U.S. Markets open in 3 hrs 33 mins

Edited Transcript of OXBR earnings conference call or presentation 1-Aug-19 8:30pm GMT

Q2 2019 Oxbridge Re Holdings Ltd Earnings Call

GEORGE TOWN Sep 2, 2019 (Thomson StreetEvents) -- Edited Transcript of Oxbridge Re Holdings Ltd earnings conference call or presentation Thursday, August 1, 2019 at 8:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Sanjay Madhu

Oxbridge Re Holdings Limited - Chairman, President & CEO

* Wrendon Timothy

Oxbridge Re Holdings Limited - CFO & Secretary

================================================================================

Conference Call Participants

================================================================================

* Kent E. Engelke

Capitol Securities Management, Inc. - Chief Economic Strategist & MD

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good afternoon. Welcome to Oxbridge Re's Second Quarter 2019 Earnings Call. My name is Cynthia, and I will be your conference operator this afternoon. (Operator Instructions)

Joining us for today's presentation is Oxbridge Re's Chairman, President and Chief Executive Officer; Jay Madhu; and Chief Financial Officer and Corporate Secretary, Wrendon Timothy. Following their remarks, we will open up the call for your questions.

I would like to remind everyone that this call is also being broadcast live via webcast and available via webcast replay until September 1, 2019, on the Investor Information section of the Oxbridge Re website at www.oxbridgere.com.

Now I would like to turn the call over to Wrendon Timothy, Chief Financial Officer of Oxbridge Re, who will provide the necessary cautions regarding the forward-looking statements that will be made by management during this call. Sir, please proceed.

--------------------------------------------------------------------------------

Wrendon Timothy, Oxbridge Re Holdings Limited - CFO & Secretary [2]

--------------------------------------------------------------------------------

Thank you, operator. During today's call, there will be forward-looking statements made regarding future events, including Oxbridge Re's future financial performance. These forward-looking statements are made pursuant to the Private Securities and Litigation Reform Act of 1995. Words such as anticipates, estimates, expects, intend, plan, projects and other similar words and expressions are intended to signify forward-looking statements. Forward-looking statements are not guarantees of future results and conditions, but rather are subject to various risks and uncertainties. Some of these risks and uncertainties are identified in the company's filings with the SEC. The occurrence of any of these risks and uncertainties could have a material adverse effect on the company's business, financial condition and results of operations. Any forward-looking statements made on this conference call speak only as of the date of this conference call. And except as required by law, the company undertakes no obligation to update any forward-looking statements contained on this call or in any company presentations even if the company's expectations or any related events, conditions or circumstances change.

Now I'd like to turn the call over to our Chairman, President and CEO, Jay Madhu. Jay?

--------------------------------------------------------------------------------

Sanjay Madhu, Oxbridge Re Holdings Limited - Chairman, President & CEO [3]

--------------------------------------------------------------------------------

Thank you, Wrendon, and welcome, everyone. Thank you for joining us today. As we do each quarter, before we get into our results, I would like to take a moment to provide a brief overview of our company. Oxbridge Re Insurance Holdings Limited was founded over 6 years ago with a mission to provide reinsurance solutions primarily to property and casualty insurers in the Gulf Coast region of the United States. Through our licensed reinsurance subsidiary, Oxbridge Re Insurance Limited and our licensed reinsurance sidecar, Oxbridge Re NS, we write fully collateralized policies to cover property losses from specific catastrophes. And as some of you already know, because we write fully collateralized contracts, we are able to compete effectively with larger carriers. We specialize in underwriting low-frequency, high-severity risk where we believe sufficient data exist to efficiently analyze the risk-return profile of reinsurance contracts. Our objective is to achieve long-term growth and book value per share by writing business on a selective and opportunistic basis that will generate attractive underwriting profits relative to risk.

Regarding our investment portfolio, we remain opportunistic and will deploy our capital when favorable return opportunities arise, which we believe, in turn, drive our results through supplemental investment income. That being said, our focus and top priority remains on profitable underwriting.

With that overview now behind us and before going into our results for the second quarter of 29, I will now -- 2019, sorry, I will now turn it over to Wrendon to take us through our financial results for the period. Wrendon?

--------------------------------------------------------------------------------

Wrendon Timothy, Oxbridge Re Holdings Limited - CFO & Secretary [4]

--------------------------------------------------------------------------------

Thank you, Jay. I will now get into our financials for the 3 and 6 months ended June 30, 2019.

First, a point to note is our typical contract period is from June 1 to May 31 of the following year. With respect to net premiums earned for the second quarter of 2019, net premium decreased $241,000 to $93,000 from $334,000 in second quarter of 2018. The decrease in net premium earned was wholly due to the previous acceleration of premium recognition due to full limit losses being incurred in all the company's reinsurance contracts during the last quarter of 2018 as well as lower capital being deployed in the current period when compared with the prior year.

Net premiums earned for the 6 months ended June 30, 2019, decreased $461,000 to $93,000 from $554,000 for the 6 months ended June 30, 2018. The decrease in net premium was due primarily to low capital being deployed during the first 6 months of 2019, when compared to the same period in the prior fiscal year.

With respect to net investment income. For the second quarter of 2019, net investment income totaled $64,000, which was offset by $48,000 of change in fair value of equity securities. This compares with $108,000 of investment income plus $73,000 of change in fair value of equity securities in the second quarter of 2018.

For the 6 months ended June 30, 2019, net investment income totaled $128,000 plus $3,000 of net realized investment gains and $3,000 of change in fair value of equity securities. This compares with $180,000 of net investment income, which was offset by $176,000 of net realized investment losses and $96,000 of change in fair value of equity securities for the first 6 months of 2018.

With respect to total expenses, total expenses for the second quarter of 2019 included loss and loss adjustment expenses, policy acquisition costs and general and admin expenses were $290,000 compared with $396,000 in the second quarter of 2018. The decrease in expenses was due to decrease in policy acquisition cost as a result of decrease in net premiums earned during the current quarter as well as the decrease in the general and admin expenses as a result of cost savings initiatives implemented by the company when compared to the prior year period.

For the 6 months ended June 30, 2018, total expenses were $554,000 compared with $722,000 for the first 6 months of 2018. The decrease in total expenses was due to cost savings initiatives implemented by the company during the 6 months ended June 30, 2019, compared to the prior year period.

With respect to net income. For the second quarter of 2019, net loss totaled to $205,000 or $0.04 per basic and diluted share with net income of $265,000 or $0.05 per basic and diluted share in the second quarter of 2018. For the 6 months ended June 30, 2019, net loss totaled $351,000 or $0.06 per basic and diluted common share compared with income of $54,000 or $0.01 per basic and diluted common share for the first 6 months of 2018. The increase in net loss during growth period was primarily due to lower net premiums earned resulting from decreased capital deployed during the first 3 and 6 months of 2019 compared to the prior year periods, respectively.

During the 6 months ended June 30, 2019, the company settled its separate agreement obligation of $4 million under 2018 industry loss warranty, which was originally entered into -- in January 2018.

Now turning to our financial ratios for the 3 and 6 months ended June 30, 2019. We use various measures to analyze the growth and profitability of our business operations. For our reinsurance business, we measure underwriting profitability by examining our loss ratio, acquisition ratio, underwriting expense ratio and combined ratio. Our loss ratio, which measures underwriting profitability, is the ratio of loss and loss adjustment expenses incurred to net premiums earned. Our loss ratio for the second quarter of 2019 and 2018 was 0%. For 6 months ended June 20 -- June 30, 2019, the loss ratio was 0% compared with a loss ratio of 0% in the prior year period. The loss ratio results during both periods was due to no loss and loss adjustment expenses incurred in the 3 and 6 months ended June 30, 2019, and June 30, 2018, respectively.

Our acquisition cost ratio, which measures operational efficiency, compares policy acquisition costs to net premiums earned. The acquisition cost was 10.8% for the second quarter of 2019 compared with 8.7% for the same year ago period. For the first 6 months of 2019, the acquisition cost was 10.8% compared with 6.9% for the same year ago period. The increase in acquisition cost ratio during both periods was due to the overall higher weighted average acquisition cost on reinsurance contracts enforced during the 3 and 6 months period ended June 30, 2019, when compared with the same period a year ago. Our expense ratio, which measures operating performance, compares policy acquisition costs, general and admin expenses with net premiums earned. The expense ratio was 311.8% during the second quarter of 2019 compared with 73.1% for the second quarter of 2018.

For the 6 months ended June 30, 2019. The, expense ratio was 595.7% compared with 77.6% for the first 6 months of 2018. The increase in the expense ratio during both periods was primarily due to lower denominator in net premiums earned in net income from our industry loss warranties as recorded during the 3- and 6-month period ended June 30, 2019, when compared with the same period a year ago.

Our combined ratio, which is due to measure underwriting performance, is the sum of the loss ratio and the expense ratio. If the combined ratio is at or above 100%, underwriting is not profitable. The combined ratio totaled 311.8% for the second quarter of 2019 and 73.1% in the same year ago period. For the 6 months ended June 30, 2019, the combined ratio was 595.7% compared with 77.6% for the same year ago period. The increase in the combined ratio for both periods was wholly due to a lower denominator in net premiums earned and net income from our industry loss warranty instrument as recorded during the 3 and 6 months period ended June 30, 2019, when compared with the 3- and 6-month period ended June 30, 2018.

Now turning to the balance sheet. Total investments, which includes investments in fixed maturity and equity securities totaled $567,000 at June 30, 2019, compared with $1.2 million at December 31, 2018. Total shareholders' equity at June 30, 2019, was $8 million, down from $8.3 million at December 31, 2018, and a current book value of $1.39. At June 30, 2019, cash and cash equivalents, and restricted cash and cash equivalents totaled $8 million compared with $11.3 million at December 31, 2018.

Now with that, I'd like to turn the call back over to Jay. Jay?

--------------------------------------------------------------------------------

Sanjay Madhu, Oxbridge Re Holdings Limited - Chairman, President & CEO [5]

--------------------------------------------------------------------------------

Thank you, Wrendon. In the second quarter, we took another step in the right direction. While we always employ a conservative approach on our underwriting, for this treaty year, we exercised additional caution in placing our new reinsurance contracts with the goal of further improving our risk management and ensuring long-term durability. We successfully placed reinsurance contracts with a new treaty year, which as Wrendon previously stated, began on June 1, 2019, and continues to May 31, 2020. Additionally, through our reinsurance sidecar business, Oxbridge Re NS reissued Series 2019-1 participating notes in a private placement. We then deployed the proceeds into our quota-share reinsurance agreement with Oxbridge Reinsurance Limited. The notes are due on January 1, 2022. Through our reinsurance sidecar, we've been able to add a degree of diversity to our reinsurance streams and risk, while still having the ability to achieve attractive returns. Going forward, we continue to assess and evaluate one of the most attractive opportunities. We successfully placed reinsurance contracts in accordance with our underwriting strategy, and we generated a modest sum through investment income. Although our results for the quarter, while modest in nature, they were in line with our expectations given the reduction of risk this treaty year.

Going forward, we will continue to opportunistically evaluate new opportunities with a firm focus on long-term value creation and above all else. So in closing, we have worked in reducing our G&A. We are debt free. Our book value per share is $1.39, most of that being in cash. Thus, we have a strong cash position. But most importantly, we have opportunity and a viable business model.

With that, we are ready to open the call for questions. Operator, please provide the appropriate instructions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) We will take our first question from Kent Engelke of Capitol Securities Benefit.

--------------------------------------------------------------------------------

Kent E. Engelke, Capitol Securities Management, Inc. - Chief Economic Strategist & MD [2]

--------------------------------------------------------------------------------

Jay, Wrendon, couple of questions. I'll try to group them all at once. First is, where you're seeing yields on reinsurance contracts and the like? Obviously, we've had a couple record years of losses within the catastrophic community. Where are yields? Secondly, what are the -- obviously, will this be a third year in a row of category 3 hurricanes? Of course, you don't know that, that's an abnormality. I think it's happened once in like 1950 or something like that. (inaudible) question is in regards to, on the sidecar, which sort of profitability metrics are on the sidecar? If I'm not mistaken, that's something like a hedge fund of the 2 and 20 model. And third, I don't know if you can comment on this. What about that outrageous volume that we saw a couple of times when the turnover of the shares were like incredible. Any comments on any of those?

--------------------------------------------------------------------------------

Sanjay Madhu, Oxbridge Re Holdings Limited - Chairman, President & CEO [3]

--------------------------------------------------------------------------------

Yes. Absolutely. So your first question was yield on reinsurance contracts. We're correcting (inaudible) of reinsurance yield is going up or contract yield is going up. So while -- a few years back, it was said that yields may or may not be where they are supposed to. What we're seeing is, we're seeing contracts that's achieved the double-digit return yields since last year. And that -- last year was double-digit as well. This year, it's double-digit. What happens the next year, we don't know. But where we are, we feel that yields are -- yields definitely have picked up. So it all depends as to what happens with the hurricane season this year. If you take a look at the last 11 years or the last 13 years, the first 11 years that went in, well, there were some minor storms here and there, but it was the last 2 years, from year 12 and 13, that were catastrophic for this industry. So we've seen yields tick up significantly since then. What happens going forward, we don't know. But where we stand currently are -- we are currently in new year, and the statistics that point to reinsurance contracts or weather statistics since 1951, they definitely favor us to being a strong year. But again, all it takes is one storm and things could go wrong, right? So -- but so far so good. Yields are up. And in new year, things look good so far. We've had a minor Category 1 storm, and that was the nonevent for us and for most folks in our industry. So that bodes well for us. Your other question was the sidecar metrics. The sidecar metrics are the same as last year. So it's somewhat in the thought process of the hedge fund business. Anybody can, anybody who's a high net worth individual or an accredited individual or accredited investor, could be individual, it could be a company, it could be hedge funded, it could be anybody as long as they meet the various KYC requirements can invest in this. And it gives an investor to come in at a lower dollar amount and when I say a lower dollar amount, they don't have to invest $10 million, $20 million, $30 million, $40 million, $50 million in reinsurance contracts. And they can do that because of our size and get a very attractive return. So the metrics are strong, and it all depends as to each year what they are. We don't make those public, but they're extremely attractive. And those sidecar contracts, the sidecar contract goes hand-in-hand or side -- alongside what the company invested. It's pro rata share of what the company invest. It is what goes into that sidecar. So it's very attractive for somebody of high net worth. And like I said, a high net worth individual or a -- or an accredited investor or company of sorts.

The last question you asked was the outrageous volume. At this point, it's speculation. We're not quite sure where that volume came from, but I can speculate on it, but I'd go head and heart and leave that to some of you folks on the line.

--------------------------------------------------------------------------------

Kent E. Engelke, Capitol Securities Management, Inc. - Chief Economic Strategist & MD [4]

--------------------------------------------------------------------------------

I appreciate you [can harness] there, Jay. Appreciate it. Anyway, wish you best of luck this year. We've had 1 heck of the last 2 years, and hey, know what the odds are and wishing for the best.

--------------------------------------------------------------------------------

Sanjay Madhu, Oxbridge Re Holdings Limited - Chairman, President & CEO [5]

--------------------------------------------------------------------------------

Thank you very much, Kent.

--------------------------------------------------------------------------------

Operator [6]

--------------------------------------------------------------------------------

And at this time, there are no further questions. This concludes our question-and-answer session. I'd now like to turn the call back over to Mr. Madhu for his closing remarks.

--------------------------------------------------------------------------------

Sanjay Madhu, Oxbridge Re Holdings Limited - Chairman, President & CEO [7]

--------------------------------------------------------------------------------

Thank you, and joining -- thank you for joining us on the call today. I especially want to thank our employees, business partners and investors for their continuing support. We look forward to updating you on our next call. Operator?

--------------------------------------------------------------------------------

Operator [8]

--------------------------------------------------------------------------------

Before we conclude today's call, I would like to remind everyone that a recording of today's call will be available for replay via a link available in the Investors section of the company's website. Thank you for joining us today for our presentation. You may now disconnect.