Oxbridge Re - Q2 2024

Transcript

Operator (participant)

Good afternoon. Welcome to Oxbridge Re's second quarter 2024 earnings call. My name is Sachi, 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 will be available via telephone replay until August 22nd, 2024, on the investor section-- investor information section of the Oxford Re- 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.

Wrendon Timothy (CFO)

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 anticipates, 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 subject to various risks and uncertainties. A detailed discussion of these risks and uncertainties that could cause actual results and events to differ materially from forward-looking statements is included in the section entitled Risk Factors, contained in our Form 10-K filed on March 26, 2024, and our Form 10-K filed 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 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 continuing 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, and welcome, everyone. Thank you for joining us today. Let me start by saying we are proud of the significant steps we have taken in the 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 efficiently with large carriers. We specialize in underwriting low frequency, high severity risks, where we believe sufficient data exists to efficiently analyze a risk return profile of reinsurance contracts. Our objective is to achieve long-term growth and book value per share by writing business on a selective and opportunistic basis that will generate attractive underwriting profits relative to risk.

Building on this 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 technologies. In August of 2023, Oxbridge Acquisition successfully completed its business combination with Jet.AI Inc. The company develops software and fractional, and offers fractional aircraft ownership, jet card aircraft brokerage, and charter through its fleet of private aircraft and those of its operating partners. It operates in two segments: software and aviation. The software segment features the B2B 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, DynoFlight, Reroute and DynoFlight to enable FAA Part 135 charter providers to add revenue, maximize efficiency, and reduce environmental impact. The aviation segment features jet aircraft, fraction, fractionalization, jet cards, our fleet charter, management, and buyers brokerage. With the completion of the business combination in August 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 2022, we expanded our business portfolio by establishing SurancePlus Inc., our 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 effective approach to to diversification. We are enthusiastic about the prospects of these new investments and remain committed to keeping our stakeholders informed of their progress in the forthcoming quarters. Looking ahead, we intend to position 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, along the successful integration of SurancePlus as we embrace the RWA market more comprehensively.... I'll now turn things over to Wrendon to take us through our financial results.

Wrendon Timothy (CFO)

Thank you, Jay. I'd like to remind you that our typical contract period is from June 1 to May 31st of the following year. With respect to net premiums earned, net premiums earned for the quarter ending June 30th, 2024 were $564,000, compared to $183,000 last year, second quarter. For the first six months of 2024, net premiums earned was $1.1 million, up from $183,000 in the same period last year. The increases are due to the prior year, recognizing only one month of premiums because of the 2022, 2023 treaty year premium acceleration on reinsurance contracts in force due to Hurricane Ian. In contrast, for the quarter and the six months ending June 30th, 2024, we recognized the first three and six months of premiums, respectively.

There have been no losses to date incurred in 2024 or 2023. Regarding investment income, our net investment income and other income decreased in the quarter and the first six months of 2024 due to less cash being held in our money market accounts. We also recorded an unrealized loss of $1.5 million on our other investments, resulting from our remeasurement of our investment in Jet.AI at fair value. We also recognized a $168,000 negative change in the fair value of our equity securities as of June 30, 2024, decreasing from $81,000 positive change in the prior year. All of these factors taken together resulted in total revenue to $44,000 for the three months ending June 30 of 2024, compared to $691,000 in the prior year, second quarter.

For the first six months of 2024, total revenue was -$81,000, compared to $1.23 million for the same period last year. Total expenses, including loss and loss adjustment expenses, policy acquisition costs, and general and admin expenses were up in the second quarter and the first six months of 2024 compared to last year. The increase was due primarily to higher policy acquisition costs incurred during the six-month period. From our net income, primarily due to negative change in the fair value of equity, securities, and investments in the second quarter, we generated a net loss of $81,000 or $0.14 per share, to a net loss of $85,000 or $0.01 per share in last year's second quarter.

For the first six months ended June 30, 2023, the net loss was $1.72 million, compared to net profit of $57,000, $0.01 per share in the same period last year. The result this year was due to the lower revenue, driven by the increase in unrealized loss on other investments and equity securities, more than outweighed higher premium levels and management fee income from SurancePlus's offering. As we have discussed in former 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 to their premiums earned. With no losses or loss adjustment expenses in either twenty-four...

In 2024, 2023, the loss ratio was 0% in both periods. Our acquisition cost ratio, which measures operational efficiency, compares policy acquisition costs to net premiums earned. The acquisition ratio increased marginally to 11% for the six-month period ending June 30th, 2024, compared to 10.9% in the same period last year. Our expense ratio, which measures operating performance, compares policy acquisition costs and general and admin expenses with net premiums earned. The expense ratio for the three-month period ending June 30th, 2024, decreased from 3.9% to 111.3%, and for the six months ended June 30th, 2024, from 61.6% to 105.5% when compared to prior periods.

The decreases were due to higher premium levels recognized during the three- and six-month periods ending June 30, 2024. Our combined ratio, which is used to measure underwriting performance, is the sum of the loss ratio and the expense ratio. The combined ratio for the three-month period ending June 30, 2024, decreased from 380.9% to 111.3%, and for six months, from 61.6% to 105.7% when compared to prior periods. The decreases were due to higher premium levels recognized during the three- and six-month periods ended June 30, 2024.

Now, turning to the balance sheet, our investment portfolio decreased to $213,000 at June 30, 2024, from $68,000 at prior year, primarily as a result of the sale of equity securities and the decrease in the fair value of the equity securities during the quarter. Our other investment decreased significantly from $2.4 million to $965,000, due to the fair value change in our investment in Jet.AI, in which the company has an equity investment measured at fair value. Cash and cash equivalents and restricted cash and cash equivalents increased to $380.9 million at June 30, 2024, compared with $3.7 million at December 31, 2023. Now, I'd like to turn the call back over to Jay to wrap up before we take any of 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 to fortify and diversify our operations. In December of 2022, we established SurancePlus, our wholly-owned subsidiary, with the objective of tokenizing securities representing fractional interests in reinsurance contracts underwritten by our reinsurance subsidiary. In the second quarter of 2023, we successfully concluded the initial offering of these security tokens, DeltaCat Re. This was issued on the Avalanche blockchain. Furthermore, as previously reported, investors of DeltaCat Re received returns exceeding 49%, surpassing the initial 42% projection, 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 advantages 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 the reach of many investors due to the extreme high barrier to entry, are now accessible through our innovative approach. Essentially, we have a democratized access to reinsurance. In mid-2023, our investment in a special purpose acquisition company, Oxbridge Acquisition Corp, culminated in a business merger with Jet.AI, a company specializing in fractional aircraft ownership, jet card services, aircraft brokerage, and charter services, facilitated by its fleet of private aircraft. Concurrently, with the finalization of the business merger, the company successfully listed its common shares and warrants on Nasdaq.

Additionally, Oxbridge Re Holdings has initiated a strategic review process, forming a special committee of the board to consider a full range of strategic alternatives for the company and its Web3 division subsidiary, SurancePlus Inc. This process may include a sales spin-out, merger, divestiture, recapitalization, or strategic transactions, or continue to operate as a public independent company. In recent developments, SurancePlus completed a private placement of over 287,000 participating shares, represented by digital token EpsilonCat Re, under a three-year participation share investment contract, raising approximately $2.9 million. The EpsilonCat Re participation shares, represented by digital tokens issued on the Avalanche blockchain, have a targeted return of 42%.

This follows the success of last year's token, DeltaCat Re, which, while targeting a 42% return, paid out a remarkable 49.11% return, surpassing initial projections. Recently, SurancePlus announced a strategic partnership with Zoniqx, a pioneer in digital asset management, which has issued over $4 billion in assets on chain to date. This strategic partnership is set to further expand our footprint. The collaboration aims to enhance our RWA tokenization and Web3 capabilities. SurancePlus is well positioned with substantial growth potential for our shareholders. We are proud of this accomplishment and look forward to this new, exciting, entity diversification and accelerating our growth in the RWA space in the coming years. These compelling opportunities not only augment our business, but also enhance our profile, our, our risk profile, strategically positioning us to capitalize on growth within 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. Forecasts suggest an extraordinary expansion of the tokenized RWA market over the next decade, with estimates exceeding $10 trillion. This has been further reinforced recently, as Securitize announced it 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 currencies, equities, bonds, and real estate. As endorsements from institutions like BlackRock and Bank of America further affirm the transformative potential of tokenization in enhancing financial infrastructure efficiencies, reducing costs, and optimizing supply and distribution chains.

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 of 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 open the call for questions. Operator, please provide the appropriate instructions.

Operator (participant)

Thank you. 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 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 pull for questions. The first question is from Kent Engelke from Capitol Securities Management. Please go ahead.

Kent Engelke (Chief Economic Strategist)

Hey, Jay. Hey, Wrendon. Question on how much of a market penetration do you, do you all think that you can get on this $10 trillion market?

Jay Madhu (Chairman, President, and CEO)

Hey, Ken. Thanks for tuning in.

Kent Engelke (Chief Economic Strategist)

Hey, no problem at all.

Jay Madhu (Chairman, President, and CEO)

Currently-.

Kent Engelke (Chief Economic Strategist)

It's beautiful out here in Southern California.

Jay Madhu (Chairman, President, and CEO)

Yeah. Currently the size, the size of company we are, there is the market, the market is in trillions. We're not saying we're going to go out, you know, we could be a 5% or 10% or what have you. The size that we are, the market is so vast that a few percentage points is an unfathomable number for us, right? So I'll leave it at that, saying the market is so vast and the playing field up ahead of us is so immense. We are, in my opinion, solidly entrenched in looking forward to this opportunity.

Kent Engelke (Chief Economic Strategist)

How are you all marketing it and stuff like that? Because it, as you said, it's a huge market. Even 1%, the Oxbridge shareholders will make a gazillion dollars. How, how are you marketing it all?

Jay Madhu (Chairman, President, and CEO)

Yes. In the weeks to come, we'll hopefully next week, we'll just make that a little bit more available to shareholders. But we have a whole plan of how we're rebranding and how we're doing things. There'll be various different events that'll be that we will be going through. We have also been talking to various different banks that are interested in investment banks that are interested, shareholders that are interested. But it will take quite a bit, quite a bit. It is a challenging effort. We're up to it.

Kent Engelke (Chief Economic Strategist)

Cool! I appreciate it. Thank you.

Jay Madhu (Chairman, President, and CEO)

Absolutely. Sure.

Operator (participant)

As a reminder, it is star one to ask a question. And again, that is star one to ask a question. This concludes our question and answer session. I would like to turn the floor back over to Mr. Madhu for his closing comments.

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 for 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. 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)

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