Oxbridge Re Holdings Ltd (OXBR) 2017 Q4 法說會逐字稿

Good afternoon. Welcome to Oxbridge Re Holdings' Fourth Quarter and Full Year 2017 Earnings Call. My name is Sherry, and I will be your conference operator this afternoon. (Operator Instructions)

Joining us for today's presentation is Oxbridge Re's President, CEO and recently appointed Chairman, Jay Madhu, along with Oxbridge Re's CFO, 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 April 13, 2018, on the Investor Information section of Oxbridge Re's website at www.oxbridgere.com.

Now I'd 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. Please proceed, sir.

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

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

Now I'd like to turn the call back over to our President, Chief Executive Officer and recently appointed Chairman, Jay Madhu. Jay?

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

Oxbridge Re Holdings Limited was founded nearly 5 years ago with a mission to provide reinsurance solutions, primarily to property and casualty insurers of the Gulf Coast region of the United States. Through a licensed insurance-reinsurance subsidiary, Oxbridge Reinsurance Limited, we rightfully collateralize policies to cover property losses from specific catastrophes. And as some of you already know, because we write fully collateralized contracts, we are able to complete 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 effective underwriting profits relative to risk.

Now before we get into the financials, I'd like to take this time in my opening remarks to provide a brief overview of our past year. 2017 was anomalous period for our company and moreover, the insurance industry as a whole. As we mentioned on our previous call, the third quarter was marred by impact -- by the impact from a series of major hurricanes that devastated the Gulf Coast region and elsewhere. More personally and quite frankly, the third quarter was a worst-case scenario for Oxbridge. All our contracts suffered limit losses during the -- during Q3 and the effects of which you're seeing in Q4 and are still seeing currently. These natural disasters generated a massive amounts of damage that severely hampered our business and many others. It has been a difficult time but also an instrumental one. As some of you know, the official end of hurricane season was on November 30. Having made it through this tumultuous time, we are now very confident that the worst is behind us.

Before going further into our results for the year as well as our outlook for the rest of 2018, I will now turn it to Wrendon to take us through our financial results for the fourth quarter and 12 months ended December 31, 2017. Wrendon?

Thank you, and good afternoon, again, everyone. I will now get into our financial results for the 3 and 12 months ended December 31, 2017.

With respect to net premiums earned. For the fourth quarter of 2017, net premiums earned decreased approximately $11.2 million to $227,000 from $11.4 million in the fourth quarter of 2016. The significant decrease in net premiums earned was directly as a result of acceleration of premium recognition on all of our contracts through September 30, 2017, as the company suffered limit losses on all of its contracts due to the combination of Hurricanes Harvey, Irma and Maria. As such, only premiums on one of the company's multiyear retrospectively rated contracts was recognized during the fourth quarter of 2017.

For the 12 months ended December 31, 2017, net premiums earned increased $5.5 million to $23.6 million compared with $18.1 million for 2016. The increase in net premiums earned is due both to the high deployment of capital during 2017 and consequentially, higher premiums as well as the acceleration of premium recognition due to the full limit losses being incurred on all of our reinsurance contracts during the full year 2017.

With respect to investment income, for the fourth quarter of 2017, net investment income totaled $71,000, which was offset by $82,000 of net realized investment losses. This compares with $123,000 of net investment income coupled with $298,000 of net realized investment gains for the fourth quarter of 2016.

For the 12 months ended December 31, 2017, net investment income totaled $412,000, which was offset by net realized investment losses of $138,000. This compares with $450,000 of net investment income coupled with $554,000 of net realized investment gains for 2016.

With respect to expenses, total expenses for the fourth quarter of 2017 including loss and loss-adjusted expenses, policy acquisition costs and underwriting expenses and general and administrative expenses were $240,000 compared with $14.2 million in the fourth quarter of 2016. The decrease in total expenses was primarily a result of losses incurred from Hurricane Matthew during the fourth quarter of 2016 compared with no underwriting losses in the fourth quarter of 2017.

For the 12 months ended December 31, 2017, total expenses included losses and loss-adjustment expenses, policy acquisition costs and underwriting expenses and the general and administrative expenses were $44.4 million compared with $16.5 million in 2016. The significant increase in total expenses was due to the triggering of limit losses on substantially all of the company's reinsurance contracts due to the individual and collective impact of Hurricane Harvey, Irma and Maria on our book of business compared with nominal loss and loss-adjustment expenses during the prior fiscal year. The increase in total expenses was also due to the acceleration of premium recognition and the resulting acceleration of policy acquisition costs.

With respect to net income, for the fourth quarter of 2017, net loss totaled $24,000 or $0 per basic and diluted share compared with net loss of $2.3 million or $0.39 per basic and diluted share in the fourth quarter of 2016. The improvement was primarily due to net underwriting losses related to Hurricane Matthew experienced in the fourth quarter of 2016 compared with no underwriting losses during the fourth quarter of 2017.

For the 12 months ended December 31, 2017, net loss totaled $20.6 million or $3.55 basic and diluted common share compared with net income of $2.6 million or $0.43 per basic and diluted common share for 2016.

For the full year, the significant decrease in net income was wholly due to the triggering, during the third quarter of 2017, of limit losses on all of the company's reinsurance contracts due to the individual and collective impact of Harvey, Irma and Maria on the company's book of business, when compared with nominal loss and loss-adjustment expenses during the prior fiscal year.

With respect to dividend, for the 12 months ended December 30, 2017, dividends paid per share were $0.36 compared with $0.48 per share in 2016. As we mentioned on our last earnings call, subsequent to the end of the third quarter, the company's Board of Directors decided to halt its regular $0.12 quarterly cash dividend, beginning with the third quarter of 2017. Additionally and in recognition of the dividend halt, the company also decided to cancel the payment of Director fees, which had been $7,500 per Director per quarter, effective October 1, 2017.

Going forward, the Board of Directors intend to revisit reinstatement of a quarterly cash dividend but at some point in the indeterminate future. The decision will not be immediate and will be dependent upon a variety of factors, including the current state of the business as well as general market conditions at that time.

Now turning to our financial ratios for the 3 and 12 months ended December 31, 2017. We use various measures to analyze the growth and profitability of our business operations. For our reinsurance business, we measure underwriting profitability by examining our loss ratio, acquisition cost ratio, expense ratio and combined ratio. Our loss ratio, which measures underwriting profitability, is the ratio of losses and loss-adjustment expenses incurred to net premiums earned.

Our loss ratio for the fourth quarter of 2017 was 0% compared with 124 -- 120.4% for the fourth quarter of 2016. For the 12 months ended December 31, 2017, the loss ratio was 180% compared to a loss ratio of 81.8% during 2016. The increase in the loss ratio for the full year was due to the multiple limit losses suffered during 2017, partially offset by a higher denominator in net premiums earned when compared with the prior fiscal year.

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% for the fourth quarter of 2017 compared with 0.7% for the same year ago period. For the 12 months ended December 31, 2017, the acquisition cost ratio was 2.9% compared with 1.6% for the same year ago period. The increase in the acquisition cost ratio was due wholly to the acceleration of acquisition costs recognition mentioned earlier, more than offset by a large denominator in net premiums earned when compared with prior fiscal year.

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 105.7% during the fourth quarter of 2017 compared with 3.6% for the fourth quarter of 2016. For the 12 months ended December 31, 2017, the expense ratio was 8.5% compared with 9.4% for 2016. The decrease in the expense ratio was due wholly to a significant increase in net premiums earned, partially offset by increased policy acquisition costs as recorded during 2017, when compared with the prior fiscal year.

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 fourth quarter of 2017, the combined ratio was 105.7% compared with 124% for the fourth quarter of 2016. For the 12 months ended December 31, 2017, the combined ratio was 188.5% compared with 91.3% for the year ago period. The increase in the combined ratio is due to a significantly higher loss ratio during 2017, as mentioned above, when compared with the prior fiscal year.

Now turning to the balance sheet. Total investment, which includes investments and fixed-maturity and equity securities, totaled $6.5 million at December 31, 2017, compared with $11 million at December 31, 2016.

Total shareholders’ equity at December 31, 2017, was $13.9 million, down from $37.2 million at December 31, 2016.

At December 31, 2017, cash and cash equivalents and restricted cash and cash equivalents totaled $10.9 million compared with $35.7 million at December 31, 2016.

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

Thank you, Wrendon. 2017 was very much a tale of 2 halves for our company. In the first half, we successfully executed our business plan, diversifying our book of business by increasing our client base and profitably growing our business with the very same conservative and diligent underwriting process that had characterized much of our operating history. In the second half, we had to endure some of the most significant natural disasters in recent memory, the aftermath of which is still being worked out.

Hurricane Irma was a colossal storm impacting Florida from coast-to-coast. The damage related to Hurricanes Matthew, Irma and Maria and other -- and others in the season have been estimated to be in excess of $100 billion.

Looking at the results from our most recent fourth quarter through -- though -- although, subdued, was less of a surprise, and our portfolio performed in line with our expectation, given the errands of our third quarter.

On paper, we nearly returned to breakeven, but the bottom line doesn't tell the whole story. This quarter was basically the result of our slate being wiped clean. As we discussed on our last call, as we just mentioned, we suffered limit losses on all our company's reinsurance contracts last quarter.

A result -- as a result, the more -- the board made the difficult decision to discontinue our quarterly cash dividends as well as cut the payment of director fees. We are continuing to evaluate opportunities for recovery in growth, as we maintained focused on the most integral element of our business, which is to provide long-term value to our shareholders. We have controlled those things which are in our power to do. Unfortunately, there's an inherent unpredictability in our business. Unlike other insurance and reinsurance companies, we have not and do not intend to pursue an aggressive investment strategy and have focused our business on underwriting profits instead. Furthermore, we have implemented risk management practices and do our best to limit our exposure to risk.

Within our market and risk category, we attempt to select the most economically attractive opportunities across a variety of property and casualty insurers.

I hope I've been able to articulate this point clearly. At Oxbridge, we are focused on long-term growth. The periodic fluctuations that occur as part of our business should, and of course, be considered. And with the hurricane season now behind us, we are continuing to evaluate the options that will position us to participate in a slow -- in slowly moving market.

Moving forward into 2018, we will remain patient and opportunistic as we always have to make sure we're in good positioning to capitalize on available opportunities and while managing a reasonable risk profile for our business. We are very appreciative of our patient and loyal shareholders who remain with us during this challenging time.

In summary, 2017 was a very uncharacteristic year, one in which the strength of our business model was tested greatly and most noticeably, by record 3 category 4-plus hurricanes, which hit Gulf Coast region during the third quarter. Despite these headwinds, we remain opportunistic about our company's future prospects. Moving forward, we will continue to work towards the ultimate goal of providing long-term value for our faithful shareholder base.

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

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

Tim, congratulations to the -- surviving a horrific September. Speaks volume of you guys, that you're able to make it in spite of (inaudible). My question's more of, it's like, where do you guys go from here? Is there other opportunities that you're pursuing? I guess, what is the potential path of Oxbridge?

Yes. Kent, as -- I have to be very careful what I say over here, but however, it's one of the things that every company should always be evaluating opportunity. And what we are currently seeing is, the results of last year are causing us to view this with greater severity. So with that, we are looking into different opportunity, whether it be sidecar or some other events. But it's something that we will start dabbling in and looking into, as we go forward. It's possibly that we may do something in the upcoming season, or it might be something that we will build towards for the future season. But nonetheless, definitely, we are acutely aware that it cannot be business as usual, and we are looking at the other opportunity as well.

Okay. A lot of things could draw a lot of conclusions from that.

Yes. Sorry.

(Operator Instructions) Our next question is from Steven Marascia out with Capitol Securities Management.

Question. In the past, you've been raising or you've been writing premiums against 50% of your shareholder equity, if I'm not mistaken. And right now, the level's about $14 million, which, theoretically, gives you a level of $7 million to write against, going forward. Do you have any plans to go higher than that amount or a potential capital raise? Will that be needed in the future in order to raise that amount?

Yes, Steve. A few calls ago, we discussed about increasing the profile from that 50% to a number slightly higher. However, with where we currently stand, we're looking at this strategy, kind of going back to basics type of thing. So we will be evaluating risk a little bit more carefully in this upcoming season, but in line with what I just mentioned, we'll also be looking at some additional possibilities, going forward.

(Operator Instructions) At this time, we would like to conclude -- oh, sorry, we do have a question from Mel Cutler with Cutler Capital.

Jay, I know it's been a tough year, but you're already well into the first quarter. Have you generated any revenue in the first quarter of 2018?

Yes. We have generated some revenue over here in the first quarter. Because, as in the past, we have -- most of our contracts start off on June 1 for 12 months or some are 6 months or thereabouts. But we've, also, in the past, had some contracts that start off on January 1, so we did re-up and just like the years before, we did go into that.

(Operator Instructions) Okay. At this time, we would like to conclude our question-and-answer session. I would now like to turn the call over to Mr. Madhu for closing remarks.

Thank you all for joining us on today's call, what was definitely a tough call. I especially want to thank our employees, business partners and investors for their continued support. We look forward to updating you on our next 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. You may now disconnect.