Oxbridge Re Holdings Ltd (OXBR) 2017 Q1 法說會逐字稿

Good afternoon. Welcome to the Oxbridge Re Holdings Limited First Quarter 2017 Earnings Call. My name is Diego, and I will be your conference operator this afternoon. (Operator Instructions)

Joining us for today's presentation is Oxbridge Re's President and CEO, Jay Madhu; and CFO and Corporate Secretary, Wrendon Timothy. (Operator Instructions)

I would like to remind everyone that this call is also being broadcast live via webcast and available via webcast replay until June 15, 2017 on the Investor Information section of the Oxbridge Re website at www.oxbridgere.com.

Now I would like to turn the call over to Wrendon Timothy, CFO 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 filings with the SEC. The occurrence of any of these risks and uncertainties could have a material adverse effect on the company's business, financial condition and results of operations. Any forward-looking statement 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 our President and Chief Executive Officer, Jay Madhu. Jay?

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

Oxbridge Re Holdings Limited was founded 4 years ago with the mission to provide reinsurance solutions, primarily to property and casualty insurers in the Gulf Coast region of the United States. Through our licensed reinsurance subsidiary, Oxbridge Reinsurance Limited, we write fully collateralized policies to cover property losses from specific catastrophes.

And as some of you know, because we write fully collateralized contracts, we can compete effectively with large 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 objective is to achieve long-term growth and book value per share by writing business on a selective and opportunistic basis that will generate attractive underwriting profits relative to risk, while distributing profits to shareholders in the form of regular quarterly dividends.

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

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

As you know, the United States was affected by Hurricane Matthew during the fourth quarter of 2016. The resulting impact to our earnings and capital to the first quarter of 2017 totaled $2.8 million. Despite paying our claims through 2016 and losses from Hurricane Matthew, we believe our capital position remains strong.

With that background and introduction, I will turn it over to Wrendon to take us through our financial results for the quarter ending March 31, 2017. Wrendon?

Thank you, Jay, and good afternoon again. We are pleased to report that we had a profitable Q1 2017 and earned $0.22 for the quarter.

With respect to net premiums earned. For the first quarter of 2017, net premiums earned increased to $1.5 million from $1.4 million in the first quarter of 2016. The increase in net premiums earned was primarily a result of the growth and size in the number of active reinsurance contracts during the quarter.

For the first quarter of 2017, net investment income totaled $86,000, coupled with $2,000 of net realized investment gains. This compares with $94,000 of net investment income, coupled with $56,000 of net realized investment gains for the first quarter of 2016.

We initiated our investment income strategy back in August 2014, where we began to deploy some of our investment capital into fixed maturity and equity securities. As such, we will periodically realize losses on other than temporary impairment losses that impact our investment performance. However, we did not experience any such losses in the first quarter.

We are pleased with the performance of our investment portfolio. As we look forward, we believe we are very well positioned to capitalize on an increasing rate environment.

Regarding total expenses. Total expenses for the first quarter of 2017, including loss and loss adjustment expenses, policy acquisition costs, underwriting expenses and administrative expenses, were $366,000 compared with $488,000 in the first quarter of 2016. The decrease was primarily as a result of favorable development on actuarially determined losses as established by our independent actuary, coupled with lower general and administrative expenses.

Regarding net income. For the first quarter of 2017, net income totaled $1.3 million or $0.22 per basic and diluted share compared with net income of $1 million or $0.17 per basic and diluted share in the first quarter of 2016. The increase in earnings was primarily due to higher net premiums earned, coupled with lower total expenses.

Regarding dividends paid. We paid dividends of $0.12 per share in the first quarter of 2017, which was consistent with the comparable year-ago period. Subsequent to the quarter's end, the company declared its regular quarterly cash dividend in the amount of $0.12. The dividend will be paid on June 30 to shareholders of record on the close of business on June 23, 2017. Our Board of Directors evaluates our dividend at each quarter, which we believe reflect our ongoing commitment to our shareholders.

Regarding our share repurchase program. During the first quarter of 2017, the company repurchased 54,277 common shares under the $2 million share repurchase plan approved by the Board of Directors back in May 2016. These shares were repurchased at an average price of $6.23 per share, bringing the total repurchase at March 31, 2017, to approximately $1.1 million.

Turning over to financial results for the 3 months ended March 31, 2017. We used various measures to analyze the growth and profitability of our business operations. For our reinsurance business, we measure underwriting profitability by examining our loss ratio, underwriting expense ratio and combined ratio. Our loss ratio, which measures underwriting profitability, is the ratio of losses and loss adjustment expenses incurred to net premiums earned. Our loss ratio for the first quarter of 2017 was negative 2.1% compared to 4.6% for the first quarter of 2016. The decrease was due to the favorable development of actuarially determined losses during the first quarter.

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 4.1% for the first quarter of 2017 compared with 4.4% for the same year-ago period. The decrease was due to the overall lower weighted average acquisition costs on reinsurance contracts in force, coupled with higher net premiums earned.

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 totaled 25.7% during the first quarter of 2017 compared with 30.8% for the first quarter of 2016. The decrease was due to lower general and administrative expenses during the quarter, coupled with higher net premiums earned.

Our combined ratio, which is used to measure underwriting performance, is the sum of the loss ratio and the expense ratio. If the combined ratio is at or above 100%, underwriting is not profitable. For the first quarter of 2017, the combined ratio was 23.6% compared with 35.5% for the first quarter of 2016.

Now turning over to the balance sheet. Total investments, which include investments in fixed maturity and equity securities, totaled $14.4 million at March 31, 2017, compared with $11 million at December 31, 2016. Total shareholders' equity at March 31, 2017, was $37.4 million, up slightly from $37.1 million at December 31, 2016. At March 31, 2017, cash and cash equivalents and restricted cash and cash equivalents totaled $31.2 million compared with $35.6 million at December 31, 2016.

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

Thank you, Wrendon. We are pleased with our results for the first quarter, highlighted by yet another period of profitable growth for Oxbridge Re. As Wrendon just mentioned, we believe our positive results in Q1 provides further validation of our conservative approach and diligent underwriting process. Building on my earlier comments, because Oxbridge Re is a provider of reinsurance primarily to clients in the Gulf Coast of the United States, we understand that losses are inevitable.

However, we believe we have implemented appropriate risk management practices and we do our best to limit the risk exposure we take by maintaining our diversified book of reinsurance and a diligent underwriting process.

But as we saw last quarter from Hurricane Matthew, we are not immune to hurricanes, and we did experience claims. Nevertheless, despite these losses, we were still able to achieve profitability for the full calendar year, which again reflects our prudent risk management.

So as we approach hurricane season in the Gulf Coast, which begins June 1, our diversified business strategy and prudent risk management makes us well positioned, and our formidable capital position affords us the ability to patiently evaluate the marketplace while also being opportunistic in our underwriting and investment income strategy.

Long term, we continue to execute on our capital allocation strategy, focused on delivering shareholder value through regular quarterly dividends as well as ongoing repurchase of our common stock.

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

(Operator Instructions) Our first question comes from Kent Engelke with Capitol Securities Management.

I had actually 2 different questions. The first is, if I heard you right, Jay, I have cash and cash equivalents of about $15 million in that neighborhood versus $12.2 million. I guess it really surrounds 2 different things. Obviously, with [FEA] going up on the overnight rate, I would think that you would be finally generating some income on those cash -- and actually, the cash and -- with the restricted cash is closer to $30 million. So that right off the bat is a little bit of an earnings boost. And secondly, in years past, you only put about 50% of your capital work in previous hurricane seasons. Are you wanting to do that again this year? Are you planning to change that strategy? Any comments on either any sort of additional income coming off the cash and restricted cash? And as well as are you going to put more than 50% of your funds to work at the same time?

Yes, Kent. Thank you so much for that question. So the first question, what we've done as we're seeing a slightly change -- slight change in interest rate environment, we are deploying a little bit more money into fixed security -- fixed mature securities. So in years gone by, when there wasn't much interest being paid, it didn't quite make sense. But now as we go into it, we're going to stair-step into that. So without doing much of anything, we will be earning a little bit more on that particular portfolio. In terms of your second question, you'd asked what -- you've asked about our 50% theoretical number. We always are very cognizant of that 50% number. So in years gone by, when we only had one client, we had close to 100% of our monies in that one client. It didn't make sense to get more than 50% of our capital invested in underwriting income. As we've gone forward, we've seen the development of where we have increased not only our client base, our broker base, but also our policy dispersion base. So with that, as we go forward, we will evaluate if we should increase that threshold. Now some of our other brethren, they deploy close to -- close in excess of 95% of that capital. We will never get to that. What we're talking about possibly is exceeding that 50% very marginally. So while that is something that we are evaluating, it's not something that has come about. But underwriting has started some thought process towards that. We'll evaluate as we go forward. But if we were to exceed that 50%, it will be very marginal.

Jay, it's very quick math. I would think with just the interest rates going up on your cash, that's approximately $0.05 a share per annum, if things held the same. I'm also thinking about if you put more than 50% of your monies to work, I'm just trying to figure out a realistic earnings assumption based upon any sort of externality that we really can't control. And I'm just trying to get a better handle on that.

Yes. And in terms of putting our capital to work in fixed maturities, et cetera, we're just stair-stepping into that. And as we go forward, we'll look at that. And the same thing with underwriting income. That 50% number, while it's a thought, it hasn't materialized. So it's still theory. But we will start looking at that as we go forward.

(Operator Instructions)

It appears that we are out of questions for the day. So with that, I'd like to thank you for joining us on today's call. I especially want to thank our business partners and investors for their continued support. We look forward to updating you on our next call. Thank you so much. Operator?

Thank you. This concludes today's conference. We'd like to remind everyone that a recording of today's call will be available for replay via a link available in the Investors section of the company's website. Thank you for joining us today for our presentation. You may now disconnect.