Blueprint
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark
One)
[X]
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
quarterly period ended September 30, 2018
[
]
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
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OXBRIDGE RE HOLDINGS LIMITED
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|
(Exact
name of registrant as specified in its charter)
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|
Cayman
Islands
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98-1150254
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|
(State
or other jurisdiction of incorporation or
organization)
|
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(I.R.S.
Employer Identification
No.)
|
|
Strathvale
House, 2nd
Floor90 North Church Street, GeorgetownP.O. Box 469
Grand
Cayman, Cayman Islands
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|
KY1-9006
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|
(Address
of principal executive offices)
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(Zip
Code)
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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 ☒ X 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 ☒
X 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 ☐
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|
Accelerated
filer ☐
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Non-accelerated
filer ☐
|
|
Smaller
reporting company ☒
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|
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 ☐ 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
November 12, 2018; 5,733,587 ordinary shares, par value $0.001 per
share, were outstanding.
OXBRIDGE RE HOLDINGS LIMITED
INDEX
PART I
– FINANCIAL INFORMATION
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Page
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|
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Item
1.
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Financial
Statements
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|
|
|
|
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Consolidated
Balance Sheets
September
30, 2018 (unaudited) and December 31, 2017
|
3
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|
|
|
|
|
|
Consolidated
Statements of Operations
Three
and Nine Months Ended September 30, 2018 and 2017
(unaudited)
|
4
|
|
|
|
|
|
|
Consolidated
Statements of Comprehensive Income (Loss)
Three
and Nine Months Ended September 30, 2018 and 2017
(unaudited)
|
5
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|
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|
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Consolidated
Statements of Cash Flows
Nine
Months Ended September 30, 2018 and 2017 (unaudited)
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6
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|
|
|
|
|
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Consolidated
Statements of Changes in Shareholders’ Equity
Nine
Months Ended September 30, 2018 and 2017 (unaudited)
|
8
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|
|
|
|
|
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Notes
to Consolidated Financial Statements (unaudited)
|
9
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|
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Item
2.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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34
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|
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Item
3.
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Quantitative and
Qualitative Disclosures About Market Risk
|
47
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Item
4.
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Controls and
Procedures
|
47
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|
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PART II – OTHER INFORMATION
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Item
1.
|
Legal
Proceedings
|
48
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|
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Item
1A.
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Risk
Factors
|
48
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Item
2.
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Unregistered Sales
of Equity Securities and Use of Proceeds
|
48
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Item
3.
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Defaults Upon
Senior Securities
|
48
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|
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Item
4.
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Mine
Safety Disclosures
|
48
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|
|
|
|
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Item
5.
|
Other
Information
|
48
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|
|
|
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Item
6.
|
Exhibits
|
49
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|
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|
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Signatures
|
50
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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)
|
|
|
|
|
|
|
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Assets
|
|
|
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Investments:
|
|
|
|
Fixed-maturity
securities, available for sale, at fair value (amortized cost:
$4,784 and $4,450, respectively)
|
$4,764
|
4,433
|
|
Equity securities,
available for sale, at fair value (cost of $2,058 in
2017)
|
-
|
2,036
|
|
Equity securities,
at fair value (cost of $5 in 2018)
|
5
|
-
|
|
Total
investments
|
4,769
|
6,469
|
|
Cash
and cash equivalents
|
8,238
|
7,763
|
|
Restricted
cash and cash equivalents
|
3,910
|
3,124
|
|
Accrued
interest and dividend receivable
|
36
|
39
|
|
Premiums
receivable
|
2,080
|
3,798
|
|
Deferred
policy acquisition costs
|
191
|
48
|
|
Prepayment
and other assets
|
71
|
116
|
|
Property
and equipment, net
|
22
|
36
|
|
Total
assets
|
$19,317
|
21,393
|
|
|
|
|
|
Liabilities and Shareholders’ Equity
|
|
|
|
Liabilities:
|
|
|
|
Reserve
for losses and loss adjustment expenses
|
$167
|
4,836 #
|
|
Loss
experience refund payable
|
-
|
135
|
|
Losses
payable
|
-
|
386
|
|
Notes
payable to Series 2018-1 noteholders
|
2,000
|
-
|
|
Unearned
premiums reserve
|
1,740
|
2,012
|
|
Accounts
payable and other liabilities
|
695
|
106
|
|
Total
liabilities
|
4,602
|
7,475
|
|
|
|
|
|
Shareholders’
equity:
|
|
|
|
Ordinary
share capital, (par value $0.001, 50,000,000 shares authorized;
5,733,587 shares issued and outstanding)
|
6
|
6
|
|
Additional
paid-in capital
|
32,194
|
32,100
|
|
Accumulated
Deficit
|
(17,465)
|
(18,149)
|
|
Accumulated
other comprehensive loss
|
(20)
|
(39)
|
|
Total
shareholders’ equity
|
14,715
|
13,918
|
|
Total
liabilities and shareholders’ equity
|
$19,317
|
21,393
|
The
accompanying Notes to Consolidated Financial Statements are an
integral part of the Consolidated Financial
Statements.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
(expressed in thousands of U.S. Dollars, except per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Revenue
|
|
|
|
|
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Assumed
premiums
|
47
|
-
|
2,627
|
18,256
|
|
Premiums
ceded
|
-
|
(733)
|
-
|
(880)
|
|
Change
in loss experience refund payable
|
-
|
2,730
|
(225)
|
1,470
|
|
Change
in unearned premiums reserve
|
653
|
17,309
|
(1,148)
|
4,494
|
|
|
|
|
|
|
|
Net
premiums earned
|
700
|
19,306
|
1,254
|
23,340
|
|
Net
income from derivative instruments
|
397
|
-
|
773
|
-
|
|
Net
investment and other income
|
100
|
128
|
280
|
341
|
|
Net
realized investment losses
|
(61)
|
(104)
|
(237)
|
(56)
|
|
Change
in fair value of equity securities
|
118
|
-
|
22
|
-
|
|
|
|
|
|
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|
Total
revenue
|
1,254
|
19,330
|
2,092
|
23,625
|
|
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|
|
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Expenses
|
|
|
|
|
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Losses
and loss adjustment expenses
|
-
|
41,400
|
-
|
42,427
|
|
Net
loss on commutation
|
-
|
-
|
8
|
-
|
|
Policy
acquisition costs and underwriting expenses
|
63
|
514
|
101
|
672
|
|
General
and administrative expenses
|
305
|
370
|
981
|
1,094
|
|
|
|
|
|
|
|
Total
expenses
|
368
|
42,284
|
1,090
|
44,193
|
|
|
|
|
|
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Income
(loss) before (income) attributable to Series 2018-1
noteholders
|
$886
|
(22,954)
|
1,002
|
(20,568)
|
|
|
|
|
|
|
|
(Income)
attributable to Series 2018-1 noteholders
|
(234)
|
-
|
(296)
|
-
|
|
|
|
|
|
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|
Net
income (loss)
|
652
|
(22,954)
|
706
|
(20,568)
|
|
|
|
|
|
|
|
Earnings (loss) per share
|
|
|
|
|
|
Basic
and Diluted
|
$0.11
|
(3.97)
|
0.12
|
(3.53)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid per share
|
$-
|
0.12
|
-
|
0.36
|
|
|
|
|
|
|
The
accompanying Notes to Consolidated Financial Statements are an
integral part of the Consolidated Financial
Statements.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(Loss)
(Unaudited)
(expressed in thousands of U.S. Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
$652
|
(22,954)
|
706
|
(20,568)
|
|
Other
comprehensive income (loss):
|
|
|
|
|
|
Change
in unrealized loss on investments:
|
|
|
|
|
|
Unrealized
(loss) gain arising during the period
|
1
|
185
|
(3)
|
325
|
|
Reclassification
adjustment for net realized losses (gains) included in net (loss)
income
|
-
|
104
|
-
|
56
|
|
|
|
|
|
|
|
Net
change in unrealized loss
|
1
|
289
|
(3)
|
381
|
|
|
|
|
|
|
|
Total
other comprehensive income (loss)
|
1
|
289
|
(3)
|
381
|
|
|
|
|
|
|
|
Comprehensive
income (loss)
|
$653
|
(22,665)
|
703
|
(20,187)
|
The
accompanying Notes to Consolidated Financial Statements are an
integral part of the Consolidated Financial
Statements.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(expressed in thousands of U.S. Dollars)
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
Net
income (loss)
|
$706
|
(20,568)
|
|
Adjustments
to reconcile net income (loss) to net cash used in operating
activities:
|
|
|
|
Stock-based
compensation
|
94
|
95
|
|
Net
amortization of premiums on investments in fixed-maturity
securities
|
7
|
63
|
|
Depreciation
and amortization
|
14
|
18
|
|
Net
realized investment losses
|
237
|
56
|
|
Change
in fair value of equity securities
|
(22)
|
-
|
|
Change
in operating assets and liabilities:
|
|
|
|
Accrued
interest and dividend receivable
|
3
|
5
|
|
Premiums
receivable
|
1,718
|
151
|
|
Reinsurance
recoverable
|
-
|
(4,000)
|
|
Deferred
policy acquisition costs
|
(143)
|
31
|
|
Prepayment
and other assets
|
45
|
1
|
|
Reserve
for losses and loss adjustment expenses
|
(4,669)
|
16,056
|
|
Loss
experience refund payable
|
(135)
|
(1,470)
|
|
Losses
payable
|
(386)
|
-
|
|
Unearned
premiums reserve
|
(272)
|
(1,094)
|
|
Accounts
payable and other liabilities
|
589
|
(33)
|
|
|
|
|
|
Net
cash used in operating activities
|
$(2,214)
|
(10,689)
|
|
|
|
|
|
Investing activities
|
|
|
|
Purchase
of fixed-maturity securities
|
(4,902)
|
(3,987)
|
|
Purchase
of equity securities
|
(5,804)
|
(12,751)
|
|
Proceeds
from sale of fixed-maturity and equity securities
|
12,181
|
19,147
|
|
Purchase
of property and equipment
|
-
|
(6)
|
|
|
|
|
|
Net
cash provided by investing activities
|
$1,475
|
2,403
|
|
|
|
|
|
Financing activities
|
|
|
|
Proceeds
on issuance of notes payable to Series 2018-1
noteholders
|
2,000
|
-
|
|
Repurchases
of common stock under share repurchase plan
|
-
|
(1,061)
|
|
Dividends
paid
|
-
|
(2,091)
|
|
|
|
|
|
Net
cash provided by (used in) financing activities
|
$2,000
|
(3,152)
|
|
|
(continued)
|
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Consolidated Statements of Cash Flows, continued
(Unaudited)
(expressed in thousands of U.S. Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, and restricted cash and cash
equivalents:
|
|
|
|
Net
change during the period
|
1,261
|
(11,438)
|
|
Balance,
beginning of period
|
10,887
|
35,682
|
|
|
|
|
|
Balance,
end of period
|
$12,148
|
24,244
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
Interest
paid
|
-
|
-
|
|
Income
taxes paid
|
-
|
-
|
|
|
|
|
|
Non-cash investing activities
|
|
|
|
Net
change in unrealized loss on securities available for
sale
|
(3)
|
381
|
The
accompanying Notes to Consolidated Financial Statements are an
integral part of the Consolidated Financial
Statements.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders’ Equity
(unaudited)
Nine Months Ended September 30, 2018 and 2017
(expressed in thousands of U.S. Dollars, except share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2016
|
5,916,149
|
$6
|
$33,034
|
$4,534
|
$(411)
|
$37,163
|
|
Cash
dividends paid
|
-
|
-
|
-
|
(2,091)
|
-
|
(2,091)
|
|
Repurchase
and retirement of common stock under share repurchase
plan
|
(182,562)
|
-
|
(1,061)
|
-
|
-
|
(1,061)
|
|
Net
loss for the period
|
-
|
-
|
-
|
(20,568)
|
-
|
(20,568)
|
|
Stock-based
compensation
|
-
|
-
|
95
|
-
|
-
|
95
|
|
Total
other comprehensive income
|
-
|
-
|
-
|
-
|
381
|
381
|
|
Balance
at September 30, 2017
|
5,733,587
|
6
|
32,068
|
(18,125)
|
(30)
|
13,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2017
|
5,733,587
|
6
|
32,100
|
(18,149)
|
(39)
|
13,918
|
|
Cumulative
effect of change in accounting for equity securities as of January
1, 2018
|
-
|
-
|
-
|
(22)
|
22
|
-
|
|
Net
income for the period
|
-
|
-
|
-
|
706
|
-
|
706
|
|
Stock-based
compensation
|
-
|
-
|
94
|
-
|
-
|
94
|
|
Total
other comprehensive loss
|
-
|
-
|
-
|
-
|
(3)
|
(3)
|
|
Balance
at September 30, 2018
|
5,733,587
|
$6
|
$32,194
|
$(17,465)
|
$(20)
|
$14,715
|
The
accompanying Notes to Consolidated Financial Statements are an
integral part of the Consolidated Financial
Statements.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
September
30, 2018
1.
ORGANIZATION
AND BASIS OF PRESENTATION
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 Strathvale House, 90 North Church 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 September 30, 2018 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, 2018. 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, 2017 included in the
Company’s Form 10-K, which was filed with the SEC on March
13, 2018.
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.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
September
30, 2018
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.
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’s investments consist of fixed-maturity
securities and equity securities, and for which its fixed-maturity
securities 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 with respect to
its fixed-maturity securities. For the Company’s investment
in equity securities, 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.
The
Company reviews all fixed-maturity 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 operations in the period
in which the Company makes such determination. For a fixed-maturity
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 operations, while impairment related to all other
factors is recognized in other comprehensive income. The Company
considers various factors in determining whether an individual
security is other-than-temporarily impaired (see Note
4).
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
September
30, 2018
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 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. 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.
Derivative
Financial Instruments: The
Company may from time to time enter into underwriting contracts
such as industry loss warranty contracts (“ILW”) that
are treated as derivatives for GAAP purposes. GAAP requires that an
entity recognize all derivatives in the consolidated balance sheet
at fair value. It also requires that unrealized gains and losses
resulting from changes in fair value be included in operations or
comprehensive (loss) income. The Company’s derivative
financial instrument assets are included in prepayments and other
assets. Derivative financial instrument liabilities are included in
accounts payable and other liabilities.
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, 2018, the DAC was
considered fully recoverable and no premium deficiency loss was
recorded.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
September
30, 2018
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 and nine-month period ended September 30,
2018 and 2017, there were no impairments in property and
equipment.
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, 2018, 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 operations 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, 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.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
September
30, 2018
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 reduces 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.
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, 2018.
Earnings (Loss) per
share: Basic
earnings (loss) per share has been computed on the basis of the
weighted-average number of ordinary shares outstanding during the
periods presented. Diluted earnings (loss) 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.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
September
30, 2018
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 stock 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 stock
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.
Recent adopted
accounting pronouncements:
Accounting
Standards Update No. 2016-01. In January 2016, the FASB
revised GAAP with the issuance of Accounting Standards Update
2016-01 (“ASU 2016-01”), Financial Instruments -
Overall (Subtopic 825-10): Recognition and Measurement of Financial
Assets and Financial Liabilities to improve the recognition and
measurement of financial instruments. The new ASU requires certain
investments in equity securities to be measured at fair value with
changes in fair value reported in operations and requires changes
in instrument-specific credit risk for financial liabilities
recorded at fair value under the fair value option to be reported
in Other Comprehensive income (loss). The company adopted this ASU
on January 1, 2018, and applied it prospectively without prior
period amounts restated. As a result of the adoption, $22 thousand
of unrealized losses on equity securities was reclassified on
January 1, 2018, from accumulated other comprehensive loss to
accumulated deficit. Results of operations were impacted as changes
in fair value of equity securities are now reported as a separate
component in net income (loss) instead of reported in other
comprehensive income (loss).
Accounting
Standards Update No. 2016-18. In November 2016, the
FASB revised GAAP, Statement of Cash Flows (Topic 230): Restricted
Cash with the issuance of the ASU 2016-18, to reduce diversity in
the classification and presentation of changes in restricted cash
in the statement of cash flows. The new ASU requires that the
statement of cash flows explain the change during the period in the
total of cash, cash equivalents, and amounts generally described as
restricted cash or restricted cash equivalents. The Company is
required to reconcile such total to amounts on the Consolidated
Balance Sheets and disclose the nature of the restrictions. The
Company adopted this ASU effective January 1, 2018, which only
resulted in a change in the presentation of the Consolidated
Statements of Cash Flows.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
September
30, 2018
Accounting
Standards Update No. 2017-09. In May 2017, the FASB
issued ASU 2017-09, Compensation -
Stock Compensation (Topic 718): Scope of Modification
Accounting. ASU 2017-09 clarifies when to account for a
change to the terms or conditions of a share based payment award as
a modification. Under the new guidance, modification accounting is
required only if the fair value, the vesting conditions, or the
classification of the award (as equity or liability) changes as a
result of the change in terms or conditions. The effective date of
ASU 2017-09 was for interim and annual reporting periods, beginning
after December 15, 2017, and was applied prospectively. The company
adopted this ASU effective January 1, 2018, and it did not have a
material impact on our company's consolidated financial position,
cash flows or results of operations.
Pending Accounting Updates:
Accounting
Standards Update No. 2016-02. In February 2016, the FASB issued
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. 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. 2016-13. 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, 2019, and interim periods within those annual periods.
Early adoption is permitted for any organization for annual periods
beginning after December 15, 2018 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 and anticipates implementing ASU
2016-13 during the first quarter of fiscal year 2020.
Accounting Standards Update
No. 2018-07. In June 2018, the FASB issued ASU No. 2018-07,
Stock Compensation (Topic 718): Improvements to Nonemployee
Share-Based Payment Accounting. The ASU is intended to reduce the
cost and complexity and to improve financial reporting for
nonemployee share-based payments. The ASU expands the scope of
Topic 718. Compensation Stock Compensation (which currently only
includes share-based payments to employees) to include share-based
payments issued to nonemployees for goods or services.
Consequently, the accounting for share-based payments to
nonemployees and employees will be substantially aligned. The ASU
supersedes Subtopic 505-50, Equity-Equity-Based payments to
Non-Employees. The ASU is effective for the Company for fiscal
years beginning after December 15, 2018, including interim periods
within that fiscal year. Early adoption is permitted, but no
earlier than a company’s adoption date of Topic 606, Revenue
from Contracts with Customers. The Company is currently evaluating
the impact of the ASU, if any, on its 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.
Reclassifications: Certain reclassifications of prior
period amounts have been made to conform to the current period
presentation.
3. CASH
AND CASH EQUIVALENTS AND RESTRICTED CASH AND CASH
EQUIVALENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
on deposit
|
$699
|
$4,052
|
|
Cash
held with custodians
|
7,539
|
3,711
|
|
Restricted
cash held in trust
|
3,910
|
3,124
|
|
|
|
|
|
Total
|
12,148
|
10,887
|
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 SunTrust 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.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
September
30, 2018
4. INVESTMENTS
The
Company holds investments in fixed-maturity securities and equity
securities, with its fixed-maturity securities classified as
available-for-sale. At September 30, 2018 and December 31, 2017,
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:
|
|
|
|
|
Estimated Fair
Value ($000)
|
|
|
|
|
As of September 30,
2018
|
|
|
|
|
|
Fixed-maturity securities
|
|
|
|
|
|
U.S. Treasury and
agency securities
|
$4,784
|
$4
|
$(24)
|
$4,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
fixed-maturity securities
|
4,784
|
4
|
(24)
|
4,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available for
sale securities
|
$4,784
|
$4
|
$(24)
|
$4,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
2017
|
|
|
|
|
|
Fixed-maturity securities
|
|
|
|
|
|
U.S. Treasury and
agency securities
|
$4,450
|
$-
|
$(17)
|
$4,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
fixed-maturity securities
|
4,450
|
-
|
(17)
|
4,433
|
|
|
|
|
|
|
|
Mutual
funds
|
400
|
29
|
-
|
429
|
|
Preferred
stocks
|
200
|
-
|
(1)
|
199
|
|
Common
stocks
|
1,458
|
12
|
(62)
|
1,408
|
|
|
|
|
|
|
|
Total equity securities (1)
|
2,058
|
41
|
(63)
|
2,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available for
sale securities
|
$6,508
|
$41
|
$(80)
|
$6,469
|
(1) Effective January
1, 2018, the Company adopted ASU No. 2016-01 and equity securities
are no longer classified as available-for-sale. Prior periods have
not been restated to conform to the current presentation. See Note
2, Accounting Policies, for additional information.
At
September 30, 2018 and December 31, 2017, available-for-sale
securities with fair value of $4,395,000 and $1,430,000,
respectively, are held in trust accounts as collateral under
reinsurance contacts with the Company’s ceding
insurers.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
September
30, 2018
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, 2018 and December 31,
2017 are as follows:
|
|
|
|
|
|
|
|
As of September 30,
2018
|
|
|
|
Available
for sale
|
|
|
|
Due within one
year
|
$2,355
|
2,358
|
|
Due after one year
through five years
|
2,429
|
2,406
|
|
|
|
|
|
|
$4,784
|
$4,764
|
|
|
|
|
|
|
|
|
|
As of December 31,
2017
|
|
|
|
Available
for sale
|
|
|
|
Due within one
year
|
$3,007
|
$3,003
|
|
Due after one year
through five years
|
1,443
|
1,430
|
|
|
|
|
|
|
$4,450
|
$4,433
|
Proceeds received, and the gross realized gains and losses from
sales of available-for-sale fixed-maturity securities, and equity
securities, for the three months and nine months ended September
30, 2018 and 2017 were as follows:
|
|
Gross proceeds
from sales
|
|
|
|
|
|
|
Three Months Ended
September 30, 2018
|
|
|
|
|
Available-for-sale
fixed-maturity securities
|
$1,565
|
$3
|
$-
|
|
|
|
|
|
|
Equity
securities
|
$1,583
|
$57
|
$(121)
|
|
|
|
|
|
|
Nine Months Ended
September 30, 2018
|
|
|
|
|
Available-for-sale
fixed-maturity securities
|
$4,565
|
$3
|
$-
|
|
|
|
|
|
|
Equity
securities
|
$7,616
|
$475
|
$(715)
|
|
|
|
|
|
|
Three Months Ended
September 30, 2017
|
|
|
|
|
Available-for-sale
fixed-maturity securities
|
$3,000
|
$30
|
$-
|
|
|
|
|
|
|
Equity
securities
|
$6,470
|
$380
|
$(514)
|
|
|
|
|
|
|
Nine Months Ended
September 30, 2017
|
|
|
|
|
Available-for-sale
fixed-maturity securities
|
$3,000
|
$30
|
$-
|
|
|
|
|
|
|
Equity
securities
|
$16,147
|
$1,112
|
$(1,198)
|
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
September
30, 2018
4.
INVESTMENTS
(continued)
The
Company regularly reviews its individual investment securities for
OTTI. The Company considers various factors in determining whether
each individual debt 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.
Available-for-sale securities with gross unrealized loss positions
at September 30, 2018 and December 31, 2017, aggregated by
investment category and length of time the individual securities
have been in a continuous loss position, are as
follows:
|
|
|
|
|
|
As
of September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
|
|
|
|
|
U.S. Treasury and
agency securities
|
$24
|
3,398
|
-
|
-
|
24
|
3,398
|
|
|
|
|
|
|
|
|
|
Total
fixed-maturity securities
|
24
|
3,398
|
-
|
-
|
24
|
3,398
|
|
|
|
|
|
|
|
|
|
Total available for
sale securities
|
$24
|
$3,398
|
$-
|
$-
|
$24
|
$3,398
|
At September 30, 2018, there were 5 securities in an unrealized
loss position of which none of these positions had been in an
unrealized loss position for 12 months or greater.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
September
30, 2018
4.
INVESTMENTS
(continued)
|
|
|
|
|
|
As
of December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
|
|
|
|
|
U.S. Treasury and
agency securities
|
$13
|
1,428
|
4
|
3,003
|
17
|
4,431
|
|
|
|
|
|
|
|
|
|
Total
fixed-maturity securities
|
13
|
1,428
|
4
|
3,003
|
17
|
4,431
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
|
|
|
|
|
Preferred
stocks
|
1
|
199
|
-
|
-
|
1
|
199
|
|
All other common
stocks
|
36
|
769
|
26
|
174
|
62
|
943
|
|
|
|
|
|
|
|
|
|
Total equity
securities
|
37
|
968
|
26
|
174
|
63
|
1,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available for
sale securities
|
$50
|
$2,396
|
$30
|
$3,177
|
$80
|
$5,573
|
At December 31, 2017, there were 8 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, 2018 and December 31, 2017.
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.
Based on management’s evaluation, the Company did not
consider any of its equity securities to be other-than-temporarily
impaired at December 31, 2017. Additionally, upon
adoption of ASU 2016-01 on January 1, 2018, changes in fair value
of equity securities are now recorded within the consolidation
statements of operations, and as such, OTTI considerations are no
longer made with respect to equity securities.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
September
30, 2018
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, 2018 and December 31, 2017:
|
|
Fair Value
Measurements Using
|
|
|
|
|
|
|
|
|
As of September 30,
2018
|
|
|
Financial
Assets:
|
|
|
|
|
|
Cash and cash equivalents
|
$8,238
|
$-
|
$-
|
$8,238
|
|
|
|
|
|
|
|
Restricted cash and cash equivalents
|
$3,910
|
$-
|
$-
|
$3,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
fixed-maturity securities
|
4,764
|
-
|
-
|
4,764
|
|
|
|
|
|
|
|
Total
equity securities
|
5
|
-
|
-
|
5
|
|
|
|
|
|
|
|
Total
securities
|
4,769
|
-
|
-
|
4,769
|
|
|
|
|
|
|
|
Total
|
$16,917
|
$-
|
$-
|
$16,917
|
As
disclosed in Note 5, the Company is a counterparty to an investment
in an industry loss warranty swap. The swap was valued on the basis
of models developed by the counterparty, which represent
unobservable (Level 3).
There
were no transfers between Levels 1, 2 and 3 during the three and
nine months ended September 30, 2018 and 2017.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
September
30, 2018
4.
INVESTMENTS
(continued)
|
|
Fair Value
Measurements Using
|
|
|
|
|
|
|
|
|
As of December 31,
2017
|
|
|
Financial
Assets:
|
|
|
|
|
|
Cash and cash equivalents
|
$7,763
|
$-
|
$-
|
$7,763
|
|
|
|
|
|
|
|
Restricted cash and cash equivalents
|
$3,124
|
$-
|
$-
|
$3,124
|
|
|
|
|
|
|
|
U.S. Treasury and
agency securities
|
4,433
|
-
|
-
|
4,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
fixed-maturity securities
|
4,433
|
-
|
-
|
4,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual
funds
|
429
|
-
|
-
|
429
|
|
Preferred
stocks
|
199
|
-
|
-
|
199
|
|
All other common
stocks
|
1,408
|
-
|
-
|
1,408
|
|
|
|
|
|
|
|
Total equity
securities
|
2,036
|
-
|
-
|
2,036
|
|
|
|
|
|
|
|
Total available for
sale securities
|
6,469
|
-
|
-
|
6,469
|
|
|
|
|
|
|
|
Total
|
$17,356
|
$-
|
$-
|
$17,356
|
5.
DERIVATIVE INSTRUMENTS
Inward Industry Loss Warranty ("ILW") Swap
In
January 2018, the Company entered into an inward ILW swap (the
"2018 Inward ILW Swap") with a third-party under which qualifying
loss payments are triggered by reference to the level of losses
incurred by the insurance industry as a whole, rather than by
losses incurred by the insured. In return for a fixed payment
received of $1 million, the Company is required to make a floating
payment in the event of certain losses incurred from specified
natural catastrophes in North America, Caribbean, Europe, Japan,
Australia, New Zealand and Latin America from January 2018 to
December 2018. The Company’s maximum payment obligation under
the 2018 Inward ILW Swap is $4 million. During the quarter ending
September 30, 2018, the Company was not aware of any industry loss
event occurring that would have triggered a payment obligation
under the 2018 Inward ILW Swap.
The
Inward ILW Swap was valued on the basis of models developed by the
counterparty, which represent unobservable (Level 3) inputs. As of
September 30, 2018, the fair value of the 2018 Inward ILW Swap was
$0.2 million, and was recorded with "accounts payable and other
liabilities" on the Company's September 30, 2018 Consolidated
Balance Sheet.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
September
30, 2018
5.
DERIVATIVE INSTRUMENTS (continued)
Inward Industry Loss Warranty ("ILW") Swap
During
the three and nine months ended September 30, 2018, the Company
recognized a gain from derivative instruments of $0.4 million and
$0.8 million, respectively, pursuant to the 2018 Inward ILW
Swap.
6.
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
its subsidiaries 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
its subsidiaries 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.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
September
30, 2018
7. 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 debt issued
by Oxbridge Re NS to investors, Oxbridge Re NS has entered into a
retrocession agreement with Oxbridge Reinsurance Limited effective
June 1, 2018. 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 diversified 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 100% of the
voting shares, 100% of the issued share capital and has a
significant financial interest and the power to control the
activities of Oxbridge Re NS that most significantly impacts its
economic performance. The Company has no other obligation to
provide financial support to Oxbridge Re NS. Neither the creditors
nor beneficial interest holders of Oxbridge Re NS have recourse to
the Company’s general credit.
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.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
September
30, 2018
7. VARIABLE INTEREST ENTITIES
(continued)
Notes Payable to Series 2018-1 noteholders
Oxbridge Re NS issued $2 million of participating notes
on June 1, 2018, all of which were issued to third parties and
which provides quota share support for Oxbridge Re’s global
property catastrophe excess of loss reinsurance business. The
operations of Oxbridge Re NS commenced on June 1, 2018. The
participating notes are due to mature on June 1, 2021. None of the
participating notes were redeemed during the three and nine month
periods ending September 30, 2018.
The
income from Oxbridge Re NS operations that are attributable to the
participating notes noteholders for the three and nine months
ended September 30, 2018 were $234,000 and $296,000
respectively, and are included within accounts payable and other
liabilities as at September 30, 2018.
As
noted in Note 16 to these consolidated financial statements,
Hurricane Michael made landfall on October 10, 2018. The effect of
Hurricane Michael will cause loss of principal of approximately
$1.1 million to the Series 2018-1 noteholders, and loss of income
of $232,000 attributable to the Series 2018-01
noteholders.
8.
RESERVE FOR 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, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
beginning of period
|
$167
|
3,043
|
$4,836
|
8,702
|
|
Incurred
related to:
|
|
|
|
|
|
Current
period
|
-
|
38,401
|
-
|
38,401
|
|
Prior
period 1
|
-
|
2,999
|
(1,012)
|
4,026
|
|
Total
incurred
|
-
|
41,400
|
(1,012)
|
42,427
|
|
Paid
related to:
|
|
|
|
|
|
Current
period
|
-
|
(21,500)
|
-
|
(21,500)
|
|
Prior
period
|
-
|
(2,185)
|
(3,657)
|
(8,871)
|
|
Total
paid
|
-
|
(23,685)
|
(3,657)
|
(30,371)
|
|
Net
balance, end of period
|
$167
|
20,758
|
$167
|
20,758
|
|
Add:
reinsurance recoverable
|
-
|
4,000
|
-
|
4,000
|
|
Gross
balance, end of period
|
$167
|
24,758
|
$167
|
24,758
|
The
reserves for losses and LAE are 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.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
September
30, 2018
8.
RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES (continued)
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.
1
During the nine-month period ending
September 30, 2018, the Company entered into final commutation
agreements with two (2) cedants under which the Company’s
liabilities were commuted at an agreed-upon fixed price. The
Company recognized a net loss on commutation of $8,000 which is
presented as a separate line item in the Consolidated Statement of
Operations. Included in the net loss on commutation is favorable
loss development of $1,012 thousand on one of the commuted
contracts.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
September
30, 2018
9. EARNINGS (LOSS) PER SHARE
A summary of the numerator and denominator of the basic and diluted
earnings (loss) per share is presented below (dollars in thousands
except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
Net
earnings (loss)
|
$652
|
(22,954)
|
$706
|
(20,568)
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
Weighted
average shares - basic
|
5,733,587
|
5,777,119
|
5,733,587
|
5,833,621
|
|
Effect
of dilutive securities - Stock options
|
-
|
-
|
-
|
-
|
|
Shares
issuable upon conversion of warrants
|
-
|
-
|
-
|
-
|
|
Weighted
average shares - diluted
|
5,733,587
|
5,777,119
|
5,733,587
|
5,833,621
|
|
Earnings
(loss) per shares - basic
|
$0.11
|
(3.97)
|
$0.12
|
(3.53)
|
|
Earnings
(loss) per shares - diluted
|
$0.11
|
(3.97)
|
$0.12
|
(3.53)
|
|
|
|
|
|
|
For the three and nine-month periods ended September 30, 2018 and
2017, options to purchase 250,000 ordinary shares were
anti-dilutive as the sum of the proceeds, including unrecognized
compensation expense, exceeded the average market price of the
Company’s ordinary share during the periods
presented.
For the three and nine-month periods ended September 30, 2018 and
2017, 8,230,700 warrants to purchase an aggregate of 8,230,700
ordinary shares were anti-dilutive because the exercise price of
$7.50 exceeded the average market price of the Company’s
ordinary share during the periods presented.
GAAP requires the Company to use the two-class method in computing
basic earnings 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 per share
during periods of net income.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
September
30, 2018
10. SHAREHOLDERS’ EQUITY
On
February 28, 2014, the Company’s Registration Statement on
Form S-1, as amended, relating to the initial public offering of
the Company’s units was declared effective by the SEC. The
Registration Statement covered the offer and sale by the Company of
4,884,650 units, each consisting of one ordinary share and one
warrant (“Unit”), which were sold to the public on
March 26, 2014 at a price of $6.00 per Unit. The ordinary shares
and warrants comprising the Units began separate trading on May 9,
2014. The ordinary shares and warrants are traded on the Nasdaq
Capital Market under the symbols “OXBR” and
“OXBRW,” respectively. One warrant may be exercised to
acquire one ordinary share at an exercise price equal to $7.50 per
share on or before March 26, 2019. At any time after September 26,
2014 and before the expiration of the warrants, the Company at its
option may cancel the warrants in whole or in part, provided that
the closing price per ordinary share has exceeded $9.38 for at
least ten trading days within any period of twenty consecutive
trading days, including the last trading day of the
period.
The
initial public offering resulted in aggregate gross proceeds to the
Company of approximately $29.3 million (of which approximately $5
million related to the fair value proceeds on the warrants issued)
and net proceeds of approximately $26.9 million after deducting
underwriting commissions and offering expenses.
There
were 8,230,700 warrants outstanding at September 30, 2018 and 2017.
No warrants were exercised during the three and nine-month periods
ended September 30, 2018 and 2017.
As of
September 30, 2018, 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. See
also Note 12.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
September
30, 2018
11. SHARE-BASED
COMPENSATION
The Company currently
has outstanding stock-based awards granted under the 2014 Omnibus
Incentive Plan (the “Plan”). Under the Plan, the Company has discretion to
grant equity and cash incentive awards to eligible individuals,
including the issuance of up to 1,000,000 of the Company’s
ordinary shares. At September 30, 2018,
there were 690,000 shares available for grant under the
Plan.
Stock options
The Company accounts for share-based compensation under the fair
value recognition provisions of ASC Topic 718 –
“Compensation – Stock Compensation.” Stock
options granted and outstanding under the Plan vests quarterly over
four years and are exercisable over the contractual term of ten
years.
A summary of the stock option activity for the three and nine-month
periods ended September 30, 2018 and 2017 is as
follows:
|
|
|
Weighted-Average
Exercise Price
|
Weighted-Average Remaining Contractual Term
|
Aggregate
Intrinsic Value
|
|
|
|
|
|
|
|
Outstanding
at January 1, 2018
|
250,000
|
$6.01
|
|
|
|
Outstanding
at March 31, 2018
|
250,000
|
$6.01
|
7.2
years
|
$-
|
|
Outstanding
at June 30, 2018
|
250,000
|
$6.01
|
6.9
years
|
$-
|
|
Outstanding
at September 30, 2018
|
250,000
|
$6.01
|
6.7
years
|
$-
|
|
Exercisable
at September 30, 2018
|
208,125
|
$6.01
|
6.7
years
|
$ |