Blueprint
 
 
 

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
(Mark One)
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2016
 
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: 1-36346
 
OXBRIDGE RE HOLDINGS LIMITED
(Exact name of registrant as specified in its charter)
 
Cayman Islands
 
98-1150254
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
Strathvale House, 2nd Floor90 North Church Street, Georgetown P.O. Box 469
Grand Cayman, Cayman Islands
 
KY1-9006
(Address of principal executive offices)
 
(Zip Code)
 
Registrant’s telephone number, including area code: (345) 749-7570
 
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. Yes ☑    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). Yes ☑    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” in Rule 12b-2 of the Exchange Act.
 
 Large accelerated filer
 ☐
 Accelerated filer
 ☐
 Non-accelerated filer
 ☐
 Smaller reporting company
 ☑
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐    No ☑
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of October 24, 2016; 5,960,324 ordinary shares, par value $0.001 per share, were outstanding.
 

 
1
 
 
OXBRIDGE RE HOLDINGS LIMITED
 
INDEX
 
PART I – FINANCIAL INFORMATION
Page
 
 
 
Item 1.
Financial Statements
 
 
 
 
 
Consolidated Balance Sheets September 30, 2016 (unaudited) and December 31, 2015
3
 
 
 
 
Consolidated Statements of Income Three and Nine months Ended September 30, 2016 and 2015 (unaudited)
4
 
 
 
 
Consolidated Statements of Comprehensive Income Three and Nine months Ended September 30, 2016 and 2015 (unaudited)
5
 
 
 
 
Consolidated Statements of Cash Flows Nine months Ended September 30, 2016 and 2015 (unaudited)
6
 
   
 
 
Consolidated Statements of Changes in Shareholders’ Equity Nine months Ended September 30, 2016 and 2015 (unaudited)
8
 
 
 
 
Notes to Consolidated Financial Statements (unaudited)
9
 
 
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
31
 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
42
 
 
 
Item 4.
Controls and Procedures 
42
 
 
 
PART II – OTHER INFORMATION
 
 
 
 
Item 1.
Legal Proceedings 
43
 
 
 
Item 1A.
Risk Factors 
43
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
43
 
 
 
Item 3.
Defaults Upon Senior Securities 
44
 
 
 
Item 4.
Mine Safety Disclosures 
44
 
 
 
Item 5.
Other Information 
44
 
 
 
Item 6.
Exhibits 
44
 
 
 
 
Signatures 
45
 
 
 
 
 
2
 
PART I - FINANCIAL INFORMATION
 
Item 1. Financial Statements
 
 
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARY
 
 
Consolidated Balance Sheets
 
 
(expressed in thousands of U.S. Dollars, except per share and share amounts)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At September 30, 2016
 
 
At December 31, 2015
 
 
 
(Unaudited)
 
 
 
 
Assets
 
 
 
 
 
 
Investments:
 
 
 
 
 
 
Fixed-maturity securities, available for sale, at fair value (amortized cost: $6,081 and $3,080, respectively)
 $6,074 
  3,096 
Equity securities, available for sale, at fair value (cost: $6,801 and $7,742, respectively)
  6,359 
  6,252 
       Total investments
  12,433 
  9,348 
Cash and cash equivalents
  9,478 
  8,584 
Restricted cash and cash equivalents
  26,296 
  30,368 
Accrued interest and dividend receivable
  26 
  25 
Premiums receivable
  9,448 
  4,117 
Deferred policy acquisition costs
  162 
  90 
Prepayment and other receivables
  95 
  91 
Property and equipment, net
  59 
  64 
  Total assets
 $57,997 
  52,687 
  
    
    
Liabilities and Shareholders’ Equity
    
    
Liabilities:
    
    
Reserve for losses and loss adjustment expenses
 $972 
  - 
Loss experience refund payable
  6,818 
  9,913 
Unearned premiums reserve
  9,526 
  5,571 
Accounts payable and other liabilities
  212 
  176 
  Total liabilities
  17,528 
  15,660 
  
    
    
Shareholders’ equity:
    
    
Ordinary share capital, (par value $0.001, 50,000,000 shares authorized; 5,981,613 and 6,060,000 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively)
  6 
  6 
Additional paid-in capital
  33,348 
  33,657 
Retained earnings
  7,564 
  4,838 
Accumulated other comprehensive loss
  (449)
  (1,474)
Total shareholders’ equity
  40,469 
  37,027 
Total liabilities and shareholders’ equity
 $57,997 
  52,687 
  
    
    
 
The accompanying Notes to Consolidated Financial Statements are an integral
part of the Consolidated Financial Statements.
 
 
3
 
 
 
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARY            
 
 
Consolidated Statements of Income (unaudited)            
 
 
(expressed in thousands of U.S. Dollars, except per share and share amounts)
 
 
 
 
 
                     
 
 
 
Three Months Ended
 
 
Nine Months Ended
 
 
 
September 30,  
 
 
September 30,
 
 
 
 2016
 
 
2015
 
 
2016
 
 
2015
 
 
 
(Unaudited)
 
 
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
Assumed premiums
 $- 
   - 
 $15,065 
   14,888 
Change in loss experience refund payable
  (2,089)
  (2,089)
  (4,465)
  (6,204)
Change in unearned premiums reserve
  4,007 
  3,881 
  (3,955)
  (3,708)
 
    
    
    
    
Net premiums earned
  1,918 
  1,792 
  6,645 
  4,976 
Net realized investment gain / (loss)
  122 
  (303)
  256 
  673 
Net investment income
  126 
  90 
  327 
  262 
Other-than-temporary impairment losses
  - 
  (399)
  - 
  (399)
 
    
    
    
    
Total revenue
  2,166 
  1,180 
  7,228 
  5,512 
 
    
    
    
    
Expenses
    
    
    
    
Losses and loss adjustment expenses (credit)
  (1,248)
  - 
  1,030 
  - 
Policy acquisition costs and underwriting expenses
  83 
  85 
  211 
  259 
General and administrative expenses
  346 
  353 
  1,087 
  1,024 
 
    
    
    
    
Total expenses (credit)
  (819)
  438 
  2,328 
  1,283 
 
    
    
    
    
Net income
 $2,985 
  742 
 $4,900 
  4,229 
 
    
    
    
    
 
    
    
    
    
Earnings per share
    
    
    
    
Basic and Diluted
 $0.50 
  0.12 
 $0.81 
  0.70 
 
    
    
    
    
 
    
    
    
    
Dividends paid per share
 $0.12 
  0.12 
 $0.36 
  0.36 
 
The accompanying Notes to Consolidated Financial Statements are an integral
part of the Consolidated Financial Statements.
 
 
4
 
 
 
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARY                      
 
 
Consolidated Statements of Comprehensive Income (unaudited)                    
 
 
(expressed in thousands of U.S. Dollars)                      
 
 
                       
 
 
 
Three Months Ended
 
 
Nine Months Ended
 
 
 
September 30,    
 
 
September 30,    
 
 
 
2016
 
 
2015
 
 
2016
 
 
2015
 
 
 
(Unaudited)
 
 
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
  $2,985 
  742 
 $4,900 
  4,229 
Other comprehensive income:
    
    
    
    
Change in unrealized gain on investments:
    
    
    
    
Unrealized gain / (loss) arising during the period
  304 
  (1,209)
  1,281 
  (1,967)
Other-than-temporary impairment losses
  - 
  399 
  - 
  399 
Reclassification adjustment for net realized (gain) / loss included in net income
  (122)
  303 
  (256)
  (673)
 
    
    
    
    
Net change in unrealized gain / (loss)
  182 
  (507)
  1,025 
  (2,241)
 
    
    
    
    
Total other comprehensive income / (loss)
  182 
  (507)
  1,025 
  (2,241)
 
    
    
    
    
Comprehensive income
  3,167 
  235 
  5,925 
  1,988 
 
The accompanying Notes to Consolidated Financial Statements are an integral
part of the Consolidated Financial Statements.
 
 
5
 
 
 
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARY            
 
 
Consolidated Statements of Cash Flows (unaudited)            
 
 
(expressed in thousands of U.S. Dollars)            
 
 
 
 
 
 
 
 
 
 
Nine Months Ended
 
 
 
  September 30,      
 
 
 
2016
 
 
2015
 
Operating activities
 
 
 
 
 
 
Net income
 $4,900 
  4,229 
Adjustments to reconcile net income to net cash provided by operating activities:
    
Stock-based compensation
  90 
  88 
Depreciation and amortization
  16 
  12 
Net realized investment gains
  (256)
  (673)
Other-than-temporary impairment losses
 
  399 
Change in operating assets and liabilities:
    
    
Accrued interest and dividend receivable
  (1)
  (6)
Premiums receivable
  (5,331)
  (2,648)
Deferred policy acquisition costs
  (72)
  (43)
Prepayment and other receivables
  (4)
  (41)
Reserve for loss and loss adjustment expenses
  972 
  - 
Loss experience refund payable
  (3,095)
  691 
Unearned premiums reserve
  3,955 
  3,708 
Accounts payable and other liabilities
  36 
  (6)
 
    
    
Net cash provided by operating activities
 $1,210 
  5,710 
 
    
    
Investing activities
    
    
Change in restricted cash and cash equivalents
  4,072 
  (1,974)
Purchase of fixed-maturity securities
  (3,111)
  (1,101)
Purchase of equity securities
  (8,030)
  (10,814)
Proceeds from sale of fixed-maturity and equity securities
  9,337 
  11,477 
Purchase of property and equipment
  (11)
  (25)
 
    
    
Net cash provided by / (used in) investing activities
 $2,257 
  (2,437)
 
    
    
Financing activities
    
    
Repurchases of common stock under share repurchase plan
  (399)
  - 
Cash dividends paid
  (2,174)
  (2,182)
 
    
    
Net cash used in financing activities
 $(2,573)
  (2,182)
 
 
6
 
 
 
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARY            
 
 
Consolidated Statements of Cash Flows            
 
 
(expressed in thousands of U.S. Dollars)            
 
 
 
 
 
 
 
 
 
 
Nine Months Ended
 
 
 
  September 30,      
 
 
 
2016
 
 
2015
 
 
 
 
 
 
 
 
Net change in cash and cash equivalents
  894 
    1,091
Cash and cash equivalents at beginning of period
  8,584 
 5,317
 
    
    
Cash and cash equivalents at end of period
 $9,478 
    6,408
 
    
    
Supplemental disclosure of cash flow information
    
    
Interest paid
  - 
  - 
Income taxes paid
  - 
  - 
 
    
    
Non-cash investing activities
    
    
Net change in unrealized gain (loss) on securities available for sale
  1,025 
  (2,241)
 
The accompanying Notes to Consolidated Financial Statements are an integral
part of the Consolidated Financial Statements.
 
 
 
 
7
 
 
 
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARY                    
 
 
Consolidated Statements of Changes in Shareholders' Equity                    
 
 
Nine Months Ended September 30, 2016 and 2015 (unaudited)                    
 
 
(expressed in thousands of U.S. Dollars, except number of shares )                    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Ordinary Share Capital    
 
 
Additional Paid-in
 
 
Retained
 
 
Accumulated Other
 
 
Total Shareholders'
 
 
 
Shares
 
 
Amount
 
 
Capital
 
 
Earnings
 
 
Comprehensive Loss
 
 
Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2014
  6,000,000 
  6 
  33,540 
  3,145 
  17 
  36,708 
Cash dividends
  - 
  - 
  - 
  (2,182)
  - 
  (2,182)
Net income for the period
  - 
  - 
  - 
  4,229 
  - 
  4,229 
Issuance of restricted stock
  60,000 
  - 
  - 
  - 
  - 
  - 
Stock-based compensation
    
  - 
  88 
  - 
  - 
  88 
Total other comprehensive loss
  - 
  - 
  - 
  - 
  (2,241)
  (2,241)
Balance at September 30, 2015
  6,060,000 
  6 
  33,628 
  5,192 
  (2,224)
  36,602 
 
    
    
    
    
    
    
 
    
    
    
    
    
    
Balance at December 31, 2015
  6,060,000 
  6 
  33,657 
  4,838 
  (1,474)
  37,027 
Cash dividends
  - 
  - 
  - 
  (2,174)
  - 
  (2,174)
Repurchase and retirement of common stock under share repurchase plan
  (78,387)
  - 
  (399)
  - 
  - 
  (399)
Net income for the period
  - 
  - 
  - 
  4,900 
  - 
  4,900 
Stock-based compensation
  - 
  - 
  90 
  - 
  - 
  90 
Total other comprehensive income
  - 
  - 
  - 
  - 
  1,025 
  1,025 
Balance at September 30, 2016
  5,981,613 
  6 
  33,348 
  7,564 
  (449)
  40,469 
 
The accompanying Notes to Consolidated Financial Statements are an integral
part of the Consolidated Financial Statements.
 
 
 

8
 
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARY
Notes to Consolidated Financial Statements (unaudited)
September 30, 2016
 
1.
ORGANIZATION AND BASIS OF PRESENTATION
 
(a)
Organization
 
Oxbridge Re Holdings Limited 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 (the “Subsidiary”), an 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 and the Subsidiary (collectively, the “Company”) 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.
The Company operates as a single business segment through the Subsidiary, which provides collateralized reinsurance to cover excess of loss catastrophe risks of various affiliated and nonaffiliated ceding insurers, including Claddaugh Casualty Insurance Company, Ltd. (“Claddaugh”) and Homeowners Choice Property & Casualty Insurance Company (“HCPCI”), which are related-party entities domiciled in Bermuda and Florida, respectively.
(b)
Basis of Presentation
 
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 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 September 30, 2016 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, 2016. 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, 2015 included in the Company’s Form 10-K, which was filed with the SEC on March 17, 2016.
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.
 
9
 
 
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARY
Notes to Consolidated Financial Statements (unaudited)
September 30, 2016
 
Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the reserve for losses and loss adjustment expenses, which 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, assessment of other-than-temporary impairment (“OTTI”) and loss experience refund payable 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.
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 require the Company to maintain collateral with a market value greater than or equal to the limit of liability, less unpaid premium.
 
Investments: The Company’s investments consist of fixed-maturity securities and equity securities, and are classified as available-for-sale. The Company’s investments are carried at fair value with changes in fair value included as a separate component of accumulated other comprehensive loss in shareholders’ equity.
 
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 income. 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.
 
The Company reviews all securities for other-than-temporary impairment ("OTTI") on a quarterly basis and more frequently when economic or market conditions warrant such review. When the fair value of any investment is lower than its cost, an assessment is made to see whether the decline is temporary of other-than-temporary. If the decline is determined to be other-than-temporary the investment is written down to fair value and an impairment charge is recognized in income in the period in which the Company makes such determination. For a debt security that the Company does not intend to sell nor is it more likely than not that the Company will be required to sell before recovery of its amortized cost, only the credit loss component is recognized in income, while impairment related to all other factors is recognized in other comprehensive income (loss). The Company considers various factors in determining whether an individual security is other-than-temporarily impaired (see Note 4).
 
 
10
 
 
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARY
Notes to Consolidated Financial Statements (unaudited)
September 30, 2016
 
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.
 
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 debt 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 common 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. 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. The categorization of a financial instrument within the hierarchy is based upon the pricing transparency of the instrument.
 
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 September 30, 2016, the DAC was considered fully recoverable and no premium deficiency loss was recorded.
 
Property and equipment: Property and equipment are recorded at cost when acquired. Property and equipment are comprised of motor vehicles, furniture and fixtures, computer equipment and leasehold improvements and are depreciated, using the straight-line method, over their estimated useful lives, which are five years for furniture and fixtures and computer equipment and four years for motor vehicles. Leasehold improvements are amortized over the lesser of the estimated useful lives of the assets or remaining lease term. The Company periodically reviews property and equipment that have finite lives, and that are not held for sale, for impairment by comparing the carrying value of the assets to their estimated future undiscounted cash flows. For the three-month and nine-month periods ended September 30, 2016, there were no impairments in property and equipment.
 
 
11
 
 
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARY
Notes to Consolidated Financial Statements (unaudited)
September 30, 2016
 
Allowance for uncollectible receivables: Management evaluates credit quality by evaluating the exposure to individual counterparties; where warranted management also considers the credit rating or financial position, operating results and/or payment history of the counterparty. Management establishes an allowance for amounts for which collection is considered doubtful. Adjustments to previous assessments are recognized as income in the year in which they are determined. At September 30, 2016, no receivables were determined to be overdue or impaired and, accordingly, no allowance for uncollectible receivables has been established.
Reserves for losses and loss adjustment expenses: The Company determines its reserves for losses and loss adjustment expenses 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. 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 income in the period in which they are determined.
Loss experience refund payable: Certain contracts 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 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.
 
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.
 
12
 
 
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARY
Notes to Consolidated Financial Statements (unaudited)
September 30, 2016
 
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 September 30, 2016.
 
Earnings per share: Basic earnings per share has been computed on the basis of the weighted-average number of ordinary shares outstanding during the periods presented. Diluted earnings per share is computed based on the weighted-average number of ordinary shares outstanding and reflects the assumed exercise or conversion of diluted securities, such as stock options and warrants, computed using the treasury stock method.
Stock-Based Compensation: The Company accounts for stock-based compensation under the fair value recognition provisions of GAAP which requires the measurement and recognition of compensation for all stock-based awards made to employees and directors, including stock options and restricted stock issuances based on estimated fair values. The Company measures compensation for restricted stock based on the price of the Company’s ordinary shares at the grant date. Determining the fair value of share purchase options at the grant date requires significant estimation and judgment. The Company uses an option-pricing model (Black-Scholes option pricing model) to assist in the calculation of fair value for share purchase options. The Company's shares have not been publicly traded for a sufficient length of time to solely use the Company's performance to reasonably estimate the expected volatility. Therefore, when estimating the expected volatility, the Company takes into consideration the historical volatility of similar entities. The Company considers factors such as an entity's industry, stage of life cycle, size and financial leverage when selecting similar entities. The Company uses a sample peer group of companies in the reinsurance industry as well as the Company’s own historical volatility in determining the expected volatility. Additionally, the Company uses the full life of the options, ten years, as the estimated term of the options, 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. 
 
13
 
 
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARY
Notes to Consolidated Financial Statements (unaudited)
September 30, 2016
 
Recent accounting pronouncements:
 
Accounting Standards Update No. 2016-09. In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2016-09 (“ASU 2016-09”), Compensation-Stock Compensation (Topic 718), which affects all entities that issue share-based awards to their employees. Among the amendments affecting share-based payment transactions are their income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for all public entities for reporting periods beginning after December 15, 2016 and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2017, and for interim periods within fiscal years beginning after December 15, 2018. Early adoption is permitted for all entities. The Company is currently evaluating the impact of this guidance on the Company’s consolidated financial statements.
 
Accounting Standards Update No. 2016-02. In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (“ASU 2016-02”), Leases (Topic 842), which supersedes Topic 840 and creates the new lease accounting standards for lessees and lessors, primarily related to the recognition of lease assets and liabilities by lessees for leases classified as operating leases. ASU 2016-02 is effective for all public entities for reporting periods beginning after December 15, 2018 and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities. The Company is currently evaluating the impact of this guidance on the Company’s consolidated financial statements.
 
Accounting Standards Update No. 2016-01. In January 2016, the FASB issued Accounting Standards Update No. 2016-01 (“ASU 2016-01”), Financial Instruments (Subtopic 825-10), which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. One of the changes is to require certain equity investments to be measured at fair value with changes in fair value recognized in net income. ASU 2016-01 is effective for all public entities for reporting periods beginning after December 15, 2017 and interim periods within those fiscal years. For all other entities, the amendments in ASU 2016-01 are effective for fiscal years beginning after December 15, 2018, and for interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted for financial statements that have not been previously issued. The Company is currently evaluating the impact of this guidance on the Company’s consolidated financial statements.
 
Reclassifications: Certain reclassifications of prior period amounts have been made to conform to the current period presentation.
 
14
 
 
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARY
Notes to Consolidated Financial Statements (unaudited)
September 30, 2016
 
3. CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AND CASH EQUIVALENTS
 
 
 
At September 30,
 
 
At December 31,
 
 
 
 2016
 
 
2015
 
 
 
  (in thousands)   
 
 
 
 
 
 
 
 
Cash on deposit
 $5,649 
 $3,567 
Cash held with custodians
  3,829 
  5,017 
Restricted cash held in trust
  26,296 
  30,368 
 
    
    
Total
  35,774 
  38,952 
 
    
    
 
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 Bank of New York Mellon and Wells Fargo 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.
 
 
15
 
 
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARY
Notes to Consolidated Financial Statements (unaudited)
September 30, 2016
 
4. INVESTMENTS
 
The Company holds investments in fixed-maturity securities and equity securities that are classified as available-for-sale. At September 30, 2016 and December 31, 2015, the cost or amortized cost, gross unrealized gains and losses, and estimated fair value of the Company’s available-for-sale securities by security type were as follows:
 
 
 
Cost or
 
 
Gross
 
 
Gross
 
 
Estimated
 
 
 
Amortized
 
 
Unrealized
 
 
Unrealized
 
 
Fair
 
 
 
Cost
 
 
Gain
 
 
Loss
 
 
Value ($000)
 
 
 
  ($ in thousands)               
 
As of September 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
Fixed-maturity securities
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency securities
 $6,081 
 $29 
 $(36)
 $6,074 
 
    
    
    
    
 
    
    
    
    
Total fixed-maturity securities
  6,081 
  29 
  (36)
  6,074 
 
    
    
    
    
Mutual funds
  400 
  - 
  (10)
  390 
Preferred stocks
  963 
  25 
  (11)
  977 
Common stocks
  5,438 
  233 
  (679)
  4,992 
 
    
    
    
    
Total equity securities
  6,801 
  258 
  (700)
  6,359 
 
    
    
    
    
 
    
    
    
    
Total available for sale securities
 $12,882 
 $287 
 $(736)
 $12,433 
 
    
    
    
    
 
As of December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
Fixed-maturity securities
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency securities
 $2,969 
 $12 
 $- 
 $2,981 
Exchange-traded debt securities
  111 
  4 
  - 
  115 
 
    
    
    
    
Total fixed-maturity securities
  3,080 
  16 
  - 
  3,096 
 
    
    
    
    
Preferred stocks
  1,674 
  15 
  (174)
  1,515 
Common stocks
  6,068 
  158 
  (1,489)
  4,737 
 
    
    
    
    
Total equity securities
  7,742 
  173 
  (1,663)
  6,252 
 
    
    
    
    
Total available for sale securities
 $10,822 
 $189 
 $(1,663)
 $9,348 
 
At September 30, 2016 and December 31, 2015, available-for-sale securities with fair value of $3,524,000 and $3,638,000, respectively, are held in trust accounts as collateral under reinsurance contacts with the Company’s ceding insurers.
 
 
16
 
 
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARY
Notes to Consolidated Financial Statements (unaudited)
September 30, 2016
 
4. 
INVESTMENTS (continued)
Expected maturities will differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without penalties. The scheduled contractual maturities of fixed-maturity securities at September 30, 2016 and December 31, 2015 are as follows:
 
 
 
Amortized
 
 
Estimated
 
 
 
Cost
 
 
Fair Value
 
 
 
  ($ in thousands)         
 
As of September 30, 2016
 
 
 
 
 
 
Available for sale
 
 
 
 
 
 
Due after one year through five years
 $6,081 
 $6,074 
 
    
    
 
    
    
 
 $6,081 
 $6,074 
 
    
    
 
    
    
As of December 31, 2015
    
    
Available for sale
    
    
Due after one year through five years
 $2,969 
 $2,981 
Due after ten years
  111 
  115 
 
    
    
 
 $3,080 
 $3,096 
 
Proceeds received, and the gross realized gains and losses from sales of available-for-sale securities, for the three and nine-month periods ended September 30, 2016 and 2015 were as follows:
 
 
 
 Gross proceeds
 
Gross
 
 
Gross
 
 
 
from
 
 
Realized
 
 
Realized
 
 
 
 
sales
 
 
 
Gains
 
 
Losses
 
 
  ($ in thousands)          
Three Months Ended September 30, 2016
 
 
 
 
 
 
 
 
 
Fixed-maturity securities
 $- 
 $- 
 $- 
 
    
    
    
Equity securities
 $4,099 
 $368 
 $(246)
 
    
    
    
Nine Months Ended September 30, 2016
    
    
    
Fixed-maturity securities
 $119 
 $8 
 $- 
 
    
    
    
Equity securities
 $9,218 
 $867 
 $(619)
 
    
    
    
Three Months Ended September 30, 2015
    
    
    
Fixed-maturity securities
 $- 
 $- 
 $- 
 
    
    
    
Equity securities
 $773 
 $5 
 $(308)
 
    
    
    
Nine Months Ended September 30, 2015
    
    
    
Fixed-maturity securities
 $775 
 $75 
 $- 
 
    
    
    
Equity securities
 $10,702 
 $914 
 $(316)
 
 
17
 
 
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARY
Notes to Consolidated Financial Statements (unaudited)
September 30, 2016
 
4. 
INVESTMENTS (continued)
The Company regularly reviews its individual investment securities for OTTI. The Company considers various factors in determining whether each individual security is other-than-temporarily impaired, including:
 
the financial condition and near-term prospects of the issuer, including any specific events that may affect its operations or income;
 
the length of time and the extent to which the market value of the security has been below its cost or amortized cost;
 
general market conditions and industry or sector specific factors;
 
nonpayment by the issuer of its contractually obligated interest and principal payments; and
 
the Company’s intent and ability to hold the investment for a period of time sufficient to allow for the recovery of costs.
 
Securities with gross unrealized loss positions at September 30, 2016 and December 31, 2015, aggregated by investment category and length of time the individual securities have been in a continuous loss position, are as follows:
 
 
 
Less Than Twelve      
 
 
Twelve Months or    
 
 
 
 
 
 
Months        
 
 
Greater          
 
 
Total          
 
As of September 30, 2016
 
Gross
 
 
Estimated
 
 
Gross
 
 
Estimated
 
 
Gross
 
 
Estimated
 
 
 
Unrealized
 
 
Fair
 
 
Unrealized
 
 
Fair
 
 
Unrealized
 
 
Fair
 
 
 
Loss
 
 
Value
 
 
Loss
 
 
Value
 
 
Loss
 
 
Value
 
 
 
($ in thousands)      
 
 
($ in thousands)      
 
 
($ in thousands)      
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency securities
  36 
  3,075 
  - 
  - 
  36 
  3,075 
 
    
    
    
    
    
    
Total fixed-maturity securities
  36 
  3,075 
  - 
  - 
  36 
  3,075 
 
    
    
    
    
    
    
Equity securities
    
    
    
    
    
    
Mutual funds
  10 
  390 
  - 
  - 
  10 
  390 
Preferred stocks
  11 
  465 
  - 
  - 
  11 
  465 
All other common stocks
  225 
  2,008 
  454 
  1,080 
  679 
  3,088 
 
    
    
    
    
    
    
Total equity securities
  246 
  2,863 
  454 
  1,080 
  700 
  3,943 
 
    
    
    
    
    
    
 
    
    
    
    
    
    
Total available for sale securities $
  282 
 $5,938 
 $454 
 $1,080 
 $736 
 $7,018 
 
    
    
    
    
    
    
 
At September 30, 2016, there were 22 securities in an unrealized loss position of which 5 of these positions had been in an unrealized loss position for 12 months or greater.
 
 
18
 
 
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARY
Notes to Consolidated Financial Statements (unaudited)
September 30, 2016
 
4. 
INVESTMENTS (continued)
 
 
Less Than Twelve        
 
 
Twelve Months or    
 
 
 
 
 
 
Months          
 
 
Greater        
 
 
 Total          
 
As of December 31, 2015
 
Gross
 
 
Estimated
 
 
Gross
 
 
Estimated
 
 
Gross
 
 
Estimated
 
 
 
Unrealized
 
 
Fair
 
 
Unrealized
 
 
Fair
 
 
Unrealized
 
 
Fair
 
 
 
Loss
 
 
Value
 
 
Loss
 
 
Value
 
 
Loss
 
 
Value
 
 
 
($ in thousands)      
 
 
($ in thousands)      
 
 
($ in thousands)      
 
Equity securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred stocks
  174 
  1,054 
  - 
  - 
  174 
  1,054 
All other common stocks
  1,405 
  3,274 
  84 
  316 
  1,489 
  3,590 
 
    
    
    
    
    
    
Total equity securities
  1,579 
  4,328 
  84 
  316 
  1,663 
  4,644 
 
    
    
    
    
    
    
 
    
    
    
    
    
    
Total available for sale securities $
  1,579 
 $4,328 
 $84 
 $316 
 $1,663 
 $4,644 
 
    
    
    
    
    
    
 
At December 31, 2015, there were 24 securities in an unrealized loss position of which 2 of these positions had been in an unrealized loss position for 12 months or greater.
 
The Company believes there were no fundamental issues such as credit losses or other factors with respect to its fixed-maturity securities. It is expected that the securities would not be settled at a price less than the par value of the investments and because the Company has the ability and intent to hold these securities and it is probable that the Company will not be required to sell these securities until a market price recovery or maturity, the Company does not consider any of its fixed-maturity securities to be other-than-temporarily impaired at September 30, 2016 and December 31, 2015.
 
In determining whether equity securities are other than temporarily impaired, the Company considers its intent and ability to hold a security for a period of time sufficient to allow for the recovery of cost, along with factors including the length of time each security had been in an unrealized loss position, the extent of the decline and the near term prospect for recovery. In the three and nine months ended September 30, 2015, the Company determined that two equity securities were other-than-temporarily impaired after considering factors such as the length of time each security had been in an unrealized loss position, the extent of the decline and the near term prospect for recovery alongside other factors. As a result, the Company recognized impairment losses of $399,000 for the three and nine months ended September 30, 2015. There were no impairment losses recorded in the three and nine months ended September 30, 2016. Based on management’s evaluation, the Company does not consider any of its equity securities to be other-than-temporarily impaired at September 30, 2016 and December 31, 2015.
 
 
19
 
 
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARY
Notes to Consolidated Financial Statements (unaudited)
September 30, 2016
 
4. 
INVESTMENTS (continued)
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 September 30, 2016 and December 31, 2015:
 
 
 
 
Fair Value Measurements Using        
 
 
 
 
 
 
(Level 1)
 
 
(Level 2)
 
 
(Level 3)
 
 
Total
 
As of September 30, 2016
  ($ in thousands)               
Financial Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 $9,478 
 $- 
 $- 
 $9,478 
 
    
    
    
    
Restricted cash and cash equivalents
 $26,296 
 $- 
 $- 
 $26,296 
 
    
    
    
    
Fixed-maturity securities:
    
    
    
    
U.S. Treasury and agency securities
  6,074 
  - 
  - 
  6,074 
 
    
    
    
    
 
    
    
    
    
Total fixed-maturity securities
  6,074 
  - 
  - 
  6,074 
 
    
    
    
    
Mutual funds
  390 
  - 
  - 
  390 
Preferred stocks
  977 
  - 
  - 
  977 
All other common stocks
  4,992 
  - 
  - 
  4,992 
 
    
    
    
    
Total equity securities
  6,359 
  - 
  - 
  6,359 
 
    
    
    
    
Total available for sale securities
  12,433 
  - 
  - 
  12,433 
 
    
    
    
    
Total
 $48,207 
 $- 
 $- 
 $48,207 
 
    
    
    
    
 
 
20
 
 
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARY
Notes to Consolidated Financial Statements (unaudited)
September 30, 2016
 
4. 
INVESTMENTS (continued)
 
 
Fair Value Measurements Using        
 
 
   
 
 
 
(Level 1)
 
 
(Level 2)
 
 
(Level 3)
 
 
Total
 
As of December 31, 2015
  ($ in thousands)               
Financial Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 $8,584 
 $- 
 $- 
 $8,584 
 
    
    
    
    
Restricted cash and cash equivalents
 $30,368 
 $- 
 $- 
 $30,368 
 
    
    
    
    
Fixed-maturity securities:
    
    
    
    
U.S. Treasury and agency securities
  2,981 
  - 
  - 
  2,981 
Exchange-traded debt securities
  115 
  - 
  - 
  115 
 
    
    
    
    
Total fixed-maturity securities
  3,096 
  - 
  - 
  3,096 
 
    
    
    
    
 
    
    
    
    
Preferred stocks
  1,515 
  - 
  - 
  1,515 
All other common stocks
  4,737 
  - 
  - 
  4,737 
 
    
    
    
    
Total equity securities
  6,252 
  - 
  - 
  6,252 
 
    
    
    
    
Total available for sale securities
  9,348 
  - 
  - 
  9,348 
 
    
    
    
    
Total
 $48,300 
 $- 
 $- 
 $48,300 
 
    
    
    
    
 
5.  TAXATION
 
Under current Cayman Islands law, no corporate entity, including the Company and the Subsidiary, is obligated to pay taxes in the Cayman Islands on either income or capital gains. The Company and the Subsidiary 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 the Subsidiary or their operations, or to the ordinary shares or related obligations, until April 23, 2033 and May 17, 2033, respectively.
 
The Company and its subsidiary 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.
 
 
21
 
 
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARY
Notes to Consolidated Financial Statements (unaudited)
September 30, 2016
 
6.  LOSSES AND LOSS ADJUSTMENT EXPENSES
 
The following table summarizes the Company’s loss and loss adjustment expenses (“LAE”) and the reserve for loss and LAE reserve movements for the three and nine-month periods ending September 30, 2016 and 2015:
 
 
 
Three Months Ended
 
 
Nine Months Ended    
 
 
 
September 30,    
 
 
  September 30,      
 
 
 
2016
 
 
2015
 
 
2016
 
 
2015
 
 
  ($ in thousands)     
  ($ in thousands)     
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
 $2,250 
  - 
 $- 
  - 
Incurred related to: