OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Consolidated Balance Sheets
(expressed in thousands of U.S. Dollars, except per share and share
amounts)
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
Investments:
|
|
|
|
Fixed-maturity
securities, available for sale, at fair value (amortized cost of
$991 in 2018)
|
$
-
|
993
|
|
Equity
securities, at fair value (cost : $612 and $210
respectively)
|
567
|
162
|
|
Total
investments
|
567
|
1,155
|
|
Cash
and cash equivalents
|
6,274
|
8,074
|
|
Restricted
cash and cash equivalents
|
1,751
|
3,225
|
|
Accrued
interest and dividend receivable
|
9
|
15
|
|
Premiums
receivable
|
993
|
-
|
|
Deferred
policy acquisition costs
|
113
|
-
|
|
Operating
lease right-of-use assets
|
146
|
-
|
|
Prepayment
and other assets
|
123
|
74
|
|
Property
and equipment, net
|
13
|
18
|
|
Total
assets
|
$
9,989
|
12,561
|
|
|
|
|
|
Liabilities and Shareholders’ Equity
|
|
|
|
Liabilities:
|
|
|
|
Reserve
for losses and loss adjustment expenses
|
$
107
|
4,108
|
|
Notes
payable to Series 2019-1 noteholders
|
600
|
-
|
|
Unearned
premiums reserve
|
1,023
|
-
|
|
Operating
lease liabilities
|
146
|
-
|
|
Accounts
payable and other liabilities
|
134
|
139
|
|
Total
liabilities
|
2,010
|
4,247
|
|
|
|
|
|
Shareholders’
equity:
|
|
|
|
Ordinary
share capital, (par value $0.001, 50,000,000 shares authorized;
5,733,587 shares issued and outstanding)
|
6
|
6
|
|
Additional
paid-in capital
|
32,244
|
32,226
|
|
Accumulated
Deficit
|
(24,271
)
|
(23,920
)
|
|
Accumulated
other comprehensive income
|
-
|
2
|
|
Total
shareholders’ equity
|
7,979
|
8,314
|
|
Total
liabilities and shareholders’ equity
|
$
9,989
|
12,561
|
The
accompanying Notes to Consolidated Financial Statements are an
integral
part of
the Consolidated Financial Statements.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
(expressed in thousands of U.S. Dollars, except per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
Assumed
premiums
|
$
1,116
|
2,580
|
1,116
|
2,580
|
|
Change
in loss experience refund payable
|
-
|
(90
)
|
-
|
(225
)
|
|
Change
in unearned premiums reserve
|
(1,023
)
|
(2,156
)
|
(1,023
)
|
(1,801
)
|
|
|
|
|
|
|
|
Net
premiums earned
|
93
|
334
|
93
|
554
|
|
Net
income from derivative instruments
|
-
|
208
|
-
|
376
|
|
Net
investment and other income
|
64
|
108
|
128
|
180
|
|
Net
realized investment gains (losses)
|
-
|
-
|
3
|
(176
)
|
|
Change
in fair value of equity securities
|
(48
)
|
73
|
3
|
(96
)
|
|
|
|
|
|
|
|
Total
revenue
|
109
|
723
|
227
|
838
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
Net
loss on commutation
|
-
|
8
|
-
|
8
|
|
Policy
acquisition costs and underwriting expenses
|
10
|
29
|
10
|
38
|
|
General
and administrative expenses
|
280
|
359
|
544
|
676
|
|
|
|
|
|
|
|
Total
expenses
|
290
|
396
|
554
|
722
|
|
|
|
|
|
|
|
(Loss)
Income before (income) attributable to Series 2019-1
noteholders
|
$
(181
)
|
327
|
(327
)
|
116
|
|
|
|
|
|
|
|
(Income)
attributable to Series 2019-1 noteholders
|
(24
)
|
(62
)
|
(24
)
|
(62
)
|
|
|
|
|
|
|
|
Net
(loss) income
|
(205
)
|
265
|
(351
)
|
54
|
|
|
|
|
|
|
|
(Loss) Earnings per share
|
|
|
|
|
|
Basic
and Diluted
|
$
(0.04
)
|
0.05
|
(0.06
)
|
0.01
|
|
|
|
|
|
|
|
Dividends paid per share
|
$
-
|
-
|
-
|
-
|
The
accompanying Notes to Consolidated Financial Statements are an
integral
part of
the Consolidated Financial Statements.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Consolidated Statements of Comprehensive (Loss)
Income
(Unaudited)
(expressed in thousands of U.S. Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
$
(205
)
|
265
|
(351
)
|
54
|
|
Other
comprehensive (loss) income:
|
|
|
|
|
|
Change
in unrealized loss on investments:
|
|
|
|
|
|
Unrealized
(loss) gain arising during the period
|
-
|
(1
)
|
1
|
(177
)
|
|
Reclassification
adjustment for net realized losses (gains) included in net (loss)
income
|
-
|
-
|
(3
)
|
173
|
|
|
|
|
|
|
|
Net
change in unrealized loss
|
-
|
(1
)
|
(2
)
|
(4
)
|
|
|
|
|
|
|
|
Total
other comprehensive loss
|
-
|
(1
)
|
(2
)
|
(4
)
|
|
|
|
|
|
|
|
Comprehensive
(loss) income
|
$
(205
)
|
264
|
(353
)
|
50
|
The
accompanying Notes to Consolidated Financial Statements are an
integral
part of
the Consolidated Financial Statements.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(expressed in thousands of U.S. Dollars)
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
Net
(loss) income
|
$
(351
)
|
54
|
|
Adjustments
to reconcile net (loss) income to net cash used in operating
activities:
|
|
|
|
Stock-based
compensation
|
18
|
63
|
|
Net
amortization of premiums on investments in fixed-maturity
securities
|
-
|
7
|
|
Depreciation
and amortization
|
5
|
11
|
|
Net
realized investment (gains) losses
|
(3
)
|
176
|
|
Change
in fair value of equity securities
|
(3
)
|
96
|
|
Change
in operating assets and liabilities:
|
|
|
|
Accrued
interest and dividend receivable
|
6
|
11
|
|
Premiums
receivable
|
(993
)
|
1,460
|
|
Deferred
policy acquisition costs
|
(113
)
|
(215
)
|
|
Prepayment
and other assets
|
(49
)
|
(24
)
|
|
Reserve
for losses and loss adjustment expenses
|
(4,001
)
|
(4,669
)
|
|
Loss
experience refund payable
|
-
|
(135
)
|
|
Losses
payable
|
-
|
410
|
|
Unearned
premiums reserve
|
1,023
|
381
|
|
Accounts
payable and other liabilities
|
(5
)
|
839
|
|
|
|
|
|
Net
cash used in operating activities
|
$
(4,466
)
|
(1,535
)
|
|
|
|
|
|
Investing activities
|
|
|
|
Purchase
of fixed-maturity securities
|
-
|
(3,336
)
|
|
Purchase
of equity securities
|
(402
)
|
(5,804
)
|
|
Proceeds
from sale of fixed-maturity and equity securities
|
994
|
9,033
|
|
|
|
|
|
Net
cash provided by (used in) investing activities
|
$
592
|
(107
)
|
|
|
|
|
|
Financing activities
|
|
|
|
Proceeds
on issuance of notes payable to Series 2019-1
noteholders
|
600
|
2,000
|
|
|
|
|
|
Net
cash provided by financing activities
|
$
600
|
2,000
|
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Consolidated Statements of Cash Flows, continued
(Unaudited)
(expressed in thousands of U.S. Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, and restricted cash and cash
equivalents:
|
|
|
|
Net
change during the period
|
(3,274
)
|
358
|
|
Balance,
beginning of period
|
11,299
|
10,887
|
|
|
|
|
|
Balance,
end of period
|
$
8,025
|
11,245
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
Interest
paid
|
-
|
-
|
|
Income
taxes paid
|
-
|
-
|
|
|
|
|
|
Non-cash transactions
|
|
|
|
Net
change in unrealized loss on securities available for
sale
|
(2)
|
(4
)
|
|
Operating
lease right-of-use assets
|
146
|
-
|
|
Operating
lease liability
|
146
|
-
|
|
|
|
|
The
accompanying Notes to Consolidated Financial Statements are an
integral
part of
the Consolidated Financial Statements.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders’ Equity
(unaudited)
Three
and Six Months Ended June 30, 2019 and 2018
(expressed in thousands of U.S. Dollars, except share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2017
|
5,733,587
|
6
|
32,100
|
(18,149
)
|
(39
)
|
13,918
|
|
Cumulative
effect of change in accounting for equity securities as of January
1, 2018
|
-
|
-
|
-
|
(22
)
|
22
|
-
|
|
Net
loss for the period
|
-
|
-
|
-
|
(211
)
|
-
|
(211
)
|
|
Stock-based
compensation
|
-
|
-
|
31
|
-
|
-
|
31
|
|
Total
other comprehensive loss
|
-
|
-
|
-
|
-
|
(3
)
|
(3
)
|
|
Balance
at March 31, 2018
|
5,733,587
|
6
|
32,131
|
(18,382
)
|
(20
)
|
13,735
|
|
Net
income for the period
|
-
|
-
|
-
|
265
|
-
|
265
|
|
Stock-based
compensation
|
-
|
-
|
32
|
-
|
-
|
32
|
|
Total
other comprehensive loss
|
-
|
-
|
-
|
-
|
(1
)
|
(1
)
|
|
Balance
at June 30, 2018
|
5,733,587
|
6
|
32,163
|
(18,117
)
|
(21
)
|
14,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2018
|
5,733,587
|
6
|
32,226
|
(23,920
)
|
2
|
8,314
|
|
Net
loss for the period
|
-
|
-
|
-
|
(146
)
|
-
|
(146
)
|
|
Stock-based
compensation
|
-
|
-
|
9
|
-
|
-
|
9
|
|
Total
other comprehensive loss
|
-
|
-
|
-
|
-
|
(2
)
|
(2
)
|
|
Balance
at March 31, 2019
|
5,733,587
|
6
|
32,235
|
(24,066
)
|
-
|
8,175
|
|
Net
loss for the period
|
-
|
-
|
-
|
(205
)
|
-
|
(205
)
|
|
Stock-based
compensation
|
-
|
-
|
9
|
-
|
-
|
9
|
|
Total
other comprehensive loss
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Balance
at June 30, 2019
|
5,733,587
|
6
|
32,244
|
(24,271
)
|
-
|
7,979
|
The
accompanying Notes to Consolidated Financial Statements are an
integral
part of
the Consolidated Financial Statements.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June
30, 2019
1.
ORGANIZATION
AND BASIS OF PRESENTATION
Oxbridge Re
Holdings Limited (the “Company”) was incorporated as an
exempted company on April 4, 2013 under the laws of the Cayman
Islands. Oxbridge Re Holdings Limited owns 100% of the equity
interest in Oxbridge Reinsurance Limited, an exempted entity
incorporated on April 23, 2013 under the laws of the Cayman Islands
and for which a Class “C” Insurer’s license was
granted on April 29, 2013 under the provisions of the Cayman
Islands Insurance Law. Oxbridge Re Holdings Limited also owns 100%
of the equity interest in Oxbridge Re NS, an entity incorporated as
an exempted company on December 22, 2017 under the laws of the
Cayman Islands to function as a reinsurance sidecar facility and to
increase the underwriting capacity of Oxbridge Reinsurance Limited.
The Company, through its subsidiaries (collectively “Oxbridge
Re”)
provides collateralized
reinsurance in the property catastrophe market and invests in
various insurance-linked securities. The Company operates as a
single business segment through its wholly-owned subsidiaries. The
Company’s headquarters and principal executive offices are
located at Suite 201, 42 Edward Street, Georgetown, Grand Cayman,
Cayman Islands, and have
their registered offices at P.O.
Box 309, Ugland House, Grand Cayman, Cayman Islands.
The
Company’s ordinary shares and warrants are listed on The
NASDAQ Capital Market under the symbols “OXBR” and
“OXBRW,” respectively.
(b)
Basis
of Presentation and Consolidation
The
accompanying unaudited, consolidated financial statements of the
Company have been prepared in accordance with accounting principles
generally accepted in the United States of America
(“GAAP”) for interim financial information, and the
Securities and Exchange Commission (“SEC”) rules for
interim financial reporting.
Certain information and
footnote disclosures normally included in the consolidated
financial statements prepared in accordance with GAAP have been
omitted pursuant to such rules and regulations
. However, in
the opinion of management, the accompanying interim consolidated
financial statements reflect all normal recurring adjustments
necessary to present fairly the Company’s consolidated
financial position as of June 30, 2019 and the consolidated results
of operations and cash flows for the periods presented. The
consolidated results of operations for interim periods are not
necessarily indicative of the results of operations to be expected
for any
subsequent interim period or for
the fiscal year ended
December 31, 2019. The accompanying unaudited consolidated
financial statements and notes
thereto should be read
in conjunction with the audited consolidated financial statements
for the year ended December 31, 2018 included in the
Company’s Form 10-K, which was filed with the SEC on March
19, 2019
.
In
preparing the interim unaudited consolidated financial statements,
management was required to make certain estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues,
expenses and related disclosures at the financial reporting date
and throughout the periods being reported upon. Certain of the
estimates result from judgments that can be subjective and complex
and consequently actual results may differ from these estimates,
which would be reflected in future periods.
Material estimates
that are particularly susceptible to significant change in the
near-term relate to the determination of the
reserve for losses and loss adjustment
expenses,
which include amounts
estimated for claims incurred but not yet reported. The Company
uses various assumptions and actuarial data it believes to be
reasonable under the circumstances to make these estimates. In
addition, accounting policies specific to
valuation of investments and assessment
of other-than-temporary impairment (“OTTI”)
may
involve
significant judgments and estimates material to the Company’s
consolidated financial statements.
Although considerable
variability is likely to be inherent in these estimates, management
believes that any amounts provided are reasonable. These estimates
are continually reviewed and adjusted if necessary. Such
adjustments are reflected in current operations.
The
Company consolidates in these consolidated financial statements the
results of operations and financial position of all voting interest
entities (“VOE”) in which the Company has a controlling
financial interest and all variable interest entities
(“VIE”) in which the Company is considered to be the
primary beneficiary. The consolidation assessment, including the
determination as to whether an entity qualifies as a VIE or VOE,
depends on the facts and circumstances surrounding each
entity.
All
significant intercompany balances and transactions have been
eliminated.
2.
SIGNIFICANT
ACCOUNTING POLICIES
Cash and cash
equivalents:
Cash and cash equivalents are comprised of cash
and short- term investments with original maturities of three
months or less.
Restricted
cash and cash equivalents:
Restricted cash and cash equivalents represent
funds held in accordance with the Company’s trust agreements
with ceding insurers and trustees, which requires the Company to
maintain collateral with a market value greater than or equal to
the limit of liability, less unpaid premium.
Investments
:
The Company’s investments consist of fixed-maturity
securities and equity securities, and for which its fixed-maturity
securities are classified as available-for-sale. The
Company’s available for sale investments are carried at fair
value with changes in fair value included as a separate component
of accumulated other comprehensive income in shareholders’
equity. For the Company’s investment in equity securities,
the changes in fair value are recorded within the consolidated
statements of operations.
Unrealized gains or
losses are determined by comparing the fair market value of the
securities with their cost or amortized cost. Realized gains and
losses on investments are recorded on the trade date and are
included in the consolidated statements of operations. The cost of
securities sold is based on the specified identification method.
Investment income is recognized as earned and discounts or premiums
arising from the purchase of debt securities are recognized in
investment income using the interest method over the remaining term
of the security.
The
Company reviews all fixed-maturity securities for
other-than-temporary impairment on a quarterly basis and more
frequently when economic or market conditions warrant such review.
When the fair value of any investment is lower than its cost, an
assessment is made to see whether the decline is temporary of
other-than-temporary. If the decline is determined to be
other-than-temporary the investment is written down to fair value
and an impairment charge is recognized in operations in the period
in which the Company makes such determination. For a fixed-maturity
security that the Company does not intend to sell nor is it more
likely than not that the Company will be required to sell before
recovery of its amortized cost, only the credit loss component is
recognized in operations, while impairment related to all other
factors is recognized in other comprehensive income. The Company
considers various factors in determining whether an individual
security is other-than-temporarily impaired (see Note
4).
Fair value
measurement
: GAAP establishes a fair value hierarchy that
prioritizes the inputs to valuation techniques used to measure fair
value. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets (Level 1
measurements) and the lowest priority to unobservable inputs (Level
3 measurements). The three levels of the fair value hierarchy under
GAAP are as follows:
|
Level
1
|
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; and
|
|
|
|
|
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. A financial instrument’s
level within the fair value hierarchy is based on the lowest level
of any input that is significant to the fair value measurement.
However, the determination of what constitutes
“observable” requires significant judgment by the
Company’s investment custodians. The investment custodians
consider observable data to be market data which is readily
available, regularly distributed or updated, reliable and
verifiable, not proprietary, and provided by independent sources
that are actively involved in the relevant markets. The
categorization of a financial instrument within the hierarchy is
based upon the pricing transparency of the instrument.
Derivative
Financial Instruments:
The
Company may from time to time enter into underwriting contracts
such as industry loss warranty contracts (“ILW”) that
are treated as derivatives for GAAP purposes. GAAP requires that an
entity recognize all derivatives in the consolidated balance sheet
at fair value. It also requires that unrealized gains and losses
resulting from changes in fair value be included in operations or
comprehensive loss.
The
Company did not have any derivative financial instrument assets at
June 30, 2019 or December 31, 2018. There were no derivative
financial instrument liabilities at June 30, 2019, and all
derivative financial liabilities at December 31, 2018 have been
included with reserve for losses and loss adjustment
expenses.
.
Deferred policy
acquisition costs (“DAC”):
Policy acquisition
costs consist of brokerage fees, federal excise taxes and other
costs related directly to the successful acquisition of new or
renewal insurance contracts and are deferred and amortized over the
terms of the reinsurance agreements to which they relate. The
Company evaluates the recoverability of DAC by determining if the
sum of future earned premiums and anticipated investment income is
greater than the expected future claims and expenses. If a loss is
probable on the unexpired portion of policies in force, a premium
deficiency loss is recognized. At June 30, 2019, the DAC was
considered fully recoverable and no premium deficiency loss was
recorded.
Property and
equipment:
Property and equipment are recorded at cost when acquired. Property
and equipment are comprised of motor vehicles, furniture and
fixtures, computer equipment and leasehold improvements and are
depreciated, using the straight-line method, over their estimated
useful lives, which are five years for furniture and fixtures and
computer equipment and four years for motor vehicles. Leasehold
improvements are amortized over the lesser of the estimated useful
lives of the assets or remaining lease term. The Company
periodically reviews property and equipment that have finite lives,
and that are not held for sale, for impairment by comparing the
carrying value of the assets to their estimated future undiscounted
cash flows. For the three-month and six-month periods ended June
30, 2019 and 2018, there were no impairments in property and
equipment.
Allowance for
uncollectible receivables:
Management evaluates credit
quality by evaluating the exposure to individual counterparties;
where warranted management also considers the credit rating or
financial position, operating results and/or payment history of the
counterparty. Management establishes an allowance for amounts for
which collection is considered doubtful. Adjustments to previous
assessments are recognized as income in the year in which they are
determined. At June 30, 2019, no receivables were determined to be
overdue or impaired and, accordingly, no allowance for
uncollectible receivables has been established.
Reserves for
losses
and loss adjustment
expenses:
The Company determines its reserves for losses and
loss adjustment expenses on the basis of the claims reported by the
Company’s ceding insurers and for losses incurred but not
reported (“IBNR”), management uses the assistance of an
independent actuary. The reserves for losses and loss adjustment
expenses represent management’s best estimate of the ultimate
settlement costs of all losses and loss adjustment expenses.
Management believes that the amounts are adequate; however, the
inherent impossibility of predicting future events with precision,
results in uncertainty as to the amount which will ultimately be
required for the settlement of losses and loss expenses, and the
differences could be material. Adjustments are reflected in
the
consolidated
statements of operations in the period in which they are
determined.
Loss experience
refund payable:
Certain contracts may include retrospective
provisions that adjust premiums or result in profit commissions in
the event losses are minimal or zero. In accordance with GAAP, the
Company will recognize a liability in the period in which the
absence of loss experience obligates the Company to pay cash or
other consideration under the contracts. On the contrary, the
Company will derecognize such liability in the period in which a
loss experience arises. Such adjustments to the liability, which
accrue throughout the contract terms, will reduce the liability
should a catastrophic loss event covered by the Company
occur.
Premiums
assumed:
The Company records premiums assumed, net of loss
experience refunds, as earned pro-rata over the terms of the
reinsurance agreements, or period of risk, where applicable, and
the unearned portion at the consolidated balance sheet date is
recorded as unearned premiums reserve. A reserve is made for
estimated premium deficiencies to the extent that estimated losses
and loss adjustment expenses exceed related unearned premiums.
Investment income is not considered in determining whether or not a
deficiency exists.
Subsequent adjustments of premiums assumed, based
on reports of actual premium by the ceding companies, or revisions
in estimates of ultimate premium, are recorded in the period in
which they are determined. Such adjustments are generally
determined after the associated risk periods have expired, in which
case the premium adjustments are fully earned when
assumed
.
Certain
contracts may allow for reinstatement premiums in the event of a
full limit loss prior to the expiration of the contract. A
reinstatement premium is not due until there is a full limit loss
event and therefore, in accordance with GAAP, the Company records a
reinstatement premium as written only in the event that the
reinsured incurs a full limit loss on the contract and the contract
allows for a reinstatement of coverage upon payment of an
additional premium. For catastrophe contracts which contractually
require the payment of a reinstatement premium equal to or greater
than the original premium upon the occurrence of a full limit loss,
the reinstatement premiums are earned over the original contract
period. Reinstatement premiums that are contractually calculated on
a pro-rata basis of the original premiums are earned over the
remaining coverage period.
Unearned Premiums
Ceded:
The
Company reduces the risk of future losses on business assumed by
reinsuring certain risks and exposures with other reinsurers
(retrocessionaires). The Company remains liable to the extent that
any retrocessionaire fails to meet its obligations and to the
extent that the Company does not hold sufficient security for their
unpaid obligations.
Ceded
premiums are written during the period in which the risk incept and
are expensed over the contract period in proportion to the period
of protection. Unearned premiums ceded consist of the unexpired
portion of the reinsurance obtained.
Uncertain income
tax positions:
The authoritative GAAP guidance on
accounting for, and disclosure of, uncertainty in income tax
positions requires the Company to determine whether an income tax
position of the Company is more likely than not to be sustained
upon examination by the relevant tax authority, including
resolution of any related appeals or litigation processes, based on
the technical merits of the position.
For
income tax positions meeting the more likely than not threshold,
the tax amount recognized in the consolidated financial statements,
if any, is reduced by the largest benefit that has a greater than
fifty percent likelihood of being realized upon ultimate settlement
with the relevant taxing authority. The application of this
authoritative guidance has had no effect on the Company’s
consolidated financial statements because the Company had no
uncertain tax positions at June 30, 2019.
(Loss) Earnings Per
Share:
Basic (loss)
earnings per share has been computed on the basis of the
weighted-average number of ordinary shares outstanding during the
periods presented. Diluted (loss) earnings per share is computed
based on the weighted-average number of ordinary shares outstanding
and reflects the assumed exercise or conversion of diluted
securities, such as stock options and warrants, computed using the
treasury stock method.
Stock-Based Compensation
:
The Company
accounts for stock-based compensation under the fair value
recognition provisions of GAAP which requires the measurement and
recognition of compensation for all stock-based awards made to
employees and directors, including stock options and restricted
stock issuances based on estimated fair values.
The Company measures compensation for restricted
stock based on the price of the Company’s ordinary shares at
the grant date. Determining the fair value of stock options at the
grant date requires significant estimation and judgment. The
Company uses an option-pricing model (Black-Scholes option pricing
model) to assist in the calculation of fair value for stock
options. The Company's shares have not been publicly traded for a
sufficient length of time to solely use the Company's performance
to reasonably estimate the expected volatility. Therefore, when
estimating the expected volatility, the Company takes into
consideration the historical volatility of similar entities. The
Company considers factors such as an entity's industry, stage of
life cycle, size and financial leverage when selecting similar
entities. The Company may use a sample peer group of companies in
the reinsurance industry and/or the Company’s own historical
volatility in determining the expected volatility. Additionally,
the Company uses the full life of the options, ten years, as the
estimated term of the options, and has assumed no forfeitures
during the life of the options.
The Company uses the
straight-line attribution method for all grants that include only a
service condition. Compensation expense related to all awards is
included in general and administrative expenses.
Recent Adopted
Accounting Pronouncements
:
Accounting
Standards Update No. 2016-02.
In February 2016, the FASB issued
ASU 2016-02, "Leases (Topic 842)," which supersedes Topic 840
and creates the new lease accounting standards for lessees and
lessors, primarily related to the recognition of lease assets and
liabilities by lessees for leases classified as operating
leases.
Under previous guidance for lessees, leases were
only included on the balance sheet if certain criteria, classifying
the agreement as a capital lease, were met. This update requires
the recognition of a right-of-use asset and a corresponding lease
liability, discounted to the present value, for all leases that
extend beyond 12 months.
For
operating leases, the asset and liability are expensed over the
lease term on a straight-line basis, with all cash flows included
in the operating section of the statement of cash flows. For
finance leases, interest on the lease liability is recognized
separately from the amortization of the right-of-use asset in the
statement of comprehensive income and the repayment of the
principal portion of the lease liability is classified as a
financing activity while the interest component is included in the
operating section of the statement of cash flows.
We
adopted ASU 2016-02, ASU 2018-10
Codification Improvements to Topic 842:
Leases
and ASU 2018-11
Leases (Topic 842): Targeted
Improvements
on January 1, 2019. We applied the
standards using the alternative transition method provided by ASU
2018-11 under which leases were recognized at the date of adoption
and a cumulative-effective adjustment to the opening balance of
retained earnings would have been recognized in the period of
adoption. As the standard did not have an impact on our net (loss)
earnings, no adjustment to the opening balance of retained earnings
was required. As of June 30, 2019, $146 thousand of
right-of-use assets and $146 thousand of lease liabilities for
operating leases were added as operating lease right-of-use assets
and operating lease liabilities line items, respectively, on the
consolidated balance sheet as a result of the adoption of this
update. We implemented controls for the adoption of the standard
and the ongoing monitoring of the right-of-use asset and lease
liability, but they did not materially affect our internal control
over financial reporting.
Accounting Standards Update
No. 2018-07.
In June 2018, the FASB issued ASU No. 2018-07,
Stock Compensation (Topic 718): Improvements to Nonemployee
Share-Based Payment Accounting. The ASU is intended to reduce the
cost and complexity and to improve financial reporting for
nonemployee share-based payments. The ASU expands the scope of
Topic 718. Compensation Stock Compensation (which currently only
includes share-based payments to employees) to include share-based
payments issued to nonemployees for goods or services.
Consequently, the accounting for share-based payments to
nonemployees and employees will be substantially aligned. The ASU
supersedes Subtopic 505-50, Equity-Based payments to Non-Employees.
The ASU was effective for the Company for fiscal years beginning
after December 15, 2018, including interim periods within that
fiscal year.
Effective January 1,
2019, the Company has adopted ASU 2018-07 there has been no
material impact on the consolidated financial position, cash flows
or results of operations.
Pending Accounting Updates:
Accounting
Standards Update No. 2016-13.
In June 2016, the FASB
issued ASU 2016-13, “Financial Instruments - Credit
Losses (Topic 326): Measurements of Credit Losses on Financial
Instruments” (“ASU 2016-13”)
.
ASU 2016-13 amends the guidance
on reporting credits losses and affects loans, debt securities,
trade receivables, reinsurance recoverable and other financial
assets that have the contractual right to receive cash. The
amendments are effective for annual periods beginning after
December 15, 2019, and interim periods within those annual periods.
Early adoption is permitted for any organization for annual periods
beginning after December 15, 2018 and interim periods within those
annual periods. The Company is in the process of evaluating the
impact of the requirements of ASU 2016-13 on the Company’s
consolidated financial statements and anticipates implementing ASU
2016-13 during the first quarter of fiscal year 2020.
Accounting
Standards Update No. 2018-13.
In August 2018, the FASB issued ASU
2018-13,
Fair Value Measurement (Topic
820) - Disclosure Framework - Changes to the Disclosure
Requirements for Fair Value Measurement (“ASU
2018-13”)
. ASU
2018-13 removes, modifies and adds certain disclosure requirements
associated with fair value measurements. ASU 2018-13 is effective
for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2019. Early adoption is permitted. The
removed and modified disclosures will be adopted on a retrospective
basis and the new disclosures will be adopted on a prospective
basis. We are currently evaluating our timeline for the adoption of
this ASU, which only affects the presentation of certain
disclosures and is not expected to impact our results of
operations, financial position or liquidity.
Segment
Information
:
Under
GAAP, operating segments are based on the internal information that
management uses for allocating resources and assessing performance
as the source of the Company’s reportable segments. The
Company manages its business on the basis of one operating segment,
Property and Casualty Reinsurance, in accordance with the
qualitative and quantitative criteria established under
GAAP.
Reclassifications:
Certain reclassifications of prior
period amounts have been made to conform to the current period
presentation.
3.
CASH
AND CASH EQUIVALENTS AND RESTRICTED CASH AND CASH
EQUIVALENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
on deposit
|
$
3,328
|
$
3,965
|
|
Cash
held with custodians
|
2,946
|
4,109
|
|
Restricted
cash held in trust
|
1,751
|
3,225
|
|
|
|
|
|
Total
|
8,025
|
11,299
|
Cash
and cash equivalents are held by large and reputable counterparties
in the United States of America and in the Cayman Islands.
Restricted cash held in trust is custodied with SunTrust Bank and
is held in accordance with the Company’s trust agreements
with the ceding insurers and trustees, which require that the
Company provide collateral having a market value greater than or
equal to the limit of liability, less unpaid premium.
The
Company from time to time invests in fixed-maturity securities and
equity securities, with its fixed-maturity securities classified as
available-for-sale. At June 30, 2019, the Company did not hold any
available-for-sale securities. At December 31, 2018, the cost or
amortized cost, gross unrealized gains and losses, and estimated
fair value of the Company’s available-for-sale securities by
security type were as follows:
|
|
|
|
|
|
|
|
|
|
As of December 31, 2018
|
|
|
|
|
|
Fixed-maturity securities
|
|
|
|
|
|
U.S.
Treasury and agency securities
|
$
991
|
$
2
|
$
-
|
$
993
|
|
|
|
|
|
|
|
Total
fixed-maturity securities
|
991
|
2
|
-
|
993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
available for sale securities
|
$
991
|
$
2
|
$
-
|
$
993
|
At
December 31, 2018, available-for-sale securities with fair value of
$993,000, was held in trust accounts as collateral under
reinsurance contacts with the Company’s ceding
insurers.
Expected maturities will differ from contractual maturities as
borrowers may have the right to call or prepay obligations with or
without penalties. All of the Company's available for sale
securities had scheduled contractual maturities after one year and
through five years at December 31, 2018.
4.
INVESTMENTS
(continued)
There were no sales of available-for-sale fixed maturity or equity
securities during the three month periods ended June 30, 2019 and
2018.
Proceeds received, and the gross realized gains and
losses from sales of available-for-sale fixed-maturity securities,
and equity securities, for the six months ended June 30, 2019 and
2018 were as follows:
|
|
Gross
proceeds
from
sales
|
|
|
|
|
($ in
thousands)
|
|
|
|
|
|
Six Months Ended June 30,
2019
|
|
|
|
|
Available-for-sale
fixed-maturity securities
|
$
994
|
$
3
|
$
-
|
|
|
|
|
|
|
Equity
securities
|
$
-
|
$
-
|
$
-
|
|
|
|
|
|
|
Six Months Ended June 30,
2018
|
|
|
|
|
Available-for-sale
fixed-maturity securities
|
$
3,000
|
$
3
|
$
-
|
|
|
|
|
|
|
Equity
securities
|
$
6,033
|
$
418
|
$
(594
)
|
To
the extent necessary, the Company reviews any individual
investment securities for OTTI. The Company will considers various
factors in determining whether each individual debt security is
other-than-temporarily impaired, including:
|
●
|
the
financial condition and near-term prospects of the issuer,
including any specific events that may affect its operations or
income;
|
|
●
|
the
length of time and the extent to which the market value of the
security has been below its cost or amortized cost;
|
|
●
|
general
market conditions and industry or sector specific
factors;
|
|
●
|
nonpayment
by the issuer of its contractually obligated interest and principal
payments; and
|
|
●
|
the
Company’s intent and ability to hold the investment for a
period of time sufficient to allow for the recovery of
costs.
|
At December 31, 2018, there were no available-for-sale securities
in an unrealized loss position.
4.
INVESTMENTS
(continued)
Assets Measured at Estimated Fair Value on a Recurring
Basis
The following table presents information about the Company’s
financial assets measured at estimated fair value on a recurring
basis that is reflected in the consolidated balance sheets at
carrying value. The table indicates the fair value hierarchy of the
valuation techniques utilized by the Company to determine such fair
value as of June 30, 2019 and December 31, 2018:
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
|
|
As of June 30, 2019
|
($ in thousands)
|
|
Financial
Assets:
|
|
|
|
|
|
Cash and cash equivalents
|
$
6,274
|
$
-
|
$
-
|
$
6,274
|
|
|
|
|
|
|
|
Restricted cash and cash equivalents
|
$
1,751
|
$
-
|
$
-
|
$
1,751
|
|
|
|
|
|
|
|
Total
equity securities
|
567
|
-
|
-
|
567
|
|
|
|
|
|
|
|
Total
securities
|
567
|
-
|
-
|
567
|
|
|
|
|
|
|
|
Total
|
$
8,592
|
$
-
|
$
-
|
$
8,592
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
|
|
As of December 31, 2018
|
|
|
|
|
|
Financial
Assets:
|
|
|
|
|
|
Cash and cash equivalents
|
$
8,074
|
$
-
|
$
-
|
$
8,074
|
|
|
|
|
|
|
|
Restricted cash and cash equivalents
|
$
3,225
|
$
-
|
$
-
|
$
3,225
|
|
|
|
|
|
|
|
U.S.
Treasury and agency securities
|
-
|
993
|
-
|
993
|
|
|
|
|
|
|
|
Total
fixed-maturity securities
|
-
|
993
|
-
|
993
|
|
|
|
|
|
|
|
Total
equity securities
|
162
|
-
|
-
|
162
|
|
|
|
|
|
|
|
Total
available for sale securities
|
162
|
993
|
-
|
1,155
|
|
|
|
|
|
|
|
Total
|
$
11,461
|
$
993
|
$
-
|
$
12,454
|
There
were no transfers between Levels 1, 2 and 3 during the three and
six months ended June 30, 2019 and 2018.
5.
INSTRUMENTS
DERIVATIVE
Inward Industry Loss Warranty ("ILW") Swap
In
January 2018, the Company entered into an inward ILW swap (the
"2018 Inward ILW Swap") with a third-party under which qualifying
loss payments are triggered by reference to the level of losses
incurred by the insurance industry as a whole, rather than by
losses incurred by the insured. In return for a fixed payment
received of $1 million, the Company was required to make a floating
payment in the event of certain losses incurred from specified
natural catastrophes in North America, Caribbean, Europe, Japan,
Australia, New Zealand and Latin America from January 2018 to
December 2018. The Company’s maximum payment obligation under
the 2018 Inward ILW Swap was $4 million. The ILW Swap expired on
December 31, 2018 and the Company did not renew the ILW Swap during
the period ending June 30, 2019.
During
the six months ending June 30, 2019, the Company settled its
payment obligation of $4 million under the 2018 Inward ILW
Swap.
Under
current Cayman Islands law, no corporate entity, including the
Company and the subsidiaries, is obligated to pay taxes in the
Cayman Islands on either income or capital gains. The Company and
its subsidiaries have an undertaking from the Governor-in-Cabinet
of the Cayman Islands, pursuant to the provisions of the Tax
Concessions Law, as amended, that, in the event that the Cayman
Islands enacts any legislation that imposes tax on profits, income,
gains or appreciations, or any tax in the nature of estate duty or
inheritance tax, such tax will not be applicable to the Company and
its subsidiaries or their operations, or to the ordinary shares or
related obligations, until April 23, 2033 and May 17, 2033,
respectively.
The
Company and its subsidiaries intend to conduct substantially all of
their operations in the Cayman Islands in a manner such that they
will not be engaged in a trade or business in the U.S. However,
because there is no definitive authority regarding activities that
constitute being engaged in a trade or business in the U.S. for
federal income tax purposes, the Company cannot assure that the
U.S. Internal Revenue Service will not contend, perhaps
successfully, that the Company or its subsidiary is engaged in a
trade or business in the U.S. A foreign corporation deemed to be so
engaged would be subject to U.S. federal income tax, as well as
branch profits tax, on its income that is treated as effectively
connected with the conduct of that trade or business unless the
corporation is entitled to relief under an applicable tax
treaty.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June
30, 2019
7.
VARIABLE INTEREST ENTITIES
Oxbridge Re NS.
On December 22,
2017, the Company established Oxbridge Re NS, a Cayman domiciled
and licensed special purpose insurer, formed to provide additional
collateralized capacity to support Oxbridge Reinsurance
Limited’s reinsurance business. In respect of the debt issued
by Oxbridge Re NS to investors, Oxbridge Re NS has entered into a
retrocession agreement with Oxbridge Reinsurance Limited effective
June 1, 2018. Under this agreement, Oxbridge Re NS receives a quota
share of Oxbridge Reinsurance Limited’s catastrophe business.
Oxbridge Re NS is a non-rated insurer and the risks have been fully
collateralized by way of funds held in trust for the benefit of
Oxbridge Reinsurance Limited. Oxbridge Re NS is able to provide
investors with access to diversified natural catastrophe risk
backed by the distribution, underwriting, analysis and research
expertise of Oxbridge Re.
The
Company has determined that Oxbridge Re NS meets the definition of
a VIE
as it does not have sufficient
equity capital to finance its activities.
The Company
concluded that it is the primary beneficiary and has consolidated
the subsidiary upon its formation, as it owns 100% of the
voting shares, 100% of the issued share capital and has a
significant financial interest and the power to control the
activities of Oxbridge Re NS that most significantly impacts its
economic performance. The Company has no other obligation to
provide financial support to Oxbridge Re NS. Neither the creditors
nor beneficial interest holders of Oxbridge Re NS have recourse to
the Company’s general credit.
Upon
issuance of a series of participating notes by Oxbridge Re NS, all
of the proceeds from the issuance are deposited into collateral
accounts, to fund any potential obligation under the reinsurance
agreements entered into with Oxbridge Reinsurance Limited
underlying such series of notes. The outstanding principal amount
of each series of notes generally is expected to be returned to
holders of such notes upon the expiration of the risk period
underlying such notes, unless an event occurs which causes a loss
under the applicable series of notes, in which case the amount
returned is expected to be reduced by such noteholder's pro rata
share of such loss, as specified in the applicable governing
documents of such notes. In addition, holders of such notes are
generally entitled to interest payments, payable annually, as
determined by the applicable governing documents of each series of
notes. Oxbridge Re Holdings Limited receives an origination and
structuring fee in connection with the formation, operation and
management of Oxbridge Re NS.
Notes Payable to Series 2019-1 noteholders
Oxbridge Re NS entered into a retrocession agreement with Oxbridge
Reinsurance Ltd on June 1, 2019, and issued $600
thousand of participating notes which provides quota share
support for Oxbridge Re’s global property catastrophe excess
of loss reinsurance business. The participating notes have been
assigned Series 2019-1 and are due to mature on June 1, 2022. None
of the participating notes were redeemed during the period ending
June 30, 2019.
The
income from Oxbridge Re NS operations that are attributable to the
participating notes noteholders for the three and six month ended
June 30, 2019 was $24,000, and are included within accounts payable
and other liabilities as at June 30, 2019.
Notes Payable to Series 2018-1 noteholders
Oxbridge Re NS issued $2 million of participating notes
on June 1, 2018, all of which were issued to third parties and
which provides quota share support for Oxbridge Re’s global
property catastrophe excess of loss reinsurance business. The
operations of Oxbridge Re NS commenced on June 1, 2018. The
participating notes were due to mature on June 1, 2021. However,
during the quarter ending December 31, 2018, the participating
notes were triggered, and suffered full loss, and as a result,
these notes were subsequently redeemed and cancelled.
8.
RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES
The
following table summarizes the Company’s loss and loss
adjustment expenses (“LAE”) and the reserve for loss
and LAE reserve movements for the three and six-month periods
ending June 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
beginning of period
|
$
107
|
4,154
|
$
4,108
|
4,836
|
|
Incurred
related to:
|
|
|
|
|
|
Current
period
|
-
|
-
|
-
|
-
|
|
Prior
period
1
|
-
|
(1,012
)
|
-
|
(1,012
)
|
|
Total
incurred
|
-
|
(1,012
)
|
-
|
(1,012
)
|
|
Paid
related to:
|
|
|
|
|
|
Current
period
|
-
|
-
|
-
|
-
|
|
Prior
period
|
-
|
(2,975
)
|
(4,001
)
|
(3,657
)
|
|
Total
paid
|
-
|
(2,975
)
|
(4,001
)
|
(3,657
)
|
|
Balance,
end of period
|
$
107
|
167
|
$
107
|
167
|
The
reserves for losses and LAE are comprised of case reserves (which
are based on claims that have been reported) and IBNR reserves
(which are based on losses that are believed to have occurred but
for which claims have not yet been reported and include a provision
for expected future development on existing case reserves). The
Company uses the assistance of an independent actuary in the
determination of IBNR and expected future development of existing
case reserves.
The
uncertainties inherent in the reserving process and potential
delays by cedants and brokers in the reporting of loss information,
together with the potential for unforeseen adverse developments,
may result in the reserve for losses and LAE ultimately being
significantly greater or less than the reserve provided at the end
of any given reporting period. The degree of uncertainty is further
increased when a significant loss event takes place near the end of
a reporting period. Reserve for losses and LAE estimates are
reviewed periodically on a contract by contract basis and updated
as new information becomes known. Any resulting adjustments are
reflected in income in the period in which they become
known.
The
Company’s reserving process is highly dependent on the timing
of loss information received from its cedants and related
brokers.
9.
(LOSS) EARNINGS PER SHARE
A summary of the numerator and denominator of the basic and diluted
loss per share is presented below (dollars in thousands except per
share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
Net
(loss) earnings
|
$
(205
)
|
265
|
$
(351
)
|
54
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
Weighted
average shares - basic
|
5,733,587
|
5,733,587
|
5,733,587
|
5,733,587
|
|
Effect
of dilutive securities - Stock options
|
-
|
-
|
-
|
-
|
|
Shares
issuable upon conversion of warrants
|
-
|
-
|
-
|
-
|
|
Weighted
average shares - diluted
|
5,733,587
|
5,733,587
|
5,733,587
|
5,733,587
|
|
Earnings
per shares - basic
|
$
(0.04
)
|
0.05
|
$
(0.06
)
|
0.01
|
|
Earnings
per shares - diluted
|
$
(0.04
)
|
0.05
|
$
(0.06
)
|
0.01
|
For
the three and six-month periods ended
June 30, 2019, options to purchase 540,000 were anti-dilutive due
to net loss during the periods presented. F
or the three and
six-month periods ended June 30, 2018, options to purchase 540,000
ordinary shares were anti-dilutive due to the sum of the proceeds,
including unrecognized compensation expense, exceeded the average
market price of the Company’s ordinary share during the
periods presented.
For the three and six-month periods
ended June 30, 2019, 8,230,700 warrants to purchase an aggregate of
8,230,700 ordinary shares were anti-dilutive due to net loss during
the periods presented.
For the three and six-month periods
ended June 30, 2018, 8,230,700 warrants to purchase an aggregate of
8,230,700 ordinary shares were anti-dilutive because the exercise
price of $7.50 exceeded the average market price of the
Company’s ordinary share during the periods
presented.
GAAP requires the Company to use the two-class method in computing
basic loss per share since holders of the Company’s
restricted stock have the right to share in dividends, if declared,
equally with common stockholders. These participating securities
effect the computation of both basic and diluted loss per share
during periods of net loss.
On
February 28, 2014, the Company’s Registration Statement on
Form S-1, as amended, relating to the initial public offering of
the Company’s units was declared effective by the SEC. The
Registration Statement covered the offer and sale by the Company of
4,884,650 units, each consisting of one ordinary share and one
warrant (“Unit”), which were sold to the public on
March 26, 2014 at a price of $6.00 per Unit. The ordinary shares
and warrants comprising the Units began separate trading on May 9,
2014. The ordinary shares and warrants are traded on the Nasdaq
Capital Market under the symbols “OXBR” and
“OXBRW,” respectively. One warrant may be exercised to
acquire one ordinary share at an exercise price equal to $7.50 per
share on or before March 26, 2024, as amended. At any time after
September 26, 2014 and before the expiration of the warrants, the
Company at its option may cancel the warrants in whole or in part,
provided that the closing price per ordinary share has exceeded
$9.38 for at least ten trading days within any period of twenty
consecutive trading days, including the last trading day of the
period.
The
initial public offering resulted in aggregate gross proceeds to the
Company of approximately $29.3 million (of which approximately $5
million related to the fair value proceeds on the warrants issued)
and net proceeds of approximately $26.9 million after deducting
underwriting commissions and offering expenses.
There
were 8,230,700 warrants outstanding at June 30, 2019 and 2018. No
warrants were exercised during the three and six-month periods
ended June 30, 2019 and 2018.
As of
June 30, 2019, none of the Company’s retained earnings were
restricted from payment of dividends to the company’s
shareholders. However, since most of the Company’s capital
and retained earnings may be invested in its subsidiaries, a
dividend from the subsidiaries would likely be required in order to
fund a dividend to the Company’s shareholders and would
require notification to the Cayman Islands Monetary Authority
(“CIMA”).
Under
Cayman Islands law, the use of additional paid-in capital is
restricted, and the Company will not be allowed to pay dividends
out of additional paid-in capital if such payments result in
breaches of the prescribed and minimum capital requirement. See
also Note 12.
11.
SHARE-BASED
COMPENSATION
The Company currently
has outstanding stock-based awards granted under the 2014 Omnibus
Incentive Plan (the “Plan”).
Under the Plan, the Company has discretion to
grant equity and cash incentive awards to eligible individuals,
including the issuance of up to 1,000,000 of the Company’s
ordinary shares.
At June 30, 2019, there
were 400,000 shares available for grant under the
Plan.
Stock options
The Company accounts for share-based compensation under the fair
value recognition provisions of ASC Topic 718 –
“Compensation – Stock Compensation.” Stock
options granted and outstanding under the Plan vests quarterly over
four years and are exercisable over the contractual term of ten
years.
A summary of the stock option activity for the three and six-month
periods ended June 30, 2019 and 2018 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at January 1, 2019
|
250,000
|
|
|
|
|
Granted
|
290,000
|
$
2.00
|
|
|
|
Outstanding
at March 31, 2019
|
540,000
|
$
3.86
|
8.1 years
|
$
-
|
|
Outstanding
at June 30, 2019
|
540,000
|
$
3.86
|
|
$
-
|
|
Exercisable
at June 30, 2019
|
268,750
|
$
5.47
|
|
$
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at January 1, 2018
|
250,000
|
$
6.01
|
|
|
|
Outstanding
at March 31, 2018
|
250,000
|
$
6.01
|
|
$
-
|
|
Outstanding
at June 30, 2018
|
250,000
|
$
6.01
|
|
$
-
|
|
Exercisable
at June 30, 2018
|
192,500
|
$
6.01
|
|
$
-
|
Compensation expense
recognized for the three-month periods ended June 30, 2019 and 2018
totaled $9,000 and for the six-month periods ended June 30, 2019
and 2018, totaled $18,000 and $19,000 respectively. Compensation
expense is included in general and administrative expenses. At June
30, 2019 and 2018, there was approximately $103,000 and $35,000,
respectively, of total unrecognized compensation expense related to
non-vested stock options granted under the Plan.
T
he Company expects to
recognize the remaining compensation expense over a
weighted-average period of thirty-six (36)
months.
11.
SHARE-BASED COMPENSATION (continued)
There
were no options granted during the three and six-month period ended
June 30, 2018. During the three and six-month period ended June 30,
2019 the Company granted 290,000 options with fair value estimated
on the date of grant using the following assumptions and the
Black-Scholes option pricing model:
|
|
|
|
|
|
|
Expected
dividend yield
|
0
%
|
|
Expected
volatility
|
31
%
|
|
Risk-free
interest rate
|
2.59
%
|
|
Expected
life (in years)
|
10
|
|
Per
share grant date fair value of options issued $
|
0.36
|
At the
time of the grant, the dividend yield was based on the
Company’s history and expectation of dividend payouts at the
time of the grant; expected volatility was based on volatility of
similar companies’ common stock; the risk-free rate was based
on the U.S. Treasury yield curve in effect and the expected life
was based on the contractual life of the options.
Restricted Stock Awards
The
Company has granted and may grant restricted stock awards to
eligible individuals in connection with their service to the
Company. The terms of the Company’s outstanding restricted
stock grants may include service, performance and market-based
conditions. The fair value of any awards with market-based
conditions is determined using a Monte Carlo simulation method,
which calculates many potential outcomes for an award and then
establishes fair value based on the most likely outcome. The
determination of fair value with respect to the awards with only
performance or service-based conditions is based on the value of
the Company’s stock on the grant date.
During
the three and six-month periods ended June 30, 2019 and 2018, the
Company did not grant any restricted stock. At June 30, 2019, there
were no unvested restricted stock.
Compensation expense recognized for the three-month periods ended
June 30, 2019 and 2018 totaled $0 and $22,000 respectively, and for
the six-month periods ended June 30, 2019 and 2018 totaled $0 and
$44,000 respectively. Compensation expense is included in general
and administrative expenses. At June 30, 2019 and 2018, there was
approximately $0 and $44,000, respectively, of total unrecognized
compensation expense related to non-vested restricted stock granted
under the Plan.
12.
NET
WORTH FOR REGULATORY PURPOSES
The
subsidiaries are subject to a minimum and prescribed capital
requirement as established by CIMA. Under the terms of their
respective licenses, Oxbridge Reinsurance Limited and Oxbridge Re
NS are required to maintain a minimum and prescribed capital
requirement of $500 in accordance with the relevant
subsidiary’s approved business plan filed with
CIMA.
At June
30, 2019, the Oxbridge Reinsurance Limited’s net worth of
$1.7 million exceeded the minimum and prescribed capital
requirement. For the three and six-month periods ended June 30,
2019, the Subsidiary’s net loss was approximately $276
thousand and $596 thousand respectively.
At June
30, 2019, the Oxbridge Re NS’ net worth of $49 thousand
exceeded the minimum and prescribed capital requirement. For the
three and six-month periods ended June 30, 2019, the
Subsidiary’s net income was approximately $19 thousand and
$31 thousand respectively.
The
Subsidiaries are not required to prepare separate statutory
financial statements for filing with CIMA, and there were no
material differences between the Subsidiaries' GAAP capital,
surplus and net income, and its statutory capital, surplus and net
income as of June 30, 2019 or for the period then
ended.
13.
FAIR
VALUE AND CERTAIN RISKS AND UNCERTAINTIES
Fair values
With
the exception of balances in respect of insurance contracts (which
are specifically excluded from fair value disclosures under GAAP)
and investment securities and derivative instruments as disclosed
in Note 4 and 5 of these consolidated financial statements, the
carrying amounts of all other financial instruments, which consist
of cash and cash equivalents, restricted cash and cash equivalents,
accrued interest and dividends receivable, premiums receivable and
other assets and accounts payable and other liabilities,
approximate their fair values due to their short-term
nature.
Concentration of underwriting risk
A
substantial portion of the Company’s current reinsurance
business ultimately relates to the risks of two entities;
accordingly, the Company’s underwriting risks are not
significantly diversified.
Concentrations of Credit and Counterparty Risk
The
Company’s derivative instruments are subject to counterparty
risk. The Company routinely monitor this risk.
13.
FAIR
VALUE AND CERTAIN RISKS AND UNCERTAINTIES (
cont’d)
The
Company markets retrocessional and reinsurance policies worldwide
through its brokers. Credit risk exists to the extent that
any of these brokers may be unable to fulfill their contractual
obligations to the Company. For example, the Company is
required to pay amounts owed on claims under policies to brokers,
and these brokers, in the Company. In some jurisdictions, if a
broker fails to make such a payment, the Company might remain
liable to the ceding company for the deficiency. In addition, in
certain jurisdictions, when the ceding company pays premiums for
these policies to brokers, these premiums are considered to have
been paid and the ceding insurer is no longer liable to the Company
for those amounts, whether or not the premiums have actually been
received.
The
Company remains liable for losses it incurs to the extent that any
third-party reinsurer is unable or unwilling to make timely
payments under reinsurance agreements. The Company would also
be liable in the event that its ceding companies were unable to
collect amounts due from underlying third-party
reinsurers.
The
Company mitigates its concentrations of credit and counterparty
risk by using reputable and several counterparties which decreases
the likelihood of any significant concentration of credit risk with
any one counterparty. Additionally, the Company invests in fixed
maturity securities that are investment grade or
higher.
Market risk
Market
risk exists to the extent that the values of the Company’s
monetary assets fluctuate as a result of changes in market prices.
Changes in market prices can arise from factors specific to
individual securities or their respective issuers, or factors
affecting all securities traded in a particular market. Relevant
factors for the Company are both volatility and liquidity of
specific securities and markets in which the Company holds
investments. The Company has established investment guidelines that
seek to mitigate significant exposure to market risk.
OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
June
30, 2019
We
adopted ASU 2016-02, Leases on January 1, 2019, which resulted in
the recognition of operating leases on the consolidated balance
sheet in 2019 and forward. See Note 2 – Significant
Accounting Policies for more information on the adoption of the
ASU. Right-of-use assets and lease liabilities are disclosed as
line in the consolidated balance sheet. We determine if a contract
contains a lease at inception and recognize operating lease
right-of-use assets and operating lease liabilities based on the
present value of the future minimum lease payments at the
commencement date. As our leases do not provide an implicit rate,
we use our incremental borrowing rate based on the information
available at the commencement date in determining the present value
of future payments. Lease agreements that have lease and non-lease
components, are accounted for as a single lease component. Lease
expense is recognized on a straight-line basis over the lease
term.
The
Company’s operating lease obligations are for the
Company’s office facilities. Our lease have remaining lease
terms of approximately 5 years, and include an option to extend the
leases. Under the terms of the lease, the Company also has the
right to terminate the lease after thirty-six (36) months upon
giving appropriate notice in writing to the Lessor. The components
of lease expense and other lease information as of and during the
three and six-month period ended June 30, 2019 are as
follows:
|
|
For the Three-Month Period
|
|
|
(in thousands)
|
|
|
|
Operating Lease Cost
(1)
|
$
22
|
$
41
|
|
|
|
|
|
Cash
paid for amounts included in the measurement of lease
liabilities
|
|
|
|
Operating
cash flows from operating leases
|
$
16
|
$
49
|
|
(in thousands)
|
|
|
Operating
lease right-of-use assets
|
$
146
|
|
|
|
|
Operating
lease liabilities
|
$
146
|
|
|
|
|
Weighted-average
remaining lease term - operating leases
|
4.67
years
|
|
|
|
|
Weighted-average
discount rate - operating leases
|
6.5
%
|
Future
minimum lease payments under non-cancellable leases as of June 30,
2019, reconciled to our discounted operating lease liability
presented on the consolidated balance sheet are as
follows:
|
(in thousands)
|
|
|
|
Remainder
of 2019
|
$
18
|
$
-
|
|
2020
|
36
|
-
|
|
2021
|
36
|
-
|
|
2022
|
37
|
-
|
|
2023
|
37
|
-
|
|
Thereafter
|
6
|
-
|
|
Total
future minimum lease payments
|
$
170
|
$
-
|
|
|
|
|
|
Less
imputed interest
|
(24
)
|
N/A
|
|
Total
operating lease liability
|
$
146
|
N/A
|
15.
RELATED
PARTY TRANSACTIONS
The
Company had entered into reinsurance agreements with Claddaugh,
which is a related entity through common directorships. At June 30,
2019 and December 31, 2018, there were no related-party amounts
included within loss experience refund payable and unearned premium
reserve on the consolidated balance sheets.
During
the three and six-month periods ended June 30, 2019 and 2018,
included within change in loss experience refund payable and change
in unearned premiums reserve on the consolidated statements of
operations are the following related-party amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
Change
in loss experience refund payable
|
-
|
(90
)
|
-
|
(225
)
|
|
Change
in unearned premiums reserve
|
-
|
237
|
-
|
592
|
During
the three and six-month periods ending June 30, 2019, Mr. Jay
Madhu, a director and officer of the Company and its subsidiaries
invested $50 thousand in Series 2019-1 participating
notes.
We
evaluate all subsequent events and transactions for potential
recognition or disclosure in our consolidated financial statements.
There were no other events subsequent to June 30, 2019 for which
disclosure was required.
