Overview
We are
a Cayman Islands specialty property and casualty reinsurer that
provides reinsurance solutions through our subsidiaries, Oxbridge
Reinsurance Limited and Oxbridge RE NS. We focus on underwriting
fully-collateralized reinsurance contracts primarily for property
and casualty insurance companies in the Gulf Coast region of the
United States, and from time to time, we may undertake global
exposure through industry loss warranty (“ILW”)
contracts. We specialize in underwriting medium frequency, high
severity risks, where we believe sufficient data exists to analyze
effectively the risk/return profile of reinsurance contracts. We
were organized in April 2013 as an exempted company under the laws
of the Cayman Islands.
We
underwrite reinsurance contracts on a selective and opportunistic
basis as opportunities arise based on our goal of achieving
favorable long-term returns on equity for our shareholders. Our
goal is to achieve long-term growth in book value per share by
writing business that generates attractive underwriting profits
relative to the risk we bear. Unlike other insurance and
reinsurance companies, we do not intend to pursue an aggressive
investment strategy and instead will focus our business on
underwriting profits rather than investment profits. However, we
intend to complement our underwriting profits with investment
profits on an opportunistic basis.
Our
primary business focus is on fully collateralized reinsurance
contracts for property catastrophes, primarily in the Gulf Coast
region of the United States.
Within
that market and risk category, we attempt to select the most
economically attractive opportunities across a variety of property
and casualty insurers. As we attempt to grow our capital base, we
expect that we will consider growth opportunities in other
geographic areas and risk categories.
Our
level of profitability is primarily determined by how adequately
our premiums assumed and investment income cover our costs and
expenses, which consist primarily of acquisition costs and other
underwriting expenses, claim payments and general and
administrative expenses. One factor leading to variation in our
operational results is the timing and magnitude of any follow-on
offerings we undertake (if any), and issuance of participating
notes to third-party investors, as we would be able to deploy new
capital to collateralize new reinsurance treaties and consequently,
earn additional premium revenue. In addition, our results of
operations may be seasonal in that hurricanes and other tropical
storms typically occur during the period from June 1 through
November 30. Further, our results of operations may be subject to
significant variations due to factors affecting the property and
casualty insurance industry in general, which include competition,
legislation, regulation, general economic conditions, judicial
trends, and fluctuations in interest rates and other changes in the
investment environment.
Because
we employ an opportunistic underwriting and investment philosophy,
period-to-period comparisons of our underwriting results may not be
meaningful. In addition, our historical investment results may not
necessarily be indicative of future performance. Due to the nature
of our reinsurance and investment strategies, our operating results
will likely fluctuate from period to period.
We
organized our Oxbridge Re NS subsidiary on December 22, 2017 to
function as a reinsurance sidecar which increases the underwriting
capacity of Oxbridge Reinsurance Limited. Oxbridge Re NS commenced
operations on June 1, 2018 and has since issued participating notes
to third-party and related-party investors, the proceeds of which
were utilized to collateralize a quota-share of Oxbridge
Reinsurance Limited’s reinsurance obligations.
Our Business Strategy
Our
goal is to achieve attractive risk-adjusted returns for our
shareholders through the prudent management of underwriting risks
relative to our capital base. To achieve this objective, the
following are the principal elements of our business
strategy.
●
Maintain a Commitment to
Disciplined Underwriting. We employ a disciplined and
data-driven underwriting approach to select a diversified portfolio
of risks that we believe will generate an attractive return to our
shareholders over the long term. Neither our underwriting nor our
investment strategies are designed to generate smooth or
predictable quarterly earnings, but rather to optimize growth in
book value per share over the long term.
●
Focus on Risk
Management. We treat risk management as an integral part of
our underwriting and business management processes. All of our
reinsurance contracts contain loss limitation provisions that limit
our losses to the value of the assets collateralizing our
reinsurance contracts.
●
Deployment of
Capital. In order to eliminate
the possibility of complete losses, we intend to place only a
portion of our total capital at risk in any single year. This means
that we expect lower returns than some of our competitors in years
where there are lower than average catastrophe losses but that our
capital will not be completely eroded in the event of multiple
large losses.
●
Take Advantage of Market
Opportunities. Although our business is initially focused on
catastrophe coverage for Gulf Coast insurers and globally through
ILW’s, we intend to continuously evaluate various market
opportunities in which our business may be strategically or
financially expanded or enhanced in the future. Such opportunities
could take the form of further diversifying our business into other
geographic or market areas, could include quota share reinsurance
contracts, joint ventures, renewal rights transactions, corporate
acquisitions of other insurers or reinsurers, or the formation of
insurance or reinsurance platforms in new markets.
We
believe the environment in the reinsurance and insurance markets
will continue to produce opportunities for us, either through
organic expansion, through acquisitions, or a combination of
both.
The Reinsurance Industry
General
Reinsurance is an arrangement in which an insurance company,
referred to as the reinsurer, agrees to assume from another
insurance company, referred to as the ceding company or cedant, all
or a portion of the insurance risks that the ceding company has
underwritten under one or more insurance contracts. In return, the
reinsurer receives a premium for the insured risks that it assumes
from the ceding company, although reinsurance does not discharge
the ceding company from its liabilities to policyholders. It is
standard industry practice for primary insurers to reinsure
portions of their insurance risks with other insurance companies
under reinsurance agreements or contracts. This permits primary
insurers to underwrite policies in amounts larger than the risks
they are willing to retain. Reinsurance is generally designed
to:
●
Reduce the ceding company’s net liability on individual
risks, thereby assisting it in managing its risk profile and
increasing its capacity to underwrite business as well as
increasing the limit to which it can underwrite on a single
risk;
●
assist the ceding company in meeting applicable regulatory and
rating agency capital requirements;
●
assist the ceding company in reducing the short-term financial
impact of sales and other acquisition costs; and
●
enhance the ceding company’s financial strength and statutory
capital.
When reinsurance
companies purchase reinsurance to cover their own risks assumed
from ceding companies, this is known as retrocessional reinsurance.
Reinsurance or retrocessional reinsurance can benefit a ceding
company or reinsuring company, referred to herein as a
“retrocedant,” as applicable, in various ways, such as
by reducing exposure to individual risks and by providing
catastrophe protection from larger or multiple losses. Like ceding
companies, retrocedants can use retrocessional reinsurance to
manage their overall risk profile or to create additional
underwriting capacity, allowing them to accept larger risks or to
write more business than would otherwise be possible, absent an
increase in their capital or surplus.
Reinsurance
contracts do not discharge ceding companies from their obligations
to policyholders. Ceding companies therefore generally require
their reinsurers to have, and to maintain, either a strong
financial strength rating or security, in the form of collateral,
as assurance that their claims will be paid.
Insurers generally
purchase multiple tranches of reinsurance protection above an
initial retention elected by the insurer. The amount of reinsurance
protection purchased by an insurer is typically determined by the
insurer through both quantitative and qualitative methods. In the
event of losses, the amount of loss that exceeds the amount of
reinsurance protection purchased is retained by the
insurer.
As a
program is constructed from the ground up, each tranche added
generally has a lower probability of loss than the prior tranche
and therefore is generally subject to a lower reinsurance premium
charged for the reinsurance protection purchased. Insurer
catastrophe programs are typically supported by multiple reinsurers
per program.
Reinsurance brokers
play an important role in the reinsurance market. Brokers are
intermediaries that assist the ceding company in structuring a
particular reinsurance program and in negotiating and placing risks
with third-party reinsurers. In this capacity, the broker is
selected and retained by the ceding company on a
contract-by-contract basis, rather than by the reinsurer. Though
brokers are not parties to reinsurance contracts, reinsurers
generally receive premium payments from brokers rather than ceding
companies, and reinsurers that do not provide collateralized
reinsurance are frequently required to pay amounts owed on claims
under their policies to brokers. These brokers, in turn, pay these
amounts to the ceding companies that have reinsured a portion of
their liabilities with reinsurers.
Types of Reinsurance Contracts
Property
reinsurance products are often written in the form of treaty
reinsurance contracts, which are contractual arrangements that
provide for the automatic reinsurance of a type or category of risk
underwritten. Treaty reinsurance premiums, which are typically due
in installments, are a function of the number and type of contracts
written, as well as prevailing market prices. The timing of
premiums written varies by line of business. The majority of
property catastrophe business is written at the January and June
annual renewal periods, depending on the type and location of the
risks covered. Most hurricane and wind-storm coverage, particularly
in the Gulf Coast region of the United States, is written at the
June annual renewal periods.
Property
catastrophe reinsurance contracts are typically “all
risk” in nature, providing protection to the ceding company
against losses from hurricanes and other natural and man-made
catastrophes such as floods, earthquakes, tornadoes, storms and
fires, referred to herein collectively as “perils.” The
predominant exposures covered by these contracts are losses
stemming from property damage and business interruption resulting
from a covered peril. Coverage can also vary from “all
natural” perils, which is the most expansive form, to more
limited types such as windstorm-only coverage.
Property
catastrophe reinsurance contracts are typically written on an
“excess-of-loss” basis, which provides coverage to the
ceding company when aggregate claims and claim expenses from a
single occurrence for a covered peril exceed an amount that is
specified in a particular contract. The coverage provided under
excess-of-loss reinsurance contracts may be on a worldwide basis or
may be limited in scope to specific regions or geographical areas.
Under these contracts, protection is provided to an insurer for a
portion of the total losses in excess of a specified loss amount,
up to a maximum amount per loss specified in the
contract.
Excess-of-loss
contracts are typically written on a losses-occurring basis, which
means that they cover losses that occur during the contract term,
regardless of when the underlying policies came into force.
Premiums from excess-of-loss contracts are earned ratably over the
contract term, which is ordinarily 12 months. Most excess-of-loss
contracts provide for a reinstatement of coverage following a
covered loss event in return for an additional
premium.
Our Reinsurance Contracts and Products
We
write primarily property catastrophe reinsurance. We currently
expect that substantially all of the reinsurance products we write
in the foreseeable future will be in the form of treaty reinsurance
contracts. When we write treaty reinsurance contracts, we do not
evaluate separately each of the individual risks assumed under the
contracts and are therefore largely dependent on the individual
underwriting decisions made by the cedant. Accordingly, as part of
our initial review and renewal process, we carefully review and
analyze the cedant’s risk management and underwriting
practices in evaluating whether to provide treaty reinsurance and
in appropriately pricing the treaty.
Our
portfolio of business continues to be characterized by relatively
large transactions with a relatively few number of cedants. We do
not consider any single contract to be material to our business as
the loss of any single contract can easily be supplemented by
contributing the additional capacity across one or more of our
other contracts. We anticipate that our business will continue to
be characterized by a relatively small number of reinsurance
contracts for the foreseeable future.
Our
contracts are written on an excess-of-loss basis, generally with a
per-event cap. We generally receive the premium for the risk
assumed and indemnify the cedant against all or a specified portion
of losses and expenses in excess of a specified dollar or
percentage amount. Our contracts are generally both single-year or
multi-year contracts and our policy years generally commence on
June 1 of each year and end on May 31 of the following
year.
The
bulk of our portfolio of risks is assumed pursuant to traditional
reinsurance contracts. However, from time to time we take
underwriting risk by purchasing a catastrophe-linked bond, or via a
transaction booked as an industry loss warranty (as described
below) or an indemnity swap. An indemnity swap is an agreement
which provides for the exchange between two parties of different
portfolios of catastrophe exposure with similar expected loss
characteristics (for example, U.S. earthquake exposure for Asian
earthquake exposure).
We
believe our most attractive near-term opportunity is in property
catastrophe reinsurance coverage for insurance companies. In
addition to seeking profitable pricing, we manage our risks with
contractual limits on our exposure. Property catastrophe
reinsurance contracts are typically “all risk” in
nature, meaning that they protect against losses from earthquakes
and hurricanes, as well as other natural and man-made catastrophes
such as tornados, fires, winter storms, and floods (where the
contract specifically provides for such coverage). Losses on these
contracts typically stem from direct property damage and business
interruption. We generally write property catastrophe reinsurance
on an excess-of-loss basis. These contracts typically cover only
specific regions or geographical areas.
We are
not licensed or admitted as an insurer in any jurisdiction other
than the Cayman Islands. In addition, we do not have a financial
rating and do not expect to have one in the near future. Many
jurisdictions such as the United States do not permit clients to
take credit for reinsurance on their statutory financial statements
if such reinsurance is obtained from unlicensed or non-admitted
insurers without appropriate collateral. As a result, we anticipate
that all of our clients will require us to fully collateralize the
reinsurance contracts we bind with them. Each of our contracts are
fully collateralized and separately structured, with our liability
being limited to the value of the assets held in the trust. We are
generally not required to top-up the value of the assets held as
collateral in respect of a particular reinsurance agreement, unless
such collateral is subject to market risk. For each reinsurance
agreement, a reinsurance trust is established in favor of the
cedant, and the trustee of the reinsurance trust is a large bank
that is agreed upon by our company and the cedant.
The
premium for the contract is ordinarily deposited into the trust,
together with additional capital from our company, up to the
coverage limit. Each reinsurance contract contains express limited
recourse language to the effect that the liabilities of the
relevant reinsurance contract are limited to the realizable value
of the collateral held in respect of that contract. Upon the
expiration of the reinsurance contract, the assets of the trust net
of insured losses and other expenses are transferred to our
company.
Underwriting and Retrocessional Coverage
Most of
our reinsurance contracts have other reinsurers participating as
lead underwriters, and these lead underwriters generally set the
premium for the risk. We follow the premium pricing of the lead
underwriters in most cases subject to the guidance of the
Underwriting Committee of our Board of Directors. Each quarter, our
Board of Directors will set parameters for the maximum level of
capital to be deployed for the quarter and the expected premium and
risk profile that each of our contracts must meet.
Marketing and Distribution
We
expect that, in the future, the majority of our business will be
sourced through reinsurance brokers. Brokerage distribution
channels provide us with access to an efficient, variable
distribution system without the significant time and expense that
would be incurred in creating an in-house marketing and
distribution network. Reinsurance brokers receive a brokerage
commission that is usually a percentage of gross premiums
written.
We
intend to build relationships with global reinsurance brokers and
captive insurance companies located in the Cayman Islands. Our
management team has significant relationships with most of the
primary and specialty broker intermediaries in the reinsurance
marketplace in our target market. We believe that maintaining close
relationships with brokers will give us access to a broad range of
reinsurance clients and opportunities.
Brokers
do not have the authority to bind us to any reinsurance contract.
We review and approve all contract submissions in our corporate
offices located in the Cayman Islands. From time to time, we may
also enter into relationships with managing general agents who
could bind us to reinsurance contracts based on narrowly defined
underwriting guidelines.
Investment Strategy
Our
company’s business focus is primarily on underwriting profit.
However, we remain opportunistic with respect to investment income,
and intend to increase shareholder value through supplemental
investment income when favorable opportunities are available. The
Company, from time to time, and dependent upon favorable investment
conditions and our investment guidelines, may invest in real estate
and other ventures that have the potential to increase shareholder
value.
Currently, most of
our company’s capital is held in trust accounts that
collateralize the reinsurance policies that we write. The
investment parameters for capital held in such trust accounts are
generally established by the cedant for the relevant policy. Our
current investments are held in cash and equity
securities.
Funds
that are not held in collateralized trust accounts are generally
invested in a relatively conservative manner, with a focus on
generating income while equally being liquid.
Our
Board of Directors periodically reviews our investment policy and
returns.
Claims Management
Claims
are managed internally by the company’s management team.
Management reviews and responds to initial loss reports,
administers claims databases, determines whether further
investigation is required and where appropriate, retains outside
claims counsel, establishes case reserves and approves claims for
payment. In addition, we may conduct audits of any significant
client throughout the year, and in the process, evaluate our
clients’ claims handling abilities, reserving philosophies,
loss notification processes and the overall quality of our clients'
performance.
Upon
receipt, claims notices are recorded within our underwriting,
financial and claims systems. When we are notified of insured
losses or discover potential losses as part of our claims’
audits, we record a case reserve as appropriate for the estimated
amount of the exposure at that time. The estimate reflects the
judgment of management based on general reserving practices, the
experience and knowledge of the manager regarding the nature of the
specific claim and, where appropriate, advice of outside counsel.
Reserves are also established to provide for the estimated expense
of settling claims, including legal and other fees and the general
expenses of administering the claims adjustment
process.
Loss Reserves
Loss
reserves represent estimates, including actuarial and statistical
projections at a given point in time, of the ultimate settlement
and administration costs of claims incurred (including claims
incurred but not reported (“IBNR”)). Estimates are not
precise in that, among other things, they are based on predictions
of future developments and estimates of future trends in claims
severity and frequency and other variable factors such as
inflation. It is likely that the ultimate liability will be greater
or less than such estimates and that, at times, this variance will
be material.
For our
property and other catastrophe policies, we initially establish our
loss reserves based on loss payments and case reserves reported by
ceding companies. As we are not the only reinsurer on most
contracts, the lead reinsurer will set the loss amount estimates
for the contract and the cedant will have the ability to pay for
case losses consistent with that amount on our pro-rata share of
the contract.
We then
add to these case reserves our estimates for IBNR. To establish our
IBNR estimates, in addition to the loss information and estimates
communicated by cedants, we also use the services of an independent
actuary. We may also use our computer-based vendor and proprietary
modeling systems to measure and estimate loss exposure under the
actual event scenario, if available. Although the loss modeling
systems assist with the analysis of the underlying loss, and
provide us with information and the ability to perform an enhanced
analysis, the estimation of claims resulting from catastrophic
events is inherently difficult because of the variability and
uncertainty of property catastrophe claims and the unique
characteristics of each loss.
If IBNR
estimates are made, we assess the validity of the assumptions we
use in the reserving process on a quarterly basis during an
internal review process. During this process actuaries verify that
the assumptions we have made continue to form what they consider to
be a sound basis for projection of future liabilities.
Although we believe
that we are prudent in our assumptions and methodologies, we cannot
be certain that our ultimate payments will not vary, perhaps
materially, from the estimates we have made. If we determine that
adjustments to an earlier estimate are appropriate, such
adjustments are recorded in the quarter in which they are
identified. The establishment of new reserves, or the adjustment of
reserves for reported claims, could result in significant upward or
downward changes to our financial condition or results of
operations in any particular period. We regularly review and update
these estimates, using the most current information available to
us.
Our
estimates are reviewed quarterly by an independent actuary in order
to provide additional insight into the reasonableness of our loss
reserves.
Competition
The
reinsurance industry is highly competitive. We expect to compete
with major reinsurers, most of which are well established with
significant operating histories, strong financial strength ratings
and long-standing client relationships.
Our
competitors include Third Point Reinsurance Ltd., Blue Capital
Reinsurance Holdings Ltd., ACE Ltd., Everest Re, General Re
Corporation, Hannover Re Group, Munich Reinsurance Company, Partner
Re Ltd., Swiss Reinsurance Company, Transatlantic Reinsurance
Company, Berkshire Hathaway, PartnerRe Ltd, Aeolus, and Nephila.
Although we seek to provide coverage where capacity and
alternatives are limited, we directly compete with these larger
companies due to the breadth of their coverage across the property
and casualty market in substantially all lines of business. We also
compete with smaller companies and other niche reinsurers from time
to time.
While
we have a limited operating history, we believe that our unique
approach to multi-year underwriting will allow us to be successful
in underwriting transactions against more established
competitors.
Employees
As of
March 23, 2021, we had three employees, all of which are full-time,
and we are not in the process of hiring additional resources at
this time. We believe that our relations with our employees are
good. None of our employees are subject to collective bargaining
agreements, and we are not aware of any current efforts to
implement such agreements. We believe that we will continue to have
relatively few employees and intend to outsource some functions to
specialist firms in the Cayman Islands if and when we determine
that such functions are necessary. We intend to use the expertise
of our Board of Directors and where necessary, external consultants
to provide any other service we may require from time to
time.
Legal Proceedings
We are
not currently involved in any litigation or arbitration. We
anticipate that, similar to the rest of the insurance and
reinsurance industry, we will be subject to litigation and
arbitration in the ordinary course of business.
Regulation and Capital Requirements
Our
wholly-owned subsidiaries, Oxbridge Reinsurance Limited and
Oxbridge Re NS, each holds a Class C Insurer’s License issued
in accordance with the terms of the Insurance Law (as revised) of
the Cayman Islands (the “Law”), and is subject to
regulation by the Cayman Islands Monetary Authority
(“CIMA”), in terms of the Law. As the holder of a Class
C Insurer’s License, Oxbridge Reinsurance Limited and
Oxbridge Re NS are permitted to undertake insurance business
approved by CIMA.
Oxbridge
Reinsurance Limited and Oxbridge Re NS are subject to minimum
capital and surplus requirements, and our failure to meet these
requirements could subject us to regulatory action. Pursuant to The
Insurance (Capital and Solvency) (Classes B, C and D Insurers)
Regulations, 2012 (the “Capital and Solvency
Regulations”) published under the Law, Oxbridge Reinsurance
Limited and Oxbridge Re NS are required to maintain the statutory
minimum capital requirement (as defined under the Capital and
Solvency Regulations) of $500 and prescribed capital requirement
(as defined under the Capital and Solvency Regulations) of $500,
and a minimum margin of solvency equal to or in excess of the total
prescribed capital requirement. Any failure to meet the applicable
requirements or minimum statutory capital requirements could
subject us to further examination or corrective action by CIMA,
including restrictions on dividend payments, limitations on our
writing of additional business or engaging in finance activities,
supervision or liquidation.
CIMA
may at any time direct Oxbridge Reinsurance Limited and Oxbridge Re
NS, in relation to a policy, a line of business or the entire
business, to cease or refrain from committing an act or pursing a
course of conduct and to perform such acts as in the opinion of
CIMA are necessary to remedy or ameliorate the situation. See the
discussion in “Risk
Factors” under the heading “Any suspension or revocation of our
reinsurance license would materially impact our ability to do
business and implement our business strategy” for more
information.
In
addition, as a Cayman Islands exempted company, we may not carry on
business or trade locally in the Cayman Islands except in
furtherance of our business outside the Cayman Islands, and we are
prohibited from soliciting the public of the Cayman Islands to
subscribe for any of our securities or debt. We are further
required to file a return with the Registrar of Companies in
January of each year and to pay an annual registration fee at that
time.
The
Cayman Islands has no exchange controls restricting dealings in
currencies or securities.
Available Information
Our
website is located at www.oxbridgere.com.
Copies of our Annual Reports on Form 10-K, Quarterly Reports on
Form 10-Q, Current Reports on Form 8-K, and amendments to these
reports filed or furnished pursuant to Section 13(a) or 15(d) of
the Exchange Act are available, free of change, on our website as
soon as reasonably practicable after we file such material
electronically with or furnish it to the Securities and Exchange
Commission (the “SEC”). The SEC also maintains a
website that contains our SEC filings. The address of the
SEC’s website is www.sec.gov.
Risks Relating to Our Business
We will need additional capital in the future in order to grow and
operate our business. Such capital may not be available to us or
may not be available to us on favorable terms. Furthermore, our
raising additional capital could dilute your ownership interest in
our company.
We
expect that we will need to raise additional capital in the future
through public or private equity or debt offerings or otherwise in
order to:
●
further capitalize
our reinsurance subsidiary and implement our growth
strategy;
●
fund liquidity
needs caused by underwriting or investment losses;
●
replace capital
lost in the event of significant reinsurance losses or adverse
reserve developments;
●
meet applicable
statutory jurisdiction requirements; and/or
●
respond to
competitive pressures.
Additional capital
may not be available on terms favorable to us, or at all. Further,
any additional capital raised through the sale of equity could
dilute your ownership interest in our company and may cause the
market price of our ordinary shares and warrants to decline.
Additional capital raised through the issuance of debt may result
in creditors having rights, preferences and privileges senior or
otherwise superior to those of our ordinary shares and
warrants.
Our results of operations will fluctuate from period to period and
may not be indicative of our long-term prospects.
We
anticipate that the performance of our reinsurance operations and
our investment portfolio will fluctuate from period to period.
Fluctuations will result from a variety of factors,
including:
●
reinsurance
contract pricing;
●
our assessment of
the quality of available reinsurance opportunities;
●
the volume and mix
of reinsurance products we underwrite;
●
loss experienced on
our reinsurance liabilities;
●
our ability to
assess and integrate our risk management strategy properly;
and
●
the performance of
our investment portfolio.
In
particular, we plan to underwrite products and make investments to
achieve favorable return on equity over the long term. In addition,
our opportunistic nature and focus on long-term growth in book
value will result in fluctuations in total premiums written from
period to period as we concentrate on underwriting contracts that
we believe will generate better long-term, rather than short-term,
results. Accordingly, our short-term results of operations may not
be indicative of our long-term prospects.
Failure to become rated by A.M. Best, or receipt of a negative
rating, could significantly and negatively affect our ability to
grow.
Companies, insurers
and reinsurance brokers use ratings from independent ratings
agencies as an important means of assessing the financial strength
and quality of reinsurers. This rating reflects the rating
agency’s opinion of our financial strength, operating
performance and ability to meet obligations. It is not an
evaluation directed toward the protection of investors or a
recommendation to buy, sell or hold our securities. A.M. Best
assigns ratings based on its analysis of balance sheet strength,
operating performance and business profile.
Currently, A.M Best
has not assigned us a financial strength rating, and we do not
intend to seek a rating in the foreseeable future. Without a
rating, or if we received a negative rating, our growth potential
and business strategy will be limited because of the need to
collateralize the insurance policies that we write.
Established competitors with greater resources may make it
difficult for us to effectively market our products or offer our
products at a profit.
The
reinsurance industry is highly competitive. We compete with major
reinsurers, all of which have substantially greater financial,
marketing and management resources than we do. Competition in the
types of business that we seek to underwrite is based on many
factors, including:
●
the general
reputation and perceived financial strength of the
reinsurer;
●
relationships with
reinsurance brokers;
●
terms and
conditions of products offered;
●
ratings assigned by
independent rating agencies;
●
speed of claims
payment and reputation; and
●
the experience and
reputation of the members of our underwriting team in the
particular lines of reinsurance we seek to underwrite.
Additionally,
although the members of our underwriting team have general
experience across many property and casualty lines, they may not
have the requisite experience or expertise to compete for all
transactions that fall within our strategy of offering customized
frequency and severity contracts at times and in markets where
capacity and alternatives may be limited.
Our
competitors include Third Point Reinsurance Ltd., Blue Capital
Reinsurance Holdings Ltd., ACE Ltd., Everest Re, General Re
Corporation, Hannover Re Group, Munich Reinsurance Company, Partner
Re Ltd., Swiss Reinsurance Company, Transatlantic Reinsurance
Company, Berkshire Hathaway, PartnerRe Ltd, Aeolus, and Nephila, as
well as smaller companies and other niche reinsurers. Although we
seek to provide coverage where capacity and alternatives are
limited, we will directly compete with these larger companies due
to the breadth of their coverage across the property and casualty
market in substantially all lines of business.
We
cannot assure you that we will be able to compete successfully in
the reinsurance market. Our failure to compete effectively could
significantly and negatively affect our financial condition and
results of operations and may increase the likelihood that we may
be deemed to be a passive foreign investment company or an
investment company.
If actual renewals of our existing contracts do not meet
expectations, our premiums assumed in future years and our future
results of operations could be materially adversely
affected.
Many
of our contracts are generally written for a one-year term. In our
financial forecasting process, we make assumptions about the
renewal of our prior year’s contracts. The insurance and
reinsurance industries have historically been cyclical businesses
with periods of intense competition, often based on price. If
actual renewals do not meet expectations or if we choose not to
write on a renewal basis because of pricing conditions, our
premiums assumed in future years and our future operations would be
materially adversely affected.
Reputation is an important factor in the reinsurance industry, and
our lack of an established reputation may make it difficult for us
to attract or retain business.
Reputation is a
very important factor in the reinsurance industry, and competition
for business is, in part, based on reputation. Although our
reinsurance policies will be fully collateralized, we are a
relatively newly formed reinsurance company and do not yet have a
well-established reputation in the reinsurance industry. Our lack
of an established reputation may make it difficult for us to
attract or retain business. In addition, we do not have or
currently intend to obtain financial strength ratings, which may
discourage certain counterparties from entering into reinsurance
contracts with us.
If our losses and loss adjustment expenses greatly exceed our loss
reserves, our financial condition may be significantly and
negatively affected.
Our
results of operations and financial condition will depend upon our
ability to accurately assess the potential losses and loss
adjustment expenses associated with the risks we reinsure. Reserves
are estimates at a given time of claims an insurer ultimately
expects to pay, based upon facts and circumstances then known,
predictions of future events, estimates of future trends in claim
severity and other variable factors. The inherent uncertainties of
estimating loss reserves are generally greater for reinsurance
companies as compared to primary insurers, primarily due
to:
●
the lapse of time
from the occurrence of an event to the reporting of the claim and
the ultimate resolution or settlement of the claim;
●
the diversity of
development patterns among different types of reinsurance treaties;
and
●
the necessary
reliance on the client for information regarding
claims.
Our
estimation of reserves may be less reliable than the reserve
estimations of a reinsurer with a greater volume of business and an
established loss history. Our actual losses and loss adjustment
expenses paid may deviate substantially from the estimates of our
loss reserves and could negatively affect our results of
operations. If our loss reserves are later found to be inadequate,
we would increase our loss reserves with a corresponding reduction
in our net income and capital in the period in which we identify
the deficiency, and such a reduction would also negatively affect
our results of operations. If our losses and loss adjustment
expenses greatly exceed our loss reserves, our financial condition
may be significantly and negatively affected.
The property and casualty reinsurance market may be affected by
cyclical trends and over-supply.
We
write reinsurance in the property and casualty markets, which tend
to be cyclical in nature. Ceding company underwriting results,
prevailing general economic and market conditions, liability
retention decisions of companies and ceding companies and
reinsurance premium rates each influence the demand for property
and casualty reinsurance. Prevailing prices and available surplus
to support assumed business then influence reinsurance supply.
Supply may fluctuate in response to changes in return on capital
realized in the reinsurance industry, the frequency and severity of
losses and prevailing general economic and market
conditions.
Continued increases
in the supply of reinsurance may have consequences for the
reinsurance industry generally and for us, including lower premium
rates, increased expenses for customer acquisition and retention,
less favorable policy terms and conditions and/or lower premium
volume. Furthermore, unpredictable developments, including courts
granting increasingly larger awards for certain damages, increases
in the frequency of natural disasters (such as hurricanes,
windstorms, tornados, earthquakes, wildfires and floods),
fluctuations in interest rates, changes in the investment
environment that affect market prices of investments and
inflationary pressures, affect the industry’s profitability.
The effects of cyclicality could significantly and negatively
affect our financial condition and results of
operations.
Due
to the influx of new risk capital from alternative capital market
participants such as hedge funds and pension funds, we believe that
the reinsurance industry is currently over-capitalized and will
continue in this trend for the foreseeable future. The
over-capitalization of the market is not uniform as there are a
number of insurers and reinsurers that have suffered and continue
to suffer from capacity issues. We continue to assess the
opportunities that may be available to us with insurance and
reinsurance companies with this profile. If the reinsurance market
continues to soften, our strategy is to reduce premium writings
rather than accept mispriced risk and conserve our capital for a
more opportune environment. Significant rate increases could occur
if financial and credit markets experience adverse shocks that
result in the loss of capital of insurers and reinsurers, or if
there are major catastrophic events, especially in North
America.
Our operations could be materially and adversely affected by
measures implemented by the Cayman Islands’ government, as
well as international federal, state and local governments to cope
with public health issues such as the outbreak of COVID-19,
resulting in a material impact to our financial position and
results of operations.
The
measures undertaken by governmental authorities to combat a serious
public health issue could significantly disrupt or prevent us from
operating our business in the ordinary course for an extended
period and could materially affect our financial position and
operating results.
On
March 11, 2020, the World Health Organization characterized the
outbreak of COVID-19 as a global pandemic. On March 25, 2020, the
Cayman Islands’ government implemented curfew restrictions to
control the spread of COVID-19. Wide-ranging actions undertaken by
local and international government authorities include full
lockdowns, airport shutdowns, travel restrictions, quarantines and
stay-at-home orders. As a result, people are forced to
substantially restrict daily activities resulting in businesses
having to curtail or cease normal operations and furlough or
terminate employees. Such measures cause concerns over the
stability of global markets and threaten prospects for economic
growth.
In
response to the pandemic, we temporarily closed our offices and
asked our employees to work from home until further notice. Since
then the Cayman Islands government have issued stay at home orders
for non-essential workers. We however, reopened our offices in May
2020 after receiving government’s approval with minimal
impact on our operations.
Furthermore, the
disruption of global commercial activities across all market
sectors and the significant declines and volatility in financial
markets could result in a material adverse impact on our financial
position, results of operations and cash flows. Possible effects
may include, but are not limited to a decline the value of equity
securities held by us, and disruption to cash inflows from our
reinsurance business.
Our property and property catastrophe reinsurance operations will
make us vulnerable to losses from catastrophes and may cause our
results of operations to vary significantly from period to
period.
Our
reinsurance operations expose us to claims arising out of
unpredictable catastrophic events, such as hurricanes, hailstorms,
tornados, windstorms, earthquakes, floods, fires, explosions, and
other natural or man-made disasters. The incidence and severity of
catastrophes are inherently unpredictable but the loss experience
of property catastrophe reinsurers has been generally characterized
as low frequency and high severity. Claims from catastrophic events
could reduce our earnings and cause substantial volatility in our
results of operations for any fiscal quarter or year and adversely
affect our financial condition. Corresponding reductions in our
surplus levels could impact our ability to write new reinsurance
policies.
Catastrophic losses
are a function of the insured exposure in the affected area and the
severity of the event. Because accounting standards do not permit
reinsurers to reserve for catastrophic events until they occur,
claims from catastrophic events could cause substantial volatility
in our financial results for any fiscal quarter or year and could
significantly and negatively affect our financial condition and
results of operations.
We could face unanticipated losses from war, terrorism, and
political unrest, and these or other unanticipated losses could
have a material adverse effect on our financial condition and
results of operations.
Like
other reinsurers, we face potential exposure to large, unexpected
losses resulting from man-made catastrophic events, such as acts of
war, acts of terrorism and political instability. These risks are
inherently unpredictable and recent events may indicate that the
frequency and severity of these types of losses may increase. It is
difficult to predict the timing of these events or to estimate the
amount of loss that any given occurrence will generate. To the
extent that losses from these risks occur, our financial condition
and results of operations could be significantly and negatively
affected.
We depend on our clients’ evaluations of the risks associated
with their insurance underwriting, which may subject us to
reinsurance losses.
In the
proportional reinsurance business, in which we assume an agreed
percentage of each underlying insurance contract being reinsured,
or quota share contracts, we do not separately evaluate each of the
original individual risks assumed under these reinsurance
contracts. Therefore, we are largely dependent on the original
underwriting decisions made by ceding companies. We are subject to
the risk that the clients may not have adequately evaluated the
insured risks and that the premiums ceded may not adequately
compensate us for the risks we assume. We also do not separately
evaluate each of the individual claims made on the underlying
insurance contracts under quota share arrangements. Therefore, we
are dependent on the original claims decisions made by our
clients.
Changing climate conditions may adversely affect our financial
condition, profitability or cash flows.
Climate
change, to the extent it produces extreme changes in temperatures
and changes in weather patterns, could impact the frequency or
severity of weather events and wildfires. Further, it could impact
the affordability and availability of homeowners insurance, which
could have an impact on pricing. Changes in weather patterns could
also affect the frequency and severity of other natural catastrophe
events to which we may be exposed. The occurrence of these events
would significantly and negatively affect our financial condition
and results of operations.
Operational risks, including human or systems failures, are
inherent in our business.
Operational risks
and losses can result from, among other things, fraud, errors,
failure to document transactions properly or to obtain proper
internal authorization, failure to comply with regulatory
requirements, information technology failures or external
events.
We
believe that our modeling, underwriting and information technology
and application systems are critical to our business and our growth
prospects. Moreover, we rely on our information technology and
application systems to further our underwriting process and to
enhance our ability to compete successfully. A major defect or
failure in our internal controls or information technology and
application systems could result in management distraction, harm to
our reputation or increased expenses.
The effect of emerging claim and coverage issues on our business is
uncertain.
As
industry practices and legal, judicial and regulatory conditions
change, unexpected issues related to claims and coverage may
emerge. It is possible that certain provisions of our future
reinsurance contracts, such as limitations or exclusions from
coverage or choice of forum, may be difficult to enforce in the
manner we intend, due to, among other things, disputes relating to
coverage and choice of legal forum. These issues may adversely
affect our business by either extending coverage beyond the period
that we intended or by increasing the number or size of claims. In
some instances, these changes may not manifest themselves until
many years after we have issued insurance or reinsurance contracts
that are affected by these changes. As a result, we may not be able
to ascertain the full extent of our liabilities under our insurance
or reinsurance contracts for many years following the issuance of
our contracts. The effects of unforeseen development or substantial
government intervention could adversely impact our ability to
adhere to our goals.
We are required to maintain sufficient collateral accounts, which
could significantly and negatively affect our ability to implement
our business strategy.
We are
not licensed or admitted as a reinsurer in any jurisdiction other
than the Cayman Islands. Certain jurisdictions, including the
United States, do not permit insurance companies to take credit for
reinsurance obtained from unlicensed or non-admitted insurers on
their statutory financial statements unless appropriate security
measures are implemented. Consequently, we must continue to
maintain sufficient funds in escrow accounts to serve as collateral
for our reinsurance contracts. Because we intend to continue to
utilize our funds (rather than utilizing the credit markets) to
serve as collateral for our reinsurance obligations, we may not be
able to fully utilize our capital to expand our reinsurance
coverage as rapidly as other reinsurers.
The inability to obtain business provided from brokers could
adversely affect our business strategy and results of
operations.
We
anticipate that a substantial portion of our business will be
placed primarily through brokered transactions, which involve a
limited number of reinsurance brokers. If we are unable to identify
and grow the brokered business provided through one or more of
these reinsurance brokers, many of whom may not be familiar with
our Cayman Islands jurisdiction, this failure could significantly
and negatively affect our business and results of
operations.
The involvement of reinsurance brokers may subject us to their
credit risk.
As a
standard practice of the reinsurance industry, reinsurers
frequently pay amounts owed on claims under their policies to
reinsurance brokers, and these brokers, in turn, remit these
amounts to the ceding companies that have reinsured a portion of
their liabilities with the reinsurer. In some jurisdictions, if a
broker fails to make such a payment, the reinsurer might remain
liable to the client for the deficiency notwithstanding the
broker’s obligation to make such payment. Conversely, in
certain jurisdictions, when the client pays premiums for policies
to reinsurance brokers for payment to the reinsurer, these premiums
are considered to have been paid and the client will no longer be
liable to the reinsurer for these premiums, whether or not the
reinsurer has actually received them. Consequently, we assume a
degree of credit risk associated with the brokers that we do
business with.
We may be unable to purchase reinsurance for the liabilities we
reinsure, and if we successfully purchase such reinsurance, we may
be unable to collect, which could adversely affect our business,
financial condition and results of operations.
Retrocessional
coverage (reinsurance for the liabilities we reinsure) may not
always be available to us. From time to time, we expect that we
will purchase retrocessional coverage for our own account in order
to mitigate the effect of a potential concentration of losses upon
our financial condition. The insolvency or inability or refusal of
a reinsurer of reinsurance to make payments under the terms of its
agreement with us could have an adverse effect on us because we
remain liable to our client. From time to time, market conditions
have limited, and in some cases have prevented, reinsurers from
obtaining the types and amounts of retrocession that they consider
adequate for their business needs. Accordingly, we may not be able
to obtain our desired amounts of retrocessional coverage or
negotiate terms that we deem appropriate or acceptable or obtain
retrocession from entities with satisfactory creditworthiness. Our
failure to establish adequate retrocessional arrangements or the
failure of our retrocessional arrangements to protect us from
overly concentrated risk exposure could significantly and
negatively affect our business, financial condition and results of
operations.
U.S. and global economic downturns could harm our business, our
liquidity and financial condition and the price of our
securities.
Weak
economic conditions may adversely affect (among other aspects of
our business) the demand for and claims made under our products,
the ability of customers, counterparties and others to establish or
maintain their relationships with us, our ability to access and
efficiently use internal and external capital resources and our
investment performance. Volatility in the U.S. and other securities
markets may adversely affect our investment portfolio and our
resulting results of operations.
Our ability to implement our business strategy could be delayed or
adversely affected by Cayman Islands employment
restrictions.
Under
Cayman Islands law, persons who are not Caymanian, do not possess
Caymanian status, or are not otherwise entitled to reside and work
in the Cayman Islands pursuant to provisions of the Immigration Law
(2015 Revision) of the Cayman Islands, which we refer to as the
Immigration Law, may not engage in any gainful occupation in the
Cayman Islands without an appropriate governmental work permit.
Although Jay Madhu and Wrendon Timothy have obtained Permanent
Residency in the Cayman Islands, the failure to obtain work
permits, or extensions thereof, for other employee(s) could prevent
us from continuing to implement our business strategy
seamlessly.
Security breaches and other disruptions could compromise our
information and expose us to liability, which would cause our
business and reputation to suffer.
In the
ordinary course of our business, we may collect and store sensitive
data, including proprietary business, in our data centers and on
our networks. The secure processing, maintenance and transmission
of this information is critical to our operations and business
strategy. Despite our security measures, our information technology
and infrastructure may be vulnerable to attacks by hackers or
breached due to employee error, malfeasance or other disruptions.
Any such breach could compromise our networks and the information
stored there could be accessed, publicly disclosed, lost or stolen.
Any such access, disclosure or other loss of information could
result in legal claims or proceedings, disrupt our operations, and
damage our reputation, which could adversely affect our business,
revenues and competitive position.
If we lose or are unable to retain our senior management and other
key personnel and are unable to attract qualified personnel, our
ability to implement our business strategy could be delayed or
hindered, which, in turn, could significantly and negatively affect
our business.
Although we only
employ three individuals, two of whom are members of senior
management, our future success may depend to a significant extent
on the efforts of our senior management and other key personnel
(who have not yet been hired) to implement our business strategy.
We believe there are only a limited number of available, qualified
executives with substantial experience in our industry. In
addition, we will need to add personnel, including underwriters, to
implement our business strategy. We could face challenges
attracting personnel to the Cayman Islands. Accordingly, the loss
of the services of one or more of the members of our senior
management or other key personnel (when hired), or our inability to
hire and retain other key personnel, could delay or prevent us from
fully implementing our business strategy and, consequently,
significantly and negatively affect our business.
We do
not currently maintain key man life insurance with respect to any
of our senior management. If any member of senior management dies
or becomes incapacitated, or leaves the Company to pursue
employment opportunities elsewhere, we would be solely responsible
for locating an adequate replacement for such senior management and
for bearing any related cost. To the extent that we are unable to
locate an adequate replacement or are unable to do so within a
reasonable period of time, our business may be significantly and
negatively affected.
There are differences under Cayman Islands corporate law and
Delaware corporate law with respect to interested party
transactions which may benefit certain of our shareholders at the
expense of other shareholders.
Under
Cayman Islands corporate law, a director may vote on a contract or
transaction where the director has an interest as a shareholder,
director, officer or employee provided such interest is disclosed.
None of our contracts will be deemed to be void because any
director is an interested party in such transaction and interested
parties will not be held liable for monies owed to the company. In
contracts, under Delaware law, interested party transactions are
potentially voidable.
Risks Relating to Insurance and Other Regulations
Any suspension or revocation of our reinsurance license would
materially impact our ability to do business and implement our
business strategy.
Oxbridge
Reinsurance Limited is licensed as an insurer only in the Cayman
Islands by the CIMA, and we do not intend to obtain a license in
any other jurisdiction. The suspension or revocation of our license
to do business as a reinsurance company in the Cayman Islands for
any reason would mean that we would not be able to enter into any
new reinsurance contracts until the suspension ended or we became
licensed in another jurisdiction. Any such suspension or revocation
of our license would negatively impact our reputation in the
reinsurance marketplace and could have a material adverse effect on
our results of operations.
As a
regulated insurance company, Oxbridge Reinsurance Limited is
subject to the supervision of CIMA and CIMA may at any time direct
Oxbridge Reinsurance Limited, in relation to a policy, a line of
business or the entire business, to cease or refrain from
committing an act or pursing a course of conduct and to perform
such acts as in the opinion of CIMA are necessary to remedy or
ameliorate the situation.
Furthermore, in
certain circumstances, including when CIMA is of the opinion
that:
●
a licensee either
is or appears to be likely to become unable to meet its obligations
as they fall due;
●
a licensee is
carrying on its business in a manner which is seen as detrimental
to the general public interest or to the interests of its creditors
or policy holders;
●
the activities of
any member of the licensee’s insurance group are detrimental
to those interests of the licensee’s creditors, as well as
its policy holders;
●
a licensee has
contravened the Law or the Money Laundering Regulations (2015
Revision) of the Cayman Islands;
●
the licensee has
failed to comply with a condition of its license such as
maintaining a margin of solvency as prescribed by
CIMA;
●
the direction
and/or management of the licensee’s business has not been
conducted in a fit and proper manner;
●
a director, manager
or officer of the licensee’s business is not someone who
would qualify or be seen as a person suitable to hold the
respective position;
●
any person who is
either holding or acquiring control or ownership of the licensee is
not a fit and proper person to have such control or
ownership;
●
the licensee has
ceased to carry on business; or
●
the licensee is
placed in liquidation or is dissolved;
CIMA
may take one of a number of steps, including:
●
requiring the
licensee to take steps to rectify the matter;
●
suspending the
license of the licensee pending a full inquiry into the
licensee’s affairs;
●
imposing conditions
upon the licensee in terms of decisions made by it, including the
suspension of voting rights or nullification of votes cast by it,
and amending or revoking any such condition;
●
requiring the
substitution or removal of any director, manager or officer of the
licensee, at the expense of the licensee;
●
appointing a person
to advise the licensee on the proper conduct of its affairs, at the
expense of the licensee;
●
appointing a person
to assume control of the licensee’s affairs; or
●
otherwise requiring
such action to be taken by the licensee as CIMA considers
necessary.
Failures to comply
with a direction given by CIMA may be punishable by a fine of up to
five hundred thousand Cayman Islands dollars (US$609,756.10 based
on the Cayman Islands’ pegged exchange rate of CI$0.82 per
US$1.00 as of March 23, 2021) or imprisonment for a term of five
years or both, and a fine of an additional ten thousand Cayman
Islands dollars (US$12,195.12) for every day after conviction on
which the offense so continues.
Our reinsurance subsidiaries are subject to minimum capital and
surplus requirements, and our failure to meet these requirements
could subject us to regulatory action.
Pursuant to the
Capital and Solvency Regulations, Oxbridge Reinsurance Limited and
Oxbridge Re NS, our reinsurance subsidiaries, are each required to
maintain the statutory minimum capital requirement (as defined
under the Capital and Solvency Regulations) of $500 and prescribed
capital requirement (as defined under the Capital and Solvency
Regulations) of $500, and a minimum margin of solvency equal to or
in excess of the total prescribed capital requirement. Any failure
to meet the applicable requirements or minimum statutory capital
requirements could subject us to further examination or corrective
action by CIMA, including restrictions on dividend payments,
limitations on our writing of additional business or engaging in
finance activities, supervision or liquidation.
As a holding company, we will depend on the ability of our
subsidiaries to pay dividends.
We are
a holding company and do not have any significant operations or
assets other than our ownership of the shares of our subsidiaries
Oxbridge Reinsurance Limited and Oxbridge Re NS. Dividends and
other permitted distributions from our subsidiaries will be our
primary source of funds to meet ongoing cash requirements,
including future debt service payments, if any, and other expenses,
and to pay dividends to our shareholders if we choose to do so. Our
subsidiaries will be subject to applicable law as well as
significant regulatory restrictions limiting their ability to
declare and pay dividends. The inability of our subsidiaries to pay
dividends in an amount sufficient to enable us to meet our cash
requirements at the holding company level could have an adverse
effect on our operations and our ability to pay dividends to our
shareholders if we choose to do so and/or meet our debt service
obligations, if any.
We are subject to the risk of possibly becoming an investment
company under U.S. federal securities law.
In the
United States, the Investment Company Act of 1940, as amended (the
“Investment Company Act”), regulates certain companies
that invest in or trade securities. We rely on an exemption under
the Investment Company Act for an entity organized and regulated as
a foreign insurance company which is engaged primarily and
predominantly in the reinsurance of risks on insurance agreements.
The law in this area is subjective and there is a lack of guidance
as to the meaning of ‘‘primarily and
predominantly’’ under the relevant exemption to the
Investment Company Act. For example, there is no standard for the
amount of premiums that need to be written relative to the level of
an entity’s capital in order to qualify for the exemption. If
this exception were deemed inapplicable, we would have to seek to
register under the Investment Company Act as an investment company,
which, under the Investment Company Act, would require an order
from the SEC. Our inability to obtain such an order could have a
significant adverse impact on our business, as we might have to
cease certain operations or risk substantial penalties for
violating the Investment Company Act.
Registered
investment companies are subject to extensive, restrictive and
potentially adverse regulation relating to, among other things,
capital structure, leverage, management, dividends and transactions
with affiliates. Registered investment companies are not permitted
to operate their business in the manner in which we operate (and
intend to operate) our business. Specifically, if we were required
to register under the Investment Company Act, provisions of the
Investment Company Act would limit (and in some cases even
prohibit) our ability to raise additional debt and equity
securities or issue options or warrants (which could impact our
ability to compensate key employees), limit our ability to use
financial leverage, limit our ability to incur indebtedness, and
require changes to the composition of our Board of Directors.
Provisions of the Investment Company Act would also prohibit
(subject to certain exceptions) transactions with
affiliates.
Accordingly, if we
were required to register as an investment company, we would not be
permitted to have many of the relationships that we have or expect
that we may have with affiliated companies.
If at
any time it were established that we had been operating as an
investment company in violation of the registration requirements of
the Investment Company Act, there would be a risk, among other
material adverse consequences, that we could become subject to
monetary penalties or injunctive relief, or both, or that we would
be unable to enforce contracts with third parties or that third
parties could seek to obtain rescission of transactions with us
undertaken during the period in which it was established that we
were an unregistered investment company.
To the
extent that the laws and regulations change in the future so that
contracts we write are deemed not to be reinsurance contracts, we
will be at greater risk of not qualifying for the Investment
Company Act exemption. Additionally, it is possible that our
classification as an investment company would result in the
suspension or revocation of our reinsurance license.
Insurance regulations to which we are, or may become, subject, and
potential changes thereto, could have a significant and negative
effect on our business.
Although we do not
presently expect that we will conduct business in any jurisdiction
other than the Cayman Islands, we cannot assure you that insurance
regulators in the United States or elsewhere will not review our
activities and claim that we are subject to such
jurisdiction’s insurance licensing requirements. In addition,
we are subject to indirect regulatory requirements imposed by
jurisdictions that may limit our ability to provide reinsurance.
For example, our ability to write reinsurance may be subject, in
certain cases, to arrangements satisfactory to applicable
regulatory bodies, and proposed legislation and regulations may
have the effect of imposing additional requirements upon, or
restricting the market for, non-U.S. reinsurers such as Oxbridge
Reinsurance Limited and Oxbridge Re NS, with whom domestic
companies may place business. We do not know of any such proposed
legislation pending at this time.
Furthermore, we may
not be able to comply fully with, or obtain desired exemptions
from, revised statutes, regulations and policies that currently, or
may in the future, govern the conduct of our business. Failure to
comply with, or to obtain desired authorizations and/or exemptions
under, any applicable laws could result in restrictions on our
ability to do business or undertake activities that are regulated
in the jurisdictions in which we operate and could subject us to
fines and other sanctions. In addition, changes in the laws or
regulations to which our reinsurance subsidiary is subject or may
become subject, or in the interpretations thereof by enforcement or
regulatory agencies, could have a material adverse effect on our
business, our business plans, and our growth strategy.
We will likely be exposed to credit risk due to the possibility
that counterparties may default on their obligations to
us.
Due to
our investments in our portfolio, we are exposed to credit risk due
to the possibility that counterparties may default on their
obligations to us. Issuers or borrowers whose securities or debt we
hold, customers, reinsurers, clearing agents, exchanges, clearing
houses and other financial intermediaries and guarantors may
default on their obligations to us due to bankruptcy, insolvency,
lack of liquidity, adverse economic conditions, operational
failure, fraud or other reasons. Such defaults could have a
significant and negative effect on our results of operations,
financial condition and cash flows.
Risks Relating to our Securities
Provisions of our Third Amended and Restated Memorandum and
Articles of Association (“Articles”) could adversely
affect the value of our securities.
Our
Articles permit our Board of Directors to allot, issue, grant
options over or otherwise dispose of further shares (including
fractions of such share) with or without preferred, deferred or
other rights or restrictions, whether in regard to dividend or
other distribution, voting, return of capital or otherwise and to
such persons, at such times and on such other terms as they
consider appropriate. Accordingly, our Board of Directors may
authorize the issuance of preferred shares with terms and
conditions and under circumstances that could have an effect of
discouraging a takeover or other transaction, deny shareholders the
receipt of a premium on their ordinary shares in the event of a
tender or other offer for ordinary shares and have a depressive
effect on the value of our ordinary shares.
Provisions of the Companies Law of the Cayman Islands could prevent
a merger or takeover of our company.
As
compared to mergers under corporate law in the United States, it
may be more difficult to consummate a merger of two or more
companies in the Cayman Islands or the merger of one or more Cayman
Islands companies with one or more overseas companies, even if such
transaction would be beneficial to our shareholders. The Companies
Law of the Cayman Islands, as amended (the “Companies
Law”), permits mergers and consolidations between Cayman
Islands companies and between Cayman Islands companies and
non-Cayman Islands companies. For these purposes, (a)
“merger” means the merging of two or more constituent
companies and the vesting of their undertaking, property and
liabilities in one of such companies as the surviving company and
(b) a “consolidation” means the combination of two or
more constituent companies into a combined company and the vesting
of the undertaking, property and liabilities of such companies to
the consolidated company. In order to effect such a merger or
consolidation, the directors of each constituent company must
approve a written plan of merger or consolidation, which must then
be authorized by (a) a special resolution of the shareholders of
each constituent company, and (b) such other authorization, if any,
as may be specified in such constituent company’s articles of
association. The written plan of merger or consolidation must be
filed with the Registrar of Companies together with a declaration
as to the solvency of the consolidated or surviving company, a list
of the assets and liabilities of each constituent company and an
undertaking that a copy of the certificate of merger or
consolidation will be given to the shareholders and creditors of
each constituent company and that notification of the merger or
consolidation will be published in the Cayman Islands Gazette.
Dissenting shareholders have the right to be paid the fair value of
their shares (which, if not agreed between the parties, will be
determined by the Cayman Islands court) if they follow the required
procedures, subject to certain exceptions. Court approval is not
required for a merger or consolidation which is effected in
compliance with these statutory procedures.
In
addition, there are statutory provisions that facilitate the
reconstruction and amalgamation of companies, provided that the
arrangement is approved by a majority in number of each class of
shareholders or creditors (representing 75% by value) with whom the
arrangement is to be made and who must, in addition, represent
three-fourths in value of each such class of shareholders or
creditors, as the case may be, that are present and voting either
in person or by proxy at a meeting, or meetings, convened for that
purpose. The convening of the meetings and subsequently the
arrangement must be sanctioned by the Grand Court of the Cayman
Islands. While a dissenting shareholder has the right to express to
the court the view that the transaction ought not to be approved,
the court can be expected to approve the arrangement if it
determines that:
●
the statutory
provisions as to the required majority vote have been
met;
●
the shareholders
have been fairly represented at the meeting in question and the
statutory majority are acting bona fide without coercion of the
minority to promote interests adverse to those of the
class;
●
the arrangement is
such that may be reasonably approved by an intelligent and honest
man of that class acting in respect of his interest;
and
●
the arrangement is
not one that would more properly be sanctioned under some other
provision of the Companies Law.
When a
takeover offer is made and accepted by holders of 90% of the shares
within four months, the offeror may, within a two-month period
commencing on the expiration of such four-month period, require the
holders of the remaining shares to transfer such shares on the
terms of the offer. An objection can be made to the Grand Court of
the Cayman Islands, but such objection is unlikely to succeed in
the case of an offer which has been so approved unless there is
evidence of fraud, bad faith or collusion.
If an
arrangement and reconstruction is thus approved, the dissenting
shareholder would have no rights comparable to appraisal rights,
which would otherwise ordinarily be available to dissenting
shareholders of certain corporations incorporated in the United
States, including Delaware corporations, providing rights to
receive payment in cash for the judicially determined value of the
shares.
Holders of our securities may have difficulty obtaining or
enforcing a judgment against us, and they may face difficulties in
protecting their interests because we are incorporated under Cayman
Islands law.
Because
we are a Cayman Islands company, there is uncertainty as to whether
the Grand Court of the Cayman Islands would recognize or enforce
judgments of United States courts obtained against us predicated
upon the civil liability provisions of the securities laws of the
United States or any state thereof, or be competent to hear
original actions brought in the Cayman Islands against us
predicated upon the securities laws of the United States or any
state thereof.
We are
incorporated as an exempted company limited by shares under the
Companies Law. A significant amount of our assets are located
outside of the United States. As a result, it may be difficult for
persons purchasing our securities to effect service of process
within the United States upon us or to enforce judgments against us
or judgments obtained in U.S. courts predicated upon the civil
liability provisions of the federal securities laws of the United
States or any state of the United States.
Although there is
no statutory enforcement in the Cayman Islands of judgments
obtained in the United States, the courts of the Cayman Islands
will, based on the principle that a judgment by a competent foreign
court will impose upon the judgment debtor an obligation to pay the
sum for which judgment has been given, recognize and enforce a
foreign judgment of a court of competent jurisdiction if such
judgment is final, for a liquidated sum, not in respect of taxes or
a fine or penalty if not inconsistent with a Cayman Islands
judgment in respect of the same matters, and was not obtained in a
manner, and is not of a kind, the enforcement of which is contrary
to the public policy of the Cayman Islands. There is doubt,
however, as to whether the courts of the Cayman Islands will, in an
original action in the Cayman Islands, recognize or enforce
judgments of U.S. courts predicated upon the civil liability
provisions of the securities laws of the United States or any state
of the United States on the grounds that such provisions are penal
in nature. Furthermore, a Cayman Islands court may stay proceedings
if concurrent proceedings are being brought elsewhere.
Unlike
many jurisdictions in the United States, Cayman Islands law does
not specifically provide for shareholder appraisal rights on a
merger or consolidation of an entity. This may make it more
difficult for shareholders to assess the value of any consideration
they may receive in a merger or consolidation or to require that
the offeror give a shareholder additional consideration if he
believes the consideration offered is insufficient. In addition,
shareholders of Cayman Islands exempted companies such as ours have
no general rights under Cayman Islands law to inspect corporate
records and accounts. Our directors have discretion under our
Articles to determine whether or not, and under what conditions,
the corporate records may be inspected by shareholders, but are not
obligated to make them available to shareholders. This fact may
make it more difficult for shareholders to obtain the information
needed to establish any facts necessary for a shareholder motion or
to solicit proxies from other shareholders in connection with a
proxy contest. Finally, subject to limited exceptions, under Cayman
Islands law, a minority shareholder may not bring a derivative
action against our Board of Directors.
Provisions of our Articles may reallocate the voting power of our
ordinary shares.
In
certain circumstances, the total voting power of our ordinary
shares held by any one person will be reduced to less than 9.9% of
the total voting power of the total issued and outstanding ordinary
shares. In the event a holder of our ordinary shares acquires
shares representing 9.9% or more of the total voting power of our
total ordinary shares, there will be an effective reallocation of
the voting power of the ordinary shares as described in the
Articles.
We do not currently have an effective registration statement
registering the issuance of the shares underlying our publicly
traded warrants, and therefore you may not be able to exercise the
warrants in a cash exercise.
For you to be able to effect a cash exercise our
publicly traded warrants, the sale of the ordinary shares to
be issued to you upon exercise of the warrants must be covered by
an effective and current registration statement. We have not
maintained a current registration statement relating to the sale of
the shares of common stock underlying the warrants. As a result,
you would be unable to exercise the warrants in a cash exercise and
will be required to engage in a cashless exercise in which a number
of warrant shares equal to the fair market value of the exercised
shares will be withheld. In those circumstances, we may, but are
not required to, redeem the warrants by payment in cash.
Consequently, there is a possibility that you will never be able to
exercise the warrants and receive the underlying ordinary shares.
This potential inability to exercise the warrants in a cash
exercise, our right to cancel the warrants under certain
circumstances, and the possibility that we may redeem the warrants
for nominal value, may have an adverse effect on demand for the
warrants and the prices that can be obtained from reselling
them.
Risks Relating to Taxation
We may become subject to taxation in the Cayman Islands which would
negatively affect our results.
Under
current Cayman Islands law, we are not obligated to pay any taxes
in the Cayman Islands on either income or capital gains. The
Governor-in-Cabinet of Cayman Islands has granted us an exemption
from the imposition of any such tax on us for twenty years from
April 23, 2013. We cannot be assured that after such date we would
not be subject to any such tax. If we were to become subject to
taxation in the Cayman Islands, our financial condition and results
of operations could be significantly and negatively
affected.
We may be subject to United States federal income
taxation.
We are
incorporated under the laws of the Cayman Islands and intend to
operate in a manner that will not cause us to be treated as
engaging in a United States trade or business and will not cause us
to be subject to current United States federal income taxation on
our income. However, because there are no definitive standards
provided by the Internal Revenue Code of 1986, as amended (the
“Code”), regulations or court decisions as to the
specific activities that constitute being engaged in the conduct of
a trade or business within the United States, and as any such
determination is essentially factual in nature, we cannot assure
you that the United States Internal Revenue Service, or the IRS,
will not successfully assert that we are engaged in a trade or
business in the United States and thus are subject to current
United States federal income taxation.
We may be treated as a PFIC, in which case a U.S. holder of our
ordinary shares should be subject to disadvantageous rules under
U.S. federal income tax laws.
Significant
potential adverse United States federal income tax consequences
generally apply to any United States person who owns shares in a
“passive foreign investment company”, or PFIC. In
general, a non-U.S. corporation is classified as a PFIC for a
taxable year in which, after taking into account the income and
assets of the corporation and certain subsidiaries pursuant to
certain look-through rules, either (i) 75% or more of its gross
income is passive income, or (ii) 50% or more of the average
quarterly value of its gross assets is attributable to assets that
produce passive income or are held for the production of passive
income.
Passive
income generally includes interest, dividends and other investment
income. However, the income derived in the active conduct of an
insurance business is excluded from the term “passive
income” if (i) for years before 2020, the income is earned by
a corporation that is predominantly engaged in an insurance
business, and (ii) for years after 2019, the income is earned by a
“qualifying insurance corporation”. In order for a
non-U.S. property and casualty insurance company to be treated as a
“qualifying insurance corporation” for a taxable year,
the company’s “applicable insurance liabilities”
generally must be greater than 25% of the company’s assets
for the taxable year. In the case of a non-U.S. property and
casualty insurance company, the term “applicable insurance
liabilities” means the amount of loss and loss adjustment
expenses, but shall not exceed the amount reported to the
applicable regulator in an applicable financial statement. It is
not clear whether the term “applicable insurance
liabilities” includes not only the unpaid loss and loss
adjustment expenses, but also includes the paid loss and loss
adjustment expenses during the taxable year. If each of Oxbridge
Reinsurance Limited and Oxbridge Re NS is a “qualified
insurance corporation” for a taxable year, then neither
Oxbridge Re Holdings Limited, nor Oxbridge Reinsurance Limited, nor
Oxbridge Re NS should be deemed to be a PFIC for the taxable
year.
Regardless of
whether the term “applicable insurance liabilities”
includes not only the unpaid loss and loss adjustment expenses but
also the paid loss and loss adjustment expenses, we believe that
each of Oxbridge Reinsurance Limited and Oxbridge Re NS met the
requirements for being a “qualified insurance
corporation” for the 2020 year. For years prior to 2020, we
also believe that each of those corporations met the requirement of
being predominantly engaged in an insurance business. Accordingly,
we believe that we have not been a PFIC during 2020 or prior years.
We do not have an expectation, however, as to whether or not we may
be a PFIC in years after 2020. If you are a United States person,
we urge you to consult your own tax advisor concerning the
potential tax consequences to you under the PFIC
rules.
We may be treated as a CFC and may be subject to the rules for
related person insurance income, and in either case this may
subject a U.S. holder of our ordinary shares to disadvantageous
rules under U.S. federal income tax laws.
Controlled Foreign Corporation. United
States persons who, directly or constructively through attribution
rules, own 10% or more of the voting power or value of our ordinary
shares, which we refer to as United States 10% shareholders, may be
subject to the controlled foreign corporation, or CFC, rules. Under
the controlled foreign corporation rules of the Code, each United
States 10% shareholder must annually include his pro rata share of
the controlled foreign corporation’s ‘‘Subpart F
income,’’ even if no distributions are made. In
general, a foreign insurance company will be treated as a
controlled foreign corporation only if United States 10%
shareholders collectively own, directly or constructively, more
than 25% of the total combined voting power or total value of the
company’s shares. If you are a United States person we urge
you to consult your own tax advisor concerning the controlled
foreign corporation rules. We believe that certain United States
persons may be deemed to own, directly or constructively (including
through the ownership of warrants), 10% or more of the voting power
or value of our ordinary shares, and we believe that those United
States persons collectively own, directly or constructively, more
than 25% of the voting power or value of our ordinary
shares.
Related Person Insurance Income. A
different definition of CFC is applicable in the case of a foreign
corporation which earns “related person insurance
income” (“RPII”). RPII is a Code Subpart F
insurance income attributable to insurance policies or reinsurance
contracts where the person that is directly or indirectly insured
or reinsured is a RPII shareholder or a related person to the RPII
shareholder. A “RPII shareholder” is a United States
person who owns, directly or indirectly through foreign entities,
any amount of our ordinary shares. Generally, for purposes of the
RPII rules, a related person is someone who controls or is
controlled by the RPII shareholder or someone who is controlled by
the same person or persons which control the RPII shareholder.
Control is measured by either more than 50% in value or more than
50% in voting power of shares after applying certain constructive
ownership rules. For purposes of taking into account RPII, and
subject to the exceptions described below, Oxbridge Reinsurance
Limited or Oxbridge Re NS will be treated as a CFC if our RPII
shareholders collectively own, indirectly, 25% or more of the total
combined voting power or value of their respective shares on any
day during a taxable year. If Oxbridge Reinsurance Limited or
Oxbridge Re NS is a CFC at any time during a taxable year under the
special RPII rules, any U.S. Holder that owns ordinary shares on
the last day of any such taxable year must include in gross income
for U.S. federal income tax purposes the U.S. Holder’s
allocable share of the RPII of Oxbridge Reinsurance Limited for the
entire taxable year, subject to certain modifications. Among other
exceptions, the RPII rules do not apply if the insurance
company’s RPII, determined on a gross basis, is less than 20%
of such respective entity’s gross insurance income for such
taxable year. We do not believe that the 20% gross insurance income
threshold will be met. However, we cannot assure you that this is
or will continue to be the case. Consequently, we cannot assure you
that a person who is a direct or indirect United States shareholder
will not be required to include amounts in its income in respect of
RPII in any taxable year.
United States tax-exempt organizations who own ordinary shares may
recognize unrelated business taxable income.
If you
are a United States tax-exempt organization you may recognize
unrelated business taxable income if a portion of our Code Subpart
F insurance income is allocated to you. In general, Code Subpart F
insurance income will be allocated to you if we are a CFC as
discussed above and you are a United States 10% shareholder or
there is related person insurance income and certain exceptions do
not apply. If you are a United States tax-exempt organization, we
advise you to consult your own tax advisor regarding the risk of
recognizing unrelated business taxable income.
Changes in United States tax laws may be retroactive and could
subject us, and/or United States persons who own ordinary shares to
United States income taxation on our undistributed
earnings.
The tax
laws and interpretations regarding whether a company is engaged in
a United States trade or business, is a CFC, has RPII, or is a PFIC
are subject to change, possibly on a retroactive basis. There are
currently no regulations regarding the application of the PFIC
rules to an insurance company and the regulations regarding RPII
are still in proposed form. New regulations or pronouncements
interpreting or clarifying such rules may be forthcoming from the
IRS. We are not able to predict if, when or in what form such
guidance will be provided and whether such guidance will have a
retroactive effect.
We do not intend to resume paying cash dividends in the foreseeable
future.
On
November 12, 2017, our board of directors decided to suspend our
regular quarterly cash dividend. The board of directors
intends to reconsider in the future the payment of a quarterly cash
dividend, but the timing of such reconsideration has not been
determined, and there is no intention to resume dividend payments
in the foreseeable future, if at all. Any decision to
resume dividend payments will be dependent upon a variety of
factors, including the state of our business as well as general
market conditions at the time of reconsideration, and there is no
assurance that dividend payments will recommence.
UNRESOLVED STAFF COMMENTS
The
Company has no unresolved written comments regarding its periodic
or current reports from the staff of the SEC.
We
previously leased office space at 2nd Floor, Strathvale
House, Georgetown, Grand Cayman, Cayman Islands. Effective March 1,
2019, we lease office space at Suite 201, 42 Edward Street,
Georgetown Grand Cayman. We believe that our current office is
suitable and sufficient for us to conduct our operations for the
foreseeable future.
We are
not currently involved in any litigation or arbitration. We
anticipate that, similar to the rest of the insurance and
reinsurance industry, we will be subject to litigation and
arbitration in the ordinary course of business.
Not
applicable.