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Edited Transcript of OXBR earnings conference call or presentation 13-Nov-18 9:30pm GMT

Q3 2018 Oxbridge Re Holdings Ltd Earnings Call

GEORGE TOWN Dec 13, 2018 (Thomson StreetEvents) -- Edited Transcript of Oxbridge Re Holdings Ltd earnings conference call or presentation Tuesday, November 13, 2018 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Sanjay Madhu

Oxbridge Re Holdings Limited - Chairman, President & CEO

* Wrendon Timothy

Oxbridge Re Holdings Limited - CFO, Secretary & Principal Accounting Officer

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Presentation

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Operator [1]

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Good afternoon. Welcome to Oxbridge Re Holdings' Third Quarter 2018 Earnings Call. My name is Robin, and I'll be your conference operator this afternoon. (Operator Instructions)

Joining us for today's presentation is Oxbridge Re's Chairman and Chief Executive Officer, Jay Madhu; and Chief Financial Officer and Corporate Secretary, Wrendon Timothy. (Operator Instructions)

I'd like to remind everyone that this call is also being broadcast live via webcast and available via webcast replay until December 13, 2018, on the Investor Information section of Oxbridge Re website at www.oxbridgere.com.

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

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

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Thank you, operator. During today's call, there will be forward-looking statements made regarding future events, including Oxbridge Re's future financial performance. These forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995. Words such as anticipates, estimates, expects, intend, plan, project and other similar words and expressions are intended to signify forward-looking statements. Forward-looking statements are not guarantees of future results and conditions but rather are subject to various risks and uncertainties. Some of these risks and uncertainties are identified in the company's filings with the SEC.

The occurrence of any of these risks and uncertainties could have a material adverse effect on the company's business, financial condition and results of operations. Any forward-looking statements made on this conference call 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 conference call even if the company's expectation or any related events, conditions and circumstances change.

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

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

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Thank you, Wrendon, and welcome, everyone. Thank you for joining us today. As we do each quarter, before we get into our results, I would like to take a moment to provide a brief overview of our company.

Oxbridge Re Holdings Limited was founded over 5 years ago with a mission to provide reinsurance solutions primarily to property and casualty insurers in the Gulf Coast region of the United States. Through our licensed reinsurance subsidiary, Oxbridge Reinsurance Limited, and our newly formed subsidiary, 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 large carriers. We specialize in underwriting medium-frequency, high-severity risks, where we believe sufficient data exist to effectively analyze a risk return portfolio of reinsurance contracts. Our objective is to achieve long-term growth in book value per share by writing business on a selective and opportunistic basis that will generate attractive underwriting profits relative to risk.

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

With that overview now behind us and before going to our results for the third quarter, I'll turn it over to Wrendon to take us through our financial results for the period. Wrendon?

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

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Thank you again, Jay. I will now get into our financial results for the 3 and 9 months ended September 30, 2018.

With respect to net premiums earned for the third quarter 2018, net premiums decreased $18.6 million to $700,000 from $19.3 million in the third quarter of 2017. For the 9 months ended September 30, 2018, net premiums earned decreased $20.1 million to $1.3 million compared with $23.3 million for the first 9 months of 2017.

The decrease in both the 3- and 9-month periods was primarily due to the previous acceleration of premium recognition due to full limit losses being incurred on all of the reinsurance contracts during the 3- and 9-month periods ended September 30, 2017, as well as significantly lower capital deployed during the 3- and 9-month ended September 30, 2018, when compared to the same periods of the prior fiscal year.

With respect to net investment income for the third quarter of 2018, net investment income totaled $100,000 plus $118,000 of change in fair value of equity securities, which was offset by $61,000 of net realized investment losses. This compares with $128,000 of net investment income, offset by $104,000 of net realized investment losses for the third quarter of 2017. For the 9-month ended September 30, 2018, net investment totaled $280,000 plus $22,000 of change in fair value of equity securities, which was offset by $237,000 of net realized investment losses. This compares with $341,000 of net investment income, offset by $56,000 of net realized investment losses for the first 9 months of 2017.

With respect to total expenses, total expenses for the third quarter of 2018, including loss and loss adjustment expenses, policy acquisition costs and underwriting expenses, and general and admin expenses were $368,000 compared with $42.3 million in the third quarter of 2017. For the 9-month ended September 30, 2018, total expenses were $1.1 million compared with $44.2 million in the first 9 months of 2017.

The 3- and 9-month decrease in total expenses was due primarily to the fact that neither any loss nor adverse loss development occurred during the 3- and 9-month period ended September 30, 2018, when compared with significant loss and loss adjustment expenses during the previous periods as a result of hurricanes Irma, Harvey and Maria.

With respect to net income for the third quarter of 2018, net income totaled $652,000 or $0.11 per basic and diluted share compared with net loss of $23 million or $3.97 per basic and diluted share in the third quarter of 2017. For the 9-month ended September 30, 2018, net income totaled $706,000 or $0.12 per basic and diluted common share compared with net loss of $20.6 million or $3.53 per basic and diluted common share for the first 9 months of 2017.

The significant increase in both the 3- and 9-month periods is primarily due to the triggering during the 3- and 9-month period ended September 30, 2017, of limit losses on all reinsurance contracts due to the individual and collective impact of hurricanes Harvey, Irma and Maria on our book of business compared with no catastrophic losses during the 3- and 9-month period ended September 30, 2018.

Now turning to our financial results for the 3- and 9-month ended September 30, 2018. We use various measures to analyze the growth and profitability of our business operations. For our reinsurance business, we measure underwriting profitability by examining our loss ratio, acquisition cost ratio, expense ratio and combined ratio.

Our loss ratio, which measures underwriting profitability, is the ratio of loss and loss adjustment expenses incurred to net premiums earned. Our loss ratio for the third quarter of 2018 was 0% compared to 214.4% for the third quarter of 2017. For the 9 months ended September 30, 2018, the loss ratio was 0% compared to a loss ratio of 181.8% during the first 9 months of 2017.

For both the 3- and 9-month periods, the decrease was due to the significant loss and loss adjustment expenses incurred in the 3- and 9-month periods ended September 30, 2017, due to limit losses on all then-active contracts compared to no losses and loss adjustment expenses in the corresponding 3- and 9-month periods ended September 30, 2018.

Our acquisition cost ratio, which measures operational efficiency, compares policy acquisition costs and other underwriting expenses with net premiums earned. The acquisition cost ratio was 9% for the third quarter of 2018 compared with 2.7% for the same year ago period. For the first 9 months ended September 30, 2018, the acquisition cost ratio was 8.1% compared with 2.9% for the same year ago period.

For the 3- and 9-month periods, the increase was due to the overall higher weighted-average acquisition costs on reinsurance contracts in force during the 3- and 9-month periods ended September 30, 2018, compared with corresponding periods ended September 30, 2017.

Our expense ratio, which measures operating performance, compares policy acquisition costs, other underwriting expenses and general and admin expenses to net premiums earned. The expense ratio totaled 33.5% during the third quarter of 2017 (sic) [2018] compared with 4.6% for the third quarter of 2017. For the first 9 months ended September 30, 2018, the expense ratio was 53.8% compared with 7.6% for the first 9 months of 2017.

For the 3- and 9-month periods, the increase was due primarily to a lower denominator in net premiums earned and net income from derivative instruments as recorded during the 3- and 9-month periods ended September 30, 2018, when compared with the corresponding 3- and 9-month periods ended September 30, 2017.

Our combined ratio, which is used to measure underwriting performance, is the sum of the loss ratio and the expense ratio. If the combined ratio is at or above 100%, underwriting is not profitable. For the third quarter of 2018, the combined ratio was 33.5% compared with 219% for the third quarter of 2017. For the first 9 months ended September 30, 2018, the combined ratio was 53.8% compared with 189.3% for the same year ago period.

For the 3- and 9-month periods, the increase was due to a lower loss ratio during the 3- and 9- month periods ended September 30, 2018, when compared with the corresponding 3- and 9-month periods ended September 30, 2017.

Now turning to the balance sheet. Total investments, which include investments in fixed maturity and equity securities, totaled $4.8 million at September 30, 2018, compared with $6.5 million at December 31, 2017. Total shareholder equity at September 30, 2018, was $14.7 million, up from $13.9 million at December 31, 2017.

At September 30, 2018, cash and cash equivalents and restricted cash and cash equivalents totaled $12.1 million compared with $10.9 million at December 31, 2017.

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

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

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Thank you, Wrendon. During the third quarter, we did see a major storm, namely Hurricane Florence, make landfall. Fortunately, given our limited exposure to the Carolinas and despite its estimated damage of $16 billion on insured losses of approximately $2 billion to $4.6 billion, we've shared not to have been directly impacted by Hurricane Florence in the third quarter.

In the fourth quarter, Hurricane Michael, the most powerful storm to hit Florida on record, made landfall on October 10, 2018. Preliminary information indicates that the storm has caused significant losses with an estimated range of $6 billion to $10 billion of insured losses. Given our Florida exposure, we will suffer a net loss to our capital and earnings of approximately $3.1 million or $0.54 per basic and diluted share after taking into consideration our quota-share agreement through our reinsurance sidecar. As such, our book value per share will be reduced from $2.57 at the end of the third quarter to $2.03 per share.

As mentioned on our last call, we organized a new subsidiary, Oxbridge Re NS, to function as a reinsurance sidecar. The new subsidiary is intended to increase the underwriting capacity of Oxbridge Reinsurance Limited. Oxbridge Re NS achieved successful licensing and officially commenced operations on June 1, 2018. The premise of the newly formed subsidiary is to issue participating notes to third-party investors, the proceeds of which will be used to collateralize some of our reinsurance obligations.

In return, Oxbridge Re receives a marginal management fee in exchange for handling the portfolio as well as a share in the profitability. We feel the opportunities presented by Oxbridge Re NS while being able to receive attractive returns in a loss-free year gives us the ability to diversify our revenue stream as well as risk. We believe over time this could be accretive to shareholder value.

Moving forward, we continue to underwrite contracts opportunistically while diversifying revenue streams and maintain a conservative long-term outlook.

As always, we remain very appreciative of our patient and loyal shareholders who have supported us over the years and continue to support us now. We look forward to updating you on our progress in the upcoming months.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) At this time, there are no questions, I would like to turn the floor to Jay Madhu for further comments.

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Sanjay Madhu, Oxbridge Re Holdings Limited - Chairman, President & CEO [2]

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Thank you for joining us on today's call. 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?

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Operator [3]

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Before we conclude today's call, I'd 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.