OXBRIDGE RE HOLDINGS LTD – 10-K – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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, 2022.
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."
The following is a discussion and analysis of our results of operations for the
years ended December 31, 2022 and 2021 and our financial condition as of December 31, 2022 and 2021. 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. Oxbridge Re NS functions as a reinsurance sidecar
which increases the underwriting capacity of Oxbridge Reinsurance Limited.
Oxbridge Re NS issues participating notes to third party investors, the proceeds
of which are utilized to collateralize 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, with an emphasis on Florida. We
specialize in underwriting medium frequency, high severity risks, where we
believe sufficient data exists to analyze effectively the risk/return profile of
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. Additionally, we complement our
underwriting profits with investment profits on an opportunistic basis. Our
underwriting business focus is on fully collateralized reinsurance contracts for
property catastrophes, primarily in the Gulf Coast region of the United States,
with an emphasis on Florida. 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
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), 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.
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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.
Compared to most of our competitors, we are small and have low overhead
expenses. We believe that our expense efficiency, agility and existing
relationships support our competitive position and allows us to profitably
participate in lines of business that fit within our strategy. Over time we
expect our expense advantage could erode as the industry seeks to reduce
Formation of SurancePlus
SurancePlus Inc., an indirect wholly-owned subsidiary of Oxbridge Re Holdings
Limited, was incorporated as a British Virgin Islands Business Company on December 19, 2022 for the purposes of tokenizing reinsurance contracts
underwritten by its affiliated licensed reinsurer, Oxbridge Re NS.
On March 27, 2023, the Company and SurancePlus Inc. ("SurancePlus"), issued a
press release announcing the commencement of an offering by SurancePlus of up to $5.0 million (USD) of DeltaCat Re Tokens (the "Tokens"), which represent Series
DeltaCat Preferred Shares of SurancePlus ("Preferred Shares", and together with
the Tokens, the "Securities"). Each Token, which will have a purchase price of $10.00 per Token, will represent one Preferred Share of SurancePlus.
The proceeds from the offer and sale of the Securities will be used by
SurancePlus to purchase one or more participating notes of Oxbridge Re NS, and
the proceeds from the sale of participating notes will be invested in
collateralized reinsurance contracts to be underwritten by Oxbridge Re NS. The
holders of the Securities will generally be entitled to proceeds from the
payment of participating notes in the amount of a preferred return of $12.00
plus 80% of any proceeds in excess of the amount necessary to pay the preferred
return. Assuming no casualty losses to properties reinsured by Oxbridge Re's
reinsurance subsidiaries, DeltaCat Re token investors are expected to receive a
return on the original purchase price of the tokens of up to 196% after 3 years.
The Securities have not been registered under the Securities Act of 1933, as
amended (the "Securities Act"), or any state or other securities laws and may
not be offered or sold in the United States absent an effective registration
statement or an applicable exemption from registration requirements or a
transaction not subject to the registration requirements of the Securities Act
or any state or other securities laws. The Securities will be sold in a
transaction exempt from registration under the Securities Act and will be sold
only to persons reasonably believed to be accredited investors in the United
States under SEC Rule 506(c) under the Securities Act and outside the United
States only to non-U.S. persons in accordance with Regulation S under the
On September 30, 2022, the Company entered into an Equity Distribution Agreement
(the "Offering Agreement") with Maxim Group LLC, as sales agent (the "Sales
Agent"), pursuant to which the Company could offer and sell, from time to time,
through the Sales Agent up to $6,300,000 of the Company's ordinary shares, $0.001 par value ("Ordinary Shares"). The expiration date of the Offering
Agreement is the earlier of (i) the issuance and sale of the Ordinary Shares
having an aggregate offering price equal to $6,300,000, or (ii) the termination
of the Offering Agreement by either the Sales Agent or the Company, in each such
party's sole discretion, upon the provision of thirty (30) days' written notice.
The Company will pay the Sales Agent a commission equal to 3.0% of the gross
proceeds of the Ordinary Shares sold by the Sales Agent pursuant to the Offering
Sales of the Ordinary Shares under the Offering Agreement, if any, may be made
in transactions that are deemed to be "at-the-market" offerings as defined in
Rule 415 under the Securities Act of 1933, as amended, including without
limitation sales made directly on or through the Nasdaq Capital Market or any
other existing trading market for the Ordinary Shares. The Sales Agent will use
commercially reasonable efforts consistent with its normal trading and sales
practices to sell the Ordinary Shares from time to time, based upon instructions
from the Company (including any price, time or amount limits the Company may
impose). The Company is not obligated to make any sales under the Offering
The Ordinary Shares were registered pursuant to the Company's shelf registration
statement on Form S-3 (File No. 333-262590) (the "Registration Statement"), and
offerings of the Ordinary Shares will be made only by means of a prospectus
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Oxbridge Acquisition Corp.
On August 16, 2021, Oxbridge Acquisition Corp. ("Oxbridge Acquisition" or "the
SPAC"), a Cayman Islands special purpose acquisition company in which the
Company has an indirect investment through its wholly-owned licensed reinsurance
subsidiary Oxbridge Reinsurance Limited ("OXRE"), announced the closing of an
initial public offering of units ("Units"). In the initial public offering,
Oxbridge Acquisition sold an aggregate of 11,500,000 Units at a price of $10.00
per unit, resulting in total gross proceeds of $115,000,000. Each Unit consisted
of one Class A ordinary share and one redeemable warrant, with each warrant
entitling the holder thereof to purchase one Class A ordinary share of Oxbridge
Acquisition at a price of $11.50 per share.
The initial public offering of Oxbridge Acquisition was sponsored by OAC Sponsor
Ltd. ("Sponsor"). In connection with Oxbridge Acquisition's initial public
offering, Sponsor purchased from Oxbridge Acquisition, simultaneous with the
closing of the initial public offering, an aggregate of 4,897,500 warrants at a
price of $1.00 per warrant ($4,897,500 in the aggregate) in a private placement
(the "Private Placement Warrants"). Each Private Placement Warrant is
exercisable to purchase one Class A ordinary share of Oxbridge Acquisition at $11.50 per share. In addition, Sponsor holds 2,875,000 shares of the Class B
ordinary shares of Oxbridge Acquisition, representing 20% of the outstanding
shares of Oxbridge Acquisition (the "Class B Shares").
In connection with the organization of Sponsor, OXRE placed approximately 34.7%
of the risk capital and owns approximately 49.6% and 63.1% of the ordinary
shares and preferred shares, respectively, of the Sponsor (the "Sponsor Equity
Interest"). The preferred shares of Sponsor are nonvoting shares and generally
entitle the holders thereof to receive the net proceeds, if any, received by
Sponsor from the sale, exchange, or disposition of the Private Placement
Warrants or the shares issuable upon the exercise thereof, and the ordinary
shares of Sponsor (which are voting shares in Sponsor) will generally be
equivalent to the value of the Class B Shares of Oxbridge Acquisition held by
On August 11, 2021, OXRE entered into a Share Purchase Agreement with Sponsor
(the " Initial Share Purchase Agreement") under which OXRE purchased the Sponsor
Equity Interest for an aggregate purchase price of $2,000,000 (the "Share
Purchase Agreement"). Under the Share Purchase Agreement, OXRE acquired an
aggregate of 1,500,000 ordinary shares and 3,094,999 preferred shares of
On November 14, 2022, OXRE entered into a Second Share Purchase Agreement with
Sponsor (the "Second Share Purchase Agreement") under which OXRE acquired an
additional 285,000 ordinary shares of Sponsor for an aggregate purchase price of $285,000.
In addition to the foregoing, the Initial Share Purchase Agreement contains
customary representations, warranties, and covenants.
On November 9, 2022, Oxbridge Acquisition held an extraordinary general meeting
(the "EGM") of shareholders. At the EGM, Oxbridge Acquisition's shareholders
were presented the proposals to extend the date by which Oxbridge Acquisition
must consummate a business combination from November 16, 2022 to August 16, 2023
(or such earlier date as determined by Oxbridge Acquisition's Board) by amending
Oxbridge Acquisition's Amended and Restated Memorandum and Articles of
Association (the "Extension Amendment Proposal"). The Extension Amendment
Proposal to amend Oxbridge Acquisition's Amended and Restated Memorandum and
Articles of Association ("Charter Amendment") was approved.
In connection with the Extension Amendment Proposal, the Sponsor has agreed to
contribute to Oxbridge Acquisition a loan of $575,000 (the "Extension Loan"), to
be deposited into Oxbridge Acquisition's Trust Account to extend the Termination
Date from November 16, 2022 to August 16, 2023. On November 14, 2022, the
Company subscribed for additional ordinary shares in the Sponsor for an amount
of $285,000, representing the Company's pro-rata portion of the Extension Loan.
As such, the Company's Sponsor Equity Interest remained at approximately 49.6%
and 63.1% of the ordinary shares and preferred shares, respectively, of the
On February 28, 2023, the Company announced in a press release that Oxbridge
Acquisition filed a Current Report on Form 8-K with the Securities and Exchange
Commission in connection with Oxbridge Acquisition's business combination with Jet Token Inc. ("Jet"), a Delaware based company. Upon the closing of the
transaction, the combined company will be named Jet.AI Inc. Jet offers
fractional aircraft ownership, jet card, aircraft brokerage and charter service
through its fleet of private aircraft and those of Jet's Argus Platinum
operating partner. Jet's charter app enables travelers to look, book and fly.
The funding and capital markets access from this transaction is expected to
enable Jet to continue its growth strategy of AI software development and fleet
expansion. The business combination is expected to be completed late in the
second quarter of 2023.
The Company's wholly-owned licensed reinsurance subsidiary, Oxbridge Reinsurance
Limited ("Oxbridge Reinsurance"), is the lead investor in Oxbridge Acquisition's
sponsor and holds the equivalent of 1,426,180 Class B shares, which at closing
of the business combination will have a value of $14,261,800. This does not
include the value of the 3,094,999 private placement warrants that the Company
beneficially holds in Oxbridge Acquisition.
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PRINCIPAL REVENUE AND EXPENSE ITEMS
We derive our most significant revenues from three principal sources:
? premiums assumed from reinsurance on property and casualty business;
? income from investments and unrealized (loss)/ gain on other investments;
? income under our Administrative Services Agreement
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, 2022, typically one-half of the premiums will be earned in
2022 and the other half will be earned during 2023. 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.
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Income from our investments is primarily comprised of net realized and
unrealized gains (losses) interest income and dividends on investment
securities. Such income is primarily from the Company's investments, which
includes other investments in Oxbridge Acquisition Corp. and 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.
Administrative Services Agreement
Commencing on the effective date of the SPAC's IPO, the Sponsor agreed to pay
the Company a total of up to $10,000 per month for office space, utilities,
secretarial and administrative support to the Sponsor and the SPAC. Upon
completion of the SPAC's initial Business Combination or the SPAC's liquidation,
the Sponsor will cease paying these monthly fees. For the year ended December
31, 2022, the Company received $90,000, and recorded income of $120,000 from the
Sponsor under the Administrative Services Agreement, which is included in "net
investment and other income" in the consolidated statements of operations. At December 31, 2022, the Company recorded a receivable of $30,000 which is
included in "due from related parties" in the consolidated balance sheets.
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
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
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
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, 2022 and 2021 (dollars in thousands, except per share amounts):
Years Ended December 31,
Assumed premiums $ 645 904
Change in unearned premiums reserve 350 61
Net premiums earned 995 965
Net investment and other income 201 99
Net realized investment gain 27 755
Unrealized (loss) gain on other investments (35 ) 9,173
Change in fair value of equity securities (338 ) (767 )
Total revenue 850 10,225
Losses and loss adjustment expenses 1,073 158
Policy acquisition costs and underwriting
expenses 110 106
General and administrative expenses 1,413 1,305
Total expenses 2,596 1,569
(Loss) Income before income attributable to
noteholders (1,746 ) 8,656
Income attributable to noteholders (43 ) (91 )
Net (loss) income $ (1,789 ) 8,565
(Loss) Earnings per share
Basic and Diluted $ (0.31 ) 1.49
Weighted-average shares outstanding
Basic and Diluted 5,772,396 5,735,779
Performance ratios to net premiums earned:
Loss ratio 107.8 % 16.4 %
Acquisition cost ratio 11.0 % 11.0 %
Expense ratio 153.1 % 146.2 %
Combined ratio 260.9 % 162.6 %
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Comparison of the Year Ended December 31, 2022 to Year Ended December 31, 2021
General. Net loss for the year ended December 31, 2022 was $1.79 million or $0.31 basic and diluted loss per share compared to a net income of $8.57 million
or $1.49 basic and diluted earnings per share for the year ended December 31,
2021. The decrease in earnings is due primarily to a decrease in unrealized
gains on the company's investment in the SPAC and increased loss and loss
adjustment expenses, during the year ended December 31, 2022, when compared with
the prior year.
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. Net premiums earned for the
year ended December 31, 2022 increased $30 thousand, to $995 thousand, from $965
thousand for the year ended December 31, 2021. The increase is due to the
acceleration of premium recognition on two of the Company's reinsurance contract
due to a limit loss suffered during the year, as well as higher rates on
reinsurance contracts during the year ended December 31, 2022, when compared to
the prior year.
Losses Incurred. Losses incurred for the year ended December 31, 2022 increased
to $1,073 thousand from $158, for the year ended December 31, 2021. The increase
during the year is wholly due to the triggering of a limit loss on two of the
Company's reinsurance contracts, due to the impact of Hurricane Ian on our book
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, 2022 increased by $4 thousand, to $110 thousand
from $106 thousand for the year ended December 31, 2021. The increase is due
wholly due to the acceleration of premium recognition as mentioned above, and
the resulting acceleration of policy acquisition costs, as well as higher rates
on reinsurance contracts during the year ended December 31, 2022, when compared
to the prior year.
General and Administrative Expenses. General and administrative expenses for the
year ended December 31, 2022 increased by approximately $100 thousand to $1.4
million from $1.3 million for the year ended December 31, 2021. The increase is
due to expense fluctuations during the year ended December 31, 2022, and the
hiring of an additional member of staff.
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 premiums earned and measures the underwriting profitability of our
reinsurance business. The loss ratio for the year ended December 31, 2022
increased to 107.8% from 16.4% for the year ended December 31, 2021. The
increase during the year ended December 31, 2022 is wholly due to the limit
losses suffered on two of our reinsurance contracts as a result of Hurricane
Ian, partially offset by a higher denominator in net premiums earned, compared
with the previous year.
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 remained consistent at 11% for both years December 31, 2022 and 2021.
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Expense Ratio. The expense ratio is the ratio of policy acquisition costs, other
underwriting expenses and general and administrative expenses to net premiums
earned. We use the expense ratio to measure our operating performance. The
expense ratio increased from 146.2% for the year ended December 31, 2021 to
153.1% for the year ended December 31, 2022. The increase is due to higher
general and administrative expenses during the year ended December 31, 2022.
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. The combined ratio increased from 162.6% for the year ended December 31,
2021 to 260.9% for the year ended December 31, 2022. The increase is due to the
increase in loss ratio during the year ending December 31, 2022 as a result of
limit loss suffered under two of our reinsurance contracts, as well as higher
general and administrative expenses, when compared with the prior year.
FINANCIAL CONDITION - DECEMBER 31, 2022 COMPARED TO DECEMBER 31, 2021
Restricted Cash and Cash Equivalents. As of December 31, 2022, our restricted
cash and cash equivalents increased by $830 thousand, to $2.7 million from $1.89
million as of December 31, 2021. The increase is the net result of a partial
withdrawal of collateral on a previous year contract, and the deposit of
collateral for new treaty period during the year ended December 31, 2022.
Investments. As of December 31, 2022, our equity securities increased marginally
by $65 thousand to $642 thousand, from $577 thousand as of December 31, 2021.
The increase is primarily a result of purchase of equity securities during the
year ended December 31, 2022.
Other investments. As of December 31, 2022, our other investments increased to $11.4 million from $11.17 million at December 31, 2021. The increase is due to
the additional purchases offset by the fair value changes of our investment in
in Oxbridge Acquisition Corp., a special purpose acquisition company in which
the Company has an equity investment measured at fair value.
Reserve of losses and loss adjustment expenses. As of December 31, 2022, our
reserve for loss and loss adjustment expenses increased to $1.07 million from $0
at December 31, 2021. The increase is due to the limit loss on two of our
reinsurance contracts impacting our book of business as a result of Hurricane
Notes Payable to Noteholders. As of December 31, 2022, our notes payable
remained the same at $216 thousand. These notes relate to Series 2020-1
participating notes issued by our reinsurance sidecar subsidiary, Oxbridge Re NS
during the quarter ending December 31, 2020.
Unearned Premiums Reserve. As of December 31, 2022, our unearned premiums
reserve decreased by $350 thousand, to $0, from $350 thousand at December 31,
2021. The decrease is due wholly to the recognition of premium income on
in-force reinsurance contracts during the year ending December 31, 2022.
LIQUIDITY AND CAPITAL RESOURCES
We are organized as a holding company and provide administrative and management
services to our subsidiaries, as well as to Oxbridge Acquisition Corp., a
special purpose acquisition company. 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 needs 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.
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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, and administrative services
fee income from OAC Sponsor Ltd. 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 business plan and
investment guidelines. Our investment portfolio, except for our investment in
OAC sponsor Ltd., 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 securities that we own to
As of December 31, 2022, 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 current 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, its subsidiaries 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, 2022, each subsidiary exceeded the minimum required. By
law, each subsidiary is restricted from paying a dividend if such a dividend
would cause its net worth to drop to less than the required minimum.
Our cash flows from operating, investing and financing activities for the years
ended December 31, 2022 and 2021 are summarized below.
Cash Flows for the Year ended December 31, 2022 (in thousands)
Net cash used in operating activities for the year ended December 31, 2022
totaled $829, which consisted primarily of cash received on net written premiums
less cash disbursed for operating expenses and reserve for loss and loss
adjustment expenses. Net cash used in investing activities of $661 was primarily
due to other investments and the net purchase and sales of equity securities.
There was no cash used in or provided by financing activities.
Cash Flows for the Year ended December 31, 2021 (in thousands)
Net cash used in operating activities for the year ended December 31, 2021
totaled $253, which consisted primarily of cash received on investments and net
written premiums less cash disbursed for operating expenses. Net cash used in
investing activities of $1,805 was primarily due to other investments and the
net purchase of equity securities the net proceeds from sale of equity
securities. There was no cash used in or provided by financing activities.
OFF-BALANCE SHEET ARRANGEMENTS
As of December 31, 2022, we had no off-balance sheet arrangements as defined in
Item 303(a)(4) of Regulation S-K.
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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, and particularly to weather events in the State of Florida. 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 accounting principles
generally accepted in the United States of America ("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.
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
footnotes. 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 fair value measurements, particular with respect
to our beneficial interest in Oxbridge Acquisition Corp., premium revenues and
risk transfer, reserve for loss and loss adjustment expenses, and deferred
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 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?
Level 2 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?
Level 3 Inputs that are unobservable.
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. The fair value of our indirect investment in
Oxbridge Acquisition Corp. is based on the fair value calculation made by an
independent valuation expert utilizing observable and unobservable inputs. 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 and management. The investment
custodians and management 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, as well as
the marketability of the instrument and the risk of forfeiture of such
Table of Contents
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.
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 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
Under 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.
At December 31, 2022 we had reserves of $1.07 million as a result of Hurricane
Ian. This represents the maximum loss limit on our reinsurance contracts that
have been affected. See Note 7 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.
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.