Oxbridge Re - Q3 2024

Transcript

Operator (participant)

Good afternoon. Welcome to Oxbridge Re's third quarter 2024 earnings call. My name is Joe, 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 the 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 November 26, 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.

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, expect, intend, plan, 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 are subject to various risks and uncertainties. A detailed discussion of risks and uncertainties that could cause actual results and events that differ materially from such 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-Q 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 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 and, 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 for 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're proud of the significant steps we have taken to fortify and diversify our business. While we are solidly entrenched in the RWA/Web3 space, where we issue tokenized securities as an RWA, where the underlying asset is reinsurance, our core business, however, 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 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 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 2022. We expanded our business portfolio by establishing SurancePlus Inc, our new subsidiary focused on RWA/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 selective group of ultra-high-net-worth individuals. Crucially, the establishment of SurancePlus was achieved without incurring new debt, reflecting our efficient approach to diversification. We are enthusiastic about the prospects of these new investments and remain committed to keep our stakeholders informed of the progress in the forthcoming quarters.

Looking ahead, we intend to position Oxbridge as a prominent player in the RWA or real-world asset/Web3 sector. In summary, we maintain a strong sense of optimism regarding the long-term outlook of our core reinsurance business alongside 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 and Corporate Secretary)

Thank you, Jay. I'd like to remind you that our typical contract period is from June 1 to May 31 of the following year. Net premium earned for the quarter ended September 30th 2024, were $595,000, compared to $549,000 in last year's third quarter. For the first nine months of 2024, net premiums earned were $1.7 million, up from $732,000 in the same period last year. The increases are due to the reinsurance contracts in force during the full period ended September 30th 2024, when compared with the prior year. There have been no losses to date incurred in 2024 or 2023. Our net investment and other income decreased in the quarter and the first nine months of 2024 due to less cash being held in money market funds.

We also reported an unrealized loss of $1.93 million on our other investments, the result of our remeasurement of our investment in Jet.AI at fair value. We also recognize a $188,000 negative change in the fair value for equity securities as of September 30th 2024, decreasing from $34,000 negative change in the prior year. All these factors together resulted in total revenues of $205,000 for the three months ended September 30th 2024, compared to -$6.38 million in the prior year's third quarter. For the first nine months of 2024, total revenue of $124,000 compared to $5.1 million negative for the same period last year. Total expenses, including loss and loss-adjusted expenses, policy acquisition costs, and general and admin expenses, were down in the third quarter and first nine months of 2024 compared to last year.

The decrease in 2024 was due primarily to the decrease in offering costs associated with SurancePlus being recognized when compared with the same period last year. With respect to net income, primarily due to negative change in the fair value of equity securities and investments in the third quarter, we generated a net loss of $540,000 or $0.09 per share compared to net loss of $7.3 million or $1.24 per share in the last year's third quarter. For the nine months ended September 30th 2024, the net loss was $2.26 million or $0.37 per share compared to net loss of $7.24 million or $1.23 per share in the same period last year. The improved result this year was due to the higher revenue driven by the decrease in unrealized loss on other investments more than outweighing higher premium levels and management fee income from our SurancePlus offering.

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 losses and loss-adjustment expenses incurred to net premiums earned. With no losses or loss-adjustment expenses in either 2024 or 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 cost ratio increased marginally to 11.1% for the three-month period ended September 30th 2024, and 11% for the nine-month ended September 30th 2024, from 10.9% for the three- and nine-month period ended September 30th 2023.

The increase is primarily due to premiums being earned during the full periods ended September 30th 2024, when compared with partial periods in the prior periods. Our expense ratio, which measures operating performance compared to policy acquisition costs and general and admin expenses with net premiums earned. The expense ratio decreased from 125.3% for the three-month period ended September 30th 2023, to 83.7% for the three-month period ended September 30th 2024. The decrease is due to higher levels of premiums earned and lower general and admin expenses incurred during the three months ended September 30th 2024, when compared with the prior period. The expense ratio decreased from 244.3% for the nine-month period ended September 30th 2023, to 19% for the nine-month period ended September 30th 2024.

The decrease is due to higher levels of premiums as well and lower general and admin expenses incurred during the nine-month period ended September 30th 2024, when compared to the prior period. Our combined ratio, which is used to measure underwriting performance, is the sum of the loss ratio and the expense ratio. The combined ratio decreased from 125.3% for the three-month period ended September 30th 2023, to 83.7% for the three-month period ended September 30th 2024. The decrease is due to high levels of premiums earned and lower general and admin expenses incurred during the nine-month period ended September 30th 2024. The combined ratio decreased from 244.3% for the nine-month period ended September 30th 2023, to 19% for the nine-month period ended September 30th 2024.

Again, the decrease is due to high levels of premiums earned and lower general and admin expenses during the nine-month period ended September 30th 2024, when compared with the prior period. Noted into the balance sheet, our investment portfolio decreased to $185,000 at September 30th 2024, from $688,000 at the prior year-end, primarily as a result of the sale of equity securities and the decrease in the fair value of equity securities during the quarter. Our investments decreased significantly from $2.4 million to $541,000 due to the fair value change in our investment in JetAI, which the company has an equity investment measured at fair value. Cash and cash equivalents and restricted cash and cash equivalents increased to $4.82 million at September 30th 2024, compared with $3.74 million at December 31st 2023. Now, I'll 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 2022, we established SurancePlus with the objective of tokenizing securities representing fractionalized interest in reinsurance contracts underwritten by a 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 in DeltaCat Re received an 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. By opening access to an asset class historically limited to a select few due to high financial entry barriers, SurancePlus is breaking new ground. Leveraging Reg D and Reg S frameworks, investors can now enter this unique asset class within minutes, effectively completing AML/KYC and document signing requirements. Essentially, we have democratized access to reinsurance. 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 Holdings Limited.

This process may include a sale, spin-out, merger, divestiture, recapitalization, or other strategic transactions, or continuing to operate as a public independent company. In recent developments, SurancePlus completed a private placement of 287,705 participation 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 an 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. While the season has been an extremely active one, we don't believe we will be impacted by Hurricane Helene. On Hurricane Milton, we cannot comment on the outcome as we have not yet received finalized data due to the hurricane being recent.

On updates to our business, SurancePlus previously 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. This collaboration aims to enhance our RWA tokenization and Web3 capabilities. As we go forward, we aim to pursue additional relevant strategic partnerships. SurancePlus is well-positioned with substantial growth potential for our shareholders. We are proud of this accomplishment and look forward to this exciting new entity diversifying and accelerating our growth in the RWA space in coming years. These compelling opportunities not only augment our business but also enhance our risk profile, strategically positioning us to capitalize on growth with emerging technologies. We are especially enthusiastic about the anticipated value these investments hold and benefits they offer to our shareholders.

As previously mentioned, we have made the turn positioning Oxbridge as an RWA Web3-focused company, leveraging the significant progress we have achieved over the last two years. Forecasts suggest an extraordinary expansion to expand RWA tokenization. This growth trajectory is fueled by the escalating adoption of the tokenized RWA market over the next decade, with estimates exceeding $10 trillion. This has been reinforced further recently as Securitize announced they had secured a $47 million round of funding led by BlackRock in blockchain technology across various traditional financial sectors, including fiat currencies, equities, government bonds, and real estate. Endorsements from institutions like BlackRock, Bank of America, UBS, State Street, Franklin Templeton, Deutsche Bank, and Credit Suisse further affirm the transformative potential of tokenization in enhancing financial infrastructure efficiency, reducing costs, and optimizing supply and distribution chains.

To enhance our offerings and appeal to a varied investor mindset, going forward, we plan to issue two tranches of tokenized securities: a high-yield tokenized security targeting an approximate 42% return and a balance yield tokenized security targeting an approximate 22% return. Moreover, industry analysis from firms such as Boston Consulting Group anticipates 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 we'll unlock for our shareholders. We remain steadfast in our commitment to seizing the opportunity 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. Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad, and a confirmation tone will indicate you're logged into 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, and our first question comes from the line of Kent Engelke with Capitol Securities. Please proceed.

Kent Engelke (Chief Economic Strategist)

Hey, Wrendon and Jay. How are we all being received on the presentations you've been making abroad? You used the word "well-entrenched" in regards to the RWAs. Who are your competitors?

Jay Madhu (Chairman, President, and CEO)

Yeah. Hey, Kent. Thanks for dialing in. To take it from the beginning, we've attended various different events. I was part of a speaker panel and a speaker at some of these events as well. It was viewed exceedingly well. In the RWA space, there are various folks that have come up with some very interesting propositions. However, there aren't that many that are actually straight-out RWAs where the underlying asset is something extremely direct and tangible. In this case, the RWA real-world asset is a reinsurance contract. It follows the fortunes of an actual reinsurance contract, which is aggregated with the various different contracts that we take. So it's not marked up. It is extremely well put together, and we got tremendous feedback from those attending over there.

Kent Engelke (Chief Economic Strategist)

Great. Cool. And can you name any of your competitors? You said you're well-entrenched in that arena and the like, getting some great publicity and getting some strong people that are interested in what you're doing. Who are some of the competitors that you're going up against?

Jay Madhu (Chairman, President, and CEO)

Yeah. So there are a few folks. I'd rather not take any names. There are a few folks who are issuing some RWAs in reinsurance. However, I think where we stand out is in a market that the general public is always worried about trust and transparency. I believe we stand out. As a publicly traded company, we not only have PCAOB-audited financials on the holding company, but we strategically have PCAOB-audited financials on SurancePlus itself, the RWA entity. So not only do we have PCAOB-audited financials, but then we're also, because everything is rolled up in the PubCo, there's strict adherence from the SEC as well. So in terms of saying who are our competitors, there are a few, but I don't believe there is anybody like us. I think we're just because of where we stand and what we have.

Kent Engelke (Chief Economic Strategist)

I could say your immediate reaction to your earnings report is positive. On the bid side, you're up about 8%. On the offering side, you're up about 15%. On the aftermarket, we'll see how it trades tomorrow. Sounds very, very promising. Thank you.

Jay Madhu (Chairman, President, and CEO)

Thank you, Kent. Appreciate it.

Operator (participant)

Thank you.

Jay Madhu (Chairman, President, and CEO)

Operator?

Operator (participant)

Thank you. Ladies and gentlemen, there are no further questions at this time. I'll turn the call back 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 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. 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.