Oxbridge Re - Q1 2024

Transcript

Operator (participant)

Good afternoon, and welcome to Oxbridge Re's first quarter 2024 earnings call. My name is Audra, and I will be your conference operator this afternoon. At this time, all participants will be in a listen-only mode. Joining us for today's presentation is Oxbridge Re's Chairman, President, and Chief Executive Officer, Jay Madhu, and Chief Financial Officer and Corporate Secretary, Wrendon Timothy. Following their remarks, we will open up the call for your questions. I would like to remind everyone that this call is also being broadcast live via webcast and available via webcast replay until May 23, 2024, on the investor information section of the Oxbridge Re website at www.oxbridgere.com.

Now, I would like to turn the call over to Wrendon Timothy, Chief Financial Officer of Oxbridge Re, who will provide the necessary cautions regarding the forward-looking statements that will be made by management during this call. Please go ahead.

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, estimate, expects, intends, plans, project, 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 subject to various risks and uncertainties. A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in the section entitled Risk Factors, contained in our 10-K filed on March 26, 2024.

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 fluctuations for our securities. Any forward-looking statements made on this conference call speak 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)

Hi, Wrendon, and thank you so much. Welcome, everyone. Thank you for joining us today. Let me start by saying we are proud of the significant steps we have taken in last year to fortify and diversify our business. Our core business remains reinsurance, where we write fully collateralized policies to cover property losses from specific catastrophes. And because we write fully collateralized contracts, we believe we can compete effectively with large carriers. We specialize in underwriting low frequency, high severity risk, where we believe sufficient data exists to efficiently analyze the risk-return profile of reinsurance contracts. Our objective is to achieve long-term growth in book value per share by writing business on a selective and opportunistic basis that will generate attractive underwriting profits relative to risk.

Building on the stable reinsurance foundation, we began to diversify our business in 2021 as a lead sponsor of Oxbridge Acquisition Corp, a special purpose acquisition company, or SPAC, focusing on investing in disruptive technology. In August of 2023, Oxbridge Acquisition successfully completed its 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. It operates in two segments: software and aviation. The software segment features the 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 such as Reroute and DynoFlight, which are carbon credits, to enable FAA Part 135 charter operators to add revenue, maximize efficiency, and reduce environmental impact. The aviation segment features jet aircraft fractions, Jet Cards, on-fleet charter, management, and buyers brokerage. With the completion of the business combination in 2023, the company began trading on the Nasdaq Stock Exchange. Our interest in Jet.AI is recognized at fair value in other investments on our balance sheet. In 2020, we expanded our business portfolio by establishing SurancePlus Inc., a new subsidiary focused on Web3 technology. SurancePlus specializes in democratizing tokenized real-world assets, or RWAs, offering tokenized reinsurance securities as alternative investment opportunities.

These securities leverage blockchain technology to ensure complete transparency and compliance with SEC guidelines, representing a significant advancement in the digital security market. Consequently, this initiative aims to broaden investor participation, extending opportunities beyond what traditionally has been a select group of ultra-high net worth individuals. Crucially, the establishment of SurancePlus was achieved without incurring new debt or diluting equity for our shareholders, reflecting our efficient approach to diversification. We are enthusiastic about the prospects of the new investment and remain committed to keeping our shareholders informed of their progress in the upcoming quarters. Looking forward, we intend to reposition Oxbridge as a prominent player in the real-world asset or RWA Web3 sector. Further details on the strategic direction will be shared later in the call...

In summary, we maintain a strong sense of optimism regarding the long-term outlook of our core reinsurance business, alongside the successful integration of our new venture, Jet.AI and SurancePlus, as we embrace the RWA market more comprehensively. Now, I'll turn things over to Wrendon to take us through our financial results. Wrendon?

Wrendon Timothy (CFO and Corporate Secretary)

Thank you, Jay. I'd like to remind you that our typical contract period for reinsurance contracts is from June 1 to May 31st of the following year. Our cash and cash equivalents, unrestricted cash and cash equivalents increased to $4.3 million at March 31st, 2024, compared to $3.7 million at December 31st, 2023. Net premiums earned for the quarter ending March 31, 2024, increased to $549,000, compared to zero in last year's first quarter. The increase is due to the contracts enforced during the quarter ending March 31st, 2024, as opposed to the prior period in which premiums were accelerated prior to the quarter ending March 31st, 2023, as a result of losses incurred from Hurricane Ian. There have been no losses incurred to date in 2024.

Our net investment and other income decreased in the quarter to $62,000 from $89,000 in the prior year's first quarter. We also recorded an unrealized loss of $688,000 on our other investments, the result of our remeasurement of our investment in Jet.AI at fair value. We also recognized an $89,000 negative change in the fair value of our equity securities as of March 31, 2024, decreasing from $76,000 positive change in the prior year's first quarter. All of these factors, taken together, resulted in total revenues of -$125,000 for the three months ending March 31, 2024, compared to $546,000 in the prior year's first quarter.

Total expenses, including loss and loss adjustment expenses, policy acquisition costs, and general and admin expenses, were up in the first quarter of 2024 to $548,000 from $44,000 last year. The increase in 2024 was due to higher professional and legal expenses incurred during the three-month period ending March 31, 2024, as well as no policy acquisition costs recorded in the prior period. Due primarily to the negative change in the fair value for equity securities and investment in Jet.AI, during the quarter, we generated a net loss of $905,000, or $0.15 per share for the three months ending March 31, 2024, compared to net income of $142,000, or $0.02 per share in last year's first quarter.

As we have discussed before on our investor calls, we use various measures to analyze the growth and profitability of our business operations. For our reinsurance business, we measure underwriting profitability by examining our loss ratio, acquisition ratio, expense ratio, and combined ratio. Our loss ratio, which measures underwriting profitability, is the ratio of loss and loss adjustment expenses incurred and then premiums earned. With no loss or loss adjustment expenses in either of the first quarter of 2024 or 2023, the loss ratio was 0% for both periods. For acquisition cost ratio, which measures operational efficiency, compares policy acquisition costs and net premiums earned. The acquisition cost ratio increased to 10.9% for the three-month period ending March 31, 2024, from 0% for the same period last year.

The increase is due primarily to premiums being earned and acquisition costs being expensed during the period ending March 31, 2024, when compared with the prior period. Our expense ratio, which measures operating performance, compares policy acquisition costs and general admin expenses with net premiums earned. Our expense ratio increased to 99.3% in the first quarter, compared to 0% in the first quarter of 2023. The increase is due to higher general admin expenses and policy acquisition costs during the first quarter of 2024. Our combined ratio, which is used to measure underwriting performance, is the sum of the loss ratio and the expense ratio. This ratio increased to 99.8% compared to 0% in the last year's first quarter.

The increase is due to the higher general and administrative expenses and policy acquisition costs incurred during the first quarter of 2024. Our investment portfolio decreased to $284,000 at March 31, 2024, from $680,000 at the prior period end, primarily as a result of the sale of equity securities and a decrease in fair value of the equity securities during the quarter. Our investment decreased due to the fair value change of our investment in Jet.AI, in which the company has an equity investment to measure that fair value. I'll now turn the call back over to Jay to wrap up before we take your questions. Jay?

Jay Madhu (Chairman, President and CEO)

Thank you, Wrendon. As highlighted earlier in today's discussion, we have implemented decisive and substantial measures throughout this year, and last, to fortify and diversify our operations. In December of 2022, we established SurancePlus, our wholly owned subsidiary, with the objective of tokenized securities representing fractionalized interests in reinsurance contracts underwritten by our reinsurance subsidiary. In the second quarter of 2023, we successfully concluded the initial offering on these tokens through a $2.4 million private placement. Furthermore, as previously reported, investors in our DeltaCat tokens are poised to achieve returns exceeding 45%, beating the initial 42% projected. And despite the challenges posed by Hurricane Idalia, which made landfall as a Category 3 hurricane in 2023, we believe these are the first tokenized reinsurance securities backed by a publicly traded company.

SurancePlus is poised to democratize access to reinsurance as an alternative investment avenue, leveraging the inherent advantage of blockchain technology to craft sophisticated digital securities. Our tokens aim to facilitate broader investor participation, ensuring their interests are securely and transparently recorded on the blockchain. These opportunities, previously out of reach for many investors due to extremely high barriers to entry, are now accessible through our innovative approach. Essentially, while repeating myself, we have democratized access to reinsurance. Subsequent to this, in mid-August of 2023, our investment in special purpose acquisition company, Oxbridge Acquisition Corp, culminated in a business merger with Jet.AI, a company specializing in fractional aircraft ownership, jet card service, aircraft brokerage, and charter services, facilitated by its fleet of private aircraft. Notably, our wholly owned subsidiary, Oxbridge Reinsurance Limited, assumed the role of lead investor in the SPAC sponsorship.

Concurrently, with the finalization of the business merger, the company successfully listed its common shares and warrants on the Nasdaq. These compelling opportunities not only augmented our business, but also enhanced our risk profile, strategically positioning us to capitalize on the growth with emerging technologies. We are especially enthusiastic about the anticipated value of these investments hold and the benefits they offer to our shareholders. As previously mentioned, we are currently in the process of rebranding Oxbridge as an RWA Web3-focused company, leveraging the significant progress we have achieved this year. Forecast suggests an extraordinary expansion in the tokenized RWA market over the next decade, with estimates exceeding $10 trillion. This has been reinforced further recently as Securitize offering that has secured $47 million funding led by BlackRock to expand RWA tokenization.

This growth trajectory is fueled by the escalating adoption of blockchain technology across various traditional financial sectors, including fiat currency, equities, government bonds, and real estate. Endorsements from investment institutions like BlackRock and Bank of America further affirm the transformative potential of tokenization in enhancing financial infrastructure efficiency, reducing costs, and optimizing supply chain. Moreover, industry analysis from firms such as Boston Consulting Group anticipate a substantial surge in the tokenized asset market, potentially reaching $16 trillion by the year 2030. As pioneers in this evolving landscape, we hold a strong sense of optimism regarding the value our rebranding efforts will unlock for our shareholders. We remain steadfast in our commitment to seizing the opportunities presented by this dynamic market shift. With that, we are ready to address any questions you may have. Operator, please provide the appropriate instructions.

Operator (participant)

Thank you, sir. We will now begin the question-and-answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Once again, press star one to join the queue. We'll pause just a moment. And once again, that is star one if you would like to ask a question. And just a final reminder, press star one to ask a question. We do have a question from Duane Roberts at Rockfleet Financial.

Duane Roberts (Investment Banker)

Hi, Jay. How are you doing? How are you doing, gentlemen?

Jay Madhu (Chairman, President and CEO)

Doing well, thank you.

Duane Roberts (Investment Banker)

The first RWA has it closed yet? Have you already repaid back that capital on the first tranche?

Jay Madhu (Chairman, President and CEO)

Yeah. The first one was last year. Those contracts were written June 1 of last year to May 31st of this year. That's a 1-year contract.

Duane Roberts (Investment Banker)

Thirty-first.

Jay Madhu (Chairman, President and CEO)

The way they were written was it was based on a three-year, three-year contract with a one year out. So the year hasn't finished. It's, the contract year hasn't finished, that is. So after the end of this month is when those monies would be due.

Duane Roberts (Investment Banker)

Oh.

Jay Madhu (Chairman, President and CEO)

Which we are on track to paying a 45% return.

Duane Roberts (Investment Banker)

Okay.

Jay Madhu (Chairman, President and CEO)

All right.

Duane Roberts (Investment Banker)

Thank you.

Jay Madhu (Chairman, President and CEO)

Thank you.

Operator (participant)

That does conclude our Q&A session. I will now turn the conference back over to Mr. Madhu for his closing remarks.

Jay Madhu (Chairman, President and CEO)

Thank you for joining us on today's call. Before we conclude, I would like to extend my gratitude to our employees, business partners, and investors of their unwavering support. I particularly want to acknowledge our dedicated Oxbridge team, whose extensive expertise has been instrumental in navigating and advancing our business amidst these challenging circumstances. Pardon me. We anticipate providing you with further updates on our progress during our next call. And should you have any additional questions, please do not hesitate to reach out to us anytime. Once again, thank you for your time and attention today, and for your ongoing interest in Oxbridge. Operator?

Operator (participant)

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. Thank you for joining us today for our presentation. You may now disconnect.