Oxbridge Re - Q2 2023

Transcript

Operator (participant)

Good afternoon. Welcome to Oxbridge Re's second quarter 2023 earnings call. My name is Chloe, 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, this call is also being broadcast live via webcast and available via webcast replay until August 28, 2023, on the investor information section of Oxbridge Re's 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.

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 these risks and uncertainties that could cause actual results and even, actual results and events to differ materially from such forward-looking statements is included in the section entitled Risk Factors contained in our Form 10-K filed on March 30, 2023, and our Form 10-K-5 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 could 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 the company's expectations for any related events, conditions, or circumstances change. Now, I would 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, and welcome, everyone. Thank you for joining us today. Before we start, I would like to take a moment to provide a brief overview of our company. Oxbridge Re Holdings Limited was founded 10 years ago with a mission to provide reinsurance solutions primarily to property and casualty insurers in the Gulf Coast region of the United States. We are very proud to be celebrating our tenth anniversary this year. Through our licensed reinsurance subsidiary, Oxbridge Reinsurance Limited, and our licensed reinsurance SPV, or Special Purpose Vehicle, Oxbridge Re US, we write fully collateralized policies to cover property losses from specific catastrophes. Because we write fully collateralized contracts, we believe we can compete effectively with large carriers. We specialize in underwriting low-frequency, high-severity risks, where we believe sufficient data exists to efficiently analyze the risk return profile of reinsurance contracts.

Our objective is to achieve long-term growth in book value per share by writing business on a selective and opportunistic basis that will generate attractive underwriting profits relative to risk. 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. Subsequent to the second quarter on August 10, 2023, Oxbridge Acquisition completed its business combination with Jet.AI. Jet.AI develops software leveraging artificial intelligence 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 under along 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 private booking experience.

The Jet.AI operator platform offers a suite of standalone software products to enable FAA Part 135 charter provider, charter providers to add revenue, maximize efficiency, and reduce environmental impact. The aviation segment features jet aircraft fractions, Jet Cards, on-suite charter management, and buyers brokerage. Jet.AI also recently announced the launch of DynoFlight, a carbon offset transaction platform built for both commercial and private aviation operators. The platform enables aviation businesses to offset their carbon emissions through the purchase of carbon removal credits that fund the direct extraction of carbon dioxide from the atmosphere. We also further diversified our business with the creation of our new Web3-focused subsidiary, SurancePlus Inc. The company offers an alternative investment opportunity, leveraging key insights and qualities of blockchain technology to create a well-designed digital security under SEC guidelines that have complete transparency and compliance.

During the second quarter, SurancePlus completed a private placement offering of security tokens, which, assuming no losses, are expected to generate a potential return of approximately 42%. This new trust is an entry into Web3 and digital securities 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. SurancePlus is now a brand new, well-capitalized business and growth opportunities for our shareholders. To reiterate, this new opportunity was created without any debt and no equity dilution. We are very proud of this accomplishment and look for this exciting new entity to diversify and accelerate our growth prospects in the years ahead. We are very pleased about both these new investments and look forward to keeping you appraised of their progress in the coming quarters.

Regarding our investment portfolio, we remain opportunistic and will deploy 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, pardon me, highly optimistic about the prospects of our core reinsurance business and our 2 new investments in Jet.AI as well as SurancePlus. I'll now turn things over to Rendon 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 contract period is from June 1 to May 31st of the following year. Net premiums earned for the quarter ended June 30, 2023, were $183,000, slightly lower than the $194,000 in last year's second quarter. For the full six months of 2023, net premiums earned were $183,000, down from $404,000 in the same period last year. The decrease is due to the number and size of reinsurance contracts in force during the period. There have been no losses to date incurred in 2023 or 2022. Our investment income and other income rose in the quarter and the full six months of 2023, due to higher rates on money market funds.

We generated $505,000 unrealized gain in the first half of 2023 due to a fair value change in our equity investment in Oxbridge Acquisition Corp. We also recognized an $81,000 positive change in the fair value for equity securities as of June 30, 2023, much improved from the $342 negative change in the prior year. All of these factors, taken together, resulted in total revenue of $691,000 for the three months ended June 30, 2023, compared to $503,000 in the prior year second quarter. For the full six months of 2023, total revenue was $1.2 million, compared to $505,000 for the same period last year.

Total expenses, including losses and loss adjustment expenses, policy acquisition costs, and general and admin expenses, were up in the second quarter and the full six months of 2023 compared to last year, due primarily to inflation cost fluctuations, increased personal costs, as well as the recognition of all of the one-time offering costs related to Shorts Plus offering in the second quarter. Primarily due to the one-time G&A offering cost in the second quarter, we generated a net loss of $85,000 or $0.01 per share, compared to net income of $77,000 or $0.01 per share in the last year second quarter. For the six months ended June 20th, 2023, net profit was $67,000, compared to a net loss of $310 or $0.05 per share in the same period last year.

The improvement this year was due to higher revenue, driven by an increase in our gains on investments, equity securities, and management fee income from the Shorts Plus offering, more than offset the increase in non-general admin expenses associated with Shorts Plus token offerings and increased personal costs. As we have discussed before on the press call, we use various measures to analyze both and profitability of our business operations. For 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 losses and loss adjustment expenses included in the premium earned. With no loss or loss adjustment expenses in either 2020 or 2022, the loss ratio was 0% for both years. Our acquisition cost ratio, which measures operational efficiency, compares policy acquisition costs and premiums earned.

The acquisition ratio remained consistent at approximately 10.9% for the three and six-month periods ending June 2023, compared to the same period in the prior year. Our expense ratio, which measures operating performance, compares policy acquisition costs and general and administrative expenses with net premiums earned. Expense ratio for the three-month period ending June 20, 2023, increased from to 11.6% to 3.9%, and for the six months ending June 20, 2023, from 191.1% to 61.6% when compared with prior periods. Increases were due to inflationary expense fluctuations, increased personal costs, as well as the recognition in the second quarter of 2023 of all of the one-time offering costs associated with the completion of the Shorts Plus token offering.

Our combined ratio, which is used to measure underwriting performance, is the sum of the loss ratio and expense ratio. The combined ratio for the 3-month period ending June 20, 2023, increased to 11.3% to 3.9%, and for the 6 months ending June 20, 2023, from 191.1% to 61.6% when compared to the prior year periods. Again, the increases were due to inflationary expense fluctuations, increased personal costs, as well as recognition in the second quarter of all the one-time offering costs associated with the completion of the Shorts Plus token offering. Moving to the balance sheet, our investment portfolio increased to $723,000 at June 20, 2023, from $642,000 at the prior year, largely due to gains experienced so far this year.

Other investment increased due to the positive change in the fair value for investment in Oxbridge Acquisition Corp. Cash and cash equivalents, unrestricted cash and cash equivalents decreased to $3.5 million at June 20th compared to $3.9 million at December 31st, 2022. Total shareholder equity at quarter increased to $51.1 million, or $0.0259 per common share. I'd like to turn the call back over to Jay to wrap up before we take your questions. Jay?

Jay Madhu (Chairman, President, and CEO)

... Thank you, Rendon. As you may know, in January this year, we incorporated SurancePlus, a wholly-owned subsidiary of Oxbridge Re. SurancePlus will issue tokenized securities that directly represent fractionalized interests in reinsurance contracts underwritten by our reinsurance subsidiary. Token holders receive a return on the performance of these underlying reinsurance contracts. As mentioned, during the second quarter, we were pleased to have completed the first offering of these tokens with a $2.4 million private placement offering. Assuming there are no casualty losses reinsured by Oxbridge, token investors are expected to receive a significant return of approximately 42%. SurancePlus will democratize access to reinsurance of 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 interests permanently and transparently recorded on a blockchain.

These opportunities were typically unavailable to investors in the past due to a high barrier to entry. Following this exciting opportunity, in late February, we utilized our investment in a special purpose acquisition company, Oxbridge Acquisition Corp., to embark on a business combination with Jet.AI. Jet.AI develops software leveraging artificial intelligence and offers fractional aircraft ownership, Jet Card, aircraft brokerage, and charter to its fleet of private aircraft and those of its operating partner. Jet.AI operates along two segments, software and aviation. Our wholly owned subsidiary, Oxbridge Reinsurance Limited, is a lead investor in the SPAC sponsor and holds 1.5 million shares and 3.5 million private warrants. We beneficially own in the, in the SPAC. We are pleased to report the completion of the business combination with Jet Token on August 10th.

These exciting new investment opportunities further diversify our business and risk profile, 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 $2.63 per share. Our business is well diversified. Our investment in SurancePlus positions us in a new leading-edge Web3-focused technology business. SurancePlus was created without any debt and no equity dilution. Our investment in Oxbridge Acquisition/Jet.AI and artificial intelligence aviation business is on track. We remain debt-free, we have a strong balance sheet, and more importantly, we have real opportunity based on a viable business model that is based on diversification. We remain opportunistic, not only in our core business, but also our broader view of the market.

With that, we are ready to open the call for questions. Operator, please provide the appropriate instructions.

Operator (participant)

Thank you, sir. At this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may withdraw yourself from the queue at any time by pressing star two. Once again, for your questions, that is star and one. We'll pause a moment to allow any questions to queue. We'll move first to Kent Engelke with Capitol Securities Management. Your line is open.

Kent Engelke (Chief Economic Strategist)

Hey, Jay. Hey, Rendon. I just want to say congratulations in regards to getting all the accomplishments of this, first six months of this year. A lot of hard work. Looking forward to all this becoming, you know, profitable and really start increasing the value of Oxbridge. Congratulations on all your successes there.

Jay Madhu (Chairman, President, and CEO)

Thank you, Kent. Appreciate it. It's not been an easy road.

Kent Engelke (Chief Economic Strategist)

For sure. We've had a lot of offline conversations, and, again, it's great how you guys are moving forward and look forward to seeing how this all unfolds, in the intermediate future.

Jay Madhu (Chairman, President, and CEO)

Excellent. Thank you again. Appreciate it.

Operator (participant)

Thanks, Kent. Once more, that is star and 1. We'll pause another moment. At this time, this concludes our question and answer session. I'd now like to turn the call back over to Mr. Madhu for his closing remarks.

Jay Madhu (Chairman, President, and CEO)

Thank you for joining us on today's call. I just have one quick correction on my script. I mentioned the book value, incorrectly. The book value is $2.59. It was correct on Rendon's statements. Thank you for joining us on today's call. Before we wrap up, I want to thank our employees, business partners, and investors for their continued support. I especially want to express our gratitude to our Oxbridge team, who continue to leverage their significant experience to manage and build our business during these challenging times. We look forward to updating you on our next call, and if you have any further questions, please contact us anytime. Thank you again for your time and attention today and your 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.