SECURITIES & EXCHANGE COMMISSION EDGAR FILING
OXBRIDGE RE HOLDINGS Ltd
Form: 10-K
Date Filed: 2019-03-19
Corporate Issuer CIK: 1584831
© Copyright 2019, Issuer Direct Corporation. All Right Reserved. Distribution of this document is strictly prohibited, subject to the terms of use.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
☑
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2018
OR
☐
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
OXBRIDGE RE HOLDINGS LIMITED
(Exact name of registrant as specified in its charter)
Cayman Islands
(State or other jurisdiction of incorporation or organization)
98-1150254
(I.R.S. Employer Identification No.)
Suite 201,
42 Edward Street, Georgetown
P.O. Box 469
Grand Cayman, Cayman Islands
(Address of principal executive offices)
KY1-9006
(Zip Code)
Registrant’s telephone number, including area code: (345) 749-7570
Securities Registered Pursuant to Section 12(b) of the Exchange Act:
Title of Each Class
Ordinary Shares, par value $0.001 (USD) per share
Warrants
Name of Each Exchange on Which Registered
The NASDAQ Capital Market
The NASDAQ Capital Market
Securities Registered Pursuant to Section 12(g) of the Exchange Act: None
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 ☑ 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 during the preceding 12 months (or for such shorter period that the registrant was required to
submit and post such files). Yes ☑ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-
K. ☑
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
Non-accelerated filer
Emerging growth company X
☐
☐
☑
Accelerated filer
Smaller reporting 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 ☑
The aggregate market value of the voting common equity held by non-affiliates of the registrant was $8,317,416 (based upon the quoted closing sale price
per share of the registrant’s ordinary shares on The NASDAQ Capital Market) on the last business day of the registrant’s most recently completed second fiscal
quarter (June 30, 2018). For purposes of this calculation, the registrant has assumed that its directors and executive officers as of June 30, 2018 were affiliates.
As of March 19, 2019, 5,733,587 ordinary shares, par value $0.001 (USD) per share, were outstanding.
Documents Incorporated by Reference:
Portions of the Company’s proxy statement to be filed with the Securities and Exchange Commission relating to the 2019 Annual Meeting of Shareholders will be
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
incorporated by reference into Part III of this Annual Report on Form 10-K.
OXBRIDGE RE HOLDINGS LIMITED
Index to Annual Report on Form 10-K
Year Ended December 31, 2018
CAUTIONARY STATEMENTS FOR FORWARD-LOOKING INFORMATION
ITEM 1.
BUSINESS
ITEM 1A.
RISK FACTORS
ITEM 1B.
UNRESOLVED STAFF COMMENTS
ITEM 2.
PROPERTIES
ITEM 3.
LEGAL PROCEEDINGS
ITEM 4.
MINE SAFETY DISCLOSURES
PART I.
PART II.
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
ITEM 6.
SELECTED FINANCIAL DATA
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A.
CONTROLS AND PROCEDURES
ITEM 9B.
OTHER INFORMATION
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11.
EXECUTIVE COMPENSATION
PART III.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
INDEX TO EXHIBITS
SIGNATURES
PART IV.
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SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
Unless the context dictates otherwise, references to “we,” “us,” “our,” “our company,” or “the Company” in this Annual Report on Form 10-K refer to
Oxbridge Re Holdings Limited and its wholly-owned subsidiaries, Oxbridge Reinsurance Limited and Oxbridge Re NS.
All statements in this Annual Report on Form 10-K, including in the section entitled “ Management’s Discussion and Analysis of Financial Condition and
Results of Operations” (refer to Part I, Item 7 of this Annual Report on Form 10-K), other than statements of historical fact, including estimates, projections,
statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-
looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements generally are identified by the words such as
“believe,” “project,” “predict,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result, ” and similar
expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual
results to differ materially from our historical results and the forward-looking statements and you should not place undue reliance on the forward-looking statements.
A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in the
section entitled “Risk Factors” (refer to Part I, Item 1A, of this Annual Report on Form 10-K). We undertake no obligation, other than imposed by law, to publicly
update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Readers are cautioned not to place undue
reliance on the forward-looking statements which speak only to the dates on which they were made.
PART I
ITEM 1 BUSINESS
Overview
We are a Cayman Islands specialty property and casualty reinsurer that provides reinsurance solutions through our subsidiaries, Oxbridge Reinsurance
Limited and Oxbridge RE NS. We focus on underwriting fully-collateralized reinsurance contracts primarily for property and casualty insurance companies in the
Gulf Coast region of the United States , as well as globally through industry loss warranty (“ILW”) contracts. We specialize in underwriting medium frequency, high
severity risks, where we believe sufficient data exists to analyze effectively the risk/return profile of reinsurance contracts. We were organized in April 2013 as an
exempted company under the laws of the Cayman Islands.
We underwrite reinsurance contracts on a selective and opportunistic basis as opportunities arise based on our goal of achieving favorable long-term
returns on equity for our shareholders. Our goal is to achieve long-term growth in book value per share by writing business that generates attractive underwriting
profits relative to the risk we bear. Unlike other insurance and reinsurance companies, we do not intend to pursue an aggressive investment strategy and instead
will focus our business on underwriting profits rather than investment profits. However, we intend to complement our underwriting profits with investment profits on
an opportunistic basis. Our primary business focus is on fully collateralized reinsurance contracts for property catastrophes, primarily in the Gulf Coast region of the
United States. Within that market and risk category, we attempt to select the most economically attractive opportunities across a variety of property and casualty
insurers. As we attempt to grow our capital base, we expect that we will consider growth opportunities in other geographic areas and risk categories.
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Our level of profitability is primarily determined by how adequately our premiums assumed and investment income cover our costs and expenses, which
consist primarily of acquisition costs and other underwriting expenses, claim payments and general and administrative expenses. One factor leading to variation in
our operational results is the timing and magnitude of any follow-on offerings we undertake (if any), and issuance of participating notes to third-party investors, as
we would be able to deploy new capital to collateralize new reinsurance treaties and consequently, earn additional premium revenue. In addition, our results of
operations may be seasonal in that hurricanes and other tropical storms typically occur during the period from June 1 through November 30. Further, our results of
operations may be subject to significant variations due to factors affecting the property and casualty insurance industry in general, which include competition,
legislation, regulation, general economic conditions, judicial trends, and fluctuations in interest rates and other changes in the investment environment.
Because we employ an opportunistic underwriting and investment philosophy, period-to-period comparisons of our underwriting results may not be
meaningful. In addition, our historical investment results may not necessarily be indicative of future performance. Due to the nature of our reinsurance and
investment strategies, our operating results will likely fluctuate from period to period.
We organized our Oxbridge Re NS subsidiary in December 22, 2017 to function as a reinsurance sidecar which increases the underwriting capacity of
Oxbridge Reinsurance Limited. Oxbridge Re NS commenced operations on June 1, 2018 and issued participating notes to third party investors, the proceeds of
which was utilized to collateralize a quota-share of Oxbridge Reinsurance Limited's reinsurance obligations.
Our Business Strategy
Our goal is to achieve attractive risk-adjusted returns for our shareholders through the prudent management of underwriting risks relative to our capital
base. To achieve this objective, the following are the principal elements of our business strategy.
● Maintain a Commitment to Disciplined Underwriting. We employ a disciplined and data-driven underwriting approach to select a diversified
portfolio of risks that we believe will generate an attractive return to our shareholders over the long term. Neither our underwriting nor our
investment strategies are designed to generate smooth or predictable quarterly earnings, but rather to optimize growth in book value per share
over the long term.
● Focus on Risk Management. We treat risk management as an integral part of our underwriting and business management processes. All of our
reinsurance contracts contain loss limitation provisions that limit our losses to the value of the assets collateralizing our reinsurance contracts.
● Deployment of Capital. In order to eliminate the possibility of complete losses, we intend to place only a portion of our total capital at risk in any
single year. This means that we expect lower returns than some of our competitors in years where there are lower than average catastrophe losses
but that our capital not be completely eroded in the event of multiple large losses.
● Take Advantage of Market Opportunities. Although our business is initially focused on catastrophe coverage for Gulf Coast insurers and globally
through ILW’s, we intend to continuously evaluate various market opportunities in which our business may be strategically or financially expanded
or enhanced in the future. Such opportunities could take the form of further diversifying our business into other geographic or market areas, could
include quota share reinsurance contracts, joint ventures, renewal rights transactions, corporate acquisitions of other insurers or reinsurers, or the
formation of insurance or reinsurance platforms in new markets
We believe the environment in the reinsurance and insurance markets will continue to produce opportunities for us, either through organic
expansion, through acquisitions, or a combination of both.
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The Reinsurance Industry
General
Reinsurance is an arrangement in which an insurance company, referred to as the reinsurer, agrees to assume from another insurance company, referred
to as the ceding company or cedant, all or a portion of the insurance risks that the ceding company has underwritten under one or more insurance contracts. In
return, the reinsurer receives a premium for the insured risks that it assumes from the ceding company, although reinsurance does not discharge the ceding
company from its liabilities to policyholders. It is standard industry practice for primary insurers to reinsure portions of their insurance risks with other insurance
companies under reinsurance agreements or contracts. This permits primary insurers to underwrite policies in amounts larger than the risks they are willing to
retain. Reinsurance is generally designed to:
● Reduce the ceding company’s net liability on individual risks, thereby assisting it in managing its risk profile and increasing its capacity to
underwrite business as well as increasing the limit to which it can underwrite on a single risk;
● assist the ceding company in meeting applicable regulatory and rating agency capital requirements;
● assist the ceding company in reducing the short-term financial impact of sales and other acquisition costs; and
● enhance the ceding company’s financial strength and statutory capital.
When reinsurance companies purchase reinsurance to cover their own risks assumed from ceding companies, this is known as retrocessional reinsurance.
Reinsurance or retrocessional reinsurance can benefit a ceding company or reinsuring company, referred to herein as a “retrocedant,” as applicable, in various
ways, such as by reducing exposure to individual risks and by providing catastrophe protection from larger or multiple losses. Like ceding companies, retrocedants
can use retrocessional reinsurance to manage their overall risk profile or to create additional underwriting capacity, allowing them to accept larger risks or to write
more business than would otherwise be possible, absent an increase in their capital or surplus.
Reinsurance contracts do not discharge ceding companies from their obligations to policyholders. Ceding companies therefore generally require their
reinsurers to have, and to maintain, either a strong financial strength rating or security, in the form of collateral, as assurance that their claims will be paid.
As a program is constructed from the ground up, each tranche added generally has a lower probability of loss than the prior tranche and therefore is
generally subject to a lower reinsurance premium charged for the reinsurance protection purchased. Insurer catastrophe programs are typically supported by
multiple reinsurers per program.
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Reinsurance brokers play an important role in the reinsurance market. Brokers are intermediaries that assist the ceding company in structuring a particular
reinsurance program and in negotiating and placing risks with third-party reinsurers. In this capacity, the broker is selected and retained by the ceding company on
a contract-by-contract basis, rather than by the reinsurer. Though brokers are not parties to reinsurance contracts, reinsurers generally receive premium payments
from brokers rather than ceding companies, and reinsurers that do not provide collateralized reinsurance are frequently required to pay amounts owed on claims
under their policies to brokers. These brokers, in turn, pay these amounts to the ceding companies that have reinsured a portion of their liabilities with reinsurers.
Types of Reinsurance Contracts
Property reinsurance products are often written in the form of treaty reinsurance contracts, which are contractual arrangements that provide for the
automatic reinsurance of a type or category of risk underwritten. Treaty reinsurance premiums, which are typically due in installments, are a function of the number
and type of contracts written, as well as prevailing market prices. The timing of premiums written varies by line of business. The majority of property catastrophe
business is written at the January and June annual renewal periods, depending on the type and location of the risks covered. Most hurricane and wind-storm
coverage, particularly in the Gulf Coast region of the United States, is written at the June annual renewal periods.
Property catastrophe reinsurance contracts are typically “all risk” in nature, providing protection to the ceding company against losses from hurricanes and
other natural and man-made catastrophes such as floods, earthquakes, tornadoes, storms and fires, referred to herein collectively as “perils.” The predominant
exposures covered by these contracts are losses stemming from property damage and business interruption resulting from a covered peril. Coverage can also vary
from “all natural” perils, which is the most expansive form, to more limited types such as windstorm-only coverage.
Property catastrophe reinsurance contracts are typically written on an “excess-of-loss” basis, which provides coverage to the ceding company when
aggregate claims and claim expenses from a single occurrence for a covered peril exceed an amount that is specified in a particular contract. The coverage
provided under excess-of-loss reinsurance contracts may be on a worldwide basis or may be limited in scope to specific regions or geographical areas. Under
these contracts, protection is provided to an insurer for a portion of the total losses in excess of a specified loss amount, up to a maximum amount per loss
specified in the contract.
Excess-of-loss contracts are typically written on a losses-occurring basis, which means that they cover losses that occur during the contract term,
regardless of when the underlying policies came into force. Premiums from excess-of-loss contracts are earned ratably over the contract term, which is ordinarily
12 months. Most excess-of-loss contracts provide for a reinstatement of coverage following a covered loss event in return for an additional premium.
Our Reinsurance Contracts and Products
We write primarily property catastrophe reinsurance. We currently expect that substantially all of the reinsurance products we write in the foreseeable
future will be in the form of treaty reinsurance contracts. When we write treaty reinsurance contracts, we do not evaluate separately each of the individual risks
assumed under the contracts and are therefore largely dependent on the individual underwriting decisions made by the cedant. Accordingly, as part of our initial
review and renewal process, we carefully review and analyze the cedant’s risk management and underwriting practices in evaluating whether to provide treaty
reinsurance and in appropriately pricing the treaty.
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Our portfolio of business continues to be characterized by relatively large transactions with a relatively few number of cedants. We do not consider any
single contract to be material to our business as the loss of any single contract can easily be supplemented by contributing the additional capacity across one or
more of our other contracts. We anticipate that our business will continue to be characterized by a relatively small number of reinsurance contracts for the
foreseeable future.
Our contracts are written on an excess-of-loss basis, generally with a per-event cap. We generally receive the premium for the risk assumed and indemnify
the cedant against all or a specified portion of losses and expenses in excess of a specified dollar or percentage amount. Our contracts are generally both single-
year or multi-year contracts and our policy years generally commence on June 1 of each year and end on May 31 of the following year.
The bulk of our portfolio of risks is assumed pursuant to traditional reinsurance contracts. However, from time to time we take underwriting risk by
purchasing a catastrophe-linked bond, or via a transaction booked as an industry loss warranty (as described below) or an indemnity swap. An indemnity swap is
an agreement which provides for the exchange between two parties of different portfolios of catastrophe exposure with similar expected loss characteristics (for
example, U.S. earthquake exposure for Asian earthquake exposure).
We believe our most attractive near-term opportunity is in property catastrophe reinsurance coverage for insurance companies. In addition to seeking
profitable pricing, we manage our risks with contractual limits on our exposure. Property catastrophe reinsurance contracts are typically “all risk” in nature, meaning
that they protect against losses from earthquakes and hurricanes, as well as other natural and man-made catastrophes such as tornados, fires, winter storms, and
floods (where the contract specifically provides for such coverage). Losses on these contracts typically stem from direct property damage and business interruption.
We generally write property catastrophe reinsurance on an excess-of-loss basis. These contracts typically cover only specific regions or geographical areas.
The premium for the contract is ordinarily deposited into the trust, together with additional capital from our company, up to the coverage limit. Each
reinsurance contract contains express limited recourse language to the effect that the liabilities of the relevant reinsurance contract are limited to the realizable
value of the collateral held in respect of that contract. Upon the expiration of the reinsurance contract, the assets of the trust net of insured losses and other
expenses are transferred to our company.
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Underwriting and Retrocessional Coverage
Most of our reinsurance contracts have other reinsurers participating as lead underwriters, and these lead underwriters generally set the premium for the
risk. We follow the premium pricing of the lead underwriters in most cases subject to the guidance of the Underwriting Committee of our Board of Directors. Each
quarter, our Board of Directors will set parameters for the maximum level of capital to be deployed for the quarter and the expected premium and risk profile that
each of our contracts must meet.
Marketing and Distribution
We expect that, in the future, the majority of our business will be sourced through reinsurance brokers. Brokerage distribution channels provide us with
access to an efficient, variable distribution system without the significant time and expense that would be incurred in creating an in-house marketing and distribution
network. Reinsurance brokers receive a brokerage commission that is usually a percentage of gross premiums written.
We intend to build relationships with global reinsurance brokers and captive insurance companies located in the Cayman Islands. Our management team
has significant relationships with most of the primary and specialty broker intermediaries in the reinsurance marketplace in our target market. We believe that
maintaining close relationships with brokers will give us access to a broad range of reinsurance clients and opportunities.
Brokers do not have the authority to bind us to any reinsurance contract. We review and approve all contract submissions in our corporate offices located
in the Cayman Islands. From time to time, we may also enter into relationships with managing general agents who could bind us to reinsurance contracts based on
narrowly defined underwriting guidelines.
Investment Strategy
Our company’s business focus is primarily on underwriting profit. However, we remain opportunistic with respect to investment income, and intend to
increase shareholder value through supplemental investment income when favorable opportunities are available. The Company, from time to time, and dependent
upon favorable investment conditions and our investment guidelines, may invest in real estate and other ventures that has the potential to increase shareholder
value.
Currently, most of our company’s capital is held in trust accounts that collateralize the reinsurance policies that we write. The investment parameters for
capital held in such trust accounts is generally established by the cedant for the relevant policy. Our current investments are held in cash, fixed-maturity securities
and equity securities.
Funds that are not held in collateralized trust accounts are generally invested in a relatively conservative manner, with a focus on generating income while
equally being liquid.
Our Board of Directors periodically reviews our investment policy and returns.
Claims Management
Claims are managed internally by the company’s management team. Management reviews and responds to initial loss reports, administers claims
databases, determines whether further investigation is required and where appropriate, retains outside claims counsel, establishes case reserves and approves
claims for payment. In addition, we may conduct audits of any significant client throughout the year, and in the process, evaluate our clients’ claims handling
abilities, reserving philosophies, loss notification processes and the overall quality of our clients' performance.
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Upon receipt, claims notices are recorded within our underwriting, financial and claims systems. When we are notified of insured losses or discover potential
losses as part of our claims’ audits, we record a case reserve as appropriate for the estimated amount of the exposure at that time. The estimate reflects the
judgment of management based on general reserving practices, the experience and knowledge of the Manager regarding the nature of the specific claim and,
where appropriate, advice of outside counsel. Reserves are also established to provide for the estimated expense of settling claims, including legal and other fees
and the general expenses of administering the claims adjustment process.
Loss Reserves
Loss reserves represent estimates, including actuarial and statistical projections at a given point in time, of the ultimate settlement and administration costs
of claims incurred (including claims incurred but not reported (IBNR)). Estimates are not precise in that, among other things, they are based on predictions of future
developments and estimates of future trends in claims severity and frequency and other variable factors such as inflation. It is likely that the ultimate liability will be
greater or less than such estimates and that, at times, this variance will be material.
For our property and other catastrophe policies, we initially establish our loss reserves based on loss payments and case reserves reported by ceding
companies. As we are not the only reinsurer on most contracts, the lead reinsurer will set the loss amount estimates for the contract and the cedant will have the
ability to pay for case losses consistent with that amount on our pro-rata share of the contract.
We then add to these case reserves our estimates for IBNR. To establish our IBNR estimates, in addition to the loss information and estimates
communicated by cedants, we also use the services of an independent actuary. We may also use our computer-based vendor and proprietary modeling systems to
measure and estimate loss exposure under the actual event scenario, if available. Although the loss modeling systems assist with the analysis of the underlying
loss, and provide us with information and the ability to perform an enhanced analysis, the estimation of claims resulting from catastrophic events is inherently
difficult because of the variability and uncertainty of property catastrophe claims and the unique characteristics of each loss.
If IBNR estimates are made, we assess the validity of the assumptions we use in the reserving process on a quarterly basis during an internal review
process. During this process actuaries verify that the assumptions we have made continue to form what they consider to be a sound basis for projection of future
liabilities.
Although we believe that we are prudent in our assumptions and methodologies, we cannot be certain that our ultimate payments will not vary, perhaps
materially, from the estimates we have made. If we determine that adjustments to an earlier estimate are appropriate, such adjustments are recorded in the quarter
in which they are identified. The establishment of new reserves, or the adjustment of reserves for reported claims, could result in significant upward or downward
changes to our financial condition or results of operations in any particular period. We regularly review and update these estimates, using the most current
information available to us.
Our estimates are reviewed annually by an independent actuary in order to provide additional insight into the reasonableness of our loss reserves.
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Competition
The reinsurance industry is highly competitive. We expect to compete with major reinsurers, most of which are well established with significant operating
histories, strong financial strength ratings and long-standing client relationships.
Our competitors include Third Point Reinsurance Ltd., Blue Capital Reinsurance Holdings Ltd., ACE Ltd., Everest Re, General Re Corporation, Hannover
Re Group, Munich Reinsurance Company, Partner Re Ltd., Swiss Reinsurance Company, Transatlantic Reinsurance Company, Berkshire Hathaway, PartnerRe
Ltd, Aeolus, and Nephila. Although we seek to provide coverage where capacity and alternatives are limited, we directly compete with these larger companies due
to the breadth of their coverage across the property and casualty market in substantially all lines of business. We also compete with smaller companies and other
niche reinsurers from time to time.
While we have a limited operating history, we believe that our unique approach to multi-year underwriting will allow us to be successful in underwriting
transactions against more established competitors.
Employees
As of March 12, 2018, we had three full-time employees, and we are not in the process of hiring additional resources at this time. We believe that our
relations with our employees are good. None of our employees are subject to collective bargaining agreements, and we are not aware of any current efforts to
implement such agreements. We believe that we will continue to have relatively few employees and intend to outsource some functions to specialist firms in the
Cayman Islands if and when we determine that such functions are necessary. We intend to use the expertise of our Board of Directors and where necessary,
external consultants to provide any other service we may require from time to time.
Legal Proceedings
We are not currently involved in any litigation or arbitration. We anticipate that, similar to the rest of the insurance and reinsurance industry, we will be
subject to litigation and arbitration in the ordinary course of business.
Regulation and Capital Requirements
Our wholly-owned subsidiaries, Oxbridge Reinsurance Limited and Oxbridge Re NS, holds a Class C Insurer’s License issued in accordance with the terms
of the Insurance Law (as revised) of the Cayman Islands (the “Law”), and is subject to regulation by the Cayman Islands Monetary Authority (“CIMA”), in terms of
the Law. As the holder of a Class C Insurer’s License, Oxbridge Reinsurance Limited and Oxbridge Re NS are permitted to undertake insurance business approved
by CIMA.
Oxbridge Reinsurance Limited and Oxbridge Re NS are subject to minimum capital and surplus requirements, and our failure to meet these requirements
could subject us to regulatory action. Pursuant to The Insurance (Capital and Solvency) (Classes B, C and D Insurers) Regulations, 2012 (the “Capital and Solvency
Regulations”) published under the Law, Oxbridge Reinsurance Limited and Oxbridge Re NS are required to maintain the statutory minimum capital requirement (as
defined under the Capital and Solvency Regulations) of $500 and prescribed capital requirement (as defined under the Capital and Solvency Regulations) of $500,
and a minimum margin of solvency equal to or in excess of the total prescribed capital requirement. Any failure to meet the applicable requirements or minimum
statutory capital requirements could subject us to further examination or corrective action by CIMA, including restrictions on dividend payments, limitations on our
writing of additional business or engaging in finance activities, supervision or liquidation.
CIMA may at any time direct Oxbridge Reinsurance Limited and Oxbridge Re NS, in relation to a policy, a line of business or the entire business, to cease
or refrain from committing an act or pursing a course of conduct and to perform such acts as in the opinion of CIMA are necessary to remedy or ameliorate the
situation. See the discussion in “Risk Factors” under the heading “ Any suspension or revocation of our reinsurance license would materially impact our ability to do
business and implement our business strategy” for more information.
In addition, as a Cayman Islands exempted company, we may not carry on business or trade locally in the Cayman Islands except in furtherance of our
business outside the Cayman Islands, and we are prohibited from soliciting the public of the Cayman Islands to subscribe for any of our securities or debt. We are
further required to file a return with the Registrar of Companies in January of each year and to pay an annual registration fee at that time.
The Cayman Islands has no exchange controls restricting dealings in currencies or securities.
Available Information
Our website is located at www.oxbridgere.com. Copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-
K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available, free of change, on our website as soon
as reasonably practicable after we file such material electronically with or furnish it to the Securities and Exchange Commission (the “SEC”). The SEC also
maintains a website that contains our SEC filings. The address of the SEC’s website is www.sec.gov.
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ITEM 1A RISK FACTORS
Risks Relating to Our Business
We will need additional capital in the future in order to grow and operate our business. Such capital may not be available to us or may not be available
to us on favorable terms. Furthermore, our raising additional capital could dilute your ownership interest in our company.
We expect that we will need to raise additional capital in the future through public or private equity or debt offerings or otherwise in order to:
● further capitalize our reinsurance subsidiary and implement our growth strategy;
● fund liquidity needs caused by underwriting or investment losses;
● replace capital lost in the event of significant reinsurance losses or adverse reserve developments;
● meet applicable statutory jurisdiction requirements; and/or
● respond to competitive pressures.
Additional capital may not be available on terms favorable to us, or at all. Further, any additional capital raised through the sale of equity could dilute your
ownership interest in our company and may cause the market price of our ordinary shares and warrants to decline. Additional capital raised through the issuance of
debt may result in creditors having rights, preferences and privileges senior or otherwise superior to those of our ordinary shares and warrants.
Our results of operations will fluctuate from period to period and may not be indicative of our long-term prospects.
We anticipate that the performance of our reinsurance operations and our investment portfolio will fluctuate from period to period. Fluctuations will result
from a variety of factors, including:
● reinsurance contract pricing;
● our assessment of the quality of available reinsurance opportunities;
● the volume and mix of reinsurance products we underwrite;
● loss experience on our reinsurance liabilities;
● our ability to assess and integrate our risk management strategy properly; and
● the performance of our investment portfolio.
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In particular, we plan to underwrite products and make investments to achieve favorable return on equity over the long term. In addition, our opportunistic
nature and focus on long-term growth in book value will result in fluctuations in total premiums written from period to period as we concentrate on underwriting
contracts that we believe will generate better long-term, rather than short-term, results. Accordingly, our short-term results of operations may not be indicative of our
long-term prospects.
The business relationships between us and HCI Group may present difficult conflicts of interest and business opportunity issues.
We may continue to derive a substantial portion of our business from HCI Group subsidiaries during our first few years of operation. Jay Madhu, our Chief
Executive Officer and Chairman of our Board of Directors, is also a member of the board of directors of HCI Group and a former executive officer of HCI Group.
Because of this business relationships, various conflicts of interest could arise with respect to business opportunities that could be advantageous to HCI Group or
its subsidiaries, on the one hand, and us or any of our subsidiaries, on the other hand. Moreover, because of this relationship, HCI Group may have the ability to
otherwise significantly influence certain business decisions by us, including our writing of future policies. This relationship and potential conflict of interest could also
result in contracts between us and HCI Group and/or its subsidiaries that are less favorable to us than contracts that could be negotiated with other third parties.
Failure to become rated by A.M. Best, or receipt of a negative rating, could significantly and negatively affect our ability to grow.
Companies, insurers and reinsurance brokers use ratings from independent ratings agencies as an important means of assessing the financial strength and
quality of reinsurers. This rating reflects the rating agency’s opinion of our financial strength, operating performance and ability to meet obligations. It is not an
evaluation directed toward the protection of investors or a recommendation to buy, sell or hold our securities. A.M. Best assigns ratings based on its analysis of
balance sheet strength, operating performance and business profile.
Currently, A.M Best has not assigned us a financial strength rating, and we do not intend to seek a rating in the forseesable future. Without a rating, or if we
received a negative rating, our growth potential and business strategy will be limited because of the need to collateralize the insurance policies that we write.
Established competitors with greater resources may make it difficult for us to effectively market our products or offer our products at a profit.
The reinsurance industry is highly competitive. We compete with major reinsurers, all of which have substantially greater financial, marketing and
management resources than we do. Competition in the types of business that we seek to underwrite is based on many factors, including:
● premium charges;
● the general reputation and perceived financial strength of the reinsurer;
● relationships with reinsurance brokers;
● terms and conditions of products offered;
● ratings assigned by independent rating agencies;
● speed of claims payment and reputation; and
● the experience and reputation of the members of our underwriting team in the particular lines of reinsurance we seek to underwrite.
Additionally, although the members of our underwriting team have general experience across many property and casualty lines, they may not have the
requisite experience or expertise to compete for all transactions that fall within our strategy of offering customized frequency and severity contracts at times and in
markets where capacity and alternatives may be limited.
Our competitors include Third Point Reinsurance Ltd., Blue Capital Reinsurance Holdings Ltd., ACE Ltd., Everest Re, General Re Corporation, Hannover
Re Group, Munich Reinsurance Company, Partner Re Ltd., Swiss Reinsurance Company, Transatlantic Reinsurance Company, Berkshire Hathaway, PartnerRe
Ltd, Aeolus, and Nephila, as well as smaller companies and other niche reinsurers. Although we seek to provide coverage where capacity and alternatives are
limited, we will directly compete with these larger companies due to the breadth of their coverage across the property and casualty market in substantially all lines
of business.
We cannot assure you that we will be able to compete successfully in the reinsurance market. Our failure to compete effectively could significantly and
negatively affect our financial condition and results of operations and may increase the likelihood that we may be deemed to be a passive foreign investment
company or an investment company.
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If actual renewals of our existing contracts do not meet expectations, our premiums assumed in future years and our future results of operations could
be materially adversely affected.
Many of our contracts are generally written for a one-year term. In our financial forecasting process, we make assumptions about the renewal of our prior
year’s contracts. The insurance and reinsurance industries have historically been cyclical businesses with periods of intense competition, often based on price. If
actual renewals do not meet expectations or if we choose not to write on a renewal basis because of pricing conditions, our premiums assumed in future years and
our future operations would be materially adversely affected.
Reputation is an important factor in the reinsurance industry, and our lack of an established reputation may make it difficult for us to attract or retain
business.
Reputation is a very important factor in the reinsurance industry, and competition for business is, in part, based on reputation. Although our reinsurance
policies will be fully collateralized, we are a relatively newly formed reinsurance company and do not yet have a well-established reputation in the reinsurance
industry. Our lack of an established reputation may make it difficult for us to attract or retain business. In addition, we do not have or currently intend to obtain
financial strength ratings, which may discourage certain counterparties from entering into reinsurance contracts with us.
If our losses and loss adjustment expenses greatly exceed our loss reserves, our financial condition may be significantly and negatively affected.
Our results of operations and financial condition will depend upon our ability to accurately assess the potential losses and loss adjustment expenses
associated with the risks we reinsure. Reserves are estimates at a given time of claims an insurer ultimately expects to pay, based upon facts and circumstances
then known, predictions of future events, estimates of future trends in claim severity and other variable factors. The inherent uncertainties of estimating loss
reserves are generally greater for reinsurance companies as compared to primary insurers, primarily due to:
● the lapse of time from the occurrence of an event to the reporting of the claim and the ultimate resolution or settlement of the claim;
● the diversity of development patterns among different types of reinsurance treaties; and
● the necessary reliance on the client for information regarding claims.
Our estimation of reserves may be less reliable than the reserve estimations of a reinsurer with a greater volume of business and an established loss
history. Our actual losses and loss adjustment expenses paid may deviate substantially from the estimates of our loss reserves and could negatively affect our
results of operations. If our loss reserves are later found to be inadequate, we would increase our loss reserves with a corresponding reduction in our net income
and capital in the period in which we identify the deficiency, and such a reduction would also negatively affect our results of operations. If our losses and loss
adjustment expenses greatly exceed our loss reserves, our financial condition may be significantly and negatively affected.
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The property and casualty reinsurance market may be affected by cyclical trends and over-supply.
We write reinsurance in the property and casualty markets, which tend to be cyclical in nature. Ceding company underwriting results, prevailing general
economic and market conditions, liability retention decisions of companies and ceding companies and reinsurance premium rates each influence the demand for
property and casualty reinsurance. Prevailing prices and available surplus to support assumed business then influence reinsurance supply. Supply may fluctuate in
response to changes in return on capital realized in the reinsurance industry, the frequency and severity of losses and prevailing general economic and market
conditions.
Continued increases in the supply of reinsurance may have consequences for the reinsurance industry generally and for us, including lower premium rates,
increased expenses for customer acquisition and retention, less favorable policy terms and conditions and/or lower premium volume. Furthermore, unpredictable
developments, including courts granting increasingly larger awards for certain damages, increases in the frequency of natural disasters (such as hurricanes,
windstorms, tornados, earthquakes, wildfires and floods), fluctuations in interest rates, changes in the investment environment that affect market prices of
investments and inflationary pressures, affect the industry’s profitability. The effects of cyclicality could significantly and negatively affect our financial condition and
results of operations.
Due to the influx of new risk capital from alternative capital market participants such as hedge funds and pension funds, we believe that the reinsurance
industry is currently over-capitalized and will continue in this trend for the foreseeable future. The over-capitalization of the market is not uniform as there are a
number of insurers and reinsurers that have suffered and continue to suffer from capacity issues. We continue to assess the opportunities that may be available to
us with insurance and reinsurance companies with this profile. If the reinsurance market continues to soften, our strategy is to reduce premium writings rather than
accept mispriced risk and conserve our capital for a more opportune environment. Significant rate increases could occur if financial and credit markets experience
adverse shocks that result in the loss of capital of insurers and reinsurers, or if there are major catastrophic events, especially in North America.
Our property and property catastrophe reinsurance operations will make us vulnerable to losses from catastrophes and may cause our results of
operations to vary significantly from period to period.
Our reinsurance operations expose us to claims arising out of unpredictable catastrophic events, such as hurricanes, hailstorms, tornados, windstorms,
earthquakes, floods, fires, explosions, and other natural or man-made disasters. The incidence and severity of catastrophes are inherently unpredictable but the
loss experience of property catastrophe reinsurers has been generally characterized as low frequency and high severity. Claims from catastrophic events could
reduce our earnings and cause substantial volatility in our results of operations for any fiscal quarter or year and adversely affect our financial condition.
Corresponding reductions in our surplus levels could impact our ability to write new reinsurance policies.
Catastrophic losses are a function of the insured exposure in the affected area and the severity of the event. Because accounting standards do not permit
reinsurers to reserve for catastrophic events until they occur, claims from catastrophic events could cause substantial volatility in our financial results for any fiscal
quarter or year and could significantly and negatively affect our financial condition and results of operations.
We could face unanticipated losses from war, terrorism, and political unrest, and these or other unanticipated losses could have a material adverse
effect on our financial condition and results of operations.
Like other reinsurers, we face potential exposure to large, unexpected losses resulting from man-made catastrophic events, such as acts of war, acts of
terrorism and political instability. These risks are inherently unpredictable and recent events may indicate that the frequency and severity of these types of losses
may increase. It is difficult to predict the timing of these events or to estimate the amount of loss that any given occurrence will generate. To the extent that losses
from these risks occur, our financial condition and results of operations could be significantly and negatively affected.
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We depend on our clients’ evaluations of the risks associated with their insurance underwriting, which may subject us to reinsurance losses.
In the proportional reinsurance business, in which we assume an agreed percentage of each underlying insurance contract being reinsured, or quota share
contracts, we do not separately evaluate each of the original individual risks assumed under these reinsurance contracts. Therefore, we are largely dependent on
the original underwriting decisions made by ceding companies. We are subject to the risk that the clients may not have adequately evaluated the insured risks and
that the premiums ceded may not adequately compensate us for the risks we assume. We also do not separately evaluate each of the individual claims made on
the underlying insurance contracts under quota share arrangements. Therefore, we are dependent on the original claims decisions made by our clients.
Changing climate conditions may adversely affect our financial condition, profitability or cash flows.
Climate change, to the extent it produces extreme changes in temperatures and changes in weather patterns, could impact the frequency or severity of
weather events and wildfires. Further, it could impact the affordability and availability of homeowners insurance, which could have an impact on pricing. Changes in
weather patterns could also affect the frequency and severity of other natural catastrophe events to which we may be exposed. The occurrence of these events
would significantly and negatively affect our financial condition and results of operations.
Operational risks, including human or systems failures, are inherent in our business.
Operational risks and losses can result from, among other things, fraud, errors, failure to document transactions properly or to obtain proper internal
authorization, failure to comply with regulatory requirements, information technology failures or external events.
We believe that our modeling, underwriting and information technology and application systems are critical to our business and our growth prospects.
Moreover, we rely on our information technology and application systems to further our underwriting process and to enhance our ability to compete successfully. A
major defect or failure in our internal controls or information technology and application systems could result in management distraction, harm to our reputation or
increased expenses.
The effect of emerging claim and coverage issues on our business is uncertain.
As industry practices and legal, judicial and regulatory conditions change, unexpected issues related to claims and coverage may emerge. It is possible that
certain provisions of our future reinsurance contracts, such as limitations or exclusions from coverage or choice of forum, may be difficult to enforce in the manner
we intend, due to, among other things, disputes relating to coverage and choice of legal forum. These issues may adversely affect our business by either extending
coverage beyond the period that we intended or by increasing the number or size of claims. In some instances, these changes may not manifest themselves until
many years after we have issued insurance or reinsurance contracts that are affected by these changes. As a result, we may not be able to ascertain the full extent
of our liabilities under our insurance or reinsurance contracts for many years following the issuance of our contracts. The effects of unforeseen development or
substantial government intervention could adversely impact our ability to adhere to our goals.
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We are required to maintain sufficient collateral accounts, which could significantly and negatively affect our ability to implement our business
strategy.
We are not licensed or admitted as a reinsurer in any jurisdiction other than the Cayman Islands. Certain jurisdictions, including the United States, do not
permit insurance companies to take credit for reinsurance obtained from unlicensed or non-admitted insurers on their statutory financial statements unless
appropriate security measures are implemented. Consequently, we must continue to maintain sufficient funds in escrow accounts to serve as collateral for our
reinsurance contracts. Because we intend to continue to utilize our funds (rather than utilizing the credit markets) to serve as collateral for our reinsurance
obligations, we may not be able to fully utilize our capital to expand our reinsurance coverage as rapidly as other reinsurers.
The inability to obtain business provided from brokers could adversely affect our business strategy and results of operations.
We anticipate that a substantial portion of our business will be placed primarily through brokered transactions, which involve a limited number of
reinsurance brokers. If we are unable to identify and grow the brokered business provided through one or more of these reinsurance brokers, many of whom may
not be familiar with our Cayman Islands jurisdiction, this failure could significantly and negatively affect our business and results of operations.
The involvement of reinsurance brokers may subject us to their credit risk.
As a standard practice of the reinsurance industry, reinsurers frequently pay amounts owed on claims under their policies to reinsurance brokers, and these
brokers, in turn, remit these amounts to the ceding companies that have reinsured a portion of their liabilities with the reinsurer. In some jurisdictions, if a broker fails
to make such a payment, the reinsurer might remain liable to the client for the deficiency notwithstanding the broker’s obligation to make such payment. Conversely,
in certain jurisdictions, when the client pays premiums for policies to reinsurance brokers for payment to the reinsurer, these premiums are considered to have
been paid and the client will no longer be liable to the reinsurer for these premiums, whether or not the reinsurer has actually received them. Consequently, we
assume a degree of credit risk associated with the brokers that we do business with.
We may be unable to purchase reinsurance for the liabilities we reinsure, and if we successfully purchase such reinsurance, we may be unable to
collect, which could adversely affect our business, financial condition and results of operations.
Retrocessional coverage (reinsurance for the liabilities we reinsure) may not always be available to us. From time to time, we expect that we will purchase
retrocessional coverage for our own account in order to mitigate the effect of a potential concentration of losses upon our financial condition. The insolvency or
inability or refusal of a reinsurer of reinsurance to make payments under the terms of its agreement with us could have an adverse effect on us because we remain
liable to our client. From time to time, market conditions have limited, and in some cases have prevented, reinsurers from obtaining the types and amounts of
retrocession that they consider adequate for their business needs. Accordingly, we may not be able to obtain our desired amounts of retrocessional coverage or
negotiate terms that we deem appropriate or acceptable or obtain retrocession from entities with satisfactory creditworthiness. Our failure to establish adequate
retrocessional arrangements or the failure of our retrocessional arrangements to protect us from overly concentrated risk exposure could significantly and negatively
affect our business, financial condition and results of operations.
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U.S. and global economic downturns could harm our business, our liquidity and financial condition and the price of our securities.
Weak economic conditions may adversely affect (among other aspects of our business) the demand for and claims made under our products, the ability of
customers, counterparties and others to establish or maintain their relationships with us, our ability to access and efficiently use internal and external capital
resources and our investment performance. Volatility in the U.S. and other securities markets may adversely affect our investment portfolio and our resulting results
of operations.
Our ability to implement our business strategy could be delayed or adversely affected by Cayman Islands employment restrictions.
Under Cayman Islands law, persons who are not Caymanian, do not possess Caymanian status, or are not otherwise entitled to reside and work in the
Cayman Islands pursuant to provisions of the Immigration Law (2015 Revision) of the Cayman Islands, which we refer to as the Immigration Law, may not engage
in any gainful occupation in the Cayman Islands without an appropriate governmental work permit. The failure to obtain work permits, or extensions thereof, for our
employees could prevent us from continuing to implement our business strategy.
Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation
to suffer.
In the ordinary course of our business, we may collect and store sensitive data, including proprietary business, in our data centers and on our networks.
The secure processing, maintenance and transmission of this information is critical to our operations and business strategy. Despite our security measures, our
information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such
breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other
loss of information could result in legal claims or proceedings, disrupt our operations, and damage our reputation, which could adversely affect our business,
revenues and competitive position.
If we lose or are unable to retain our senior management and other key personnel and are unable to attract qualified personnel, our ability to implement
our business strategy could be delayed or hindered, which, in turn, could significantly and negatively affect our business.
Although we only employ three individuals, two of whom are members of senior management, our future success depends to a significant extent on the
efforts of our senior management and other key personnel (who have not yet been hired) to implement our business strategy. We believe there are only a limited
number of available, qualified executives with substantial experience in our industry. In addition, we will need to add personnel, including underwriters, to implement
our business strategy. We could face challenges attracting personnel to the Cayman Islands. Accordingly, the loss of the services of one or more of the members
of our senior management or other key personnel (when hired), or our inability to hire and retain other key personnel, could delay or prevent us from fully
implementing our business strategy and, consequently, significantly and negatively affect our business.
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We do not currently maintain key man life insurance with respect to any of our senior management. If any member of senior management dies or becomes
incapacitated, or leaves the Company to pursue employment opportunities elsewhere, we would be solely responsible for locating an adequate replacement for
such senior management and for bearing any related cost. To the extent that we are unable to locate an adequate replacement or are unable to do so within a
reasonable period of time, our business may be significantly and negatively affected.
There are differences under Cayman Islands corporate law and Delaware corporate law with respect to interested party transactions which may benefit
certain of our shareholders at the expense of other shareholders.
Under Cayman Islands corporate law, a director may vote on a contract or transaction where the director has an interest as a shareholder, director, officer
or employee provided such interest is disclosed. None of our contracts will be deemed to be void because any director is an interested party in such transaction
and interested parties will not be held liable for monies owed to the company. In contracts, under Delaware law, interested party transactions are potentially
voidable.
Risks Relating to Insurance and Other Regulations
Any suspension or revocation of our reinsurance license would materially impact our ability to do business and implement our business strategy.
Oxbridge Reinsurance Limited is licensed as an insurer only in the Cayman Islands by the CIMA, and we do not intend to obtain a license in any other
jurisdiction. The suspension or revocation of our license to do business as a reinsurance company in the Cayman Islands for any reason would mean that we would
not be able to enter into any new reinsurance contracts until the suspension ended or we became licensed in another jurisdiction. Any such suspension or
revocation of our license would negatively impact our reputation in the reinsurance marketplace and could have a material adverse effect on our results of
operations.
As a regulated insurance company, Oxbridge Reinsurance Limited is subject to the supervision of CIMA and CIMA may at any time direct Oxbridge
Reinsurance Limited, in relation to a policy, a line of business or the entire business, to cease or refrain from committing an act or pursing a course of conduct and
to perform such acts as in the opinion of CIMA are necessary to remedy or ameliorate the situation.
Furthermore, in certain circumstances, including when CIMA is of the opinion that:
● a licensee either is or appears to be likely to become unable to meet its obligations as they fall due;
● a licensee is carrying on its business in a manner which is seen as detrimental to the general public interest or to the interests of its creditors or
policy holders;
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● the activities of any member of the licensee’s insurance group are detrimental to those interests of the licensee’s creditors, as well as its policy
holders;
● a licensee has contravened the Law or the Money Laundering Regulations (2015 Revision) of the Cayman Islands;
● the licensee has failed to comply with a condition of its license such as maintaining a margin of solvency as prescribed by CIMA;
● the direction and/or management of the licensee’s business has not been conducted in a fit and proper manner;
● a director, manager or officer of the licensee’s business is not someone who would qualify or be seen as a person suitable to hold the respective
position;
● any person who is either holding or acquiring control or ownership of the licensee is not a fit and proper person to have such control or ownership;
● the licensee has ceased to carry on business; or
● the licensee is placed in liquidation or is dissolved;
CIMA may take one of a number of steps, including:
● requiring the licensee to take steps to rectify the matter;
● suspending the license of the licensee pending a full inquiry into the licensee’s affairs;
● revoking the license;
● imposing conditions upon the licensee in terms of decisions made by it, including the suspension of voting rights or nullification of votes cast by it,
and amending or revoking any such condition;
● requiring the substitution or removal of any director, manager or officer of the licensee, at the expense of the licensee;
● appointing a person to advise the licensee on the proper conduct of its affairs, at the expense of the licensee;
● appointing a person to assume control of the licensee’s affairs; or
● otherwise requiring such action to be taken by the licensee as CIMA considers necessary.
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Failures to comply with a direction given by CIMA may be punishable by a fine of up to five hundred thousand Cayman Islands dollars (US$609,756.10 based
on the Cayman Islands’ pegged exchange rate of CI$0.82 per US$1.00 as of March 19, 2019 or imprisonment for a term of five years or both, and a fine of an
additional ten thousand Cayman Islands dollars (US$12,195.12) for every day after conviction on which the offense so continues.
Our reinsurance subsidiaries are subject to minimum capital and surplus requirements, and our failure to meet these requirements could subject us to
regulatory action.
Pursuant to the Capital and Solvency Regulations, Oxbridge Reinsurance Limited and Oxbridge Re NS, our reinsurance subsidiaries, are each required to
maintain the statutory minimum capital requirement (as defined under the Capital and Solvency Regulations) of $500 and prescribed capital requirement (as
defined under the Capital and Solvency Regulations) of $500, and a minimum margin of solvency equal to or in excess of the total prescribed capital requirement.
Any failure to meet the applicable requirements or minimum statutory capital requirements could subject us to further examination or corrective action by CIMA,
including restrictions on dividend payments, limitations on our writing of additional business or engaging in finance activities, supervision or liquidation.
As a holding company, we will depend on the ability of our subsidiaries to pay dividends.
We are a holding company and do not have any significant operations or assets other than our ownership of the shares of our subsidiaries Oxbridge
Reinsurance Limited and Oxbridge Re NS. Dividends and other permitted distributions from our subsidiaries will be our primary source of funds to meet ongoing
cash requirements, including future debt service payments, if any, and other expenses, and to pay dividends to our shareholders if we choose to do so. Our
subsidiaries will be subject to applicable law as well as significant regulatory restrictions limiting their ability to declare and pay dividends. The inability of our
subsidiaries to pay dividends in an amount sufficient to enable us to meet our cash requirements at the holding company level could have an adverse effect on our
operations and our ability to pay dividends to our shareholders if we choose to do so and/or meet our debt service obligations, if any.
We are subject to the risk of possibly becoming an investment company under U.S. federal securities law.
In the United States, the Investment Company Act of 1940, as amended (the “Investment Company Act”), regulates certain companies that invest in or
trade securities. We rely on an exemption under the Investment Company Act for an entity organized and regulated as a foreign insurance company which is
engaged primarily and predominantly in the reinsurance of risks on insurance agreements. The law in this area is subjective and there is a lack of guidance as to
the meaning of ‘‘primarily and predominantly’’ under the relevant exemption to the Investment Company Act. For example, there is no standard for the amount of
premiums that need to be written relative to the level of an entity’s capital in order to qualify for the exemption. If this exception were deemed inapplicable, we would
have to seek to register under the Investment Company Act as an investment company, which, under the Investment Company Act, would require an order from
the SEC. Our inability to obtain such an order could have a significant adverse impact on our business, as we might have to cease certain operations or risk
substantial penalties for violating the Investment Company Act.
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Registered investment companies are subject to extensive, restrictive and potentially adverse regulation relating to, among other things, capital structure,
leverage, management, dividends and transactions with affiliates. Registered investment companies are not permitted to operate their business in the manner in
which we operate (and intend to operate) our business. Specifically, if we were required to register under the Investment Company Act, provisions of the
Investment Company Act would limit (and in some cases even prohibit) our ability to raise additional debt and equity securities or issue options or warrants (which
could impact our ability to compensate key employees), limit our ability to use financial leverage, limit our ability to incur indebtedness, and require changes to the
composition of our Board of Directors. Provisions of the Investment Company Act would also prohibit (subject to certain exceptions) transactions with affiliates.
Accordingly, if we were required to register as an investment company, we would not be permitted to have many of the relationships that we have or expect that we
may have with affiliated companies.
If at any time it were established that we had been operating as an investment company in violation of the registration requirements of the Investment
Company Act, there would be a risk, among other material adverse consequences, that we could become subject to monetary penalties or injunctive relief, or both,
or that we would be unable to enforce contracts with third parties or that third parties could seek to obtain rescission of transactions with us undertaken during the
period in which it was established that we were an unregistered investment company.
To the extent that the laws and regulations change in the future so that contracts we write are deemed not to be reinsurance contracts, we will be at
greater risk of not qualifying for the Investment Company Act exemption. Additionally, it is possible that our classification as an investment company would result in
the suspension or revocation of our reinsurance license.
Insurance regulations to which we are, or may become, subject, and potential changes thereto, could have a significant and negative effect on our
business.
Although we do not presently expect that we will conduct business in any jurisdiction other than the Cayman Islands, we cannot assure you that insurance
regulators in the United States or elsewhere will not review our activities and claim that we are subject to such jurisdiction’s insurance licensing requirements. In
addition, we are subject to indirect regulatory requirements imposed by jurisdictions that may limit our ability to provide reinsurance. For example, our ability to write
reinsurance may be subject, in certain cases, to arrangements satisfactory to applicable regulatory bodies, and proposed legislation and regulations may have the
effect of imposing additional requirements upon, or restricting the market for, non-U.S. reinsurers such as Oxbridge Reinsurance Limited and Oxbridge Re NS, with
whom domestic companies may place business. We do not know of any such proposed legislation pending at this time.
Furthermore, we may not be able to comply fully with, or obtain desired exemptions from, revised statutes, regulations and policies that currently, or may in
the future, govern the conduct of our business. Failure to comply with, or to obtain desired authorizations and/or exemptions under, any applicable laws could result
in restrictions on our ability to do business or undertake activities that are regulated in the jurisdiction in which operate and could subject us to fines and other
sanctions. In addition, changes in the laws or regulations to which our reinsurance subsidiary is subject or may become subject, or in the interpretations thereof by
enforcement or regulatory agencies, could have a material adverse effect on our business, our business plans, and our growth strategy.
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We will likely be exposed to credit risk due to the possibility that counterparties may default on their obligations to us.
Due to our investments in our portfolio, we are exposed to credit risk due to the possibility that counterparties may default on their obligations to us. Issuers
or borrowers whose securities or debt we hold, customers, reinsurers, clearing agents, exchanges, clearing houses and other financial intermediaries and
guarantors may default on their obligations to us due to bankruptcy, insolvency, lack of liquidity, adverse economic conditions, operational failure, fraud or other
reasons. Such defaults could have a significant and negative effect on our results of operations, financial condition and cash flows.
Risks Relating to our Securities
Provisions of our Third Amended and Restated Memorandum and Articles of Association (“Articles”) could adversely affect the value of our securities.
Our Articles permit our Board of Directors to allot, issue, grant options over or otherwise dispose of further shares (including fractions of such share) with or
without preferred, deferred or other rights or restrictions, whether in regard to dividend or other distribution, voting, return of capital or otherwise and to such
persons, at such times and on such other terms as they consider appropriate. Accordingly, our Board of Directors may authorize the issuance of preferred shares
with terms and conditions and under circumstances that could have an effect of discouraging a takeover or other transaction, deny shareholders the receipt of a
premium on their ordinary shares in the event of a tender or other offer for ordinary shares and have a depressive effect on the value of our ordinary shares.
Provisions of the Companies Law of the Cayman Islands could prevent a merger or takeover of our company.
As compared to mergers under corporate law in the United States, it may be more difficult to consummate a merger of two or more companies in the
Cayman Islands or the merger of one or more Cayman Islands companies with one or more overseas companies, even if such transaction would be beneficial to
our shareholders. The Companies Law of the Cayman Islands, as amended (the “Companies Law”), permits mergers and consolidations between Cayman Islands
companies and between Cayman Islands companies and non-Cayman Islands companies. For these purposes, (a) “merger” means the merging of two or more
constituent companies and the vesting of their undertaking, property and liabilities in one of such companies as the surviving company and (b) a “consolidation”
means the combination of two or more constituent companies into a combined company and the vesting of the undertaking, property and liabilities of such
companies to the consolidated company. In order to effect such a merger or consolidation, the directors of each constituent company must approve a written plan of
merger or consolidation, which must then be authorized by (a) a special resolution of the shareholders of each constituent company, and (b) such other
authorization, if any, as may be specified in such constituent company’s articles of association. The written plan of merger or consolidation must be filed with the
Registrar of Companies together with a declaration as to the solvency of the consolidated or surviving company, a list of the assets and liabilities of each
constituent company and an undertaking that a copy of the certificate of merger or consolidation will be given to the shareholders and creditors of each constituent
company and that notification of the merger or consolidation will be published in the Cayman Islands Gazette. Dissenting shareholders have the right to be paid the
fair value of their shares (which, if not agreed between the parties, will be determined by the Cayman Islands court) if they follow the required procedures, subject to
certain exceptions. Court approval is not required for a merger or consolidation which is effected in compliance with these statutory procedures.
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In addition, there are statutory provisions that facilitate the reconstruction and amalgamation of companies, provided that the arrangement is approved by a
majority in number of each class of shareholders or creditors (representing 75% by value) with whom the arrangement is to be made and who must, in addition,
represent three-fourths in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy at a
meeting, or meetings, convened for that purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by the Grand Court of the
Cayman Islands. While a dissenting shareholder has the right to express to the court the view that the transaction ought not to be approved, the court can be
expected to approve the arrangement if it determines that:
● the statutory provisions as to the required majority vote have been met;
● the shareholders have been fairly represented at the meeting in question and the statutory majority are acting bona fide without coercion of the minority
to promote interests adverse to those of the class;
● the arrangement is such that may be reasonably approved by an intelligent and honest man of that class acting in respect of his interest; and
● the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Law.
When a takeover offer is made and accepted by holders of 90% of the shares within four months, the offeror may, within a two-month period commencing
on the expiration of such four month period, require the holders of the remaining shares to transfer such shares on the terms of the offer. An objection can be
made to the Grand Court of the Cayman Islands, but such objection is unlikely to succeed in the case of an offer which has been so approved unless there is
evidence of fraud, bad faith or collusion.
If an arrangement and reconstruction is thus approved, the dissenting shareholder would have no rights comparable to appraisal rights, which would
otherwise ordinarily be available to dissenting shareholders of certain corporations incorporated in the United States, including Delaware corporations, providing
rights to receive payment in cash for the judicially determined value of the shares.
Holders of our securities may have difficulty obtaining or enforcing a judgment against us, and they may face difficulties in protecting their interests
because we are incorporated under Cayman Islands law.
Because we are a Cayman Islands company, there is uncertainty as to whether the Grand Court of the Cayman Islands would recognize or enforce
judgments of United States courts obtained against us predicated upon the civil liability provisions of the securities laws of the United States or any state thereof, or
be competent to hear original actions brought in the Cayman Islands against us predicated upon the securities laws of the United States or any state thereof.
We are incorporated as an exempted company limited by shares under the Companies Law. A significant amount of our assets are located outside of the
United States. As a result, it may be difficult for persons purchasing our securities to effect service of process within the United States upon us or to enforce
judgments against us or judgments obtained in U.S. courts predicated upon the civil liability provisions of the federal securities laws of the United States or any
state of the United States.
Although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, the courts of the Cayman Islands will, based
on the principle that a judgment by a competent foreign court will impose upon the judgment debtor an obligation to pay the sum for which judgment has been
given, recognize and enforce a foreign judgment of a court of competent jurisdiction if such judgment is final, for a liquidated sum, not in respect of taxes or a fine or
penalty if not inconsistent with a Cayman Islands judgment in respect of the same matters, and was not obtained in a manner, and is not of a kind, the enforcement
of which is contrary to the public policy of the Cayman Islands. There is doubt, however, as to whether the courts of the Cayman Islands will, in an original action in
the Cayman Islands, recognize or enforce judgments of U.S. courts predicated upon the civil liability provisions of the securities laws of the United States or any
state of the United States on the grounds that such provisions are penal in nature. Furthermore, a Cayman Islands court may stay proceedings if concurrent
proceedings are being brought elsewhere.
Unlike many jurisdictions in the United States, Cayman Islands law does not specifically provide for shareholder appraisal rights on a merger or
consolidation of an entity. This may make it more difficult for shareholders to assess the value of any consideration they may receive in a merger or consolidation
or to require that the offeror give a shareholder additional consideration if he believes the consideration offered is insufficient. In addition, shareholders of Cayman
Islands exempted companies such as ours have no general rights under Cayman Islands law to inspect corporate records and accounts. Our directors have
discretion under our Articles to determine whether or not, and under what conditions, the corporate records may be inspected by shareholders, but are not obligated
to make them available to shareholders. This fact may make it more difficult for shareholders to obtain the information needed to establish any facts necessary for a
shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest. Finally, subject to limited exceptions, under Cayman Islands
law, a minority shareholder may not bring a derivative action against our Board of Directors.
Provisions of our Articles may reallocate the voting power of our ordinary shares.
In certain circumstances, the total voting power of our ordinary shares held by any one person will be reduced to less than 9.9% of the total voting power of
the total issued and outstanding ordinary shares. In the event a holder of our ordinary shares acquires shares representing 9.9% or more of the total voting power
of our total ordinary shares, there will be an effective reallocation of the voting power of the ordinary shares as described in the Articles.
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We are an “emerging growth company” and we cannot be certain whether the reduced disclosure requirements and relief from certain other significant
obligations that are applicable to emerging growth companies will make our securities less attractive to investors.
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS Act, and we intend to take advantage of
certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not
limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, less extensive disclosure
obligations regarding executive compensation in our periodic reports and proxy statements, exemptions from the requirements to hold a nonbinding advisory vote
on executive compensation and shareholder approval of any golden parachute payments not previously approved and an extended transition period for complying
with new or revised accounting standards. This may make comparison of our financial statements with any other public company that is either not an emerging
growth company or is an emerging growth company that has opted out of using the extended transition period difficult, as different or revised standards may be
used by such companies. We cannot predict if investors will find our securities less attractive because we will rely on these exemptions. If some investors find our
securities less attractive as a result, there may be a less active trading market for our securities and the price of our securities may be more volatile.
Risks Relating to Taxation
We may become subject to taxation in the Cayman Islands which would negatively affect our results.
Under current Cayman Islands law, we are not obligated to pay any taxes in the Cayman Islands on either income or capital gains. The Governor-in-
Cabinet of Cayman Islands has granted us an exemption from the imposition of any such tax on us for twenty years from April 23, 2013. We cannot be assured that
after such date we would not be subject to any such tax. If we were to become subject to taxation in the Cayman Islands, our financial condition and results of
operations could be significantly and negatively affected.
We may be subject to United States federal income taxation.
We are incorporated under the laws of the Cayman Islands and intend to operate in a manner that will not cause us to be treated as engaging in a United
States trade or business and will not cause us to be subject to current United States federal income taxation on our income. However, because there are no
definitive standards provided by the Internal Revenue Code of 1986, as amended (the “Code”), regulations or court decisions as to the specific activities that
constitute being engaged in the conduct of a trade or business within the United States, and as any such determination is essentially factual in nature, we cannot
assure you that the United States Internal Revenue Service, or the IRS, will not successfully assert that we are engaged in a trade or business in the United States
and thus are subject to current United States federal income taxation.
We may be treated as a PFIC, in which case a U.S. holder of our ordinary shares should be subject to disadvantageous rules under U.S. federal income
tax laws.
Significant potential adverse United States federal income tax consequences generally apply to any United States person who owns shares in a “passive
foreign investment company”, or PFIC. In general, a non-U.S. corporation is classified as a PFIC for a taxable year in which, after taking into account the income
and assets of the corporation and certain subsidiaries pursuant to certain look-through rules, either (i) 75% or more of its gross income is passive income, or (ii)
50% or more of the average quarterly value of its gross assets is attributable to assets that produce passive income or are held for the production of passive
income.
Passive income generally includes interest, dividends and other investment income. However, the income derived in the active conduct of an insurance
business is excluded from the term “passive income” if (i) for years before 2018, the income is earned by a corporation that is predominantly engaged in an
insurance business, and (ii) for years after 2017, the income is earned by a “qualifying insurance corporation”. In order for a non-U.S. property and casualty
insurance company to be treated as a “qualifying insurance corporation” for a taxable year, the company’s “applicable insurance liabilities” generally must be greater
than 25% of the company’s assets for the taxable year. In the case of a non-U.S. property and casualty insurance company, the term “applicable insurance
liabilities” means the amount of loss and loss adjustment expenses, but shall not exceed the amount reported to the applicable regulator in an applicable financial
statement. It is not clear whether the term “applicable insurance liabilities” includes not only the unpaid loss and loss adjustment expenses, but also includes the
paid loss and loss adjustment expenses during the taxable year. If each of Oxbridge Reinsurance Limited and Oxbridge Re NS is a “qualified insurance
corporation” for a taxable year, then neither Oxbridge Re Holdings Limited, nor Oxbridge Reinsurance Limited, nor Oxbridge Re NS should be deemed to be a
PFIC for the taxable year.
Regardless of whether the term “applicable insurance liabilities” includes not only the unpaid loss and loss adjustment expenses but also the paid loss and
loss adjustment expenses, we believe that each of Oxbridge Reinsurance Limited and Oxbridge Re NS met the requirements for being a “qualified insurance
corporation” for the 2018 year. For years prior to 2018, we also believe that each of those corporations met the requirement of being predominantly engaged in an
insurance business. Accordingly, we believe that we have not been a PFIC during 2018 or prior years. We do not have an expectation, however, as to whether or
not we may be a PFIC in years after 2018. If you are a United States person, we urge you to consult your own tax advisor concerning the potential tax
consequences to you under the PFIC rules.
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We may be treated as a CFC and may be subject to the rules for related person insurance income, and in either case this may subject a U.S. holder of
our ordinary shares to disadvantageous rules under U.S. federal income tax laws.
Controlled Foreign Corporation. United States persons who, directly or constructively through attribution rules, own 10% or more of the voting power or
value of our ordinary shares, which we refer to as United States 10% shareholders, may be subject to the controlled foreign corporation, or CFC, rules. Under the
controlled foreign corporation rules of the Code, each United States 10% shareholder must annually include his pro rata share of the controlled foreign corporation’s
‘‘Subpart F income,’’ even if no distributions are made. In general, a foreign insurance company will be treated as a controlled foreign corporation only if United
States 10% shareholders collectively own, directly or constructively, more than 25% of the total combined voting power or total value of the company’s shares. If
you are a United States person we urge you to consult your own tax advisor concerning the controlled foreign corporation rules. We believe that certain United
States persons may be deemed to own, directly or constructively (including through the ownership of warrants), 10% or more of the voting power or value of our
ordinary shares, and we believe that those United States persons collectively own, directly or constructively, more than 25% of the voting power or value of our
ordinary shares.
Related Person Insurance Income . A different definition of CFC is applicable in the case of a foreign corporation which earns “related person insurance
income” (“RPII”). RPII is a Code Subpart F insurance income attributable to insurance policies or reinsurance contracts where the person that is directly or indirectly
insured or reinsured is a RPII shareholder or a related person to the RPII shareholder. A “RPII shareholder” is a United States person who owns, directly or
indirectly through foreign entities, any amount of our ordinary shares. Generally, for purposes of the RPII rules, a related person is someone who controls or is
controlled by the RPII shareholder or someone who is controlled by the same person or persons which control the RPII shareholder. Control is measured by either
more than 50% in value or more than 50% in voting power of shares after applying certain constructive ownership rules. For purposes of taking into account RPII,
and subject to the exceptions described below, Oxbridge Reinsurance Limited or Oxbridge Re NS will be treated as a CFC if our RPII shareholders collectively
own, indirectly, 25% or more of the total combined voting power or value of their respective shares on any day during a taxable year. If Oxbridge Reinsurance
Limited or Oxbridge Re NS is a CFC at any time during a taxable year under the special RPII rules, any U.S. Holder that owns ordinary shares on the last day of
any such taxable year must include in gross income for U.S. federal income tax purposes the U.S. Holder’s allocable share of the RPII of Oxbridge Reinsurance
Limited for the entire taxable year, subject to certain modifications. Among other exceptions, the RPII rules do not apply if the insurance company’s RPII,
determined on a gross basis, is less than 20% of such respective entity’s gross insurance income for such taxable year. We do not believe that the 20% gross
insurance income threshold will be met. However, we cannot assure you that this is or will continue to be the case. Consequently, we cannot assure you that a
person who is a direct or indirect United States shareholder will not be required to include amounts in its income in respect of RPII in any taxable year.
United States tax-exempt organizations who own ordinary shares may recognize unrelated business taxable income.
If you are a United States tax-exempt organization you may recognize unrelated business taxable income if a portion of our Code Subpart F insurance
income is allocated to you. In general, Code Subpart F insurance income will be allocated to you if we are a CFC as discussed above and you are a United States
10% shareholder or there is related person insurance income and certain exceptions do not apply. If you are a United States tax-exempt organization, we advise
you to consult your own tax advisor regarding the risk of recognizing unrelated business taxable income.
Changes in United States tax laws may be retroactive and could subject us, and/or United States persons who own ordinary shares to United States
income taxation on our undistributed earnings.
The tax laws and interpretations regarding whether a company is engaged in a United States trade or business, is a CFC, has RPII, or is a PFIC are
subject to change, possibly on a retroactive basis. There are currently no regulations regarding the application of the PFIC rules to an insurance company and the
regulations regarding RPII are still in proposed form. New regulations or pronouncements interpreting or clarifying such rules may be forthcoming from the IRS. We
are not able to predict if, when or in what form such guidance will be provided and whether such guidance will have a retroactive effect.
We do not intend to resume paying cash dividends in the foreseeable future.
On November 12, 2017, our board of directors decided to suspend our regular quarterly cash dividend. The board of directors intends to reconsider in the
future the payment of a quarterly cash dividend, but the timing of such reconsideration has not been determined, and there is no intention to resume dividend
payments in the foreseeable future, if at all. Any decision to resume dividend payments will be dependent upon a variety of factors, including the state of our
business as well as general market conditions at the time of reconsideration, and there is no assurance that dividend payments will recommence.
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ITEM 1B UNRESOLVED STAFF COMMENTS
The Company has no unresolved written comments regarding its periodic or current reports from the staff of the SEC.
ITEM 2 PROPERTIES
We previously leased office space at 2 nd Floor, Strathvale House, Georgetown, Grand Cayman, Cayman Islands. Effective March 1, 2019, we lease office
space at Suite 201, 42 Edward Street, Georgetown Grand Cayman. We believe that our current office is suitable and sufficient for us to conduct our operations for
the foreseeable future.
ITEM 3 LEGAL PROCEEDINGS
We are not currently involved in any litigation or arbitration. We anticipate that, similar to the rest of the insurance and reinsurance industry, we will be
subject to litigation and arbitration in the ordinary course of business.
ITEM 4 MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
Market Information for Ordinary Shares
The following table sets forth the high and low sales price per share of our ordinary shares as reported on The NASDAQ Capital Market for the periods
indicated:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Holders of Record and Tax Information
2018
2017
High
Low
High
Low
$
$
$
$
3.00
2.35
3.00
1.91
$
$
$
$
2.00
1.00
1.56
0.51
$
$
$
$
6.90
6.68
6.00
4.22
$
$
$
$
5.85
5.60
4.30
2.15
As of March 5, 2019, there were 19 holders of record of our ordinary shares. There are no current applicable Cayman Islands laws, decrees or regulations
relating to restrictions on the import or export of capital or exchange controls affecting remittances of dividends, interest and other payments to non-resident
holders of our ordinary shares. There are no existing laws or regulations of the Cayman Islands imposing taxes or containing withholding provisions to which
United States holders of our ordinary shares are subject. There are no reciprocal tax treaties between the Cayman Islands and the United States.
Dividend Policy
The declaration and payment of dividends will be at the discretion of our Board of Directors and will depend on our results of operations and cash flows, our
financial position and capital requirements, general business conditions, rating agency guidelines (if applicable), any legal, tax, regulatory and contractual
restrictions on the payment of dividends, and any other factors considered relevant by our Board of Directors. Our ability to pay dividends will also depend on the
requirements of any future financing agreements to which we may be a party and the ability of our reinsurance subsidiary, or other subsidiaries, to pay dividends to
us. Although Oxbridge Re Holdings Limited is not subject to any significant legal prohibitions on the payment of dividends, Oxbridge Reinsurance Limited and
Oxbridge Re NS, our reinsurance subsidiaries, are subject to Cayman Islands regulatory constraints that affect its ability to pay dividends to us and include a
minimum net worth requirement. Currently, the minimum net worth requirement for Oxbridge Reinsurance Limited and Oxbridge Re NS is $500. As of December
31, 2018, both subsidiaries exceeded the minimum requirement. By law, Oxbridge Reinsurance Limited and Oxbridge Re NS is restricted from paying a dividend if
such a dividend would cause its net worth to drop to less than the required minimum.
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The following table shows the frequency and amount of all cash dividends declared on our ordinary shares for the two most recent fiscal years. We paid no
dividends in 2018.
Declaration Date
2017
January 24, 2017
May 12, 2017
August 12, 2017
Payment Date
Record Date
Per Share Amount
March 30, 2017
June 30, 2017
September 30, 2017
March 17, 2017
June 23, 2017
September 23, 2017
$0.12
$0.12
$0.12
On November 12, 2017, the Company’s board of directors decided to suspend the Company’s regular $0.12 quarterly cash dividend. Any future
determination to declare cash dividends will be made at the discretion of our Board of Directors, subject to applicable laws, and will depend on a number of factors,
including our financial condition, results of operations, capital requirements, contractual restrictions, general business conditions and other factors that our Board of
Directors may deem relevant.
Unregistered Sales of Equity Securities
There were no sales of unregistered securities during the year ended December 31, 2018.
Issuer Purchases of Equity Securities
The Company did not repurchase any ordinary shares or warrants in 2018.
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ITEM 6 SELECTED FINANCIAL DATA
As a smaller reporting company as defined by Rule 229.10(f)(1) of the Exchange Act, we are not required to provide the information under this item and we
have elected to exclude this information as our operating history does not cover the requisite five-year period.
ITEM 7
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management discussion and analysis is intended to help the reader understand our business, financial condition, results of operations,
liquidity and capital resources. You should read this discussion in conjunction with our Consolidated Financial Statements and the related notes contained
elsewhere in this Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
This discussion contains forward-looking statements that are not historical facts, including statements about our beliefs and expectations. These
statements are based upon current plans, estimates and projections. Our actual results may differ materially from those projected in these forward-looking
statements as a result of various factors. See “Forward Looking Statements” appearing at the beginning of this Annual Report on Form 10-K and Item 1A, “ Risk
Factors.”
General
The following is a discussion and analysis of our results of operations for the years ended December 31, 2018 and 2017 and our financial condition as of
December 31, 2018 and 2017. The following discussion should be read in conjunction with our consolidated financial statements and related notes included
elsewhere in this Annual Report on Form 10-K. References to “we,” “us,” “our,” “our company,” or “the Company” refer to Oxbridge Re Holdings Limited and its
wholly-owned subsidiaries, Oxbridge Reinsurance Limited and Oxbridge Re NS, unless the context dictates otherwise.
Overview and Trends
We are a Cayman Islands specialty property and casualty reinsurer that provides reinsurance solutions through our reinsurance subsidiaries, Oxbridge
Reinsurance Limited and Oxbridge Re NS. Our more recently organized new subsidiary, Oxbridge Re NS, which was incorporated on December 22, 2017 to
function as a reinsurance sidecar which increases the underwriting capacity of Oxbridge Reinsurance Limited. Oxbridge Re NS commenced operations on June 1,
2018 and issued participating notes to third-party investors, the proceeds of which was utilized to collateralize a quota-share of Oxbridge Reinsurance Limited’s
reinsurance obligations. We focus on underwriting fully-collateralized reinsurance contracts primarily for property and casualty insurance companies in the Gulf
Coast region of the United States, and globally through ILW’s. We specialize in underwriting medium frequency, high severity risks, where we believe sufficient
data exists to analyze effectively the risk/return profile of reinsurance contracts.
We underwrite reinsurance contracts on a selective and opportunistic basis as opportunities arise based on our goal of achieving favorable long-term
returns on equity for our shareholders. Our goal is to achieve long-term growth in book value per share by writing business that generates attractive underwriting
profits relative to the risk we bear. Unlike other insurance and reinsurance companies, we do not intend to pursue an aggressive investment strategy and instead
will focus our business on underwriting profits rather than investment profits. However, we intend to complement our underwriting profits with investment profits on
an opportunistic basis. Our primary business focus is on fully collateralized reinsurance contracts for property catastrophes, primarily in the Gulf Coast region of the
United States, as well as globally through ILW’s. Within that market and risk category, we attempt to select the most economically attractive opportunities across a
variety of property and casualty insurers. As our capital base grows, however, we expect that we will consider further growth opportunities in other geographic
areas and risk categories.
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Our level of profitability is primarily determined by how adequately our premiums assumed and investment income cover our costs and expenses, which
consist primarily of acquisition costs and other underwriting expenses, claim payments and general and administrative expenses. One factor leading to variation in
our operational results is the timing and magnitude of any follow-on offerings we undertake (if any), and issuance of participating notes to third-party investors, as
we are able to deploy new capital to collateralize new reinsurance treaties and consequently, earn additional premium revenue. In addition, our results of operations
may be seasonal in that hurricanes and other tropical storms typically occur during the period from June 1 through November 30. Further, our results of operations
may be subject to significant variations due to factors affecting the property and casualty insurance industry in general, which include competition, legislation,
regulation, general economic conditions, judicial trends, and fluctuations in interest rates and other changes in the investment environment.
Because we employ an opportunistic underwriting and investment philosophy, period-to-period comparisons of our underwriting results may not be
meaningful. In addition, our historical investment results may not necessarily be indicative of future performance. Due to the nature of our reinsurance and
investment strategies, our operating results will likely fluctuate from period to period.
Due to the continued influx of new risk capital from alternative capital market participants such as hedge funds and pension funds, we believe that the
reinsurance industry is currently over-capitalized and will continue in this trend for the foreseeable future. The over-capitalization of the market is not uniform as
there are a number of insurers and reinsurers that have suffered and continue to suffer from capacity issues. We continue to assess the opportunities that may be
available to us with insurance and reinsurance companies with this profile. If the reinsurance market continues to soften, our strategy is to reduce premium writings
rather than accept mispriced risk and conserve our capital for a more opportune environment. Significant rate increases could occur if financial and credit markets
experience adverse shocks that result in the loss of capital of insurers and reinsurers, or if there are major catastrophic events, especially in North America.
Natural disasters of 2018
The year ended December 31, 2018 was the fourth costliest year since 1980 in terms of insured losses due an accumulation of severe and costly natural
disasters particularly in the second half of 2018.
When compared with the record losses of 2017 due to Hurricanes Harvey, Irma and Maria, the indications at the start of 2018 were that it would be a more
moderate year. However, the second half of the year saw an accumulation of billion-dollar losses from floods, tropical cyclones in the US and Japan, wildfires and
earthquakes. The overall economic impact is estimated to be US$ 160bn, of which US$ 80bn was insured.
Hurricanes Michael and Florence in the Atlantic, and Typhoons Jebi, Mangkhut and Trami in Asia, all left their mark. Overall losses from tropical cyclones in 2018
came to roughly US$ 57 billion, of which US$ 29 billion was insured. There was also an extremely high impact from wildfires in California that produced overall
losses of US$ 24 billion and insured losses of US$ 18 billion. Over the course of the year, 29 events each resulted in an overall loss of US$ 1 billion or more.
Due to these natural disasters, some of which were reinsured by the Company, we suffered limit losses on all of our contracts.
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PRINCIPAL REVENUE AND EXPENSE ITEMS
Revenues
We derive our most significant revenues from two principal sources:
● premiums assumed from reinsurance on property and casualty business; and
● income from investments, including Industry Loss Warranties
● other fee income from management and underwriting performance of the reinsurance side-car
Premiums assumed include all premiums received by a reinsurance company during a specified accounting period, even if the policy provides coverage
beyond the end of the period. Premiums are earned over the term of the related policies. At the end of each accounting period, the portion of the premiums that are
not yet earned are included in the unearned premiums reserve and are realized as revenue in subsequent periods over the remaining term of the policy. Our
policies typically have a term of twelve months. Thus, for example, for a policy that is written on July 1, 2018, typically one-half of the premiums will be earned in
2018 and the other half will be earned during 2019. However, in the event of limit losses on our policies, premium recognition will be accelerated to match losses
incurred in the period, when there is no possibility of any future treaty-year losses under the contracts.
Premiums from reinsurance on property and casualty business assumed are directly related to the number, type and pricing of contracts we write.
Premiums assumed are recorded net of change in loss experience refund, which consists of changes in amounts due to the cedants under two of our
reinsurance contracts. These contracts contain retrospective provisions that adjust premiums in the event losses are minimal or zero. We recognize a liability pro-
rata over the period in which the absence of loss experience obligates us to refund premiums under the contracts, and we will derecognize such liability in the
period in which a loss experience arises. The change in loss experience refund is negatively correlated to loss and loss adjustment expenses described below.
Income from our investments is primarily comprised of interest income, dividends and net realized and unrealized gains (losses) on investment securities.
Such income is primarily from the Company’s investments, which includes investments held in trust accounts that collateralize the reinsurance policies that we
write. The investment parameters for trust accounts are generally be established by the cedant for the relevant policy.
Industry Loss Warranties
The Company may buy and sell industry loss warranties as a way to access certain risks. An industry loss warranty is a financial instrument designed to protect
insurers or reinsurers from severe losses due to natural and man-made catastrophes and can take the form of either an insurance contract or a swap agreement.
Under both forms, a premium is paid at the inception of the contract and, in return, a payout is made if a catastrophic event causes loss to the insurance industry in
excess of a predetermined trigger amount. Industry loss warranties may also be triggered by other parametric measurements defined in the contract such as
observed wind speeds, measured seismic activity or other factors. Industry loss warranties in the form of an insurance contract (also referred to as the "indemnity
form") are typically dual-trigger instruments and, in addition to requiring a loss to the industry, require that the buyer of the protection actually suffer a loss from the
triggering event. The Company may buy and sell industry loss warranties in the form of an insurance contract or in the form of a derivative contract.
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Fee income
The Company earns management fee income from providing administrative and management services for the reinsurance side-car operations. The Company is
also entitled to a performance fee should the side-car underwriting results be profitable for a specific treaty period.
Expenses
Our expenses consist primarily of the following:
● losses and loss adjustment expenses;
● policy acquisition costs and underwriting expenses; and
● general and administrative expenses.
Loss and loss adjustment expenses are a function of the amount and type of reinsurance contracts we write and of the loss experience of the underlying
coverage. As described below, loss and loss adjustment expenses are based on the claims reported by our Company’s ceding insurers, and may include an
actuarial analysis of the estimated losses, including losses incurred during the period and changes in estimates from prior periods. Depending on the nature of the
contract, loss and loss adjustment expenses may be paid over a period of years.
Policy acquisition costs and underwriting expenses consist primarily of brokerage fees, ceding commissions, premium taxes and other direct expenses that
relate to our writing of reinsurance contracts. We amortize deferred acquisition costs over the related contract term.
General and administrative expenses consist of salaries and benefits and related costs, including costs associated with our professional fees, rent and
other general operating expenses consistent with operating as a public company.
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RESULTS OF OPERATIONS
The following table summarizes our results of operations for the years ended December 31, 2018 and 2017 (dollars in thousands, except per share
amounts):
$
Years Ended December 31,
2018
2017
2,361
-
(225)
592
2,728
997
366
(255)
(26)
3,810
10,006
8
263
1,282
18,263
(880)
1,335
4,849
23,567
-
412
(138)
-
23,841
42,427
-
681
1,325
11,559
44,433
$
(7,749)
(20,592)
2,000
-
(5,749)
(20,592)
$
$
(1.00)
(1.00)
(3.55)
(3.55)
5,733,587
5,808,354
$
-
0.36
268.6%
9.6%
41.5%
310.1%
180.0%
2.9%
8.5%
188.5%
Revenue
Assumed premiums
Premiums ceded
Change in loss experience refund payable
Change in unearned premiums reserve
Net premiums earned
Net income from derivative instruments
Net investment and other income
Net realized investment losses
Change in fair value of equity securities
Total revenue
Expenses
Losses and loss adjustment expenses
Net loss on commutation
Policy acquisition costs and underwriting expenses
General and administrative expenses
Total expenses
Loss before loss attributable to Series 2018-1
Loss attributable to Series 2018-1 noteholders
Net loss
Basic loss per share
Diluted loss per share
Weighted-average shares outstanding
Basic and Diluted
Dividends paid per share
Performance ratios to net premiums earned:
Loss ratio
Acquisition cost ratio
Expense ratio
Combined ratio
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Comparison of the Year Ended December 31, 2018 to Year Ended December 31, 2017
General. Net loss for the year ended December 31, 2018 was $5.7 million or ($1.00) per basic and diluted loss per share compared to a net loss of $20.6
million or ($3.55) per basic and diluted earnings per share for the year ended December 31, 2017. The significant decrease in net loss is wholly due to limit losses
being suffered on a smaller sized reinsurance portfolio during the year ended December 31, 2018, when compared with the reinsurance portfolio that suffered limit
losses during the year ended December 31, 2017.
Premium Income. Net premiums earned typically reflects the pro-rata inclusion into income of premiums assumed (net of loss experience refund and
premiums ceded) over the life of the reinsurance contracts. However, given the limit losses experienced on all our reinsurance contracts during the years ended
December 31, 2018 and 2017, premiums recognition has not been deferred through the remaining lives of those respective contracts and have been accelerated
into the respective years, due to the fact that there is no possibility of any future treaty-year losses under such contracts.
Net premiums earned for the year ended December 31, 2018 decreased $20.8 million, to $2.7 million, from $23.5 million for the year ended December 31,
2017. The decrease is primarily due to the limit losses suffered in 2017 resulting in a significantly lower deployment of capital during 2018, and consequentially
lower premiums, when compared with the prior fiscal year.
Losses Incurred. Losses incurred for the year ended December 31, 2018 decreased $32.4 million to $10 million, from $42.4 million for the year ended
December 31, 2017. The decrease is primarily due to limit losses being suffered on a smaller sized reinsurance portfolio during the year ended December 31,
2018, when compared with the reinsurance portfolio that suffered limit losses during the year ended December 31, 2017.
Policy Acquisition Costs and Underwriting Expenses . Acquisition costs represent the amortization of the brokerage fees and federal excise taxes
incurred on reinsurance contracts placed. Policy acquisition costs and underwriting expenses for the year ended December 31, 2018 decreased by $418
thousand, to $263 thousand from $681 thousand for the year ended December 31, 2017. The decrease is primarily due to the limit losses suffered in 2017
resulting in a significantly lower deployment of capital during 2018, and consequentially lower premiums and policy acquisitions costs, when compared with the
prior fiscal year.
General and Administrative Expenses. General and administrative expenses for the year ended December 31, 2017 decreased marginally by $43
thousand. The decrease is not considered material.
MEASUREMENT OF RESULTS
We use various measures to analyze the growth and profitability of business operations. For our reinsurance business, we measure growth in terms of
premiums assumed and we measure underwriting profitability by examining our loss, underwriting expense and combined ratios. We analyze and measure
profitability in terms of net income and return on average equity.
Premiums Assumed. We use gross premiums assumed to measure our sales of reinsurance products. Gross premiums assumed also correlates to our
ability to generate net premiums earned. See also the analysis above relating to the growth in premiums assumed.
Loss Ratio. The loss ratio is the ratio of losses and loss adjustment expenses incurred to net premiums and ILW income earned and measures the
underwriting profitability of our reinsurance business. The loss ratio increased from 180% for the year ended December 31, 2017 to 268.6% (214.9% when taking
Series 2018-1 notes into consideration) for the year ended December 31, 2018. The increase is due to the limit losses suffered during year ended December 31,
2018 on a lower denominator in net premiums earned, when compared with the prior fiscal year.
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Acquisition Cost Ratio. The acquisition cost ratio is the ratio of policy acquisition costs and other underwriting expenses to net premiums earned. The
acquisition cost ratio measures our operational efficiency in producing, underwriting and administering our reinsurance business. The acquisition cost ratio
increased from 2.9% for the year ended December 31, 2017 to 9.6% for the year ended December 31, 2018. The increase is due to the overall higher weighted-
average acquisition costs on reinsurance contracts in force during the year ended December 31, 2018, compared with the prior fiscal year.
Expense Ratio. The expense ratio is the ratio of policy acquisition costs, other underwriting expenses and general and administrative expenses to net
premiums and ILW income earned. We use the expense ratio to measure our operating performance. The expense ratio increased from 8.5% for the year ended
December 31, 2017 to 41.5% for the year ended December 31, 2018. The increase is due to the more significant reduction in net premiums than the decrease in
policy acquisition costs as recorded during the year ended December 31, 2018, when compared with the prior fiscal year.
Combined Ratio. We use the combined ratio to measure our underwriting performance. The combined ratio is the sum of the loss ratio and the expense
ratio. If the combined ratio is at or above 100%, we are not underwriting profitably and may not be profitable. The combined ratio increased from 188.5% for the
year ended December 31, 2017 to 310.1% (256.6% when taking Series 2018-1 notes into consideration) for the year ended December 31, 2018. The increase in
the combined ratio is due to a significantly higher loss ratio during year ended December 31, 2018 as mentioned above, when compared with the prior fiscal year.
FINANCIAL CONDITION – DECEMBER 31, 2018 COMPARED TO DECEMBER 31, 2017
Restricted Cash and Cash Equivalents. As of December 31, 2018, our restricted cash and cash equivalents increased marginally by $100 thousand, or
3%, to $3.2 million, from $3.1 million as of December 31, 2017. The increase is the net result of withdrawals by the cedants for settlement of losses under the
reinsurance contracts during the year ended December 31, 2018 more than offset by premium receipts and collateral deposits.
Investments. As of December 31, 2018, our available for sale securities decreased marginally by $5.4 million, or 82%, to $1 million, from $6.4 million as of
December 31, 2017. The decrease is primarily a result of net sales of fixed-maturity and equity securities during the year ended December 31, 2018.
Reserve for losses and loss adjustment expenses . As of December 31, 2018, our reserve for losses and loss adjustment expenses decreased by $728
thousand, or 15%, to $4.1 million, from $4.8 million at December 31, 2017. The decrease is wholly due to the timely settlement of limit losses on 2017 catastrophe
events more than offset by new reserves set up for 2018 catastrophe events.
Unearned Premiums Reserve. As of December 31, 2018, our unearned premiums reserve decreased by $2 million, or 100%, to $Nil, from $2 million at
December 31, 2017. The decrease is due to the acceleration of premium recognition due to the full limit losses on all of our contracts.
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LIQUIDITY AND CAPITAL RESOURCES
General
We are organized as a holding company with substantially no operations at the holding company level. Our operations are conducted through our
reinsurance subsidiaries, Oxbridge Reinsurance Limited and Oxbridge Re NS which underwrites risks associated with our property and casualty reinsurance
programs. We have minimal continuing cash needs at the holding company level, with such expenses principally being related to the payment of administrative
expenses, and shareholder dividends, if any. There are restrictions on Oxbridge Reinsurance Limited’s and Oxbridge Re NS’ ability to pay dividends which are
described in more detail below.
Sources and Uses of Funds
Our sources of funds primarily consist of premium receipts (net of brokerage fees and federal excise taxes, where applicable) and investment income,
including interest, dividends and realized gains. We use cash to pay losses and loss adjustment expenses, other underwriting expenses, dividends, and general
and administrative expenses. Substantially all of our surplus funds, net of funds required for cash liquidity purposes, are invested in accordance with our investment
guidelines. Our investment portfolio is primarily comprised of cash and highly liquid securities, which can be liquidated, if necessary, to meet current liabilities. We
believe that we have sufficient flexibility to liquidate any long-term securities that we own in a rising market to generate liquidity.
As of December 31, 2018, we believe we had sufficient cash flows from operations to meet our liquidity requirements. We expect that our operational
needs for liquidity will be met by cash, investment income and funds generated from underwriting activities. We have no plans to issue debt and expect to fund our
operations for the foreseeable future from operating cash flows, as well as from potential future equity offerings. However, we cannot provide assurances that in the
future we will not incur indebtedness to implement our business strategy, pay claims or make acquisitions.
Although Oxbridge Re Holdings Limited is not subject to any significant legal prohibitions on the payment of dividends, Oxbridge Reinsurance Limited and
Oxbridge Re NS are subject to Cayman Islands regulatory constraints that affect its ability to pay dividends to us and include a minimum net worth requirement.
Currently, the minimum net worth requirement for each subsidiary is $500. As of December 31, 2018, Oxbridge Reinsurance Limited and Oxbridge Re NS
exceeded the minimum required. By law, Oxbridge Reinsurance Limited and Oxbridge Reinsurance NS are restricted from paying a dividend if such a dividend
would cause its net worth to drop to less than the required minimum.
Our reinsurance operations exposed us to claims arising out of unpredictable catastrophic events particularly during the third and fourth quarter of 2018.
The incidence and severity of catastrophes are inherently unpredictable, but the loss experience of property catastrophe reinsurers has been generally
characterized as low frequency and high severity. Claims from catastrophic events have reduced our earnings and caused substantial volatility in our results of
operations, and adversely affected our financial condition. The corresponding reduction in our surplus level will impact our ability to write new reinsurance policies at
future renewal periods.
Cash Flows
Our cash flows from operating, investing and financing activities for the years ended December 31, 2018 and 2017 are summarized below.
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Cash Flows for the Year ended December 31, 2018 (in thousands)
Net cash used in operating activities for the year ended December 31, 2018 totaled $6,633, which consisted primarily of cash received from net written
premiums less cash disbursed for operating expenses and net loss payments. Net cash provided by investing activities of $5,045 was primarily due to the net sales
of available for sale securities and collateral withdrawals from trust accounts to settle losses arising during the year. Net cash provided by financing activities totaled
$2,000 representing the proceeds on issuance of the Series 2018-1 participating notes during the year ended December 31, 2018.
Cash Flows for the Year ended December 31, 2017 (in thousands)
Net cash used in operating activities for the year ended December 31, 2017 totaled $26,310, which consisted primarily of cash received from net
written premiums less cash disbursed for operating expenses and net loss payments. Net cash provided by investing activities of $4,667 was primarily due to the
net sales of available for sale securities and collateral withdrawals from trust accounts to settle losses arising during the year. Net cash used in financing activities
totaled $3,152 representing net cash dividend payments and cash used to repurchase ordinary shares under the Company’s share repurchase plan.
Share Repurchase Program
On May 12, 2016, the Board of Directors of the Company authorized a share repurchase program (the “Share Repurchase Program”), pursuant to which
the Company had been authorized, from time to time, to purchase shares of its common stock for an aggregate repurchase price not to exceed $2 million. The
Share Repurchase Program was set to expire on December 31, 2017. On September 28, 2017, the Company discontinued the Share Repurchase Program.
Through September 28, 2017, the Company had repurchased an aggregate of 326,413 shares for an aggregate of $1.8 million under the Share Repurchase
Program.
The Company had previously adopted a Rule 10b5-1 share repurchase plan under the Securities Exchange Act of 1934 (the “Plan”) in connection with the Share
Repurchase Program. The Plan allowed the Company to repurchase its shares at times when it otherwise might be prevented from doing so under insider trading
laws or because of self-imposed trading blackout periods. The Company has cancelled the Plan effective September 28, 2017.
OFF-BALANCE SHEET ARRANGEMENTS
As of December 31, 2018, we had no off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.
EXPOSURE TO CATASTROPHES
As with other reinsurers, our operating results and financial condition could be adversely affected by volatile and unpredictable natural and man-made
disasters, such as hurricanes, windstorms, earthquakes, floods, fires, riots and explosions. Although we attempt to limit our exposure to levels we believe are
acceptable, it is possible that an actual catastrophic event or multiple catastrophic events could have a material adverse effect on our financial condition, results of
operations and cash flows. As described under “CRITICAL ACCOUNTING POLICIES—Reserves for Losses and Loss Adjustment Expenses ” below, under United
States generally accepted accounting principles (“U.S. GAAP”), we are not permitted to establish loss reserves with respect to losses that may be incurred under
reinsurance contracts until the occurrence of an event which may give rise to a claim. As a result, only loss reserves applicable to losses incurred up to the
reporting date may be established, with no provision for a contingency reserve to account for expected future losses.
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CRITICAL ACCOUNTING POLICIES
We are required to make estimates and assumptions in certain circumstances that affect amounts reported in our Consolidated Financial Statements and
related notes. We evaluate these estimates and assumptions on an on-going basis based on historical developments, market conditions, industry trends and other
information that we believe to be reasonable under the circumstances. These accounting policies pertain to premium revenues and risk transfer, reserve for loss
and loss adjustment expenses and reporting of deferred acquisition costs.
Premium Revenue and Risk Transfer . We record premiums revenue as earned pro-rata over the terms of the reinsurance agreements and the unearned
portion at the 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.
We account for reinsurance contracts in accordance with ASC 944, ‘‘Financial Services – Insurance.” Assessing whether or not a reinsurance contract
meets the conditions for risk transfer requires judgment. The determination of risk transfer is critical to reporting premiums written. If we determine that a
reinsurance contract does not transfer sufficient risk, we must account for the contract as a deposit liability.
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. Under such contracts, the Company expects to recognize aggregate liabilities payable to the ceding insurers assuming no losses occur
during the contract period. In accordance with U.S. 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 contract. 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 term, will reduce the liability should a catastrophic loss event covered by
the Company occur.
Reserves for Losses and Loss Adjustment Expenses. We determine our reserves for losses and loss adjustment expenses on the basis of the claims
reported by our ceding insurers and for losses incurred but not reported (“IBNR”), we use 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. We believe 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 income
in the period in which they are determined.
Under U.S. GAAP, we are not permitted to establish loss reserves until the occurrence of an actual loss event. As a result, only loss reserves applicable to
losses incurred up to the reporting date may be recorded, with no allowance for the provision of a contingency reserve to account for expected future losses.
Losses arising from future events, which could be substantial, are estimated and recognized at the time the loss is incurred.
As at December 31, 2018 our best estimate for reserves for loss and loss adjustment expenses was $4.1 million, with IBNR representing approximately 2% of
such reserves. See Note 8 to the consolidated financial statements.
Our reserving methodology does not lend itself well to a statistical calculation of a range of estimates surrounding the best point estimate of our reserve for
loss and loss adjustment expense. Due to the low frequency and high severity nature of claims within much of our business, our reserving methodology principally
involves arriving at a specific point estimate for the ultimate expected loss on a contract by contract basis, and our aggregate loss reserves are the sum of the
individual loss reserves established.
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Deferred Acquisition Costs. We defer certain expenses that are directly related to and vary with producing reinsurance business, including brokerage
fees on gross premiums assumed, premium taxes and certain other costs related to the acquisition of reinsurance contracts. These costs are capitalized and the
resulting asset, deferred acquisition costs, is amortized and charged to expense in future periods as premiums assumed are earned. The method followed in
computing deferred acquisition costs limits the amount of such deferral to its estimated realizable value. The ultimate recoverability of deferred acquisition costs is
dependent on the continued profitability of our reinsurance underwriting. If our underwriting ceases to be profitable, we may have to write off a portion of our
deferred acquisition costs, resulting in a further charge to income in the period in which the underwriting losses are recognized.
JOBS ACT
The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for an emerging growth company. We have determined
that, as an emerging growth company, we will not: (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to
Section 404(b); (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street
Reform and Consumer Protection Act; (iii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding
mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements; (iv) disclose
certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of our Chief Executive
Officer’s compensation to median employee compensation; or (v) comply with new or revised accounting standards on the relevant dates on which adoption of
such standards is required for non-emerging growth companies.
We will continue to be an emerging growth company until the earliest of: (i) the last day of the fiscal year during which we had total annual gross revenues
of at least $1 billion (as indexed for inflation); (ii) the last day of the fiscal year following the fifth anniversary of the date of our initial public offering; (iii) the date on
which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; and (iv) the date on which we are deemed to be a
“large accelerated filer,” as defined under the Exchange Act.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company as defined by Rule 229.10(f)(1) of the Exchange Act, we are not required to provide the information under this item.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data have been filed as a part of this Annual Report on Form 10-K as indicated in the Index to Consolidated
Financial Statements and Financial Statement Schedules appearing on page 45 of this Annual Report on Form 10-K.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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ITEM 9A CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our principal executive officer and our principal financial officer, we have evaluated the effectiveness of
our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Annual
Report on Form 10-K (December 31, 2018). Our disclosure controls and procedures are intended to ensure that the information we are required to disclose in the
reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and
forms and (ii) accumulated and communicated to our management, including the principal executive officer and principal financial officer to allow timely decisions
regarding required disclosures.
Based on that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this Annual
Report on Form 10-K, our disclosure controls and procedures were effective.
It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the
objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over our financial reporting (as defined in Rule 13a-15(f) and 15d-15(f)
of the Exchange Act). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of our assets, (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that our receipts and
expenditures are being made only in accordance with authorizations of our management and directors, and (iii) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission ("COSO"). Based on this evaluation, our Principal Executive Officer and Principal Financial Officer concluded that, as
of December 31, 2018, our internal control over financial reporting was effective.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit us to provide only management’s report in this Annual Report.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the fiscal year ended December 31, 2018 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B OTHER INFORMATION
None.
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ITEM 10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
Other than the information regarding our code of ethics set forth below, the information required by this Item is incorporated herein by reference to the
definitive proxy statement for our 2019 annual meeting of stockholders to be filed with the SEC not later than 120 days after December 31, 2018.
We have adopted a code of ethics applicable to all employees and directors, including our principal executive officer, principal financial officer and principal
accounting officer. We have posted the text of our code of ethics to our internet website: www.oxbridgere.com. To access our code of ethics, select “Investor
Information” on our website and then select “Corporate Governance,” then “Code of Conduct.” We intend to disclose any change to or waiver from our code of
ethics by posting such change or waiver to our internet website within the same section as described above.
ITEM 11 EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to the definitive proxy statement for our 2019 annual meeting of stockholders to be
filed with the SEC not later than 120 days after December 31, 2018.
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
The information required by this Item is incorporated herein by reference to the definitive proxy statement for our 2019 annual meeting of stockholders to be
filed with the SEC not later than 120 days after December 31, 2018.
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item is incorporated herein by reference to the definitive proxy statement for our 2019 annual meeting of stockholders to be
filed with the SEC not later than 120 days after December 31, 2018.
ITEM 14 PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item is incorporated herein by reference to the definitive proxy statement for our 2019 annual meeting of stockholders to be
filed with the SEC not later than 120 days after December 31, 2018.
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ITEM 15 EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) Documents Filed as Part of the Report
PART IV
The Consolidated Financial Statements, other financial information, financial statement schedules and report of independent registered public accounting
firm have been filed as part of this Annual Report on Form 10-K as indicated in the Index to Consolidated Financial Statements and Financial Statement Schedules
appearing on page 45 of this Annual Report on Form 10-K.
(b) Exhibits
Reference is made to the separate exhibit index contained on pages 42 through 43 filed herewith.
Exhibit
Title
Oxbridge Re Holdings Limited
Index to Exhibits
3
4.1
4.2
4.3
10.1
10.2*
10.4*
10.5*
10.6*
10.7*
Third Amended and Restated Memorandum and Articles of Association of Oxbridge Re Holdings Limited, as amended through December
19, 2014 (incorporated by reference to Exhibit 3.1 to Oxbridge Re Holdings Limited’s Current Report on Form 8-K filed December 24, 2014)
(Commission File No. 1-36346).
Warrant Agreement, dated March 26, 2014, between Oxbridge Re Holdings Limited and Broadridge Corporate Issuer Solutions, Inc.
(incorporated by reference to Exhibit 4.1 to Oxbridge Re Holdings Limited’s Current Report on Form 8-K filed May 28, 2014) (Commission
File No. 1-36346).
Form of Warrant Agreement between Oxbridge Re Holdings Limited and Broadridge Corporate Issuer Solutions, Inc. (incorporated by
reference to Exhibit 4.1 to Oxbridge Re Holdings Limited’s Registration Statement on Form S-1 filed January 27, 2014) (Commission
File No. 333-193577).
Form of Warrant Agreement issued to investors in May/June 2013 Private Placement (incorporated by reference to Exhibit 4.2 to Oxbridge
Re Holdings Limited’s Registration Statement on Form S-1 filed January 27, 2014) (Commission File No. 333-193577).
Lease between 90 North Church Street Ltd. and Oxbridge Re Holdings Limited dated April 17, 2015 (incorporated by reference to Exhibit
10.1 to Oxbridge Re Holdings Limited’s Annual Report on Form 10-K filed March 17, 2016) (Commission File No. 1-36346).
Oxbridge Re Holdings Limited 2014 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.10 to Oxbridge Re Holdings Limited’s
Current Report on Form 8-K filed December 24, 2014) (Commission File No. 1-36346).
Executive Employment Agreement, dated July 18, 2013, by and between Oxbridge Re Holdings Limited and Jay Madhu (incorporated by
reference to Exhibit 10.3 to Oxbridge Re Holdings Limited’s Registration Statement on Form S-1 filed January 27, 2014) (Commission
File No. 333-193577).
Offer of Employment from Oxbridge Re Holdings Limited to Wrendon Timothy, executed on August 1, 2013 (incorporated by reference to
Exhibit 10.4 to Oxbridge Re Holdings Limited’s Registration Statement on Form S-1 filed January 27, 2014) (Commission File No. 333-
193577).
Form of Oxbridge Re Holdings Limited 2014 Omnibus Incentive Plan Restricted Share Award (incorporated by reference to Exhibit 10.1 to
Oxbridge Re Holdings Limited’s Current Report on Form 8-K filed January 28, 2015) (Commission File No. 1-36346).
Form of Oxbridge Re Holdings Limited 2014 Omnibus Incentive Plan Share Option Award Agreement (incorporated by reference to Exhibit
10.2 to Oxbridge Re Holdings Limited’s Current Report on Form 8-K filed January 28, 2015) (Commission File No. 1-36346).
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10.8*
10.9*
21
31.1
31.2
32
101
Amendment dated July 19, 2016 to Employment Agreement between Jay Madhu and Oxbridge Re Holdings Limited dated July 18, 2013
(incorporated by reference to Exhibit 10.31 to Oxbridge Re Holdings Limited’s Quarterly Report on Form 10-Q filed August 15, 2016)
(Commission File No. 1-36346).
Amendment dated August 1, 2015 to Employment Agreement between Wrendon Timothy and Oxbridge Re Holdings Limited dated August
1, 2013(incorporated by reference to Exhibit 10.41 to Oxbridge Re Holdings Limited’s Quarterly Report on Form 10-Q filed August 15, 2016)
(Commission File No. 1-36346).
List of Subsidiaries of Oxbridge Re Holdings Limited (incorporated by reference to Exhibit 21.1 to Oxbridge Re Holdings Limited's Annual
Report on Form 10-K filed March 13, 2018) (Commission File No. 1-36346).
Certifications of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a) or 15d-14(a) under the
Securities Exchange Act of 1934.
Certifications of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a) or 15d-14(a) under the
Securities Exchange Act of 1934.
Written Statement of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. § 1350.
The following materials from Oxbridge Re Holdings Limited’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 are
filed herewith, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements
of Operations, (iii) Consolidated Statements of Comprehensive Loss (iv) Consolidated Statements of Cash Flows, (v) Consolidated
Statements of Changes in Shareholders’ Equity and (vi) Notes to Consolidated Financial Statements.
* Indicates a management contract or compensatory plan or arrangement.
(c) Financial Statement Schedules
The financial statement schedules and report of independent registered public accounting firm have been filed as part of this Annual Report on Form 10-K
as indicated in the Index to Consolidated Financial Statements and Financial Statement Schedules appearing on page 45 of this Annual Report on Form 10-K.
43
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
SIGNATURES
OXBRIDGE RE HOLDINGS LIMITED
By
/s/ JAY MADHU
Jay Madhu
Chief Executive Officer and President
(Principal Executive Officer)
Date:
March 19, 2019
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below as of March 19, 2019 by the following persons on behalf of
the registrant and in the capacities indicated:
/s/ WRENDON TIMOTHY
Wrendon Timothy
Chief Financial Officer and Secretary
(Principal Financial Officer and Principal Accounting Officer)
/s/ JAY MADHU
Jay Madhu
Chief Executive Officer, President and Director
(Principal Executive Officer)
/s/ MAYUR PATEL
Mayur Patel
Director
/s/ RAY CABILLOT
Ray Cabillot
Director
/s/ KRISHNA PERSAUD
Krishna Persaud
Director
44
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Index to Consolidated Financial Statements and Financial Statement Schedules
Form 10-K
Page(s)
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 31, 2018 and 2017
Consolidated Statements of Operations for the years ended December 31, 2018 and 2017
Consolidated Statements of Comprehensive Loss for the years ended December 31, 2018 and 2017
Consolidated Statements of Cash Flows for the years ended December 31, 2018 and 2017
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2018 and 2017
Notes to Consolidated Financial Statements
Financial Statements Schedules
Schedule I – Summary of Investments – Other than Investments in Related Parties
Schedule II – Condensed Financial Information of the Registrant
Schedule III – Supplementary Insurance Information
Schedule IV – Supplementary Reinsurance Information
F-1
F-2
F-3
F-4
F-5
F-7
F-8
F-32
F-33
F-36
F-37
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
F-1
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Consolidated Balance Sheets
(expressed in thousands of U.S. Dollars, except per share and share amounts)
Assets
Investments:
Fixed-maturity securities, available for sale, at fair value (amortized cost: $991 and $4,450, respectively)
Equity securities, available for sale, at fair value (cost of $2,058 in 2017)
Equity securities, at fair value (cost of $210 in 2018)
Total investments
Cash and cash equivalents
Restricted cash and cash equivalents
Accrued interest and dividend receivable
Premiums receivable
Deferred policy acquisition costs
Prepayment and other receivables
Property and equipment, net
Total assets
Liabilities and Shareholders’ Equity
Liabilities:
Reserve for losses and loss adjustment expenses
Loss experience refund payable
Losses payable
Unearned premiums reserve
Accounts payable and other liabilities
Total liabilities
Shareholders’ equity:
Ordinary share capital, (par value $0.001, 50,000,000 shares authorized; 5,733,587 and 5,916,149 shares issued
and outstanding)
Additional paid-in capital
Accumulated Deficit
Accumulated other comprehensive income (loss)
Total shareholders’ equity
Total liabilities and shareholders’ equity
See accompanying Notes to Consolidated Financial Statements
F-2
At December 31,
2018
2017
$
$
$
993
-
162
1,155
8,074
3,225
15
-
-
74
18
12,561
4,108
-
-
-
139
4,247
6
32,226
(23,920)
2
8,314
$
12,561
4,433
2,036
-
6,469
7,763
3,124
39
3,798
48
116
36
21,393
4,836
135
386
2,012
106
7,475
6
32,100
(18,149)
(39)
13,918
21,393
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Consolidated Statements of Operations
(expressed in thousands of U.S. Dollars, except per share amounts)
Revenue
Assumed premiums
Premiums ceded
Change in loss experience refund payable
Change in unearned premiums reserve
Net premiums earned
Net income from derivatives
Net investment income
Net realized investment losses
Change in fair value of equity securities
Total revenue
Expenses
Losses and loss adjustment expenses
Net loss on commutation
Policy acquisition costs and underwriting expenses
General and administrative expenses
Total expenses
Loss before loss attributable to Series 2018-1
Loss attributable to Series 2018-1 noteholders
Net loss
Basic loss per share
Diluted loss per share
Weighted-average shares outstanding
Basic and Diluted
Dividends paid per share
See accompanying Notes to Consolidated Financial Statements
F-3
$
Years Ended December 31,
2018
2017
2,361
-
(225)
592
2,728
997
366
(255)
(26)
3,810
10,006
8
263
1,282
18,263
(880)
1,335
4,849
23,567
-
412
(138)
-
23,841
42,427
-
681
1,325
11,559
44,433
(7,749)
(20,592)
2,000
-
$
(5,749)
(20,592)
$
$
(1.00)
(1.00)
(3.55)
(3.55)
5,733,587
5,808,354
$
-
0.36
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Consolidated Statements of Comprehensive Loss
(expressed in thousands of U.S. Dollars)
Net loss
Other comprehensive income:
Change in unrealized loss on investments:
Unrealized gain arising during the year
Reclassification adjustment for net realized losses (gains) included in net (loss) income
Net change in unrealized loss
Total other comprehensive income
Comprehensive loss
See accompanying Notes to Consolidated Financial Statements
F-4
Years Ended December 31,
2018
2017
$
(5,749)
(20,592)
4
15
19
19
234
138
372
372
$
(5,730)
(20,220)
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(expressed in thousands of U.S. Dollars)
Operating activities
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation
Net amortization of premiums on investments in fixed-maturity securities
Depreciation and amortization
Net realized investment losses
Change in fair value of equity securities
Loss attributable to Series 2018-1 noteholders
Change in operating assets and liabilities:
Accrued interest and dividend receivable
Premiums receivable
Deferred policy acquisition costs
Prepayment and other receivables
Reserve for losses and loss adjustment expenses
Loss experience refund payable
Losses payable
Unearned premiums reserve
Accounts payable and other liabilities
Years ended December 31
2018
2017
$
(5,749)
(20,592)
126
7
18
255
26
(2,000)
24
3,798
48
42
(728)
(135)
(386)
(2,012)
33
127
84
24
138
-
-
-
9
240
40
(18)
(3,866)
(1,335)
386
(1,449)
(98)
Net cash used in operating activities
$
(6,633)
(26,310)
Investing activities
Purchase of fixed-maturity securities
Purchase of equity securities
Proceeds from sale of fixed-maturity securities
Proceeds from sale of equity securities
Purchase of property and equipment
(4,903)
(6,009)
8,340
7,617
-
(3,988)
(18,659)
5,538
21,782
(6)
Net cash provided by investing activities
$
5,045
4,667
Financing activities
Proceeds on issuance of notes payable to Series 2018- noteholders
Repurchases of common stock under share repurchase plan
Dividends paid
Net cash provided by (used) in financing activities
F-5
2,000
-
-
$
2,000
-
(1,061)
(2,091)
(3,152)
(continued)
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Consolidated Statements of Cash Flows, continued
(expressed in thousands of U.S. Dollars)
Cash and cash equivalents, and restricted cash and cash equivalents:
Net change during the year
Balance, beginning of year
Balance, end of year
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
See accompanying Notes to Consolidated Financial Statements
F-6
Years ended December 31
2018
2017
412
10,887
(24,795)
35,682
$
11,299
10,887
-
-
19
-
-
372
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders’ Equity
Years ended December 31, 2018 and 2017
(expressed in thousands of U.S. Dollars, except per share amounts)
Ordinary Share Capital
Shares
Amount
(Accumulated
Deficit)
Retained
Accumulated
Other
Comprehensive
Income
Total
Shareholders'
Earnings
(Loss)
Equity
Additional
Paid-in
Capital
Balance at December 31, 2016
Cash dividends paid
Repurchase and retirement of common stock under share
repurchase plan
Net loss for the year
Stock-based compensation
Total other comprehensive income
Balance at December 31, 2017
5,916,149
-
(182,562)
-
-
-
5,733,587
6
-
-
-
-
-
6
33,034
-
4,534
(2,091)
(411)
-
37,163
(2,091)
(1,061)
-
127
-
32,100
-
(20,592)
-
-
(18,149)
-
-
-
372
(39)
(1,061)
(20,592)
127
372
13,918
Balance at December 31, 2017
Cumulative effect of change in accounting for equity securities as
of January 1, 2018
Net loss for the year
Stock-based compensation
Total other comprehensive income
Balance at December 31, 2018
5,733,587
6
32,100
(18,149)
(39)
13,918
-
-
-
-
5,733,587
-
-
-
-
6
-
-
126
-
32,226
(22)
(5,749)
-
-
(23,920)
22
-
-
19
2
-
(5,749)
126
19
8,314
See accompanying Notes to Consolidated Financial Statements
F-7
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OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1.
ORGANIZATION AND BASIS OF PRESENTATION
(a) Organization
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 Suite 201, 42 Edward Street, Georgetown, Grand Cayman, Cayman Islands, and have their registered offices at P.O. Box
309, Ugland House, Grand Cayman, Cayman Islands. The Company previously leased office space at 2nd Floor, Strathvale House, Georgetown, Grand Cayman.
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 consolidated financial statements for the Company have been prepared in accordance with accounting principles generally accepted in
the United States of America (“GAAP”). All significant intercompany transactions and balances have been eliminated upon consolidation.
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.
2.
SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates: In preparing the consolidated financial statements, management was required to make certain estimates and assumptions that affect the
reported amounts of the consolidated 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.
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.
F-8
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2.
SIGNIFICANT ACCOUNTING POLICIES (continued)
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
These estimates are continually reviewed and adjusted if necessary. Such adjustments are reflected in current operations.
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 income (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).
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
Level 2
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;
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.
F-9
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
2.
SIGNIFICANT ACCOUNTING POLICIES (continued)
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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 income (loss). 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. There was no
DAC at December 31, 2018 and at December 31, 2017, the DAC was considered fully recoverable and no premium deficiency loss was recorded.
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 years ended December 31, 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 in operations in the year in which they are
determined. At December 31, 2018, no receivables were determined to be overdue or impaired, and accordingly, no allowance for uncollectable receivables has
been established.
F-10
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OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
2.
SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
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.
F-11
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
2.
SIGNIFICANT ACCOUNTING POLICIES (continued)
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 December 31, 2018.
Loss per share: Basic loss per share has been computed on the basis of the weighted-average number of ordinary shares outstanding during the years
presented. Diluted 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.
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 loss instead of reported in other comprehensive income.
F-12
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
2.
SIGNIFICANT ACCOUNTING POLICIES (continued)
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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.
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. Effective January 1, 2019, the Company has adopted ASU 2016-02 and there has been no material impact on the consolidated financial
statements as a result of the adoption.
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. Effective January 1, 2019, the
Company has adopted ASU 2018-07 and there has been no material impact on the consolidated financial statements as a result of the adoption.
F-13
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
2.
SIGNIFICANT ACCOUNTING POLICIES (continued)
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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
Cash held with custodians
Restricted cash held in trust
Total
December 31,
2018
2017
(in thousands)
$
$
3,965
4,109
3,225
4,052
3,711
3,124
11,299
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.
F-14
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
4. INVESTMENTS
The Company holds investments in fixed-maturity securities and equity securities, with its fixed-maturity securities classified as available-for-sale. At
December 31, 2018 and 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:
As of December 31, 2018
Fixed-maturity securities
U.S. Treasury and agency securities
Cost or Amortized
Cost
Gross Unrealized
Gain
Gross
Unrealized Loss
Estimated Fair
Value ($000)
($ in thousands)
$
991
$
2
$
-
$
993
Total fixed-maturity securities
991
2
-
993
Total available for sale securities
$
991
$
2
$
-
$
993
As of December 31, 2017
Fixed-maturity securities
U.S. Treasury and agency securities
Total fixed-maturity securities
Mutual funds
Preferred stocks
Common stocks
Total equity securities1
$
4,450
$
-
$
(17)
$
4,433
4,450
400
200
1,458
2,058
-
29
-
12
41
(17)
-
(1)
(62)
(63)
4,433
429
199
1,408
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 December 31, 2018 and 2017, securities with a fair value of $993,000 and 1,430,000, respectively, are held in trust accounts as collateral under
reinsurance contracts with the Company’s ceding insurers.
F-15
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
4.
INVESTMENTS (continued)
Expected maturities will differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without penalties. The
scheduled contractual maturities of fixed-maturity securities at December 31, 2018 and 2017 are as follows:
As of December 31, 2018
Available for sale
Due within one year
Due after one year through five years
As of December 31, 2017
Available for sale
Due within one year
Due after one year through five years
Amortized
Fair Value
Estimated
($ in thousands)
$
-
991
-
993
$
991
$
993
$
3,007
1,443
3,003
1,430
$
4,450
$
4,433
Gross proceeds received, and the gross realized gains and losses from sales of available-for-sale securities, for the years ended December 31, 2018 and
2017 are as follows:
Year ended December 31, 2018
Fixed-maturity securities
Equity securities
Year ended December 31, 2017
Fixed-maturity securities
Equity securities
Gross proceeds
from sales
Gross Realized
Gains
Gross Realized
Losses
($ in thousands)
$
$
$
$
8,340
$
7
$
(22)
7,617 $
475
$
(715)
5,538
$
30
$
(7)
21,782
$
1,422
$
(1,583)
F-16
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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.
There were no available-for-sale securities with gross unrealized loss positions at December 31, 2018. Available-for-sale securities with gross unrealized
loss positions at 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 December 31, 2017
Fixed maturity securities
U.S. Treasury and agency securities
Total fixed-maturity securities
Equity securities
Mutual funds
Preferred stocks
All other common stocks
Total equity securities
Less Than Twelve Months
Gross
Unrealized
Loss
Estimated Fair
Value
Twelve Months or Greater
Gross
Unrealized
Loss
Estimated Fair
Value
Total
Gross
Unrealized
Loss
Estimated
Fair Value
($ in thousands)
($ in thousands)
($ in thousands)
13
13
-
1
36
37
1,428
4
3,003
17
4,431
1,428
4
3,003
17
4,431
-
199
769
-
-
26
-
-
174
-
1
62
-
199
943
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 December 31, 2018 and 2017.
F-17
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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 December 31, 2018 and 2017:
As of December 31, 2018
Financial Assets:
Cash and cash equivalents
Restricted cash and cash equivalents
Fixed-maturity securities:
U.S. Treasury and agency securities
Total fixed-maturity securities
Total equity securities
Total securities
Fair Value Measurements Using
(Level 1)
(Level 2)
(Level 3)
Total
($ in thousands)
$
$
8,074
$
3,225
$
-
$
-
$
-
$
8,074
-
$
3,225
-
-
162
162
993
993
993
993
-
-
-
-
993
993
162
1,155
Total
$
11,461 $
993 $
-
$
12,454
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).
F-18
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
There were no transfers between Levels 1, 2 and 3 during the years ended December 31, 2018 and 2017.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
As of December 31, 2017
Financial Assets:
Cash and cash equivalents
Restricted cash and cash equivalents
Fixed-maturity securities:
U.S. Treasury and agency securities
Total fixed-maturity securities
Mutual funds
Preferred stocks
All other common stocks
Total equity securities
Fair Value Measurements Using
(Level 1)
(Level 2)
(Level 3)
Total
($ in thousands)
$
$
7,763
$
3,124
$
-
$
-
$
-
$
7,763
-
$
3,124
-
-
429
199
1,408
2,036
4,433
4,433
-
-
-
-
-
-
-
-
-
-
-
4,433
4,433
429
199
1,408
2,036
6,469
Total available for sale securities
2,036
4,433
Total
$
12,923 $
4,433 $
-
$
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 approximately $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 December 31, 2018, the Company was made aware of
industry loss events occurring that would trigger a payment obligation under the 2018 Inward ILW Swap and as a result, have set up the appropriate reserves at
December 31, 2018. On January 17, 2019, the Company paid the floating payment obligation of $4 million to the swap counterparty.
During the year ended December 31, 2018, the Company recognized a net capital loss of $3 million from the derivative instrument pursuant to the 2018 Inward
ILW Swap.
F-19
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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.
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.
F-20
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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 year ended December 31, 2018.
The loss from Oxbridge Re NS operations that are attributable to the participating notes noteholders for the year ended December 31, 2018 were $2 million.
Hurricane Michael made landfall on October 10, 2018. The effect of Hurricane Michael caused loss of principal of approximately $1.1 million to the Series
2018-1 noteholders, and due to other global catastrophes during the year ended December 31, 2018, and in particular, the deadly California wildfires in November
2018, all of which are covered by an aggregate industry loss warranty contract (See Note 5), the Series 2018-1 noteholders suffered an additional loss of principal
of approximately $900 thousand.
8. RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES
The following table summarizes the Company’s loss and loss adjustment expenses (“LAE”) and the reserve for loss and LAE reserve movements for the
years ended December 31, 2018 and 2017:
Gross balance, beginning of year
Incurred, net of reinsurance, related to:
Current period
Prior period 1
Total incurred, net of reinsurance
Paid, net of reinsurance, related to:
Current period
Prior period
Total paid, net of reinsurance
Net balance, end of year
Add: reinsurance recoverable
Gross balance, end of period
Year ended
December 31,
2018
2017
($ in thousands)
$
4,836
8,702
10,000
(1,006)
8,994
(6,000)
(3,722)
(9,722)
4,108
-
4,108
$
$
38,401
4,026
42,427
(36,293)
(10,000)
(46,293)
4,836
-
4,836
1 During the year ended December 31, 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.
F-21
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
8. RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES (continued)
The reserve 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.
This is performed on a quarterly basis.
During the year ended December 31, 2018, the Company experienced significant limit losses on all its policies due to the individual and aggregate impact of
Hurricane Michael, Florence, California wildfires and other global catastrophes.
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.
Reserving methodologies and assumptions
Loss reserves are generally established based on loss payments and case reserves reported by clients when, and if, received. Estimates for IBNR losses are
added to the case reserves. To establish IBNR loss estimates, the Company uses quarterly actuarial estimates from its independent actuary, who utilizes loss
data reported by the Company along with industry loss data and information, knowledge of the business written and actuary’s own professional judgment.
The independent actuary employs standard actuarial methods for its analysis each quarter. Such methods may include the:
● Reported Loss Development Method. Ultimate losses are estimated by calculating past reported loss development factors and applying them to
exposure periods with further expected reported loss development. Since reported losses include payments and case reserves, changes in both of these
amounts are incorporated in this method.
● Expected Loss Ratio Method. Ultimate losses are estimated by multiplying earned premiums by an expected loss ratio. The expected loss ratio is
selected using industry data, historical company data and actuarial professional judgment. This method is typically used for lines of business and
contracts where there are no historical losses or where past loss experience is not credible.
● Bornhuetter-Ferguson Reported Loss Method. Ultimate losses are estimated by modifying expected loss ratios to the extent reported losses
experienced to date differ from what would have been expected to have been reported based upon the selected reported loss development pattern. This
method avoids some of the distortions that could result from a large development factor being applied to a small base of reported losses to calculate
ultimate losses.
F-22
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
8. RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES (continued)
Reserving methodologies and assumptions (cont’d)
● Frequency / Severity Method. Ultimate losses are estimated under this method by multiplying the ultimate number of claims (i.e. the frequency
multiplied by the exposure base on which the frequency has been determined), by the estimated ultimate average cost per claim (i.e. the severity). By
analyzing claims experience by its frequency and severity components, the Company can examine trends and patterns in the rates of claims emergence
(i.e. reporting) and settlement (i.e. closure) as well as in the average cost of claims.
The approach is valuable because sometimes there is more inherent stability in the frequency and severity data when viewed separately rather than in
the total losses
In addition, the Company may supplement its analysis with other reserving methodologies that are deemed to be relevant to specific contracts.
For each contract, the Company’s independent actuary utilizes reserving methodologies that are deemed appropriate to calculate a best estimate, or point
estimate, of reserves. The decision of whether to use a single methodology or a combination of multiple methodologies depends upon the judgment of the
independent actuary. The Company’s reserving methodology does not require a fixed weighting of the various methods used. Certain methods are considered
more appropriate depending on the type and structure of the contract, the age and maturity of the contract, and the duration of the expected paid losses on the
contract.
The Company’s gross aggregate reserves are the sum of the point estimate reserves of all portfolio exposures. Generally, IBNR loss reserves are calculated by
estimating the ultimate incurred losses at any point in time and subtracting cumulative paid claims and case reserves, which incorporate specific exposures,
loss payment and reporting patterns and other relevant factors.
There were no significant changes in the actuarial methodology or assumptions relating to the Company’s reserve for loss and loss adjustment expenses for
the year ended December 31, 2018 or 2017.
F-23
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
8. RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES (continued)
Claims Development Tables, IBNR Reserves and Claims Frequency
The following table discloses information about the Company’s incurred and paid claims development as of December 31, 2018, as well as cumulative claim
frequency and the total of incurred-but-not-reporting and expected development on reported claims included within the net incurred claims amounts. A claim is
defined as a reported loss from a cedant on an excess-of-loss reinsurance contract arising from a loss event for which the Company records a paid loss or case
reserve. The Company operates a single business segment, being property catastrophe reinsurance.
Property Catastrophe Reinsurance
(in thousands)
Incurred Losses and Loss Adjustment Expenses
As of
December
31,
2018
Accident Year
2016
2017
2018
2016
$
14,775
$
$
2017
18,801 $
38,401 $
$
2018
17,795 $
38,401 $
10,000 $
Total of
Incurred-but-
Not-Reported
Liabilities
Plus
Expected
Development
on Reported
Claims
(dollars in
thousands)
Cumulative
Number of
Reported
Claims
5
8
2
5
69
-
Cumulative Paid Losses and Loss Adjustment Expenses
For the Years Ended December 31,
(in thousands)
Accident Year
2016
2017
2018
Total
Reserve for loss and loss adjustment expenses at December 31, 2018, net of reinsurance
F-24
Total
$
66,196 $
74
2016
2017
2018
$
6,073
$
$
16,073
36,293
$
$
$
$
$
17,687
38,401
6,000
62,088
4,108
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
8. RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES (continued)
During the year ended December 31, 2018, the Company did not enter into any retrocession arrangements. However, the Company had issued its $2 million
Series 2018-1 participating notes, all of which were drawn down to settle losses incurred by the Company as per the provisions of the Series 2018-1 participating
notes. As such, the Company’s gross and net reserve for losses and loss adjustment expenses at December 31, 2018 are both $4,108,000 as recorded on the
balance sheets.
During the year ended December 31, 2017, the Company entered into a retrocession arrangement with one rated reinsurer. However, during the year ended
December 31, 2017, the Company received full payment from its reinsurer with respect to losses hedged by the Company, and as such, there are no reinsurance
recoverables on unpaid claims at December 31, 2017. Therefore, the Company’s gross and net reserve for losses and loss adjustment expenses at December 31,
2017 are both $4,836,000 as recorded on the balance sheets.
The following table shows the historical average annual percentage payout of claims as at December 31, 2018.
Years
Property Catastrophe Reinsurance
9. LOSS PER SHARE
Average Annual Percentage Payout of Incurred Claims by Age
1
2
62.9%
30.8%
3
9.1%
A summary of the numerator and denominator of the basic and diluted loss per share is presented below (dollars in thousands except per share amounts):
Numerator:
Net loss
Denominator:
Weighted average shares - basic
Effect of dilutive securities - Stock options
Shares issuable upon conversion of warrants
Weighted average shares - diluted
Loss per share - basic
Loss per share - diluted
Years ended December 31
2018
2017
$
(5,749)
(20,592)
5,733,587
-
-
5,733,587
(1.00)
(1.00)
$
$
5,808,354
-
-
5,808,354
(3.55)
(3.55)
For the years ended December 31, 2018 and 2017, 250,000 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 years
ended December 31, 2018 and 2017, 8,230,700 warrants to purchase an aggregate of 8,230,700 ordinary shares were not 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 loss 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 (loss) income.
F-25
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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, 2024. 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 December 31, 2018 and 2017. No warrants were exercised during the years ended December 31, 2018 and
2017.
As of December 31, 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.
F-26
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
11. STOCK-BASED COMPENSATION
The Company currently has outstanding share-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
December 31, 2018, there were 690,000 shares available for grant under the Plan.
Stock options
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 years ended December 31, 2018 and 2017 is as follows (option amounts not in thousands):
Outstanding at January 1, 2017
Granted
Outstanding at December 31, 2017
Outstanding at December 31, 2018
Exercisable at December 31, 2018
Number of
Options
Weighted-
Average Exercise
Price
Weighted-
Average Remaining
Contractual Term
Aggregate
Intrinsic Value
($000)
215,000
35,000
250,000
$
$
250,000
$
223,750
$
6.06
6.00
6.01
6.01
7.4 years
6.4 years
6.4 years
$
$
$
-
-
-
Compensation expense recognized for the years ended December 31, 2018 and 2017 totaled $38,000 and $39,000 respectively, and is included in
general and administrative expenses. At December 31, 2018 and 2017, there was approximately $16,000 and $54,000, respectively, of total unrecognized
compensation expense related to non-vested stock options granted under the Plan. The Company expects to recognize the remaining compensation expense over
a weighted-average period of eighteen (18) months.
No options were granted during the year ended December 31, 2018. During the year ended December 31, 2017, 35,000 options were granted with fair
value estimated on the date of grant using the following assumptions and the Black-Scholes option pricing model:
Expected dividend yield
Expected volatility
Risk-free interest rate
Expected life (in years)
Per share grant date fair value of options issued
2017
8%
35%
2.48%
10
0.73
$
At the time of the grant, the dividend yield was based on the Company’s history and expectation of dividend payouts at the time of the grant; expected
volatility was based on volatility of similar companies’ common stock; the risk-free rate was based on the U.S. Treasury yield curve in effect and the expected life
was based on the contractual life of the options.
F-27
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
11. STOCK-BASED COMPENSATION (continued)
Restricted Stock Awards
The Company has granted and may grant restricted stock awards to eligible individuals in connection with their service to the Company. The terms of
the Company’s outstanding restricted stock grants may include service, performance and market-based conditions. The fair value of the awards with market-based
conditions is determined using a Monte Carlo simulation method, which calculates many potential outcomes for an award and then establishes fair value based on
the most likely outcome. The determination of fair value with respect to the awards with only performance or service-based conditions is based on the value of the
Company’s stock on the grant date. Restricted stock awards granted and outstanding under the Plan vests quarterly over four years.
Information with respect to the activity of unvested restricted stock awards during the years ended December 31, 2018 and 2017 is as follows (share
amounts not in thousands):
Nonvested at January 1, 2017
Vested
Nonvested at December 31, 2017
Nonvested at January 1, 2018
Vested
Nonvested at December 31, 2018
Restricted Stock
Awards
30,000
(15,000)
15,000
Average Grant
Date Fair Value
5.86
$
$
5.86
15,000
(15,000)
-
$
$
5.86
5.86
-
Compensation expense recognized for each of the years ended December 31, 2018 and 2017 totaled $88,000 and is included in general and
administrative expenses. At December 31, 2018 and 2017, there was approximately $Nil and $88,000, respectively, of total unrecognized compensation expense
related to non-vested restricted stock granted under the Plan.
F-28
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
12. NET WORTH FOR REGULATORY PURPOSES
The subsidiaries are subject to a minimum and prescribed capital requirement as established by CIMA. Under the terms of their respective licenses,
Oxbridge Reinsurance Limited and Oxbridge Re NS are required to maintain a minimum and prescribed capital requirement of $500 in accordance with the relevant
subsidiary’s approved business plan filed with CIMA.
At December 31, 2018, the Oxbridge Reinsurance Limited’s net worth of $2.2 million exceeded the minimum and prescribed capital requirement. For the
years ended December 31, 2018 and 2017, Oxbridge Reinsurance Ltd.’s net loss was approximately $6 million and $21 million, respectively.
At December 31, 2018, the Oxbridge Re NS’ net worth of $18 thousand exceeded the minimum and prescribed capital requirement. For the year ended
December 31, 2018, Oxbridge Re NS’ net income was approximately $18 thousand.
The Subsidiaries are not required to prepare separate statutory financial statements for filing with CIMA, and there were no material differences between
the Subsidiaries' GAAP capital, surplus and net income, and its statutory capital, surplus and net income as of December 31, 2018 or for the year then ended.
13. FAIR VALUE AND CERTAIN RISKS AND UNCERTAINTIES
Fair values
With the exception of balances in respect of insurance contracts (which are specifically excluded from fair value disclosures under GAAP) and investment
securities and derivative instruments as disclosed in Note 4 and 5 of these consolidated financial statements, the carrying amounts of all other financial instruments,
which consist of cash and cash equivalents, restricted cash and cash equivalents, accrued interest and dividends receivable, premiums receivable and other assets
and accounts payable and other liabilities, approximate their fair values due to their short-term nature.
Concentration of underwriting risk
A substantial portion of the Company’s current reinsurance business ultimately relates to the risks of two entities; accordingly, the Company’s underwriting
risks are not significantly diversified.
Concentrations of Credit and Counterparty Risk
The Company’s derivative instruments are subject to counterparty risk. The Company routinely monitor this risk.
The Company markets retrocessional and reinsurance policies worldwide through its brokers. Credit risk exists to the extent that any of these brokers may be
unable to fulfill their contractual obligations to the Company. For example, the Company is required to pay amounts owed on claims under policies to brokers, and
these brokers, in the Company. In some jurisdictions, if a broker fails to make such a payment, the Company might remain liable to the ceding company for the
deficiency. In addition, in certain jurisdictions, when the ceding company pays premiums for these policies to brokers, these premiums are considered to have been
paid and the ceding insurer is no longer liable to the Company for those amounts, whether or not the premiums have actually been received.
F-29
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
13. FAIR VALUE AND CERTAIN RISKS AND UNCERTAINTIES ( continued)
The Company remains liable for losses it incurs to the extent that any third-party reinsurer is unable or unwilling to make timely payments under reinsurance
agreements. The Company would also be liable in the event that its ceding companies were unable to collect amounts due from underlying third-party reinsurers.
In addition, the Company is exposed to credit risk on fixed-maturity debt instruments to the extent that the debtors may default on their debt obligations.
The Company mitigates its concentrations of credit and counterparty risk by using reputable and several counterparties which decreases the likelihood of any
significant concentration of credit risk with any one counterparty. Additionally, the Company invests in fixed-maturity securities that are investment grade or higher.
Market risk
Market risk exists to the extent that the values of the Company’s monetary assets fluctuate as a result of changes in market prices. Changes in market
prices can arise from factors specific to individual securities or their respective issuers, or factors affecting all securities traded in a particular market. Relevant
factors for the Company are both volatility and liquidity of specific securities and markets in which the Company holds investments. The Company has established
investment guidelines that seek to mitigate significant exposure to market risk.
14. COMMITMENTS AND CONTINGENCIES
The Company has an operating lease for office space located at Strathvale House, 2 nd Floor, 90 North Church Street, Grand Cayman, Cayman Islands.
The term of the lease is thirty-eight months and commenced on April 17, 2015. The lease currently runs on a month-to-month basis. Rent expense under this lease
for the years ended December 31, 2018 and 2017 were $67,000 and $62,000, respectively. There are currently no lease commitments as at December 31, 2018.
The Company also has an operating lease for residential space at Britannia Villas #616, Grand Cayman, Cayman Islands that currently runs on a month-to-
month basis. Rent expense under this lease for each of the years ended December 31, 2018 and 2017 were $51,600. There are currently no lease commitments
under this lease as at December 31, 2018.
15. RELATED PARTY TRANSACTIONS
The Company had entered into reinsurance agreements with Claddaugh, which is a related entity through common directorships. At December 31, 2018
and 2017, included within loss experience refund payable and unearned premiums reserve on the consolidated balance sheets are the following related-party
amounts:
Loss experience refund payable
Unearned premiums reserve
F-30
December 31,
2018
2017
(in thousands)
$
$
-
-
$
$
135
2,012
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
15. RELATED PARTY TRANSACTIONS (continued)
During the years ended December 31, 2018 and 2017, included within assumed premiums, change in loss experience refund payable and change in
unearned premiums reserve on the consolidated statements of operations are the following related-party amounts:
Revenue
Assumed premiums
Change in loss experience refund payable
Change in unearned premiums reserve
16. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consist of the following (in thousands):
Leasehold improvements
Furniture and Fixtures
Motor vehicle
Computer equipment and software
Total, at cost
less accumulated depreciation and amortization
Property and equipment, net
17. SUBSEQUENT EVENTS
December 31,
2018
2017
(in thousands)
$
$
$
$
-
225 $
592 $
3,400
1,335
2,805
At December 31,
2018
2017
$
$
21
38
21
32
112
(94)
18
21
38
21
32
112
(76)
36
We evaluate all subsequent events and transactions for potential recognition or disclosure in our financial statements. Other than as disclosed in Notes 5
and 7 of these Consolidated Financial Statements, there were no other events subsequent to December 31, 2018 for which disclosure was required.
F-31
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
SCHEDULE I
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES
AS OF DECEMBER 31, 2018
(expressed in thousands of U.S. dollars)
Type of investment
Fixed-maturity securities
U.S. Treasury and agency securities
Total fixed-maturity securities
Mutual Funds
Preferred stocks
Common stocks
Total equity securities
Cost or
Amortized Cost
Fair Value
Balance Sheet
Value
$
991
$
993
$
991
-
-
210
210
993
-
-
162
162
993
993
-
-
162
162
Total investments
$
1,201
$
1,155
1,155
F-32
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
SCHEDULE II
OXBRIDGE RE HOLDINGS LIMITED
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEET - PARENT COMPANY ONLY
(expressed in thousands of U.S. Dollars)
Assets
Cash and cash equivalents
Investments, available for sale, at fair value
Investment in subsidiaries
Accrued interest and dividend receivable
Due from subsidiaries
Prepayment and other receivables
Property and equipment, net
Total assets
Liabilities and Shareholders’ Equity
Liabilities:
Accounts payable and other liabilities
Shareholders’ equity:
Total shareholders’ equity
Total liabilities and shareholders’ equity
F-33
At December 31,
2018
2017
3,874
162
2,272
-
2,054
66
18
8,446
4,251
5,039
2,698
35
1,857
108
36
14,024
$
132
106
$
8,314
8,446
13,918
14,024
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
SCHEDULE II (continued)
OXBRIDGE RE HOLDINGS LIMITED
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF INCOME - PARENT COMPANY ONLY
(expressed in thousands of U.S. Dollars)
Revenue
Net investment income
Net realized investment losses
Other income
Operating expenses
Income before equity in (loss) earnings of subsidiaries
Equity in (loss) earnings of subsidiaries
Net loss
F-34
Years Ended December 31,
2018
2017
$
168
(237)
1,586
(1,264)
253
(6,002)
298
(175)
1,644
(1,316)
451
(21,043)
$
(5,749)
(20,592)
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
SCHEDULE II (continued)
OXBRIDGE RE HOLDINGS LIMITED
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENT OF CASH - PARENT COMPANY ONLY
(expressed in thousands of U.S. Dollars)
Operating activities
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Equity in loss of subsidiaries
Stock-based compensation
Net amortization of premiums on investments in fixed-maturity securities
Depreciation
Net realized investment losses
Change in operating assets and liabilities:
Accrued interest and dividend receivable
Due from subsidiary
Prepayment and other receivables
Accounts payable and other liabilities
Net cash used in operating activities
$
Investing activities
Investment in subsidiary
Dividends from subsidiary
Purchase of available for sale securities
Proceeds from sale of available for sale securities
Purchase of property and equipment
Years Ended December 31,
2018
2017
$
(5,749)
(20,592)
6,002
126
7
18
237
35
(197)
42
26
547
(5,535)
-
(7,939)
12,550
-
21,043
127
84
24
175
6
(1,418)
(19)
(98)
(668)
(3,000)
2,108
(18,659)
21,268
(6)
Net cash provided by investing activities
$
(924)
1,711
Financing activities
Repurchases of common stock under share repurchase plan
Cash dividends paid
Net cash used in financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
F-35
-
-
-
(377)
4,251
3,874
$
$
(1,061)
(2,091)
(3,152)
(2,109)
6,360
4,251
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
SCHEDULE III
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
(expressed in thousands of U.S. dollars)
Reserves
for losses
and loss
adjustment
expenses
– gross
Deferred
acquisition
costs, net
Unearned
premiums
Net
premiums
– gross
earned
Investment
income (loss)
Net losses,
and loss
adjustment
expenses
Amortization
of deferred
acquisition
costs
Operating
expenses
Gross
premiums
written
$
$
- $
4,108 $
- $
2,728 $
(255) $
10,006 $
263 $
1,282 $
2,361
48 $
4,836 $
2,012 $
23,567 $
274 $
42,427 $
681 $
1,325 $
18,263
Year
2018
2017
Segment
Property &
Casualty
Property &
Casualty
F-36
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
SCHEDULE IV
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
REINSURANCE INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
(expressed in thousands of U.S. dollars)
Year
2018
2017
Segment
Property & Casualty
Property & Casualty
Direct Gross
Premiums
Premiums
ceded to other
companies
Premiums
assumed from
other
companies
Net amount
Percentage of
amount
assumed to
net
- $
- $
2,361 $
2,361
100%
- $
880 $
18,263 $
17,383
105%
$
$
F-37
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Exhibit 31.1
Certifications of the Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act and
Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934
I, Jay Madhu, certify that:
1. I have reviewed this Annual Report on Form 10-K of Oxbridge Re Holdings Limited;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: March 19, 2019
By: /s/ JAY MADHU
Jay Madhu
Chief Executive Officer and President
(Principal Executive Officer)
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Exhibit 31.2
Certifications of the Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act and
Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934
I, Wrendon Timothy, certify that:
1. I have reviewed this Annual Report on Form 10-K of Oxbridge Re Holdings Limited;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: March 19, 2019
By: /s/ WRENDON TIMOTHY
Wrendon Timothy
Chief Financial Officer and Secretary
(Principal Financial Officer and Principal Accounting
Officer)
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Written Statement of the Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. §1350
Solely for the purposes of complying with 18 U.S.C. §1350, we, the undersigned Chief Executive Officer and Chief Financial Officer of Oxbridge Re Holdings
Limited (the “Company”), hereby certify, based on our knowledge, that the Annual Report on Form 10-K of the Company for the year ended December 31, 2018
(the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended and that information contained in the
Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Exhibit 32
/s/ JAY MADHU
Jay Madhu
Chief Executive Officer and President
(Principal Executive Officer)
/s/ WRENDON TIMOTHY
Wrendon Timothy
Chief Financial Officer and Secretary
(Principal Financial Officer and Principal
Accounting Officer)
Date: March 19, 2019
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.