Collateralized reinsurer Oxbridge Re seeks NASDAQ IPO listing

A Cayman Islands based fully-collateralized reinsurance company, Oxbridge Re, is seeking to raise up to $29.75m from an initial public offering of shares on the NASDAQ, offering investors another interesting way to access reinsurance linked returns.

Oxbridge Re Holdings Limited is a Cayman Islands domiciled reinsurance holding company which launched in April 2013 to provide reinsurance solutions to property and casualty insurers primarily located in the Gulf Coast region of the U.S. The firm underwrites fully collateralized reinsurance business through a reinsurer subsidiary, Oxbridge Reinsurance Limited.

Oxbridge Re filed to sell and list between 1.7m and 4.25m share warrants to investors, with the firm expecting a price per share of between $5 and $7 giving it a potential maximum capital raise at the top end of expectations of $29.75m. The shares sold in this initial public offering will be listed on the NASDAQ Capital Market, for which listing approval has already been received.

Oxbridge Re says that it intends to use the proceeds of its IPO to underwrite medium-frequency, high-severity risks, where it believes sufficient data exists to allow it to analyse the risk and return of reinsurance contracts. It intends to continue underwriting on a fully-collateralized basis and says that it will not seek a rating.

Oxbridge Re was formed by investors with experience in property and casualty reinsurance who saw an opportunity to provide more competitive reinsurance products to insurers in the Gulf Coast region, according to its SEC filing. Given the firm is operating on a fully-collateralized basis and currently has low operational costs due to a small team, it can likely offer insurers competitive pricing.

The firm launched Oxbridge Reinsurance, its licensed Class C insurance company under Cayman Islands law, in April 2013 and then completed a private placement of shares worth $6.7m in June 2013.

The capital raised from the private placement was used to underwrite fully-collateralized reinsurance contracts with Claddaugh Casualty Insurance Company, Ltd., a captive reinsurance company subsidiary of HCI Group, Inc.. HCI Group is a Florida-based, publicly traded holding company which Oxbridge Re directors are also on the board of.

Oxbridge Re said that it entered into an additional fully-collateralized reinsurance contract with another party at the January 2014 reinsurance renewals.

The firm intends to underwrite fully-collateralized property catastrophe reinsurance coverage to a broad range of select insurance companies and potentially other reinsurers on a retrocessional basis going forwards. The proceeds of its IPO and sale of shares will be put to this use.

Oxbridge Re is interesting as it does not intend to follow a hedge fund reinsurer strategy with an aggressive investment strategy, preferring to focus on generating long-term growth in its book value per share by underwriting reinsurance that delivers attractive underwriting profits relative to the risk it takes on.

The initial focus will continue to be on Gulf Coast property and casualty insurers, with an initial emphasis on Florida reinsurance business, Oxbridge Re says. This puts it directly into the most competitive area of the property catastrophe reinsurance market, where the impacts of alternative reinsurance capital and insurance linked securities on rates are most evident.

Oxbridge Re will need to maintain a low cost-of-capital to compete in this competitive area of the P&C reinsurance market, something which its intention to always fully-collateralize itself will assist with.

The relationship between Oxbridge Re and HCI Group will also help, and the firm says it will continue to derive a substantial portion of its business from the relationship at the June 2014 renewals. In this way Oxbridge Re is almost acting as a captive reinsurer for HCI, however backed by third-party reinsurance capital and underwriting on a fully-collateralized basis.

Start-ups like Oxbridge Re offer investors an interesting way to access the returns of the reinsurance market directly, due to its collateralized reinsurance strategy. However in this competitive market start-ups may find it difficult to grow, so Oxbridge Re will likely have to reply heavily on its relationships to begin with.

CEO of Oxbridge Re Jay Madhu has been a director of HCI Group and also President of HCI’s real estate division Greenleaf Capital, which explains the strong relationship between the two firms.

How long it can rely on those relationships alone, without expanding its client base, remains to be seen. However by launching and seeking to scale up now Oxbridge Re does position itself well should the U.S. hurricane season lead to losses and then inevitable rate hardening. The firm remains relatively under the radar but could be an interesting reinsurance start-up to watch.