Oxbridge Re - Q1 2023

Transcript

Operator (participant)

Good afternoon. Welcome to Oxbridge Re's first quarter 2023 earnings call. My name is Camilla. I will be your conference operator this afternoon. At this time, all participants are in listen only mode. Joining us for today's presentation is Oxbridge Re Chairman, President, and Chief Executive Officer, Jay Madhu, and Chief Financial Officer and Corporate Secretary, Wrendon Timothy. Following the remarks, we will open up the call for your questions. I would like to remind everyone that this call is also being broadcast live via webcast and available via webcast replay on the investor relations section of the Oxbridge Re website at www.oxbridgere.com. I would like to turn the floor over to Wrendon Timothy, Chief Financial Officer of Oxbridge Re, who will provide the necessary cautions regarding the forward-looking statements that will be made by management during this call. Thank you. Wrendon, you may begin.

Wrendon Timothy (CFO and Corporate Secretary)

Thank you, operator. During today's call, there will be forward-looking statements made regarding future events, including Oxbridge Re's future financial performance. These forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995. Words such as anticipate, estimates, expects, intends, plans, projects, and other similar words and expressions are intended to signify forward-looking statements. Forward-looking statements are not guarantees of future results and conditions, but rather are subject to various risks and uncertainties. A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in the section entitled Risk Factors in our Form 10-K file on March 30th, 2023, and our Form 10-K file today with the Securities and Exchange Commission.

The occurrence of any of these risks and uncertainties could have a material adverse effect on the company's business, financial condition, and the volatility of our earnings, which in turn can cause significant market price and trading volume fluctuation for our securities. Any forward-looking statements made on this conference call speaks only as of the date of this conference call. Except as required by law, the company undertakes no obligation to update any forward-looking statements contained on this call or in any company presentation, even if the company's expectations or any related events, conditions, or circumstances change. Now I'd like to turn the call over to our Chairman, President, and Chief Executive Officer, Jay Madhu. Jay?

Jay Madhu (Chairman, President, and CEO)

Thank you, Wrendon, welcome everyone. Thank you for joining us today. Before we start, I would like to take a moment to provide a brief overview of our company. Oxbridge Re Holdings Limited was founded 10 years ago with a mission to provide reinsurance solutions primarily to property and casualty insurers in the Gulf Coast region of the United States. We are very proud to be celebrating our 10th anniversary this year. Through our licensed reinsurance subsidiary, Oxbridge Reinsurance Limited, and our licensed reinsurance sidecar, Oxbridge Re NS Ltd., we write fully collateralized policies to cover property losses from specific catastrophes. Because we write fully collateralized contracts, we believe we can compete efficiency with large carriers. We specialize in underwriting low frequency, high severity risks, where we believe sufficient data exists to effectively analyze the risk return profile of reinsurance contracts.

Our objective is to achieve long-term growth in book value per share by writing business on a selective and opportunistic basis that will generate attractive underwriting profits relative to risk. We diversified our business in 2021 by being the lead and the sponsor of Oxbridge Acquisition Corp, a special purpose acquisition company or SPAC, focusing on investing in disruptive technologies. During the first quarter of 2023, Oxbridge Acquisitions announced its intention to form a business combination with Jet.AI Inc. The company develops software and offers fractional aircraft ownership, Jet Card, aircraft brokerage, and charter through its fleet of private aircraft and those of its operating partner. Jet.AI operates along 2 segments, software and aviation. The software segment features a B2C CharterGPT app and the B2B Jet.AI Operator platform.

The CharterGPT app uses natural language processing and machine learning to improve the private jet booking experience. The Jet.AI Operator platform offers a suite of standalone software products to enable FAA Part 135 charter providers to add revenue, maximize efficiency, and reduce environmental impact. The aviation segment features jet aircraft fractions, Jet Cards, off-fleet charter management, and buyers brokerage. The transaction is expected to close at the end of the second quarter of this year pending SEC and OXAC shareholder approval. We also further diversified our business with the creation of our new Web3 subsidiary, SurancePlus, Inc. The company offers an alternative investment opportunity, leveraging key qualities of blockchain technology to create a well-designed digital security under SEC guidelines that have complete transparency and compliance.

SurancePlus commenced an offering of securitized tokens, which assuming no losses, are expected to generate a potential return of approximately 42% a year. This new thrust is an entry into the Web3 and digital security market, which puts real-world assets on the blockchain and opens an entirely new avenue of democratizing reinsurance and potentially other opportunities in the future. We are very excited about both of these new opportunities and look forward to keeping you appraised of their progress in the upcoming quarters. Regarding our investment portfolio, we remain opportunistic and will deploy our capital when favorable return opportunities arise that can contribute to the growth of capital and surplus in our licensed reinsurance subsidiaries over time. Over the long term, we remain highly opportunistic about the prospects of our core reinsurance business and the two investments I commented on earlier in Oxbridge Acquisition Corp. as well as SurancePlus.

I'll now turn things over to Wrendon to take us through our financial results.

Wrendon Timothy (CFO and Corporate Secretary)

Thank you, Jay. I would like to remind you that our typical reinsurance contract period is from June 1 to May 31st of the following year. With regards to net premiums earned, net premiums earned for the quarter ended March 31, 2023, were nil compared to $210,000 in the last year's first quarter. The decrease was due to the acceleration of premium recognition and so far reinsurance contracts during 2022 arising from the limit loss support from the Hurricane Ian impact. There have been no reinsurance premiums recorded in this quarter. There have also been no losses to date incurred in 2023. With regards to investment income, our net investment income and other income rose in the quarter to $89,000 from $33,000 due to higher rates on money market funds.

We generated a solid $301,000 unrealized gain in the fourth quarter of 2023 due to a fair value change in our equity investment in Oxbridge Acquisition Corp. In last year's first quarter, this change resulted in a $250,000 unrealized loss. We also recognized a $76,000 positive change in the fair value for equity securities as of March 31, 2023, much improved from the $20,000 negative change in the prior year's first quarter. All these factors taken together resulted in total revenues of $546,000 for the three months ending March 31, 2023 compared to nil in the prior year's first quarter. With regards to total expenses, total expenses were up marginally in the fourth quarter of 2023 to $404,000 from $361,000 last year.

There were no policy acquisition costs or underwriting expenses in the quarter due to the acceleration of premium recognition and the resulting acceleration of policy acquisition costs. In addition, general and admin expenses are high in 2023 due to increased personnel costs and inflationary cost pressures. Due primarily to the positive change in the fair value for equity securities and all the investments in the quarter, we generated net income of $142,000 or $0.02 per share for the three months ending March 31, 2023, compared to a net loss of $307,000 or $0.07 per share in the last year's first quarter. As we have discussed before in our investor calls, we use various measures to analyze the growth and profitability of our business.

For our reinsurance business, we measure underwriting profitability by examining our loss ratio, acquisition ratio, expense ratio, and combined ratio. Our loss ratio, which measures underwriting profitability, is the ratio of loss and loss adjustment expenses included in net premiums earned. With no losses or loss adjustment expenses in either first quarter of 2023 or 2022, the loss ratio was 0% in both periods. Our acquisition cost ratio, which measures operational efficiency, compared policy acquisition costs and net premiums earned. Likewise, with no premiums earned in the first quarter of 2023, the ratio was 0% compared to 11% in the prior year. Our expense ratio, which measures operating performance, compares policy acquisition costs and general admin expenses with net premiums earned.

As a result of no premiums in 2023, our expense ratio was 0% in the first quarter compared to 171.9% in the first quarter of 2022. Our combined ratio, which is used to measure underwriting performance, is the sum of the loss ratio and expense ratio. With no premiums earned in the first quarter, the combined ratio is 0% compared to 171.9% in last year's first quarter. Turning to the balance sheet. Our investment portfolio increased to $718,000 at March 31, 2023, from $642,000 at the prior end, largely due to gain of experience during the quarter. Our investments increased marginally due to the positive change in the fair value of our investments in Oxbridge Acquisition Corp.

Cash and cash equivalents, unrestricted cash and cash equivalents increased to $3.6 million at March 31, 2023, compared to $3.9 million on December 31, 2022. Total shareholders equity at quarter end increased to $15.2 million or approximately $2.59 per common share. Now I'll turn the call back over to Jay to wrap up before we take your questions.

Jay Madhu (Chairman, President, and CEO)

Thank you, Rendon. As we discussed on our year-end conference call in late January, we announced the incorporation of SurancePlus, a wholly-owned subsidiary of Oxbridge Re. SurancePlus will issue tokenized securities that indirectly represent fractionalized interest in reinsurance contracts underwritten by our reinsurance subsidiary. Token holders will receive a return on the performance of these underlying reinsurance contracts. In essence, SurancePlus will democratize access to reinsurance as an alternative investment opportunity that leverages the key qualities of blockchain technology to create a well-designed digital security. Our tokens will enable more investors to participate and have their interest permanently and transparently recorded on the chain. These opportunities were typically unavailable to investors in the past due to high barriers to entry.

Following this exciting investment opportunity in late February, we utilized Oxbridge Acquisition Corp to embark on a business combination with Jet.AI Inc, a company offering fractionalized aircraft ownership, Jet Card, aircraft brokerage, and charter service to its fleet of private aircraft. Our wholly-owned subsidiary, Oxbridge Reinsurance Limited, is the lead investor in our SPAC sponsor and holds 1.5 million shares, which at the closing of transaction, will have a value of approximately $14.2 million, not including the value of 3.1 million private warrants we beneficially own in the SPAC. These exciting new investment opportunities further diversify our business and risk portfolio, positioning us to capitalize on growth in emerging technologies. We are very excited about the future value of these investments and the potential they bring to our shareholders.

In closing, our book value per share at quarter end is, pardon me, $2.59 per share. Our business is well diversified. Our investment in SurancePlus positions us in a new leading edge Web3 technology business. Our investment in Oxbridge Acquisition/Jet.AI, an artificial intelligence aviation business, is on track. We remain debt-free. We have strong balance sheet with a solid cash position. Most importantly, we have opportunity based on a viable business model that is based on diversification. We remain opportunistic not only in our core business, but also our broader view of the market. We open the call for questions. Operator, please provide the appropriate instructions.

Operator (participant)

Thank you, sir. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Thank you. Our first question comes from Kent Engelke with Capitol Securities. Please proceed with your question.

Kent Engelke (Chief Economic Strategist and Managing Director)

Hey, Jay. Hey, Wrendon. A couple questions come to mind right now. I guess the first and foremost, on the SurancePlus, to try to increase the potential value there, you have a lot of things going on. You ever considered the possibility of maybe spinning something out to recognize that value that is there? Secondly, in regards to on the SPAC, you know, were we out on the voting of the SPAC itself? I would think that once that that merger is closed, there should be a very large release of potential value, at least on the balance sheet, based upon accounting rules and the like. Looking where your price of stock is, looks like there's a lot of value based upon, you know, things that are already in place.

Jay Madhu (Chairman, President, and CEO)

Hi, Kent. I'll take your second question first. The answer to that is yes. We don't realize a full mark-to-market value on the investment on the SPAC at the moment, but once that's closed, that will normalize. There will be an uptick in recognition. We're looking forward to that. We hope that actually just yesterday, the SEC comments went in yesterday and got filed with the SEC, the second round of comments, the first round of comments rather. If all goes well, we expect this to close by the end of Q2 of this year. Everything looks on track, and we're good to go there. In relation to your first question, how do we monetize SurancePlus?

That will be, you know, work in progress, but what we have done is we have developed a Web3 company internally. We didn't go out. There was no dilution. We didn't raise capital. We didn't raise cash. We developed it all in-house. Shareholders have owned 100% of that company at the moment. As we go forward, and it'll definitely be board approval, et cetera, but there's definitely an opportunity to maybe do something much bigger. Once we go forward with SurancePlus and we issue the reinsurance token, there's definitely opportunity to go raise funds and do various different tokens of the like as well. Absolutely, we're very excited.

Kent Engelke (Chief Economic Strategist and Managing Director)

A lot of opportunity, a lot of potential. Following you all for a long time, it looks like we're finally on the cusp of doing something.

Jay Madhu (Chairman, President, and CEO)

Yes. Yes. This has been an extremely busy year, extremely busy last year, but now we're almost there. Looking forward to it.

Kent Engelke (Chief Economic Strategist and Managing Director)

Look forward to the upcoming conference calls.

Jay Madhu (Chairman, President, and CEO)

Thank you, Kent. Thanks, Kent.

Operator (participant)

As a reminder, if you would like to ask a question, it is star one on your telephone keypad. At this time, this concludes our question and answer session. I'd now like to turn the call back over to Mr. Madhu for closing remarks.

Jay Madhu (Chairman, President, and CEO)

Thank you for joining us on today's call. Before we wrap up, I want to thank our employees, business partners, and investors for their continuing support. I especially want to express our gratitude to the Oxbridge team, who continue to leverage their significant experience to manage and build our business during these challenging times. We look forward to updating you on our next call. If you have any further questions, please contact me anytime. Thank you again for your time and attention today and your interest in Oxbridge. Operator?

Operator (participant)

Thank you. Before we conclude today's call, I would like to remind everyone that a recording of today's call will be available for replay via a link available in the Investors section of the company's website until May 26, 2023. Thank you for joining us today for our presentation. You may now disconnect.