Collateralized reinsurer Oxbridge shows non-traditional asset strategy

by Artemis on March 20, 2015

Fully collateralized reinsurance company Oxbridge Re has reported a good first year’s results thanks to zero losses and a surprisingly good investment return that perhaps hints at the non-traditional, or even hedge fund reinsurer like, nature of its investment strategy.

Oxbridge Re, which IPO’d in 2014 and underwrites Gulf Coast property catastrophe risks, reported a combined ratio of just 32% for 2014, which is just expenses as the reinsurer suffered no losses at all during the underwriting year. This is likely helped by the fact it only writes coastal business that is largely exposed to named storms and hurricanes.

The reinsurer reported net income of $4m, on gross premiums written of $14.3m and premiums earned of $4.8m. All the numbers are up significantly on the 2013 period, helped by Oxbridge Re increasing its access to and the size of the reinsurance contracts it underwrites.

What’s perhaps most interesting is the investment income, which Oxbridge reports as $740,000 for 2014, consisting of $641,000 of investment gains and $99,000 of investment income. The firm began investing in fixed-maturity and equity securities in August 2014, which isn’t that long ago.

Oxbridge Re reports that its investment income is one of the key drivers of its profitability. The reinsurer reports that investable assets totaled $11.838m at the end of 2014. Based on that the investment income of $740,000 would represent a return of 6.25%, which if that’s been achieved since August shows that Oxbridge Re is operating a non-traditional asset strategy.

In fact, that is looking increasingly clear, as Oxbridge Re reports that $525,000 of investment income was earned in the fourth quarter of 2014 alone.

CEO Jay Madhu commented on the results; “We are extremely pleased with our results for our first full year of operations. We have paid dividends for the full year totaling $0.48 per share, which represents a solid dividend yield. We continue to be opportunistic in our underwriting and investment income strategy.”

It looks increasingly like Oxbridge Re is operating a hybrid business model. Underwriting reinsurance on a collateralized basis. Targeting medium frequency but high severity risks. And operating what looks like a non-traditional, perhaps hedge fund like, investment strategy that is clearly helping it to outperform. CEO Madhu himself hints at the non-traditional strategy on the investment side, saying it is opportunistic in its approach to it.

That’s an interesting combination, which as Oxbridge Re builds its portfolio and if it can maintain attractive investment returns should see it attract more third-party capital from investors as well.

Also read:

Oxbridge Re IPO raises $26.4m for collateralized reinsurance operations.

Collateralized reinsurer Oxbridge Re seeks NASDAQ IPO listing.

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