash flows, as well as from potential future equity offerings. However, we cannot provide assurances that in the future we will not incur indebtedness to implement our business strategy, pay claims or make acquisitions.
Although Oxbridge Re Holdings Limited is not subject to any significant legal prohibitions on the payment of dividends, its subsidiaries Oxbridge Reinsurance Limited and Oxbridge Re NS are subject to Cayman Islands regulatory constraints that affect its ability to pay dividends to us and include a minimum net worth requirement. Currently, the minimum net worth requirement for each subsidiary is $500. As of March 31, 2022, each subsidiary exceeded the minimum required. By law, each subsidiary is restricted from paying a dividend if such a dividend would cause its net worth to drop to less than the required minimum.
Cash Flows
Our cash flows from operating, investing and financing activities for the six-month periods ended June 30, 2022 and 2021 are summarized below.
Cash Flows for the Six months ended June 30, 2022 (in thousands)
Net cash used in operating activities for the six months ended June 30, 2022 totaled $475, which consisted primarily of cash received net written premiums less cash disbursed for operating expenses. Net cash used in investing activities of $376 was primarily due to the net purchases of equity securities. There was no cash used in or provided by financing activities.
Cash Flows for the Six months ended June 30, 2021 (in thousands)
Net cash used in operating activities for the six months ended June 30, 2021 totaled $208, which consisted primarily of cash received net written premiums less cash disbursed for operating expenses. Net cash provided by investing activities of $698 was primarily due to the net sales of equity securities. There was no cash used in or provided by financing activities.
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OFF-BALANCE SHEET ARRANGEMENTS
As of June 30, 2022, we had no off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.
Exposure to Catastrophes
As with other reinsurers, our operating results and financial condition could be adversely affected by volatile and unpredictable natural and man-made disasters, such as hurricanes, windstorms, earthquakes, floods, fires, riots and explosions. Although we attempt to limit our exposure to levels we believe are acceptable, it is possible that an actual catastrophic event or multiple catastrophic events could have a material adverse effect on our financial condition, results of operations and cash flows. As described under “CRITICAL ACCOUNTING POLICIES—Reserves for Losses and Loss Adjustment Expenses” below, under accounting principles generally accepted in the United States of America (‘‘GAAP’’), we are not permitted to establish loss reserves with respect to losses that may be incurred under reinsurance contracts until the occurrence of an event which may give rise to a claim. As a result, only loss reserves applicable to losses incurred up to the reporting date may be established, with no provision for a contingency reserve to account for expected future losses.
CRITICAL ACCOUNTING POLICIES
We are required to make estimates and assumptions in certain circumstances that affect amounts reported in our consolidated financial statements and related footnotes. We evaluate these estimates and assumptions on an on-going basis based on historical developments, market conditions, industry trends and other information that we believe to be reasonable under the circumstances. These accounting policies pertain to fair value measurements, particular with respect to our beneficial interest in Oxbridge Acquisition Corp., premium revenues and risk transfer, reserve for loss and loss adjustment expenses, and deferred acquisition costs.
Fair value measurement: GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
The three levels of the fair value hierarchy under GAAP are as follows:
Level 1 Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date;
Level 2 Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly, including inputs in markets that are not considered to be active;
and
Level 3 Inputs that are unobservable.
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Inputs are used in applying the various valuation techniques and broadly refer to the assumptions that market participants use to make valuation decisions, including assumptions about risk. For fixed maturity securities, inputs may include price information, volatility statistics, specific and broad credit data, liquidity statistics, broker quotes for similar securities and other factors. The fair value of investments in stocks and exchange-traded funds is based on the last traded price. The fair value of our indirect investment in Oxbridge Acquisition Corp. is based on the fair value calculation made by an independent valuation expert utilizing observable and unobservable inputs. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes “observable” requires significant judgment by the Company’s investment custodians and management. The investment custodians and management consider observable data to be market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant markets. The categorization of a financial instrument within the hierarchy is based upon the pricing transparency of the instrument, as well as the marketability of the instrument and the risk of forfeiture of such instrument.
Premium Revenue and Risk Transfer. We record premiums revenue as earned pro-rata over the terms of the reinsurance agreements and the unearned portion at the balance sheet date is recorded as unearned premiums reserve. A reserve is made for estimated premium deficiencies to the extent that estimated losses and loss adjustment expenses exceed related unearned premiums. Investment income is not considered in determining whether or not a deficiency exists.
We account for reinsurance contracts in accordance with ASC 944, ‘‘Financial Services – Insurance.” Assessing whether or not a reinsurance contract meets the conditions for risk transfer requires judgment. The determination of risk transfer is critical to reporting premiums written. If we determine that a reinsurance contract does not transfer sufficient risk, we must account for the contract as a deposit liability.
Reserves for Losses and Loss Adjustment Expenses. We determine our reserves for losses and loss adjustment expenses on the basis of the claims reported by our ceding insurers and for losses IBNR, we use the assistance of an independent actuary. The reserves for losses and loss adjustment expenses represent management’s best estimate of the ultimate settlement costs of all losses and loss adjustment expenses.
We believe that the amounts are adequate; however, the inherent impossibility of predicting future events with precision, results in uncertainty as to the amount which will ultimately be required for the settlement of losses and loss expenses, and the differences could be material. Adjustments are reflected in the consolidated statements of income in the period in which they are determined.
Under GAAP, we are not permitted to establish loss reserves until the occurrence of an actual loss event. As a result, only loss reserves applicable to losses incurred up to the reporting date may be recorded, with no allowance for the provision of a contingency reserve to account for expected future losses. Losses arising from future events, which could be substantial, are estimated and recognized at the time the loss is incurred.
At June 30, 2022 we had no reserves for loss and loss adjustment expenses due to no significant events occurring during the year and no reported claims on contract in force. See Note 7 to the consolidated financial statements.
Our reserving methodology does not lend itself well to a statistical calculation of a range of estimates surrounding the best point estimate of our reserve for loss and loss adjustment expense. Due to the low frequency and high severity nature of claims within much of our business, our reserving methodology principally involves arriving at a specific point estimate for the ultimate expected loss on a contract-by-contract basis, and our aggregate loss reserves are the sum of the individual loss reserves established.
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Deferred Acquisition Costs. We defer certain expenses that are directly related to and vary with producing reinsurance business, including brokerage fees on gross premiums assumed, premium taxes and certain other costs related to the acquisition of reinsurance contracts. These costs are capitalized and the resulting asset, deferred acquisition costs, is amortized and charged to expense in future periods as premiums assumed are earned. The method followed in computing deferred acquisition costs limits the amount of such deferral to its estimated realizable value. The ultimate recoverability of deferred acquisition costs is dependent on the continued profitability of our reinsurance underwriting. If our underwriting ceases to be profitable, we may have to write off a portion of our deferred acquisition costs, resulting in a further charge to income in the period in which the underwriting losses are recognized.
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
As a smaller reporting company as defined by Rule 229.10(f)(1) of the Exchange Act, we are not required to provide the information under this item.
| Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial officer), we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
| Item 1. | Legal Proceedings |
We are not currently involved in any litigation or arbitration. We anticipate that, similar to the rest of the insurance and reinsurance industry, we will be subject to litigation and arbitration in the ordinary course of business.
| Item 1A. | Risk Factors |
There have been no material changes to our risk factors during the six months ended June 30, 2022. However, we draw attention to the below risk factors relating to our investment in Oxbridge Acquisition Corp. that can have a material impact on our earnings and shareholders’ equity in the near term.
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We have made a significant investment in the sponsor of a blank check company commonly referred to as a special purpose acquisition company (“SPAC”), and will suffer the loss of all of our investment if the SPAC does not complete an acquisition by November 16, 2022 (or through to May 16, 2023 if the SPAC extends the period of time to consummate a business combination).
In August 2021, we made an investment of $2,000,000 in OAC Sponsor Ltd (“Sponsor”), that served as the sponsor of Oxbridge Acquisition Corp., a special purpose acquisition company (“Oxbridge Acquisition”). The investment was made to fund, in part, Sponsor’s purchase of private placement warrants of Oxbridge Acquisition as a part of the sponsorship of Oxbridge Acquisition. Prior to a business combination by Oxbridge Acquisition, Sponsor holds 100% of the shares of Class B ordinary shares and 4,897,500 Private Placement Warrants of Oxbridge Acquisition. The Class B shares equal approximately 20% of the outstanding common stock of Oxbridge Acquisition.
The Company owns approximately 49.6% and 63.1% of the ordinary shares and preferred shares, respectively, of the Sponsor (the “Sponsor Equity Interest”). The preferred shares of Sponsor are nonvoting shares and entitle the holders thereof to receive the net proceeds, if any, received by Sponsor from the sale, exchange, or disposition of the Private Placement Warrants or the shares issuable upon the exercise thereof, and the ordinary shares of Sponsor (which are voting shares in Sponsor) are equivalent to the value of the Class B Shares of Oxbridge Acquisition held by Sponsor. Upon the successful completion of a business combination by Oxbridge Acquisition, the proforma ownership of the new company will vary depending on the business combination terms.
There is no assurance that Oxbridge Acquisition will be successful in completing a business combination or that any business combination will be successful. The Company can lose its entire investment in Sponsor if a business combination is not completed by November 16, 2022 (or through to May 16, 2023 if Oxbridge Acquisition extends the period of time to consummate a business combination) or if the business combination is not successful, which may materially adversely impact our shareholder value.
Our use of fair value accounting of our indirect investment in Oxbridge Acquisition could result in income statement volatility, which in turn, could cause significant market price and trading volume fluctuations for our securities.
Our beneficial interests in Oxbridge Acquisition’s Class B shares and Private Placement Warrants are recorded at fair value with changes in fair value being recorded in the consolidated statement of operations during the period of change. The Company’s management makes a significant judgment and assumption that a business combination is more than likely to occur, on the premise that historical statistical data indicates approximately 98% of special purpose acquisition companies accomplishes a business combination. The fair value calculation of the Company’s beneficial interest in OXAC’s Class B shares and Private Placement Warrants is dependent on company-specific adjustments applied to the observable trading prices of OXAC Class A shares and public warrants. The Company estimates that a specific discount range 30% sufficiently captures the risk or profit that a market participant would require as compensation for assuming the inherent risk of forfeiture if a business combination doesn’t occur and the lack of marketability of the Company’s beneficial interests in the OXAC. The Company classifies the investment in Oxbridge Acquisition as Level 3 in the fair value hierarchy due to the unobservable input of the company-specific adjustment. However, the Company can lose its entire investment if a business combination is not completed by November 16, 2022 (or through to May 16, 2023 if Oxbridge Acquisition extends the period of time to consummate a business combination) or if the business combination is not successful. Additionally, the fair value of the investment must be remeasured quarterly. Because of this, our earnings may experience greater volatility in the future as a decline in the fair value of our investment in Oxbridge Acquisition could significantly reduce both our earnings and shareholders’ equity, which in turn, could cause significant market price and trading volume fluctuations for our securities.
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We are subject to the risk of possibly becoming an investment company under U.S. federal securities law.
In the United States, the Investment Company Act of 1940, as amended (the “Investment Company Act”), regulates certain companies that invest in or trade securities. We run the risk of inadvertently being deemed to be an investment company that is required to register under the Investment Company because a significant portion of our assets may be deemed to consist of, or may be deemed to have consisted of, investment securities, including potentially Oxbridge Reinsurance Limited’s interest in Oxbridge Acquisition Corp. However, we rely on an exemption under the Investment Company Act for an entity organized and regulated as a foreign insurance company which is engaged primarily and predominantly in the reinsurance of risks on insurance agreements. The law in this area is subjective and there is a lack of guidance as to the meaning of ‘‘primarily and predominantly’’ under the relevant exemption to the Investment Company Act. For example, there is no standard for the amount of premiums that need to be written relative to the level of an entity’s capital in order to qualify for the exemption. If this exception were deemed inapplicable, we would have to seek to register under the Investment Company Act as an investment company, which, under the Investment Company Act, would require an order from the SEC. Our inability to obtain such an order could have a significant adverse impact on our business, as we might have to cease certain operations or risk substantial penalties for violating the Investment Company Act.
Registered investment companies are subject to extensive, restrictive and potentially adverse regulation relating to, among other things, capital structure, leverage, management, dividends and transactions with affiliates. Registered investment companies are not permitted to operate their business in the manner in which we operate (and intend to operate) our business. Specifically, if we were required to register under the Investment Company Act, provisions of the Investment Company Act would limit (and in some cases even prohibit) our ability to raise additional debt and equity securities or issue options or warrants (which could impact our ability to compensate key employees), limit our ability to use financial leverage, limit our ability to incur indebtedness, and require changes to the composition of our Board of Directors. Provisions of the Investment Company Act would also prohibit (subject to certain exceptions) transactions with affiliates.
Accordingly, if we were required to register as an investment company, we would not be permitted to have many of the relationships that we have or expect that we may have with affiliated companies.
If at any time it were established that we had been operating as an investment company in violation of the registration requirements of the Investment Company Act, there would be a risk, among other material adverse consequences, that we could become subject to monetary penalties or injunctive relief, or both, or that we would be unable to enforce contracts with third parties or that third parties could seek to obtain rescission of transactions with us undertaken during the period in which it was established that we were an unregistered investment company.
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
| (a) | Sales of Unregistered Securities |
None.
| (b) | Repurchases of Equity Securities |
None.
| (c) | Use of Proceeds |
None.
| Item 3. | Defaults Upon Senior Securities |
None.
| Item 4. | Mine Safety Disclosures |
Not applicable.
| Item 5. | Other Information |
None.
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| Item 6. | Exhibits |
The following exhibits are filed herewith:
| Exhibit
No. |
Document | |
| 31.1 | Certifications of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934. | |
| 31.2 | Certifications of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934. | |
| 32 | Written Statement of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. §1350. | |
| 101 | The following materials from Oxbridge Re Holdings Limited’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 are filed herewith, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Changes in Shareholders’ Equity and (vi) the Notes to Consolidated Financial Statements. | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| OXBRIDGE RE HOLDINGS LIMITED | ||
| Date: August 15, 2022 | By: | /s/ JAY MADHU |
| Jay
Madhu Chief Executive Officer and President (Principal Executive Officer) | ||
| Date: August 15, 2022 | By: | /s/ WRENDON TIMOTHY |
Wrendon Timothy Chief Financial Officer and Secretary (Principal Financial Officer and Principal Accounting Officer) | ||
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Exhibit 31.1
Certifications
of the Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act and
Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934
I, Jay Madhu, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Oxbridge Re Holdings Limited;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: August 15, 2022 | ||
| By: | /s/ JAY MADHU | |
| Jay Madhu | ||
| Chief Executive Officer and President (Principal Executive Officer) |
Exhibit 31.2
Certifications
of the Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act and
Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934
I, Wrendon Timothy, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Oxbridge Re Holdings Limited;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: August 15, 2022 | ||
| By: | /s/ WRENDON TIMOTHY | |
| Wrendon Timothy | ||
| Chief Financial Officer and Secretary | ||
| (Principal Financial Officer and Principal | ||
| Accounting Officer) |
Exhibit 32
Written
Statement of the Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. §1350
Solely for the purposes of complying with 18 U.S.C. §1350, we, the undersigned Chief Executive Officer and Chief Financial Officer of Oxbridge Re Holdings Limited (the “Company”), hereby certify, based on our knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2022 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ JAY MADHU | |
| Jay Madhu | |
| Chief Executive Officer and President | |
| (Principal Executive Officer) | |
| /s/ WRENDON TIMOTHY | |
| Wrendon Timothy | |
| Chief Financial Officer and Secretary (Principal Financial Officer and Principal Accounting Officer) | |
| Date: August 15, 2022 |