Oxbridge Re Holdings Ltd (NASDAQ:OXBR) Q4 2022 Earnings Conference Call March 30, 2023 4:30 PM ET
Wrendon Timothy - CFO and Corporate Secretary
Jay Madhu - Chairman, President & CEO
Conference Call Participants
Kent Engelke - Capitol Securities
Good afternoon. Welcome to Oxbridge Re's Fourth Quarter and Year-End 2022 Earnings Call. My name is Joe, and I will be your conference operator this afternoon. At this time, all participants will be in listen-only mode.
Joining us for today's presentation is Oxbridge Re's Chairman, President and Chief Executive Officer; Jay Madhu, and Chief Financial Officer and Corporate Secretary, Wrendon Timothy. Following their remarks, we will open up the call for your questions. I would like to remind everyone that this call is also being broadcast via webcast available via webcast replay until April 13, 2023 on the Investor Information section of the Oxbridge Re website at www.oxbridgere.com.
Now I would like to turn the call over to Wrendon Timothy, Chief Financial Officer of Oxbridge, who will provide the necessary cautions regarding the forward-looking statements that will be made by management during this call. Mr. Timothy?
Thank you, operator. During today's call, there will be forward-looking statements made regarding future events, including Oxbridge Re's future financial performance. These forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995. Words such as anticipates, estimates, expects, intends, plans, projects and other similar words and expressions are intended to signify forward-looking statements.
Forward-looking statements are not guarantees of future results and conditions but rather are subject to various risks and uncertainties. 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 contained in our Form 10-K filed with the SEC and our Form 10-Q filed in previous quarters.
The occurrence of any of these risks and uncertainties could have a material adverse effect on the company's business, financial condition and the volatility of our earnings, which include -- can cause significant market price and trading volume fluctuation for our securities. Any forward-looking statements made on this conference call speak only as of the date of this conference call.
And except as required by law, the company undertakes no obligation to update any forward-looking statements contained on this call or in any company presentation, even if the company's expectations or any related events, conditions or circumstances change.
Now I'd like to the call over to our Chairman, President and Chief Executive Officer, Jay Madhu. Jay?
Thank you, Wrendon, and welcome, everyone. Thank you for joining us today. Before we start, I would like to take a moment to provide a brief overview of our company. Oxbridge Re Holdings Limited was founded 10 years ago with a mission to provide reinsurance solutions primarily to property and casualty insurers in the Gulf Coast region of the United States.
We are very proud to be celebrating our 10th anniversary this year. Through our licensed reinsurance subsidiary, Oxbridge Reinsurance Limited and our licensed reinsurance sidecar, Oxbridge Re NS, we write fully collateralized policies to cover property losses from specific catastrophes. And because we write fully collateralized contracts, we believe we can compete effectively with large carriers.
We specialize in underwriting low-frequency, high-severity risks, where we believe sufficient data exists to efficiently analyze the risk/return profile of reinsurance contracts. Our objective is to achieve long-term growth in book value per share by writing business on a selective and opportunistic basis that will generate attractive underwriting profits relative to risk.
As you may recall, in 2021, we launched Oxbridge Acquisition Corp., a special purpose acquisition company, or SPAC, focusing on investing in disruptive technologies. Subsequent to year-end, Oxbridge acquisition announced its intention to form a business combination with Jet Token Inc., a private aviation and artificial intelligence company offering factual artificial ownership, jet cards, in-crop brokerage and charter services.
The transaction is expected to enable Jet to continue its strategy of AI software development and its aircraft fleet expansion. We expect the combination will be completed late in the second quarter.
In March, we continued to diversify our business with the formation of our new subsidiary, SurancePlus Inc by issuing tokens that represent fractional interest in reinsurance contracts. SurancePlus offers an alternative investment opportunity that leverages key qualities of blockchain technology to create a well-designed digital security. In March, SurancePlus commenced an offering of $5 million in these tokens, which, assuming no casualty losses to property insurers by the company, are expected to generate a return of up to 196% after 3 years. I will have more to say about these transactions later in the call.
Regarding our investment portfolio, we maintain an opportunistic -- and we remain opportunistic and will deploy our capital when favorable return opportunities arise that contribute to the growth of capital in surplus in our licensed reinsurance subsidiary over time. Currently, the -- clearly, the current volatility being experienced in the global financial markets is impacting our investment portfolio and our net income.
Having said this, we continue to stay in close touch with our markets and the insurance industry to ensure we continue to deliver value to our shareholders. Over the long term, we remain highly opportunistic about the prospects of our core reinsurance business as two new transactions I mentioned earlier. I look forward to keep you apprised of our progress in the quarters to come.
I will now turn it over to Wrendon take us through our financial results. Wrendon?
Thank you, Jay. I would like to remind you that our typical contract period is from June 1 to May 31 of the following year. With respect to net premiums earned for the year ended December 31, 2022, increase marginally to $995,000 from $965,000 due primarily to the acceleration of premium recognition on 2 of our reinsurance contracts, tougher limit losses due to the impact of Hurricane Ian during 2022 as well as higher rates on reinsurance contracts in 2022 when compared to the prior year.
Our net investments and other income rose in 2022 to $201,000 primarily due to administrative fee income related to our SPAC investments. We experienced a small $35,000 unrealized loss in 2022 due to a fair value change in our equity investment in Oxbridge Acquisition Corp when compared to the prior year where we recognized a $9.2 million unrealized gain.
We also recognize a $330,000 negative change in the fair value of our equity securities as of December 31, 2022, down from $767,000 negative change in the prior year. This was due to the challenging global capital markets we all experienced. All of these factors taken together resulted in total revenue declined to $850,000 in 2022 compared to $10.2 million in the prior year. The decrease is primarily due to the significant decline in the unrealized gain on our investment in our SPAC.
Total expenses included in loss and loss adjustment expenses, policy acquisition costs and general and admin expenses for the year ended December 31, 2022, were $2.5 million, up from $1.6 million in 2021. The increase is due primarily to the approximate $1.1 million loss included in 2022 resulting from the triggering of loss limits on two reinsurance contracts from Hurricane Ian.
In addition, we have experienced a general higher -- and administrative expenses this year due to inflationary cost pressures and the appointment of our new Head of Special Projects. Largely due to the loss and loss adjustment expenses in 2022 and a significant change in the unrealized valuation of SPAC in 2022, we experienced a net loss of $1.8 million or $0.31 per share in 2022 compared to net income of $8.6 million in fiscal 2021.
With respect to our financial ratios, as we have discussed before in our investor calls, we use various measures to analyze the growth and profitability of our business operations. For our reinsurance business, we measure underwriting profitability by examining our loss ratio, our acquisition ratio, expense ratio and combined ratio.
Our loss ratio, which measures underwriting profitability, is the ratio of loss and loss adjustment expenses included in net premiums earned. The loss ratio increased to107.8% for the year ended December 31, 2022, compared to 16.4% in the prior year, again, due to the limit loss suffered on two reinsurance contracts, which was partially offset by a higher denominator in net premiums earned.
Our acquisition cost ratio, which measures operational efficiencies compared to policy acquisition costs, net premiums earned, the ratio remained stable at 11% in 2022 compared to the prior year. Our expense ratio, which measures operating performance compared to policy acquisition costs and general and admin expenses with net premiums earned, the expense ratio increased 152.1% -- increased to 153.1% for the year ended December 31, 2022, from 146.2% in the prior year primarily due to the higher general and administrative expenses in 2022.
Our combined ratio will give you some measure underwriting performance with some of the loss ratio and the expense ratio. The combined ratio increased to 260.9% in 2022 from 162.6% in 2021 due again to the increase in the loss ratio resulting from Hurricane Ian losses as well as increased general and admin expenses.
Notably, in the balance sheet, our investment portfolio increased to $642,000 at December 31, 2022, from $577,000 in the prior year and due primarily to net purchases of equity securities during the year partially offset by unrealized losses we experienced due to the volatile capital markets.
Other investments, which is the investment in SPAC increased marginally due to the positive change in the fair value of our investments in Oxbridge Acquisition Corp.
Cash and cash equivalents and restricted cash and cash equivalents decreased to $3.9 million at December 31, 2022, compared with $5.4 million at December 31, 2021. Total shareholders' equity at year-end was approximately $150 million or $2.60 per common share.
Now I'll turn the call back over to Jay to wrap up before we take your questions. Jay?
Thank you, Wrendon. In December last year, we were pleased to have Dr. Reuel Ocho join our team as Head of Special Projects. Dr. Ocho is a specialist in digital innovation and launch in technologies with significant experience in digital architecture, IT strategy, artificial intelligence and other leading-edge technologies.
In late January, we announced the incorporation of SurancePlus, a wholly owned subsidiary of Oxbridge Re. SurancePlus, led by Dr. Ocho, will issue tokenized reinsurance securities that indirectly represent fractional interest in reinsurance contracts underwritten by a reinsurance subsidiary. Token holders will receive a return on the performance of these underlying reinsurance contracts.
In essence, SurancePlus will democratize access to reinsurance of an alternative investment opportunity that leverages the key qualities of walk-in technology to create a well-designed digital security. Our tokens will enable investors to participate and have their interest permanently and transparently recorded on a blockchain ledger. These opportunities were typically unavailable to investors in the past due to the high barriers to entry.
We follow up the launch of SurancePlus with the commencement of our first offering of up to $5 million in tokens on March 27 this year. The proceeds of this offering will be used to -- will be used by Oxbridge to invest in collateralized reinsurance contracts. Assuming there are no casualty losses reinsured by Oxbridge, a token investor is expected to receive a significant total up to 196% at the end of three years. However, we plan to list the tokens on an ATS exchange, giving investors access to liquidity in the interim.
We believe our investment in SurancePlus will further diversify our business and enhance shareholder value over the long term. More on this can be found on our website at suranceplus.com.
Following this exciting investment opportunity in late February, we utilized a special purpose acquisition company, Oxbridge Acquisition Corp. to embark on a business combination with Jet Token Inc., a company offering fractional aircraft ownership, jet card, aircraft brokerage and charter services through its fleet of private aircraft.
Our wholly owned subsidiary, Oxbridge Reinsurance Limited, is a lead investor or a SPAC sponsor and holds the equivalent of 1.4 million shares with a cost basis of approximately $2.3 million. At closing of this transaction, the investment will have a value of $14.2 million, not including the value of approximately 3.1 million warrants we beneficially own in the SPAC. These exciting new investment opportunities further diversify our business and low profile, positioning us to capitalize on growth in emerging technologies.
We are very excited about the future value of these investments and potentially -- and the potential they bring to our shareholders.
So in closing, our business is well diversified. Our investment in SurancePlus positions us in a new leading-edge technology business, further diversifying our business. Our investment in the SPAC is progressing according to plan. We remain debt-free. We have a strong balance sheet. And more importantly, we have real opportunity based on a viable business model that is based on diversification. We remain opportunistic not only in our core business but also our broader view of the market.
With that, we are ready to open the calls for questions. Operator, please provide the appropriate instructions.
Thank you. [Operator Instructions] Our first question comes from the line of Kent Engelke with Capital Securities. Please proceed.
Hey, Wrendon and Jay. I just want to make sure I heard you correctly on the SPAC investments there. You all own about 1.4 million shares in OXAC, which is worth about $4.2 million in that neighborhood. Your cost base is about $2.3 million, and you have 3.4 million warrants exercised out with price.
Kent, yeah, this is Wrendon. I think one of your numbers wasn't accurate. So our cost basis is roughly $2.3 million. We own 1.4 million shares roughly. And at closing, those shares would be worth $14 million, not $4 million. I think you said $4 million. In terms of new warrants, we have disclosed in the press release and the 10-K as well we have just over 3 million warrants. And those warrants strike at 11.50 with typical warrants for a strike at 15% above the IPO price and kind of really put a bit of those yet. But presumably, if the business combination goes well, this will obviously assume value.
Yeah. Based upon what warrants are, if it's same warrants that are trading on the exchange, I don't know what's that value. That price was $210,000 at this juncture. So in regards to what is the percentage ship that you actually own of the SPAC itself.
So Oxbridge owns just -- well, Oxbridge owns about 49% of the sponsor, and the sponsor owns typically 20% of the SPAC because there were some redemptions in the SPAC -- we do not give too much into the SPAC here, but there were some redemptions in the SPAC. Right now, I believe the sponsor owns about 68% of the SPAC. And so on business combination, those numbers sort of get a little bit hard to predict.
What I'd encourage you to do, we did file an S-4 that sort of likely -- an S-4 for the SPAC that is on the SEC website, for the like deals out what the closing will look like, assuming all SPAC shareholder stays in will show the percentage of the SPAC owned. If everybody redeems, if some people redeem if nobody redeems, I'll point you to that. That would give you a better idea of how to look on closing.
Yeah. I thought it was very encouraging, the monies that you were able to remain once you had that one-year period up. And I thought that was very encouraging how much the SPAC actually had.
Going back to -- on the reinsurance tokens. You're saying the first offering is about $5 million. Is that -- obviously, that's private placement. And how does Oxbridge get paid on that?
Yeah, Kent. So yes, we're attempting to raise approximately $5 million. So the Oxbridge -- of that, those tokens, the money that come in, Oxbridge will issue tokens. Oxbridge will take a small management fee off the top. And then in every successful year, we will share in the profitability of the contracts. But the way we are encouraging investors to do be part of our story over here is we are saying the investor will get the first 20% of return, and then they will share the remaining return with us on an 80-20 basis. So it's highly accretive to somebody to invest --
And what is the cost incurring to Oxbridge on that?
But you already have the cost are being -- we're kind of doing a lot of this in-house. So the costs, we've been able to develop this entire platform on an extremely low budget at this point because we're doing all of this -- majority of it is done in-house. Of course, we have some returning fees and audit fees and so on. But those haven't -- those have not been significant.
Cool. It seems like the company is really starting to move forward, and you have two very, I think, neat things that are unfolding in the last 60-90 days, 30-90 days. So look forward to see how things unfold.
Yes. And we're very excited about this. Thank you, Kent.
[Operator Instructions] Ladies and gentlemen, there are no further questions at this time. I now would like to turn the call back to Mr. Madhu for closing remarks.
Thank you for joining us on today's call. Before we wrap up, I want to thank our employees, business partners and investors for their continued support. I especially want to express our gratitude to the Oxbridge team who continue to leverage their significant experience to manage and build our business during these challenging times.
We look forward to updating you on our next call. And if you have any further questions, please contact us any time. Thank you again for your time and attention today and your interest in Oxbridge. Operator?
Thank you, sir. This concludes today's conference. You may now disconnect your lines at this time. Thank you for your participation.