Oxbridge Re Holdings Ltd (OXBR) 2020 Q1 法說會逐字稿

Good afternoon. Welcome to Oxbridge Re's First Quarter 2020 Earnings Call. My name is Jess, and I will be your conference operator this afternoon. (Operator Instructions)

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

I would like to remind everyone this call is also being broadcast via live webcast and available via webcast replay until June 13, 2020, in 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, Chief Financial Officer 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, intends, plans, projects 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 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 on this call or in any company presentation, given the company's expectations or any related events, conditions or circumstances change.

In addition, on March 11, 2020, the World Health Organization characterized the outbreak of COVID-19 as the global pandemic. On March 25, 2020, the Cayman Island government responded and implemented curfew restrictions to control the spread of COVID-19. In response, we temporarily closed our offices and ask our employees to work from home until further notice.

Now I would like to turn the call over to our Chairman, President and CEO, Jay Madhu. Jay?

Thank you, Wrendon. And welcome, everyone. Thank you for joining us today. As we expressed during our 2019 year-end conference call, we continue to experience a world severely challenged by the COVID-19 pandemic. Our key goals during this challenging times is to ensure the health and safety of our people and our community. It is also important to note there is no reinsurance or underwriting implications for Oxbridge resulting from the pandemic. We have suffered unrealized losses on our investment portfolio due to the depressed capital markets. However, our equity security investments generate income and are made with a long-term view. 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 over 6 years ago with a mission to provide reinsurance solutions, primarily to property and casualty reinsurers -- pardon me, insurers in the Gulf Coast region of the United States. Through our licensed reinsurance subsidiary, Oxbridge Reinsurance Limited and our licensed reinsurance sidecar, Oxbridge RE NS, we write fully collateralized 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 compete effectively with large carriers.

We specialize in underwriting low frequency, higher price severity risks, where we believe sufficient data exists to efficiently analyze the risk return profile of a reinsurance contract. Our objective is to achieve long-term growth and book value per share by writing business on selective and opportunistic basis that will generate attractive underwriting profits relative to risk.

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

Looking at the first quarter of 2020, we experienced an increased net loss due to -- due wholly to the unrealized write-down in the fair value of equity securities in our investment portfolio. Other than this unrealized loss, our operational performance was stronger in the quarter than the prior year's first quarter. Our book value stands at $1.34 per share, and as I stated, our risk management underwriting focus is and will be unaffected by COVID-19 pandemic.

In addition, we continue to make progress in the second year of operation of our wholly owned subsidiary, Oxbridge RE NS, our reinsurance sidecar, which this contract year ends at the month of -- ends at the end of this month. Our sidecar investors are still on track to earn an attractive return of approximately 36%. We will look to grow that portion of our business again this upcoming season, beginning June 1 2020.

I'll now turn the call over to Wrendon to take us through our financial results for the first quarter of 2020. Wrendon?

Thank you, Jay. First, a point to note is our typical contract period is from June 1 to May 31 of the following year. With regard to net premiums earned, net premiums earned for the quarter ended March 31, 2020, were $264,000 compared to 0 in the first quarter of last year. The increase this year is wholly due to the previous acceleration of premium recognition due to full limit losses being incurred on all of our reinsurance contracts during the last year's first quarter when compared to the normal recognition of premiums this year.

Net investment and other income for the first quarter of 2020 totaled $33,000 with a $6,000 net realized gains, offset by a $326,000 unrealized decline in the fair value of equity securities in the first quarter of 2020, which is compared with $63,000 of net investment income, $3,000 net realized gains and $51,000 increase in fair value of equity securities in the same period last year.

As Jay mentioned, the change this year is due to the depressed capital markets created by the COVID-19 pandemic. Total expenses for the first quarter of 2020, including loss and loss adjustment expenses, policy acquisition costs and underwriting expenses and general and administrative expenses, were $275,000 compared with $264,000 in the first quarter of 2019. The increase in expenses was due to an increase in policy acquisition costs and underwriting expenses, partially offset by a further decrease in general and admin expenses as a result of cost-saving initiatives we have implemented.

Net income, we generated a net loss of $364,000 or $0.06 per basic undiluted share for the first quarter of 2020 compared with a net loss of $147,000 or $0.03 per share in the first quarter of 2019. The larger net loss this year is wholly due to the unrealized reduction in the fair value of our securities portfolio.

Now turning to our financial ratios for the 3 months ended March 31, 2020. 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 expense ratio, underwriting expense ratio and combined ratio. Our loss ratio, which measures underwriting profitability, is the ratio of losses and loss adjustment expenses incurred in net premiums earned. Our loss ratio for the first quarter of 2020 was 0%, the same as last year as there were no loss or loss adjustment expenses in either quarter.

Our acquisition cost ratio, which measures operational efficiency, compares policy acquisition costs and other underwriting expenses to the net premiums earned. Our acquisition cost ratio was 11% for the first quarter of 2020, compared with 0% last year. The increase was due to no acquisition costs incurred in the first quarter of 2019.

Our expense ratio, which measures operating performance, compares policy acquisition costs, other underwriting expenses and general and admin expenses with net premiums earned. The expense ratio was 104.2% for the first quarter of 2020 compared with 0 last year. Last year, there were no premiums earned in the first quarter.

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 ratio totaled 104.2% for the first quarter of 2020 compared to 0% last year. Again, in last year's first quarter, there were no net premiums earned.

Now turning to the balance sheet. Total investments, which include investment in equity securities totaled $972,000 at March 31, 2020, compared with $692,000 at December 31, 2019. The increase is due to the net purchase of equity securities during the first quarter.

At March 31, 2020, cash and cash equivalents and restricted cash and cash equivalents totaled $7.4 million compared with $8 million at December 31, 2019. Total shareholder equity at March 31

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unrealized losses on equity securities due to the depressed financial market. At March 31, 2020, our current book value per share stood at $1.34.

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

Thank you, Wrendon. The first quarter included less than 1 month of operating under COVID-19 uncertainty, we are operating in a much different business environment. However, I'm pleased to report it has not affected our operations and I look forward to keeping you appraised of our progress in these coming months. Through our reinsurance side part, we have been able to add a degree of diversity to our revenue stream and risk, which still -- while still having the ability to achieve attractive returns.

As mentioned before, while the contract year ends at May 31, 2020, our sidecar investors are on track to earn an attractive return of approximately 36%. We will look to grow that portion of our business again this upcoming season, beginning June 1 of this year. Going forward, we remain opportunistic about the long-term prospects of not only our core business but also our reinsurance sidecar. We continue to evaluate additional opportunities for growth as well as diversification of risk.

So in closing, I will continue to -- we will -- we continue to reduce our G&A costs, our sidecar investors are on track to earn an attractive return. Our book value per share is $1.34, which is mostly in cash. We are debt-free. We have a solid balance sheet and a strong cash position. But most importantly, that supports out the opportunity combined with a viable business model.

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

(Operator Instructions) And we'll go first to Kent Engelke at Capitol Securities.

A couple of questions. Market's rallied back a little bit. What about -- how you see in your equity portfolio?

Yes. The equity portfolio is, again, we're opportunistic. So from time to time, we do get in and out of things. But that's always been a small portion of where we are. These are troubling times. We are in the reinsurance business so -- or insurance business, I should say, as well. So we are careful but opportunistic.

So they -- the $360,000 loss or whatever it may be, unrealized loss, have you realized that? Or has that narrowed? Or where do you stand? Or you can't comment on that?

Unfortunately, I can't comment on that, Ken, sorry.

Okay. That's good. Other question. In regards to marketing the sidecar. How is Oxbridge doing in regards to marketing sidecar to basically, those that could get involved in it?

Yes. So the sidecar, as always, is open to anybody who wants to invest in it, but the key over there is they need to be accredited investors, and there's quite a bit of KYC that we do to make sure that they stand -- they're in good standing with whatever the requirements are. But we are marketing towards the sidecar, the pandemic and the financial markets have put a little bit of a crimp on that. But nonetheless, we are moving forward with it. We have some funds that have already been allocated towards that from other investors. So we're moving forward. And we have a very short window for anybody else that has interest to get in on it.

Okay. Can you comment how much Oxbridge itself is going to be putting towards contracts this year or into the sidecar?

Yes. We typically say that we would invest in any given year close to 50%. But certain years, we've reached that or maybe exceeded that just slightly. And certain years, as you can probably look at some of our financials, we put very little to work. So we haven't rounded up this year at this point with new contracts. But based on everything, we will take a very conservative outlook.

(Operator Instructions) With no other questions holding, I will turn the conference back to management for any additional or closing comments.

Thank you in joining us for today's call. Before we wrap up, I want to thank our employees, business partners and investors for their continued support. I especially want to express my gratitude to the Oxbridge team who has continued to leverage a significant experience to build our business during these challenging times. It is their dedication and expertise that will get us to these days. And we look forward to updating you on our next call. If you have any further questions, please give us a call any time. Thank you again and for your time and attention today and your interest in Oxbridge. Operator?

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