Collateralized reinsurer Oxbridge Re continues to grow income

by Artemis on August 13, 2015

Fully collateralized reinsurance company Oxbridge Re continues to build its income, both from its collateralized underwriting and its investment strategy. The reinsurer reported an increase in almost every metric for the second-quarter.

Oxbridge Re, which IPO’d in 2014, follows a fairly unique reinsurance strategy, underwriting largely Gulf Coast region property catastrophe risks on a fully-collateralized basis, while operating an investment strategy which has been providing attractive returns that perhaps hint at a more selective approach than other reinsurers.

As a result, Oxbridge Re presents an interesting investment opportunity. Its shares and warrants are accessible through a listing on the NASDAQ Capital Market, enabling both institutional and retail investors to access its returns.

Oxbridge Re, given the fact it underwrites hurricane exposed property catastrophe reinsurance, can provide returns akin to an insurance-linked securities (ILS) strategy, while also having an investment side to boost returns. As a result, it’s an interesting way for investors to access reinsurance-linked returns.

For Q2 2015, Oxbridge Re reports zero losses experienced, no surprise given there haven’t been any major tropical storms or hurricanes impacting the Gulf Coast region. The collateralized reinsurer reports a combined ratio of just 24.9%, significantly lower than the also loss-free 39.8% reported a year earlier, due to lower expenses in the quarter.

Net income for Q2 2015 reached $1.7m, compared with $541,000 in Q2 2014. Oxbridge Re puts the higher income down to greater premium income due to having more capacity deployed, as well as the investment strategy which is now contributing strongly.

The reinsurer began investing in fixed-maturity and equity securities in August 2014, a strategy which it says is more conservative, but judging from the returns is perhaps a little more opportunistic than other reinsurers. It’s investment strategy is paying dividends, with investment income of $429,000 reported for Q2. That compares to $740,000 for 2014 from August onwards, suggesting the investment return run-rate is continuing to be impressive.

For the first-half of 2015 net income reached $3.5m, with investment income contributing $1.1m of that. The combined ratio was just 26.5% in this period, with zero losses suffered.

“The second quarter was another successful quarter as we made significant progress expanding our client base and reinsurance broker network,” commented Jay Madhu, CEO of Oxbridge Re Holdings Limited.

“Our recently placed fully-collateralized reinsurance contracts give us the most diversified portfolio in our company’s history. We continue to be encouraged by our improving results and we feel we are well positioned to capitalize on future growth opportunities.”

Diversification will be key for Oxbridge Re, particularly if any hurricanes or named storms threaten the Gulf Coast region. While it remains loss free Oxbridge can provide an attractive return to its investors, but if over concentrated in any one region of coastline it could see significant losses under major storm conditions.

At the latest renewal Oxbridge Re wrote contracts in Florida, Louisiana and some global risks, to add diversification. However its focus remains on providing reinsurance to Gulf Coast property and casualty insurers, with the global contracts purely to diversify the portfolio.

The company aims to deploy up to 50% of its capital into fully-collateralized reinsurance contracts at any one time, keeping the rest back for operational and investment purposes. Being collateralized the capacity deployed is held in trust accounts for the treaty year.

The global contract that Oxbridge Re has underwritten is an industry loss warranty (ILW) that covers most populated areas of the world. For Oxbridge, the ILW allows the reinsurer to geographically diversify its risk and shift the concentration away from Florida and the Gulf Coast.

Oxbridge Re remains an interesting reinsurance company, with an intriguing strategy that sees it act as a kind of sidecar reinsurer for Floridian insurer Homeowners Choice (part of HCI Group) as well.

The two firms share directors and it does seem that Oxbridge Re was established to assist with the reinsurance strategy, lowering the cost of reinsurance capital, while also seeking to diversify the risk it assumes from Homeowners Choice away, something it is now achieving as it scales.

It’s an intelligent strategy, allowing the HCI Group to benefit from a collateralized reinsurer, while at the same time bringing in additional revenue, achieving a NASDAQ listing and growing with investment returns as well.

A company to watch for its unique angle on a collateralized reinsurance strategy.

Also read:

Collateralized reinsurer Oxbridge shows non-traditional asset strategy.

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

Collateralized reinsurer Oxbridge Re seeks NASDAQ IPO listing.

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