OXRE(OXBR) - 2023 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited consolidated financial statements of Oxbridge Re Holdings Limited and its subsidiaries for the period ended March 31, 2023, including balance sheets, statements of operations, cash flows, and changes in shareholders' equity, along with detailed notes Consolidated Balance Sheets The consolidated balance sheets show a slight increase in total assets and shareholders' equity from December 31, 2022, to March 31, 2023, driven by increases in other investments and equity securities, while cash and cash equivalents decreased | Metric | March 31, 2023 (Unaudited, in thousands) | December 31, 2022 (in thousands) | | :----------------------------------- | :-------------------------- | :------------------ | | Total assets | $16,848 | $16,616 | | Total liabilities | $1,663 | $1,627 | | Total shareholders' equity | $15,185 | $14,989 | | Equity securities, at fair value | $718 | $642 | | Cash and cash equivalents | $729 | $1,207 | | Restricted cash and cash equivalents | $2,891 | $2,721 | | Other Investments | $11,804 | $11,423 | Consolidated Statements of Operations The company reported a net income of $142 thousand for Q1 2023, a significant improvement from a net loss of $387 thousand in Q1 2022, primarily due to unrealized gains on other investments and changes in fair value of equity securities | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Net premiums earned | - | $210 | | Net investment and other income | $89 | $33 | | Unrealized gain (loss) on other investments | $381 | $(230) | | Change in fair value of equity securities | $76 | $(20) | | Total revenue | $546 | - | | Total expenses | $404 | $361 | | Net income (loss) | $142 | $(387) | | Earnings (Loss) per share (Basic and Diluted) | $0.02 | $(0.07) | Consolidated Statements of Cash Flows For Q1 2023, the company used cash in operating, investing, and financing activities, resulting in a net decrease in cash and cash equivalents | Cash Flow Activity | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(140) | $(69) | | Net cash used in investing activities | $(5) | $(201) | | Net cash used in financing activities | $(163) | - | | Net change during the period (Cash and restricted cash) | $(308) | $(270) | | Balance at end of period (Cash and restricted cash) | $3,620 | $5,148 | Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity increased from $14,989 thousand at December 31, 2022, to $15,185 thousand at March 31, 2023, primarily due to net income for the period and stock-based compensation | Metric | December 31, 2022 (in thousands) | March 31, 2023 (in thousands) | | :-------------------------- | :------------------ | :----------------- | | Total Shareholders' Equity | $14,989 | $15,185 | | Net income for the period | - | $142 | | Stock-based compensation | - | $54 | | Issuance of restricted stock | - | 96,647 shares | Notes to the Consolidated Financial Statements These notes provide detailed information on the company's organization, significant accounting policies, financial instruments, regulatory compliance, and other relevant disclosures that are integral to understanding the consolidated financial statements 1. ORGANIZATION AND BASIS OF PRESENTATION Oxbridge Re Holdings Limited, incorporated in the Cayman Islands, provides collateralized reinsurance in the property catastrophe market and invests in insurance-linked securities through its wholly-owned subsidiaries - Oxbridge Re Holdings Limited operates as a single business segment, providing collateralized reinsurance in the property catastrophe market and investing in insurance-linked securities through its wholly-owned subsidiaries: Oxbridge Reinsurance Limited, Oxbridge Re NS, and SurancePlus[26] - The unaudited consolidated financial statements are prepared in accordance with GAAP for interim financial information and SEC rules, reflecting all normal recurring adjustments[28] 2. SIGNIFICANT ACCOUNTING POLICIES This section details the significant accounting policies, including the treatment of cash and cash equivalents, restricted cash, investments, deferred policy acquisition costs, offering expenses, reserves for losses, premiums assumed, and stock-based compensation - Investments in equity securities and 'other investments' (Oxbridge Acquisition Corp.) are carried at fair value, with changes recorded in the consolidated statements of operations[35] - Offering expenses of $252,000 at March 31, 2023, include $133,000 for an equity distribution agreement and $119,000 for the offering of Delta Cat Re digital securities by SurancePlus Inc[41] - The company manages its business on the basis of one operating segment, Property and Casualty Reinsurance[59] 3. CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AND CASH EQUIVALENTS Total cash and cash equivalents, including restricted cash, decreased from $3,928 thousand at December 31, 2022, to $3,620 thousand at March 31, 2023 | Category | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------- | :------------------------------ | :------------------------------- | | Cash on deposit | $729 | $1,207 | | Restricted cash held in trust | $2,891 | $2,721 | | Total | $3,620 | $3,928 | - Restricted cash held in trust is custodied with Truist Bank and maintained as collateral for reinsurance agreements[63] 4. INVESTMENTS The company's total investments increased to $16,142 thousand at March 31, 2023, from $15,993 thousand at December 31, 2022, primarily driven by an increase in "Other Investments" | Investment Category | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :----------------------------------- | :------------------------------ | :------------------------------- | | Oxbridge Acquisition Corp. Promissory Note | $214 | $214 | | Oxbridge Acquisition Corp. Class B Ordinary Shares | $11,590 | $11,209 | | Total Other Investments | $11,804 | $11,423 | | Unrealized gain (loss) on investment in affiliate (Q1) | $381 | $(230) | - The company's beneficial interests in OXAC's Class B shares, Private Placement Warrants, and Extension Loan are recorded at fair value and classified as 'Other Investments' (Level 3 in the fair value hierarchy) due to unobservable inputs and a 25.11% discount for lack of marketability and forfeiture risk[72][80] - The fair value of Private Placement Warrants was determined to be $0 at both March 31, 2023, and December 31, 2022[81] 5. TAXATION The company and its subsidiaries are exempt from corporate income or capital gains taxes in the Cayman Islands until 2033 and intend to avoid being deemed engaged in a U.S. trade or business - The Company and Oxbridge Reinsurance Limited have tax concessions in the Cayman Islands, exempting them from corporate income or capital gains taxes until April 23, 2033, and May 17, 2033, respectively[85] - The Company intends to conduct operations to avoid being engaged in a U.S. trade or business, which would otherwise subject it to U.S. federal income tax and branch profits tax[86] 6. VARIABLE INTEREST ENTITIES Oxbridge Re NS is consolidated as a VIE, and SurancePlus Inc. launched an offering of tokenized reinsurance securities, while notes payable to Series 2020-1 noteholders decreased due to partial redemption - Oxbridge Re NS is consolidated as a Variable Interest Entity (VIE) because it lacks sufficient equity capital and the Company is its primary beneficiary, owning 100% of voting shares and having significant financial interest and control[88] - SurancePlus Inc., a wholly-owned subsidiary, commenced an offering of up to $5.0 million of DeltaCat Re tokenized reinsurance securities, which represent Series DeltaCat Preferred Shares of SurancePlus[93][94] - Participating notes totaling $44,000 were redeemed during Q1 2023, reducing the balance due to $172,000 at March 31, 2023[97] 7. RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES The reserve for losses and loss adjustment expenses remained at $1,073 thousand at March 31, 2023, with no new losses incurred or paid during Q1 2023 or Q1 2022 | Metric | March 31, 2023 (in thousands) | March 31, 2022 (in thousands) | | :-------------------------- | :---------------------------- | :---------------------------- | | Balance, beginning of period | $1,073 | - | | Total incurred | - | - | | Total paid | - | - | | Balance, end of period | $1,073 | - | - The reserve for losses and LAE is based on the contractual maximum loss the Company can suffer under affected contracts, specifically for Hurricane Ian[101] 8. EARNINGS (LOSS) PER SHARE Basic and diluted EPS for Q1 2023 was $0.02, a positive change from $(0.07) in Q1 2022, with options and warrants being anti-dilutive in both periods | Metric | Three Months Ended March 31, 2023 (in thousands, except EPS) | Three Months Ended March 31, 2022 (in thousands, except EPS) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Net income (loss) | $142 | $(387) | | Weighted average shares - basic | 5,857,643 | 5,751,008 | | Earnings (Loss) per share - basic | $0.02 | $(0.07) | | Earnings (Loss) per share - diluted | $0.02 | $(0.07) | - Options to purchase 846,250 ordinary shares and 8,230,700 warrants were anti-dilutive in Q1 2023 due to their exercise price exceeding the average market price[106] - Options and warrants were anti-dilutive in Q1 2022 due to the net loss during that period[107] 9. WARRANTS There were 8,230,700 warrants outstanding at March 31, 2023, exercisable at $7.50 per share until March 26, 2024, with no exercises during Q1 2023 or Q1 2022 - 8,230,700 warrants were outstanding at March 31, 2023, and December 31, 2022[109] - Each warrant is exercisable for one ordinary share at $7.50 per share, expiring on March 26, 2024[109] - No warrants were exercised during the three-month periods ended March 31, 2023, and 2022[109] 10. DIVIDENDS While the Company's retained earnings are not restricted from dividend payments, funding a dividend would likely require a dividend from subsidiaries, subject to CIMA notification and minimum capital requirements - None of the Company's retained earnings were restricted from dividend payments to shareholders as of March 31, 2023[111] - Dividends from subsidiaries would require notification to the Cayman Islands Monetary Authority (CIMA) and must not result in breaches of prescribed and minimum capital requirements[111][112] 11. SHARE-BASED COMPENSATION The company granted 96,647 restricted stock awards in Q1 2023 under the 2021 Plan, with stock option compensation expense of $5 thousand and restricted stock compensation expense of $49 thousand for Q1 2023 - The Company granted 96,647 restricted stock to directors and officers under the 2021 Plan during Q1 2023[113][118] | Compensation Type | Q1 2023 (in thousands) | Q1 2022 (in thousands) | | :-------------------------- | :--------------------- | :--------------------- | | Stock option compensation expense | $5 | $15 | | Restricted stock compensation expense | $49 | $17 | - Unrecognized compensation expense for non-vested stock options was approximately $35,000, and for non-vested restricted stock was approximately $294,000 at March 31, 2023[115][118] 12. NET WORTH FOR REGULATORY PURPOSES Both Oxbridge Reinsurance Limited and Oxbridge Re NS exceeded their minimum and prescribed capital requirements of $500 at March 31, 2023 - Oxbridge Reinsurance Limited's net worth of $9.1 million exceeded its minimum and prescribed capital requirement of $500 at March 31, 2023[120] - Oxbridge Re NS' net worth of $155,000 exceeded its minimum and prescribed capital requirement of $500 at March 31, 2023[121] 13. FAIR VALUE AND CERTAIN RISKS AND UNCERTAINTIES The company faces concentration of underwriting risk due to a limited number of entities, credit and counterparty risk from brokers and reinsurers, and market risk from investment fluctuations - The Company's underwriting risks are not significantly diversified, relating to a limited number of entities[125] - Credit and counterparty risk exists with brokers and retrocessionaires, mitigated by using reputable counterparties[126][128] - Market risk from fluctuating asset values is mitigated by established investment guidelines[129] 14. LEASES The company has two operating lease obligations for office and residential facilities, with operating lease right-of-use assets and liabilities increasing to $85 thousand at March 31, 2023 | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------- | :---------------------------- | :------------------------------- | | Operating lease right-of-use assets | $85 | $44 | | Operating lease liabilities | $85 | $44 | - Operating lease cost was $24,000 for both the three-month periods ended March 31, 2023, and 2022[134] - The weighted-average remaining lease term for operating leases was 0.82 years at March 31, 2023[134] 15. RELATED PARTY TRANSACTIONS The company recorded $30 thousand in income from the Sponsor under an Administrative Services Agreement for Q1 2023, and a director received a partial redemption of $14 thousand on his participating notes - The Company recorded $30,000 income from the Sponsor under an Administrative Services Agreement for Q1 2023[137] - A balance of $69,000 was due from a related party at March 31, 2023, including administrative fees and reimbursable expenses[138] - Mr. Jay Madhu, a director and officer, received a $14,000 payment representing partial redemption of principal and return on investment for Series 2020-1 participating notes[139] 16. SUBSEQUENT EVENTS The company evaluates all subsequent events and transactions for potential recognition or disclosure in its consolidated financial statements - The company evaluates all subsequent events for potential recognition or disclosure[140] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations for the three months ended March 31, 2023, compared to the prior year, highlighting key revenue and expense drivers, recent developments, and critical accounting policies SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS This section serves as a cautionary note regarding forward-looking statements in the report, emphasizing that actual results may differ materially due to risks and uncertainties detailed in the Form 10-K - The report contains forward-looking statements that are subject to risks and uncertainties, which may cause actual results to differ materially[142] - Readers are cautioned not to place undue reliance on these statements, and the company undertakes no obligation to publicly update or revise them[142] GENERAL Oxbridge Re Holdings Limited is a Cayman Islands specialty property and casualty reinsurer focusing on fully collateralized reinsurance contracts in the U.S. Gulf Coast, aiming for long-term growth in book value per share through underwriting and opportunistic investment profits - Oxbridge Re is a Cayman Islands specialty property and casualty reinsurer, focusing on fully collateralized reinsurance contracts primarily for property and casualty insurance companies in the U.S. Gulf Coast, with an emphasis on Florida[144][145] - The company's goal is to achieve long-term growth in book value per share by generating attractive underwriting profits and complementing them with opportunistic investment profits[145] - Operating results may fluctuate due to factors like follow-on offerings, seasonality (hurricane season from June 1 to November 30), competition, regulation, and economic conditions[147] Recent Developments Oxbridge Acquisition Corp. (SPAC), in which the Company has an indirect investment, approved an extension for its business combination deadline to August 16, 2023, and subsequently announced a business combination with Jet Token Inc. (Jet.AI Inc.) - Oxbridge Acquisition Corp. (OXAC) extended its business combination deadline from November 16, 2022, to August 16, 2023[156] - OXAC filed a Form 8-K announcing a business combination with Jet Token Inc. (to be named Jet.AI Inc.), expected to be completed late in the second quarter of 2023[158] - Oxbridge Reinsurance Limited, as the lead investor in OXAC's sponsor, holds the equivalent of 1,426,180 Class B shares, valued at $14,261,800 at the closing of the business combination[159] PRINCIPAL REVENUE AND EXPENSE ITEMS The company's main revenue sources are premiums assumed, investment income, and income from an Administrative Services Agreement, while key expenses include loss and loss adjustment expenses, policy acquisition costs, and general and administrative expenses - Principal revenue sources include premiums assumed from reinsurance, income from investments (net realized and unrealized gains, interest, dividends), and income from the Administrative Services Agreement[161][164][165][167] - Key expenses consist of losses and loss adjustment expenses, policy acquisition costs and underwriting expenses, and general and administrative expenses[168][169][170][171] - The Administrative Services Agreement provides $10,000 per month from the Sponsor for office space, utilities, and administrative support[165] RESULTS OF OPERATIONS The company achieved a net income of $142 thousand in Q1 2023, a significant improvement from a net loss of $387 thousand in Q1 2022, primarily driven by positive fair value changes in equity securities and other investments | Metric | Three Months Ended March 31, 2023 (in thousands, except EPS) | Three Months Ended March 31, 2022 (in thousands, except EPS) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Net income (loss) | $142 | $(387) | | Net premiums earned | $0 | $210 | | Unrealized gain on other investments | $381 | $(230) | | General and administrative expenses | $404 | $338 | | Basic and Diluted EPS | $0.02 | $(0.07) | - The increase in net income is primarily due to positive changes in the fair value of equity securities and other investments[172] - Net premiums earned decreased to $0 in Q1 2023 from $210,000 in Q1 2022 due to the acceleration of premium recognition on two reinsurance contracts following a limit loss in Q3 2022[174] MEASUREMENT OF RESULTS The company uses gross premiums assumed, loss ratio, acquisition cost ratio, expense ratio, and combined ratio to measure business growth and underwriting profitability, with net income and return on average equity for overall profitability | Ratio | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Loss ratio | 0.0% | 0.0% | | Acquisition cost ratio | 0.0% | 11.0% | | Expense ratio | 0.0% | 171.9% | | Combined ratio | 0.0% | 171.9% | - The decrease in acquisition cost, expense, and combined ratios to 0% in Q1 2023 is primarily due to no premiums being earned during the period[181][182][183] - The loss ratio remained 0% in both periods as no losses were incurred[180] FINANCIAL CONDITION – MARCH 31, 2023 COMPARED TO DECEMBER 31, 2022 The company's financial condition improved slightly with increases in restricted cash, total investments, and other investments, while notes payable decreased due to partial redemption - Restricted cash and cash equivalents increased by $170,000 (6%) to $2.89 million, driven by premium deposits[185] - Total investments increased by $76,000 (12%) to $718,000, primarily due to an increase in the value of equity securities[186] - Other investments increased by $381,000 to $11.8 million, attributed to fair value changes in the investment in Oxbridge Acquisition Corp[187] - Notes payable to noteholders decreased by $44,000 to $172,000 due to a partial redemption of Series 2020-1 participating notes[188] LIQUIDITY AND CAPITAL RESOURCES The company operates as a holding company with minimal cash needs, funded by premium receipts and investment income, maintaining a highly liquid investment portfolio, and its subsidiaries exceeded minimum net worth requirements - Primary sources of funds include premium receipts and investment income; cash is used for losses, underwriting expenses, dividends, and general and administrative expenses[190] - The investment portfolio, excluding OAC Sponsor Ltd., consists primarily of cash and highly liquid securities, providing sufficient flexibility for liquidity[190] - Subsidiaries are subject to Cayman Islands regulatory constraints, including a minimum net worth requirement of $500, which both exceeded as of March 31, 2023[192] | Cash Flow Activity | Three Months Ended March 31, 2023 (in thousands) | | :----------------------------------- | :--------------------------------------------- | | Net cash used in operating activities | $(140) | | Net cash used in investing activities | $(5) | | Net cash used in financing activities | $(163) | OFF-BALANCE SHEET ARRANGEMENTS As of March 31, 2023, the company had no off-balance sheet arrangements as defined by SEC regulations - The company had no off-balance sheet arrangements as of March 31, 2023[196] EXPOSURE TO CATASTROPHES The company's operating results are vulnerable to natural and man-made disasters, and while exposure is limited, GAAP does not permit establishing loss reserves for future expected losses - Operating results and financial condition could be adversely affected by volatile and unpredictable natural and man-made disasters[197] - GAAP does not permit establishing loss reserves for losses that may be incurred until an event giving rise to a claim occurs, meaning no provision for contingency reserves for expected future losses[197] CRITICAL ACCOUNTING POLICIES This section highlights critical accounting policies involving significant estimates and assumptions, including fair value measurements, premium revenue recognition, risk transfer assessment, reserves for losses, and deferred acquisition costs - Critical accounting policies involve significant estimates and assumptions, particularly for fair value measurements of the investment in Oxbridge Acquisition Corp., premium revenues, risk transfer, reserves for losses and loss adjustment expenses, and deferred acquisition costs[198] - The fair value of the indirect investment in Oxbridge Acquisition Corp. is based on an independent valuation expert's calculation utilizing observable and unobservable inputs, classified as Level 3 in the fair value hierarchy[202] - As of March 31, 2023, the company had reserves of $1.07 million for losses and loss adjustment expenses as a result of Hurricane Ian, representing the maximum loss limit on affected reinsurance contracts[209] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Oxbridge Re Holdings Limited is not required to provide quantitative and qualitative disclosures about market risk - The company is not required to provide quantitative and qualitative disclosures about market risk as it is a smaller reporting company[212] Item 4. Controls and Procedures The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2023, with no material changes in internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective as of March 31, 2023[213] - There were no material changes in internal control over financial reporting during the quarter ended March 31, 2023[214] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company is not currently involved in any litigation or arbitration but anticipates being subject to such in the ordinary course of business - The company is not currently involved in any litigation or arbitration[216] - It anticipates being subject to litigation and arbitration in the ordinary course of business, similar to the rest of the insurance and reinsurance industry[216] Item 1A. Risk Factors This section states that there are no new risk factors to report for the current period - No new risk factors are reported for the current period[217] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities, repurchases of equity securities, or specific uses of proceeds to report - No unregistered sales of equity securities occurred[218] - No repurchases of equity securities occurred[219] - No specific use of proceeds to report[220] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities to report - No defaults upon senior securities occurred[221] Item 4. Mine Safety Disclosures This item is not applicable to the company - This item is not applicable to the registrant[222] Item 5. Other Information No other information to report in this section - No other information is reported in this section[223] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications from the CEO and CFO, and XBRL formatted financial statements - Exhibits include Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act[225] - XBRL formatted financial statements (Consolidated Balance Sheets, Statements of Operations, Cash Flows, Changes in Shareholders' Equity, and Notes) are filed[225] Signatures The report is signed by Jay Madhu, CEO and President, and Wrendon Timothy, CFO and Secretary, on May 12, 2023 - The report was signed on May 12, 2023, by Jay Madhu, Chief Executive Officer and President, and Wrendon Timothy, Chief Financial Officer and Secretary[228]