Collateralized reinsurer Oxbridge Re hit by investment decline

by Artemis on November 16, 2015

Fully collateralized Cayman domiciled reinsurance company Oxbridge Re was hit in the third-quarter by declines on the value of securities in its investment portfolio, demonstrating that it’s not just hedge fund backed companies that suffered.

The impact of global macro investment trends in Q3 2015 hurt many insurers and reinsurers, with the hedge fund backed reinsurance model seeing steep losses on the asset side. These investment market conditions also hit traditional players and now, it transpires, also a collateralized reinsurer.

Oxbridge Re does follow an interesting and non-traditional investment strategy, taking on more risk on the asset side than the many other companies. This was evidenced in recent quarters where the investment returns reported showed that Oxbridge was seeking a higher return than would typically be expected from this type of company.

Oxbridge Re invests in fixed-maturity and equity securities and it seems that the portfolio was hit in Q3. Oxbridge Re reported an investment related loss of $213,000 as well as a non-cash charge of $399,000 due to “declines deemed other-than-temporary in the fair value of securities owned by the company.”

The investment decline was due to both realised losses on holdings and also “other-than-temporary impairment losses” which Oxbridge Re accounted for during the quarter. Given these are “other-than-temporary” it suggests that the value of these securities has fallen and the reinsurer doesn’t expect to recoup that loss on them.

It’s likely to be the same range of issues that impacted the hedge fund reinsurance firms in the third-quarter that have bitten Oxbridge’s asset side too. It again demonstrates that the firm is taking more risk than most reinsurers on that side of its book.

Oxbridge Re, which IPO’d in 2014, underwrites largely Gulf Coast region property catastrophe risks on a fully-collateralized basis, while operating a more alternative investment strategy. As a resultthe firm presents an interesting investment opportunity, being accessible through a listing on the NASDAQ Capital Market, enabling both institutional and retail investors to access its reinsurance linked returns.

Given the fact Oxbridge Re underwrites hurricane exposed property catastrophe reinsurance, it generates exposure similar to an insurance-linked securities (ILS) strategy, but with an alternative investment side, of sorts, as well. As a result, it’s an interesting way for investors to access reinsurance-linked returns.

In Q3 Oxbridge Re continued to grow out its book, writing $1.8 million of premiums, compared to $1.6 million a year earlier. Given where its portfolio attaches Oxbridge Re didn’t suffer any catastrophe losses at all, thanks to the benign hurricane season.

As a result the firm reported net income of $0.7 million, around half the $1.4 million it reported for Q3 2014, with the decrease mainly driven by the investment decline.

“A quiet storm season was the key driver for our profitable results during the third quarter,” commented Jay Madhu, CEO of Oxbridge Re Holdings Limited. “We remain focused on further diversifying our book of business, in terms of both geographic exposure and event severity. Our expanding broker relationships will position us for continued growth in both the number of contracts placed and number of customers as we look toward the remainder of 2015 and beyond.”

Oxbridge Re remains an interesting reinsurance company, acting a little like a sidecar reinsurance firm for Floridian insurer Homeowners Choice (part of HCI Group) and now increasingly seeking to diversify that risk away by broadening its remit.

With the interesting asset strategy as well, Oxbridge Re will provide benefits of efficiency back to Homeowners Choice and when the conditions are right an attractive return to its investors.

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