OXRE(US:OXBR)2024-03-26 20:31Part I Business Overview Oxbridge Re provides fully collateralized property and casualty reinsurance in the U.S. Gulf Coast, expanding into Web3 tokenized reinsurance securities in 2023 - The company's core business is providing fully collateralized property and casualty reinsurance, specializing in medium frequency, high severity risks, primarily for insurers in the U.S. Gulf Coast, with an emphasis on Florida16 - In 2023, the company launched SurancePlus Inc. to issue DeltaCat Re Tokens, representing fractionalized reinsurance interests, with plans to tokenize other real-world assets17 - The business strategy emphasizes disciplined underwriting, risk management, opportunistic capital deployment, and developing new Web3-focused business offerings leveraging tokenization experience3439 - Oxbridge Reinsurance Limited and Oxbridge Re NS, the company's reinsurance subsidiaries, are licensed and regulated by the Cayman Islands Monetary Authority (CIMA), adhering to its capital and solvency requirements8485 - The company competes with major, well-established reinsurers including Renaissance Re, Berkshire Hathaway, PartnerRe Ltd, Aeolus, and Nephila7576 Risk Factors The company faces significant business, regulatory, and tax risks, including uncertainties from its new Web3 tokenization venture, vulnerability to catastrophic events, and potential adverse U.S. tax classifications - The new Web3-focused RWA tokenization business is early-stage, facing risks like undeveloped trading markets, technological failures, and cyberattacks9899102 - As a property catastrophe reinsurer focused on Florida, the company is highly vulnerable to unpredictable catastrophic events like hurricanes, which could cause substantial financial volatility114 - Significant investment in Jet.AI Inc. is recorded at fair value, and its fluctuations could cause income statement volatility, negatively impacting earnings and shareholders' equity125 - Reinsurance subsidiaries are subject to CIMA's minimum capital and surplus requirements, with non-compliance potentially leading to regulatory actions and business restrictions136 - U.S. holders of ordinary shares face potential adverse tax consequences if the company is treated as a Passive Foreign Investment Company (PFIC) or a Controlled Foreign Corporation (CFC)161164 Unresolved Staff Comments The company has no unresolved written comments from the Securities and Exchange Commission (SEC) staff regarding its periodic or current reports - The Company has no unresolved written comments from the staff of the SEC177 Cybersecurity The Board oversees cybersecurity governance, managed by the CIO, with an ERM program and CIRT in place to mitigate risks, which have not materially affected the company to date - The Board of Directors oversees cybersecurity, receiving annual updates from the Chief Information Officer (CIO), who manages the IT program178 - A formal Cybersecurity Incident Response Team (CIRT), including the CIO, CEO, CFO, and outside legal counsel, responds to incidents via a documented framework180 - The company uses an Enterprise Risk Management (ERM) program to assess cybersecurity risks, implementing controls based on industry standards like COBIT and NIST Cybersecurity Framework182 Properties The company leases adequate office space in Georgetown, Grand Cayman, with the current lease expiring in February 2027 - The company leases office space in Georgetown, Grand Cayman, with the lease expiring in February 2027186 Legal Proceedings The company is not currently involved in any litigation or arbitration but anticipates ordinary course legal proceedings consistent with the industry - The company is not currently involved in any litigation or arbitration187 Mine Safety Disclosures This item is not applicable to the company's business operations - Not applicable188 Part II Market for Common Equity and Related Matters The company's shares and warrants trade on NASDAQ, with no dividends paid in 2023 or 2022 due to regulatory constraints on reinsurance subsidiaries' minimum net worth - The Company's ordinary shares and warrants trade on The NASDAQ Capital Market under symbols "OXBR" and "OXBRW"189 - As of March 26, 2024, there were 13 holders of record of the company's ordinary shares190 - No dividends were paid in 2023 or 2022, and future payments are not intended due to Cayman Islands regulations requiring reinsurance subsidiaries to maintain a minimum net worth191192 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) In 2023, the company's net loss widened to $9.9 million due to an $8.9 million unrealized loss on its Jet.AI investment, despite increased net premiums earned and zero loss expenses Results of Operations In 2023, net loss widened to $9.9 million primarily due to an $8.9 million unrealized loss on Jet.AI, despite increased net premiums earned and zero loss expenses, improving the combined ratio to 185.2% Financial Performance Summary (2023 vs. 2022) (in thousands) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net Premiums Earned | $1,255 | $995 | | Unrealized Loss on Other Investments | ($8,945) | ($35) | | Total Revenue | ($7,049) | $850 | | Losses and Loss Adjustment Expenses | $0 | $1,073 | | General and Administrative Expenses | $2,183 | $1,413 | | Net Loss | ($9,915) | ($1,789) | | Loss per Share (Basic & Diluted) | ($1.69) | ($0.31) | | Loss Ratio | 0.0% | 107.8% | | Combined Ratio | 185.2% | 260.9% | - The significant increase in net loss was primarily due to an $8.9 million unrealized loss on the company's investment in Jet.AI and higher general and administrative expenses related to the SurancePlus launch230 - Losses incurred decreased to $0 in 2023 from $1.07 million in 2022, as the prior year included a limit loss on two reinsurance contracts due to Hurricane Ian232 Financial Condition, Liquidity and Capital Resources As of December 31, 2023, total assets decreased to $8.3 million from $16.6 million, primarily due to a $8.9 million decrease in Jet.AI investment fair value, while the loss reserve was reduced to zero - Other investments decreased from $11.4 million in 2022 to $2.5 million in 2023 due to fair value changes of the company's equity investment in Jet.AI243 - The reserve for loss and loss adjustment expenses decreased to $0 from $1.1 million at year-end 2022, following Hurricane Ian claim payments and no new major loss events in 2023244 - Oxbridge Reinsurance Limited and Oxbridge Re NS are subject to a $500,000 minimum net worth requirement by Cayman Islands regulators, which both subsidiaries exceeded as of December 31, 2023250 - In 2023, net cash used in operating activities was $1.26 million, while net cash provided by financing activities was $1.18 million, primarily from DeltaCat Re Tokens issuance proceeds252 Critical Accounting Policies Critical accounting policies involve significant estimates, including fair value measurement for investments like Jet.AI using a three-level hierarchy, reserves for losses based on reported claims and IBNR, and pro-rata premium revenue recognition - Fair value measurement is a critical policy, utilizing a three-level hierarchy (Level 1, 2, 3) for valuation inputs, particularly relevant for the Jet.AI investment257258259 - Reserves for losses and loss adjustment expenses are management's best estimate based on reported claims and IBNR, with GAAP prohibiting future catastrophic event reserves until occurrence263265 - Deferred acquisition costs, including brokerage fees and premium taxes, are capitalized and amortized over the reinsurance contract term as premiums are earned268 Quantitative and Qualitative Disclosures About Market Risk The company is not required to provide this information as it qualifies as a smaller reporting company under SEC rules - As a smaller reporting company, the company is not required to provide the information under this item269 Financial Statements and Supplementary Data The company's audited consolidated financial statements and supplementary data are included in this Annual Report, beginning on page 50 - The financial statements and supplementary data are filed as part of this Annual Report on Form 10-K, beginning on page 50270 Changes in and Disagreements with Accountants The company reports no changes in or disagreements with its accountants regarding accounting principles, financial disclosure, or auditing scope - None271 Controls and Procedures As of December 31, 2023, management concluded that disclosure controls and internal control over financial reporting were effective, with no material changes during the fourth quarter - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2023273 - Based on a COSO framework evaluation, management concluded that internal control over financial reporting was effective as of December 31, 2023277 - No material changes in internal control over financial reporting occurred during the fourth quarter of 2023280 Other Information No directors or executive officers adopted, modified, or terminated Rule 10b5-1 trading arrangements during the fiscal quarter ended December 31, 2023 - No directors or executive officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement during the fiscal quarter ended December 31, 2023281 Part III Information for Part III, including directors, executive compensation, and security ownership, is incorporated by reference from the company's definitive 2024 proxy statement Directors, Executive Officers and Corporate Governance Required information is incorporated by reference from the 2024 proxy statement, and the company has adopted a code of ethics available on its website - Information required by this item is incorporated by reference from the definitive proxy statement for the 2024 Annual Meeting of Shareholders283 Executive Compensation Required executive compensation information is incorporated by reference from the company's definitive 2024 proxy statement - Information required by this item is incorporated by reference from the definitive proxy statement for the 2024 Annual Meeting of Shareholders285 Security Ownership and Related Matters Required security ownership information is incorporated by reference from the company's definitive 2024 proxy statement - Information required by this item is incorporated by reference from the definitive proxy statement for the 2024 Annual Meeting of Shareholders286 Certain Relationships, Related Transactions, and Director Independence Required information on related transactions and director independence is incorporated by reference from the company's definitive 2024 proxy statement - Information required by this item is incorporated by reference from the definitive proxy statement for the 2024 Annual Meeting of Shareholders287 Principal Accounting Fees and Services Required information on principal accounting fees and services is incorporated by reference from the company's definitive 2024 proxy statement - Information required by this item is incorporated by reference from the definitive proxy statement for the 2024 Annual Meeting of Shareholders288 Part IV Exhibits, Financial Statement Schedules This section lists documents filed as part of the Form 10-K, including Consolidated Financial Statements, schedules, and various exhibits - The Consolidated Financial Statements, other financial information, and financial statement schedules are filed as part of this Annual Report289 Financial Statements Consolidated Financial Statements Audited consolidated financial statements for 2023 show total assets decreased to $8.3 million and shareholders' equity to $5.3 million, driven by a $9.9 million net loss primarily from an $8.9 million unrealized investment loss Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Assets | $8,253 | $16,616 | | Total Liabilities | $2,921 | $1,627 | | Total Shareholders' Equity | $5,332 | $14,989 | Consolidated Statement of Operations Highlights (in thousands) | Account | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | | :--- | :--- | :--- | | Net Premiums Earned | $1,255 | $995 | | Unrealized Loss on Other Investments | ($8,945) | ($35) | | Losses and Loss Adjustment Expenses | $0 | $1,073 | | Net Loss | ($9,915) | ($1,789) | - Net cash used in operating activities was $1.26 million in 2023, while net cash provided by financing activities was $1.18 million, primarily from DeltaCat Re tokens issuance313 Notes to Consolidated Financial Statements Notes detail the $8.9 million unrealized loss on Jet.AI investment reclassified to Level 1, SurancePlus's $2.45 million DeltaCat Re token offering, zero loss reserves at year-end 2023, and related party reinsurance transactions - The Jet.AI investment re-measurement resulted in an $8.945 million unrealized loss for 2023 and was reclassified from Level 3 to Level 1 in the fair value hierarchy after its public listing356362 - SurancePlus completed its private placement of DeltaCat Re Tokens, raising $2.45 million in gross proceeds, with approximately $1.28 million from third-party investors379 - The reserve for losses and loss adjustment expenses was $0 at December 31, 2023, down from $1.073 million at year-end 2022, due to prior year claim payments and no new losses384 - In 2023, the company entered a reinsurance agreement with TypTap Insurance Company, a related entity, resulting in $1.099 million in assumed premiums for the year442 - On January 29, 2024, the company extended the expiration date of its publicly traded warrants (OXBRW) from March 26, 2024, to March 26, 2029410