Oxbridge Re Holdings Ltd (OXBR) 2015 Q4 法說會逐字稿

Good afternoon. Welcome to the Oxbridge Re Holdings fourth-quarter and full-year 2015 earnings call. My name is Tim and I will be your conference operator this afternoon. At this time all participants will be in a listen-only mode.

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

I would like to remind everyone that this call is also being broadcast live via webcast, and available via webcast replay until April 17, 2016 on the Investor Information section of the Oxbridge Re website at www.oxbridgere.com.

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

Thank you, operator. During today's call, there will be forward-looking statements made regarding future events, including Oxbridge Re's future financial performance. These forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995.

Words such as anticipates, estimates, expects, intend, plan, project and other similar words and expressions are intended to signify forward-looking statements. Forward-looking statements are not guarantees of future results and conditions but rather are subject to various risks and uncertainties. Some of these risks and uncertainties are identified in the Company's filing with the SEC.

The occurrence of any of these risks and uncertainties could have a material adverse effect on the Company's business, financial condition and results of operations. Any forward-looking statements made on this conference call speak only as of the date of this conference call. And, except as required by law, the Company undertakes no obligation to update any forward-looking statements contained in this presentation, even if the Company's expectations or any related events, conditions or circumstances, change.

Now I would like to turn the call over to Jay Madhu, the President and Chief Executive Officer of Oxbridge Re. Jay?

Thank you, Wrendon, and good afternoon, everybody. Thank you for joining us today. Before we get into our results, I would like to take a moment to provide our listeners a brief overview of our Company and its history.

Oxbridge Re Holding Limited was founded in April of 2013 to provide reinsurance solutions to property and casualty insurers in the Gulf Coast region of the United States. Through our license reinsurance subsidiary, Oxbridge Reinsurance Limited, we rightfully collateralize policies to cover property losses from specific catastrophes. Because we rightfully collateralize contracts, we are able to compete with larger carriers.

We specialize in underwriting medium-frequency, high-severity risks, where we believe sufficient data exists to efficiently analyze the risk return profile of reinsurance contracts. Our goal is to achieve long-term growth in book value per share by writing business on a selective and opportunistic basis that will generate attractive underwriting profits relative to risk, while disturbing profits for shareholders in the form of regular dividends.

As for our investment portfolio, we remain opportunistic and will deploy our capital as favorable opportunities arise. While we believe will in turn -- which, in turn, will drive results through supplemental investment income. That said, our focus and top priority remains on profitable underwriting.

As our Company began to grow, we saw slight -- we saw significant opportunity to accelerate our growth even further -- opportunities that would be much more attainable with access to additional capital. As such, we became a publicly traded company, raising $26.4 million during our IPO at the end of March 2014.

Now before I get into the details about the quarter and add some important color to our operational highlights, I'd like to turn the call over to our Financial Controller, Wrendon Timothy, to take us through our financial results for the quarter. Wrendon?

Thank you, Jay, and good afternoon again, everyone. We had a profitable fourth quarter of 2015, which marked our 10th consecutive quarter of profitability and our sixth consecutive quarter of regular post-IPO dividend distribution.

Regarding net premium earned, for the fourth quarter of 2015, net premium earned increased 9% to $1.8 million. For the full-year 2015, net premium earned increased 40% to $6.8 million. The increases were driven by the continued increase in the number and size of the reinsurance contracts that were placed.

Regarding investment income, for the fourth quarter of 2015, net investment income totaled $75,000 offset by $990,000 of net realized investment losses. This resulted in an overall loss of [$922,000] in our investment portfolio for the quarter. For the fourth quarter of 2015, net investment income totaled $49,000 coupled with $476,000 of net realized investment gains for the fourth quarter of 2015, resulting in an overall gain of $525,000 in our investment portfolio for the prior-year quarter.

For 2015, net investment income totaled $337,000, offset by $325,000 of net realized investment losses, coupled with a non-cash charge of $399,000 due to declines deemed other than temporary NPL in the fair value of securities. This resulted in an overall loss of $387,000 in our investment portfolio for the year. For 2015, net investment income totaled $99,000 coupled with $641,000 of net realized investment gains, resulting in an overall gain of $740,000 in our investment portfolio for the prior year.

We initiated our investment income strategy in August 2014, where we began to deploy some of our investment capital into fixed maturity and equity securities. As such, we realized losses in other than temporary impairment losses that have impacted our investment performance.

Regarding total expenses, total expenses for the fourth quarter of 2015, included policy acquisition costs, underwriting expenses and administrative expenses, were $496,000 compared with $471,000 in the fourth quarter of 2014. For the full-year 2015, total expenses were $1.8 million compared to $1.6 million in 2014. The increases were due to the continued increase in expenses resulting from increased business activities and operations following our IPO in March 2014, offset by the expiration of an underwriting consulting contract.

Regarding net income, for the fourth quarter of 2015, net income totaled $372,000 or $0.06 per basic and diluted earnings per common share compared with $1.7 million or $0.20 per basic and diluted earnings per common share in the fourth quarter of 2014. The decrease in costing net income was primarily driven by the performance of the investment portfolio.

For 2015, net income totaled $4.6 million or $0.76 diluted earnings per common share compared with $4 million or $0.82 per basic and diluted earnings per common share in the same year-ago period. The yearly increase was driven by the increase in net premiums earned offset by investment losses and higher administrative expenses. The decrease in diluted earnings per common share were solely due to the higher level of weighted average shares outstanding during 2015 when compared with 2014.

Regarding dividends paid, we paid dividends of $0.12 per share in the fourth quarter of 2015, which was unchanged from the same year-ago quarter. For 2015, we paid dividends of $0.48 per share, which was also unchanged from 2014. Our Board of Directors evaluates our dividends each quarter, which we believe reflect our commitments to our shareholders.

Now turning to our financial ratios for the three months and full-year ended December 31, 2015. We use various measures to analyze the growth and profitability of business operations. For our reinsurance business, we measure underwriting profitability by examining our loss ratio, underwriting expense ratio. and combined ratio.

Our loss ratio, which measures underwriting profitability, is it a ratio of losses and loss adjustment expenses, include the premiums earned. There were no losses included in the three-month periods and full-year ended December 31, 2015 and 2014. As such our loss ratio is [null].

Our acquisition cost ratio, which measures operational efficiency, compares policy acquisition costs and other underwriting expenses to net premiums earned. The acquisition cost ratio was 4.7% for the fourth quarter of 2015 compared at 7.9% for the same year-ago period. For 2015, the acquisition cost ratio was 5.1% compared with 8.9% for the same year-ago period. The decreases were due to relatively low acquisition costs on reinsurance contracts and the expiration of the previously mentioned consulting contracts.

Our expense ratio, which measures operating performance, compares policy acquisition costs, other underwriting expenses, and general and administrative expenses to net premiums earned. The expense ratio decreased to 27.7% during the fourth quarter of 2015 compared with 28.1% during the fourth quarter of 2014. For 2015, the expense ratio was [26.3%] compared with 32.4% for 2014. The decreases were due to the relative decline in policy acquisition costs, as well as the relatively low increase in general and admin expenses when compared to the more substantial increase in net premiums earned.

Combined ratio -- our combined ratio, which is used to measure underwriting performance, is the sum of the loss ratio and the expense ratio. If the combined ratio is at or above 100%, underwriting is not profitable. The combined ratios of 27.7% for the fourth quarter of 2015 and 28.8% for the fourth quarter of 2014. For 2015, the combined ratio was 26.3% compared with 32.4% for 2014. The combined ratios are the same as the expense ratio for comparable periods, as no losses were incurred during any of the periods.

Now turning to the balance sheet. Total investments, which includes investments in frequent maturities and equity securities, totaled $9.3 million at December 31, 2015, down from $11.8 million at December 31, 2014. Total shareholders equity at year-end was $37 million compared with [$36.7 million] at December 31, 2014.

At December 31, 2015, we had a total of $39 million in cash and cash equivalents, unrestricted cash and cash equivalents. This compares with $33.5 million at December 31, 2014. We are encouraged by our results for the fourth quarter of 2015 and for the full-year 2015, and we remain committed to increasing shareholder value in future periods and years ahead.

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

Thank you, Wrendon. 2015 was a strong year for Oxbridge as we executed across all our business aspects. Our underwriting guidelines and increasingly diverse book of reinsurance contracts produced a profitable full year of operations, benefiting from a relatively quiet storm season.

We ended the year with a strong balance sheet which included -- which includes $39 million of cash and zero debt. Our profitable core business, coupled with our balance sheet, gives us a flexibility to evaluate the marketplace and entertain only the most accretive growth opportunities as they arise.

While our strategic focus is providing reinsurance in the Gulf Coast region of the United States, we see vast growth opportunities in the industry, which we believe we are already tapping into. We see this growth coming not only in increased customer numbers but also in geographic focus and broker relationships.

When our company began operations, we had only one customer, resulting in all our business coming from that same company. Now, three hurricane seasons later, we have increased our customer base to six. The result of this dispersion is that our first customer now makes up less than 25% of our business.

While the majority of our business remains in the target-rich state of Florida, we have also achieved geographic dispersion in Louisiana as well as a contract with some global risk. This diversification also reflects the progress we have made in expanding our brokerage network.

As our company matures and builds relationship with the industry, we are confident we can continue to build our networks and further grow our business. We initiated our investment strategy during the second half of 2014. In the year 2014, we realized $740,000 in investment income. However, 2015 was a top year for the markets.

On an investment portfolio of approximately $46 million on average, we realized $387,000 of investment losses. These numbers are a combination of interest and dividend income, realized gains and losses, as well as OTTI or Other Than Temporarily Impairment. Despite the 2015 performance, we feel our investment portfolio is well-positioned for the future.

Overall, we are pleased with our results for 2015. We believe our company is in a strong position to drive shareholder value for both strong earnings and regular distribution of dividends.

Finally, I'll leave you with some thoughts. As mentioned earlier, we are not only growing our business but also diversifying its geographical customer and brokerage base. We not only had a profitable quarter but also a profitable year. In 2015, we made $0.76 per common share and paid out $0.48 in dividends. We intend to maintain our strong dividend payments as we seek to reward our shareholders while we work to unlock the value we believe exists in our Company, which, at December 31, 2015, had a healthy book value of $6.11.

And finally, this marks our 10th consecutive quarter of profitability, and our sixth consecutive quarter of regular dividend distribution, with our seventh dividend distribution to be paid on March the 30th.

Having said that, we are ready to open the call for questions. Operator? Please provide the appropriate instructions.

(Operator Instructions). [Kent Inkley[, Capital Securities.

Just two quick questions. One is, can you talk a little bit more about your investment portfolio? And is this recent rally helping you all out in both the debt markets as well as the equity markets? And how are you seeing competition?

Excellent question. As far as the investment portfolio, the way to kind of look at our investment portfolio is, on a whole, we currently have about $48.4 million that we manage. Off that, $3.1 million is in fixed mature securities, $6.3 million in equity, and the rest in cash and restricted cash.

So we manage a $48 million portfolio. Off that, this past quarter was choppy, we did take some losses over there. However, the rest of the market didn't fare very well either. Now having said that, what we did was, as opposed to continue to hold some of these securities on our books, we decided to move them off and take the loss. So, moving forward, what we have, we have benefited from the market going up, and we seem to be in better shape.

Good. Happy to hear that. In regards to competition for reinsurance contracts and the like, obviously it's a soft market for the obvious reasons, and we have to be careful with what we wish for in regards to parting the markets. How are you seeing competition and pricing as compared to last year?

Yes. The -- we -- this is actually -- I can confidently say that this has actually been a banner year for us, because every year that we move forward, we have made such strides. When we started off, we only had one client; but now at this point, we have six clients and we are dealing with three brokers.

Our main client -- we reduced our exposure, our dependency on our main client to less than 25%. So what we have done over the last three years in business, we have moved to where -- we have -- we've gained quite a bit of -- we have done well in the market.

This year, as we go into the renewal year, we haven't seen pricing yet. The pricing will be what it will be; we don't expect there to be significant difference in what we have. And the reason being because we're so small and nimble, we can afford to be opportunist on some of the contracts that come to us. If the numbers don't make sense, we don't do it.

Having said that, we have more business that we can place this year than we have capital to do that. And that's a great situation to be with. And that's not only with one client; that's all across the board; and some new folks that we are talking to and also the existing folks that we currently have.

I think that's very positive. It just shows the confidence and the acceptance of Oxbridge, Jay. And congratulations on that.

Thank you, Kent.

Casey Alexander, Ladenburg Thalmann.

Do you -- I mean, it's March 17, so the quarter is almost over. I understand that when it's year-end, it takes a little bit longer to report. Based upon that, the fact that the quarter is almost over, do you have any sense as to whether you expect to report another realized loss for the first quarter in the portfolio? I mean, at this stage of the quarter, you should at least -- you might have some sense of it, anyway.

Yes. No, that's a fair question, Casey, because people have asked us that question in the past, over the past couple of weeks and so on, just because of the choppiness of the market.

So far, so good. Some of our -- we -- our portfolio is acting quite better. And some of the losses that we realized in the last quarter, that we took that mainly for cautionary reasons. Again, hindsight being 20/20, had we stuck to some of that, that would come back up. But again, those are things that we have no knowledge of.

So we are cautious in that regard. But to answer -- to come back full circle, our portfolio seems to be acting a lot better than it did the last quarter.

In this quarter, there were some weather events that did cause losses for some of the property casualty homeowners companies in Florida and Louisiana. Now, as best I can tell, none of the Florida companies appears through their retention and into their reinsurance contracts, but one publicly-traded Louisiana company did.

So, I'm just wondering if you are aware of any claims that may be coming your way in the first quarter? And, if so, if you have any sense of what the magnitude of those might be?

Yes. The nice thing about diversification is you diversify your book of business over geographic and customer base. However, the downstroke is every now and then you might see something that you may not be thrilled with. And Louisiana, there were some losses. But the Louisiana book is a very small portion of our entire book.

We don't have accurate -- we don't have numbers from them yet so we can't speak to that. Once we do, we will put those out. But there might be a small loss over there. But that loss, as we see it currently, is not a material loss for two reasons. One is because Louisiana is not a huge area of our book, and two, the numbers that they've given us are not very material to our book of business either.

Okay. Good. Now, as it relates to the 2016/2017 season, I have a couple questions. Are you -- I'm glad to hear that you have a large number of opportunities. Does that mean that you will continue to be reducing the percentage of business that you have with the original client?

And secondly, do you have some sort of sense of how -- you know, as currently constructed, how many contracts would you like to get out? And would you like to try to achieve a different geographical dispersion of your policies? How do you feel about that?

Yes. So reducing our dependency on our original client, I think we've demonstrated that we can successfully reduce that dependency because we reduced it tremendously. So I think where we stand going into the season, we have the great opportunity, we have great opportunity in front of us to say that -- we can pick and choose, and say what we want to do. And that's kind of where we are. We are in the midst of finalizing that, that in the next near future, that will get finalized.

However, having said that, to reduce our dependency further or totally turn off our relationship is probably not the best way to see it. How I would view it is just say where are the best policies coming from or where are we getting better risk reward? And once we look at that, we will kind of weigh them against how the entire book looks.

So it's -- I love the fact that I can always say we reduced our dependency. But at the same time, I also have to weigh it against the income that we potentially could be making, which policy is more profitable than the other.

Right. Okay. That makes sense. Okay. That's all my questions at the moment. I'll let somebody else jump in. Thanks.

All right, Casey.

At this time, we have no further questions in the audio portion of this conference. I would like to turn the conference back over to Jay Madhu for closing remarks.

Thank you for joining us on today's conference call. To just elaborate on one of the questions asked by Casey, on the Louisiana contract, I just wanted to clarify that the information we have is preliminary; we don't have final numbers. It's -- so once we do have final numbers, we can put those out. But the conversation over here was just on preliminary information; it's not hard numbers that we have been given.

Moving on, I would especially like to thank our business partners and investors for their continued support. And we look forward to updating you on our next conference call. Thank you.

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