oxbr_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 1-36346

OXBRIDGE RE HOLDINGS LIMITED
(Exact name of registrant as specified in its charter)

Cayman Islands		98-1150254
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Suite 201 42 Edward Street, GeorgetownP.O. Box 469 Grand Cayman, Cayman Islands		KY1-9006
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (345) 749-7570

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒

No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☒

No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐

No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of November 12, 2021; 5,733,587 ordinary shares, par value $0.001 per share, were outstanding.

OXBRIDGE RE HOLDINGS LIMITED

INDEX

PART I – FINANCIAL INFORMATION		Page

Item 1.	Financial Statements	3

	Consolidated Balance Sheets September 30, 2021 (unaudited) and December 31, 2020	3

	Consolidated Statements of Operations Three and Nine Months Ended September 30, 2021 and 2020 (unaudited)	4

	Consolidated Statements of Comprehensive Income (Loss) Three and Nine Months Ended September 30, 2021and 2020 (unaudited)	5

	Consolidated Statements of Cash Flows Nine Months Ended September 30, 2021 and 2020 (unaudited)	6

	Consolidated Statements of Changes in Shareholders’ Equity Three and Nine Months Ended September 30, 2021and 2020 (unaudited)	8

	Notes to the Consolidated Financial Statements (unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40

Item 4.	Controls and Procedures	40

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	41

Item 1A.	Risk Factors	41

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42

Item 3.	Defaults Upon Senior Securities	42

Item 4.	Mine Safety Disclosures	42

Item 5.	Other Information	42

Item 6.	Exhibits	43

	Signatures	44

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES

Consolidated Balance Sheets

(expressed in thousands of U.S. Dollars, except per share and share amounts)

	At September 30, 2021			At December 31, 2020
	(Unaudited)
Assets
Equity securities, at fair value (cost : $1,522 and $965)	$	778			787
Cash and cash equivalents		3,748			5,562
Restricted cash and cash equivalents		1,816			1,914
Accrued interest and dividend receivable		-			1
Premiums receivable		697			464
Other investments		9,146			-
Due from related party		20			-
Deferred policy acquisition costs		62			45
Operating lease right-of-use assets		157			222
Prepayment and other assets		72			75
Property and equipment, net		6			13
Total assets	$	16,502			9,083

Liabilities and Shareholders Equity
Liabilities:
Losses payable		158			-
Notes payable to noteholders		216			216
Unearned premiums reserve		560			411
Operating lease liabilities		158			222
Accounts payable and other liabilities		340			209
Total liabilities		1,432			1,058

Shareholders equity:
Ordinary share capital, (par value $0.001, 50,000,000 shares authorized; 5,733,587 shares issued and outstanding)		6			6
Additional paid-in capital		32,337			32,294
Accumulated Deficit		(17,273	)		(24,275	)
Total shareholders equity		15,070			8,025
Total liabilities and shareholders equity	$	16,502			9,083

The accompanying Notes to Consolidated Financial Statements are an integral

part of the Consolidated Financial Statements.

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OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES

Consolidated Statements of Income (unaudited)

(expressed in thousands of U.S. Dollars, except per share amounts)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2021			2020			2021			2020

Revenue
Assumed premiums	$	-			-			904			864
Change in unearned premiums reserve		370			247			(149	)		(218	)

Net premiums earned		370			247			755			646
Net investment and other income		25			32			64			90
Net realized investment (loss) gains		-			(2	)		755			325
Unrealized gain on other investments		7,146			-			7,146			-
Change in fair value of equity securities		(512	)		(18	)		(566	)		(343	)

Total revenue		7,029			259			8,154			718

Expenses
Losses and loss adjustment expenses		158			-			158			-
Policy acquisition costs and underwriting expenses		41			27			83			71
General and administrative expenses		280			239			845			767

Total expenses		479			266			1,086			838

Income (Loss) before income attributable to noteholders		6,550			(7	)		7,068			(120	)

Income attributable to noteholders		(24	)		(26	)		(66	)		(112	)

Net income (loss)	$	6,526			(33	)		7,002			(232	)

Earnings (Loss) per share
Basic and Diluted	$	1.14			(0.01	)		1.22			(0.04	)

Weighted-average shares outstanding
Basic and Diluted		5,733,587			5,733,587			5,733,587			5,733,587

The accompanying Notes to Consolidated Financial Statements are an integral

part of the Consolidated Financial Statements.

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OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(expressed in thousands of U.S. Dollars)

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2021		2020			2021		2020


Net income (loss)	$	6,526		(33	)		7,002		(232	)
Other comprehensive loss:
Total other comprehensive loss		-		-			-		-

Comprehensive income (loss)	$	6,526		(33	)		7,002		(232	)

The accompanying Notes to Consolidated Financial Statements are an integral

part of the Consolidated Financial Statements.

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OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

(expressed in thousands of U.S. Dollars)

	Nine Months Ended
	September 30,
	2021			2020
Operating activities
Net income (loss)	$	7,002			(232	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Stock-based compensation		43			24
Depreciation and amortization		6			7
Net realized investment gains		(755	)		(325	)
Change in fair value of equity securities		566			343
Change in fair value of other investments		(7,146	)		-
Change in operating assets and liabilities:
Accrued interest and dividend receivable		1			11
Premiums receivable		(233	)		(186	)
Due from related party		(20	)		-
Deferred policy acquisition costs		(17	)		(24	)
Operating leases right-of-use assets and liabilities		2			1
Prepayment and other assets		3			10
Losses payable		158			-
Unearned premiums reserve		149			218
Accounts payable and other liabilities		131			(125	)

Net cash used in operating activities	$	(110	)		(278	)

Investing activities
Purchase of equity securities		(1,148	)		(2,390	)
Purchase of other investments		(2,000	)		-
Proceeds from sale of equity securities		1,346			2,429
Purchase of property and equipment		-			(14	)

Net cash (used in) provided by investing activities	$	(1,802	)		25

Financing activities
Proceeds on issuance of notes		-			216
Redemption of notes		-			(600	)

Net cash used in financing activities	$	-			(384	)

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OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(expressed in thousands of U.S. Dollars)

	Nine Months Ended
	September 30,
	2021			2020

Cash and cash equivalents, and restricted cash and cash equivalents:
Net change during the period		(1,912	)		(637	)
Balance at beginning of period		7,476			8,016

Balance at end of period	$	5,564			7,379

Non-cash investing activities
Operating lease right-of-use assets	$	-			169
Operating lease liability	$	-			169

The accompanying Notes to Consolidated Financial Statements are an integral

part of the Consolidated Financial Statements.

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OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARY
Consolidated Statements of Changes in Shareholders' Equity
Nine Months Ended September 30, 2021 and 2020 (unaudited)
(expressed in thousands of U.S. Dollars, except number of shares )

	Ordinary Share Capital				Additional Paid-in		Accumulated			Total Shareholders'
	Shares		Amount		Capital		Deficit			Equity

Balance at December 31, 2019		5,733,587		6		32,262		(24,225	)		8,043
Net loss for the period		-		-		-		(364	)		(364	)
Stock-based compensation		-		-		8		-			8
Balance at March 31, 2020		5,733,587		6		32,270		(24,589	)		7,687
Net income for the period		-		-		-		165			165
Stock-based compensation		-		-		8		-			8
Balance at June 30, 2020		5,733,587		6		32,278		(24,424	)		7,860
Net loss for the period		-		-		-		(33	)		(33	)
Stock-based compensation		-		-		8		-			8
Balance at September 30, 2020		5,733,587		6		32,286		(24,457	)		7,835

Balance at December 31, 2020		5,733,587		6		32,294		(24,275	)		8,025
Net income for the period		-		-		-		28			28
Stock-based compensation		-		-		15		-			15
Balance at March 31, 2021		5,733,587		6		32,309		(24,247	)		8,068
Net income for the period		-						448			448
Stock-based compensation		-				15		-			15
Balance at June 30, 2021		5,733,587		6		32,324		(23,799	)		8,531
Net income for the period		-		-		-		6,526			6,526
Stock-based compensation		-		-		13		-			13
Balance at September 30, 2021		5,733,587		6		32,337		(17,273	)		15,070

The accompanying Notes to Consolidated Financial Statements are an integral

part of the Consolidated Financial Statements.

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OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

September 30, 2021

1. ORGANIZATION AND BASIS OF PRESENTATION

(a) Organization

Oxbridge Re Holdings Limited (the “Company”) was incorporated as an exempted company on April 4, 2013 under the laws of the Cayman Islands. Oxbridge Re Holdings Limited owns 100% of the equity interest in Oxbridge Reinsurance Limited, an exempted entity incorporated on April 23, 2013 under the laws of the Cayman Islands and for which a Class “C” Insurer’s license was granted on April 29, 2013 under the provisions of the Cayman Islands Insurance Law. Oxbridge Re Holdings Limited also owns 100% of the equity interest in Oxbridge Re NS, an entity incorporated as an exempted company on December 22, 2017 under the laws of the Cayman Islands to function as a reinsurance sidecar facility and to increase the underwriting capacity of Oxbridge Reinsurance Limited. The Company, through its subsidiaries (collectively “Oxbridge Re”) provides collateralized reinsurance in the property catastrophe market and makes investments that can contribute to the growth of capital and surplus in its licensed reinsurance subsidiaries over time. The Company operates as a single business segment through its wholly-owned subsidiaries. The Company’s headquarters and principal executive offices are located at Suite 201, 42 Edward Street, Georgetown, Grand Cayman, Cayman Islands, and have their registered offices at P.O. Box 309, Ugland House, Grand Cayman, Cayman Islands.

The Company’s ordinary shares and warrants are listed on The NASDAQ Capital Market under the symbols “OXBR” and “OXBRW,” respectively.

(b) Basis of Presentation and Consolidation

The accompanying unaudited, consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information, and the Securities and Exchange Commission (“SEC”) rules for interim financial reporting. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with GAAP have been omitted pursuant to such rules and regulations. However, in the opinion of management, the accompanying interim consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the Company’s consolidated financial position as of September 30, 2021 and the consolidated results of operations and cash flows for the periods presented. The consolidated results of operations for interim periods are not necessarily indicative of the results of operations to be expected for any subsequent interim period or for the fiscal year ended December 31, 2021. The accompanying unaudited consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2020 included in the Company’s Form 10-K, which was filed with the SEC on March 30, 2021.

In preparing the interim unaudited consolidated financial statements, management was required to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures at the financial reporting date and throughout the periods being reported upon. Certain of the estimates result from judgments that can be subjective and complex and consequently actual results may differ from these estimates, which would be reflected in future periods.

Material estimates that are particularly susceptible to significant change in the near-term relate to the fair value of the Company’s investment in Oxbridge Acquisition Corp. and the determination of the reserve for losses and loss adjustment expenses (if any), which may include amounts estimated for claims incurred but not yet reported. The Company uses various assumptions and actuarial data it believes to be reasonable under the circumstances to make these estimates. In addition, accounting policies specific to valuation of investments involve significant judgments and estimates material to the Company’s consolidated financial statements. Although considerable variability is likely to be inherent in these estimates, management believes that the amounts provided are reasonable. These estimates are continually reviewed and adjusted if necessary. Such adjustments are reflected in current operations.

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OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

September 30, 2021

The Company consolidates in these consolidated financial statements the results of operations and financial position of all voting interest entities (“VOE”) in which the Company has a controlling financial interest and all variable interest entities (“VIE”) in which the Company is considered to be the primary beneficiary. The consolidation assessment, including the determination as to whether an entity qualifies as a VIE or VOE, depends on the facts and circumstances surrounding each entity.

All significant intercompany balances and transactions have been eliminated.

2. SIGNIFICANT ACCOUNTING POLICIES

Cash and cash equivalents: Cash and cash equivalents are comprised of cash and short- term investments with original maturities of three months or less.

Restricted cash and cash equivalents: Restricted cash and cash equivalents represent funds held in accordance with the Company’s trust agreements with ceding insurers and trustees, which requires the Company to maintain collateral with a market value greater than or equal to the limit of liability, less unpaid premium.

Investments: The Company from time to time invests in fixed-maturity securities and equity securities, and for which its fixed-maturity securities are classified as available-for-sale. The Company’s available for sale debt investments are carried at fair value with changes in fair value included as a separate component of accumulated other comprehensive income (loss) in shareholders’ equity. For the Company’s investment in equity securities, and for the Company’s investment in the special purpose acquisition company Oxbridge Acquisition Corp. classified as “other investments”, the changes in fair value are recorded within the consolidated statements of operations.

Unrealized gains or losses are determined by comparing the fair market value of the securities with their cost or amortized cost. Realized gains and losses on investments are recorded on the trade date and are included in the consolidated statements of operations. The cost of securities sold is based on the specified identification method. Investment income is recognized as earned and discounts or premiums arising from the purchase of debt securities are recognized in investment income using the interest method over the remaining term of the security.

Fair value measurement: GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

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OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

September 30, 2021

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

Fair value measurement (continued)

The three levels of the fair value hierarchy under GAAP are as follows:

Level 1	Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date;

Level 2	Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly, including inputs in markets that are not considered to be active; and

Level 3	Inputs that are unobservable.

Inputs are used in applying the various valuation techniques and broadly refer to the assumptions that market participants use to make valuation decisions, including assumptions about risk. For fixed maturity securities, inputs may include price information, volatility statistics, specific and broad credit data, liquidity statistics, broker quotes for similar securities and other factors. The fair value of investments in stocks and exchange-traded funds is based on the last traded price. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes “observable” requires significant judgment by the Company’s investment custodians and management. The investment custodians consider observable data to be market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant markets. The categorization of a financial instrument within the hierarchy is based upon the pricing transparency of the instrument, as well as the marketability of the instrument and the inherent risk of forfeiture of such instrument.

Deferred policy acquisition costs (“DAC”): Policy acquisition costs consist of brokerage fees, federal excise taxes and other costs related directly to the successful acquisition of new or renewal insurance contracts and are deferred and amortized over the terms of the reinsurance agreements to which they relate. The Company evaluates the recoverability of DAC by determining if the sum of future earned premiums and anticipated investment income is greater than the expected future claims and expenses. If a loss is probable on the unexpired portion of policies in force, a premium deficiency loss is recognized. At September 30, 2021, the DAC was considered fully recoverable and no premium deficiency loss was recorded.

Property and equipment: Property and equipment are recorded at cost when acquired. Property and equipment are comprised of motor vehicles, furniture and fixtures, computer equipment and leasehold improvements and are depreciated, using the straight-line method, over their estimated useful lives, which are five years for furniture and fixtures and computer equipment and four years for motor vehicles. Leasehold improvements are amortized over the lesser of the estimated useful lives of the assets or remaining lease term. The Company periodically reviews property and equipment that have finite lives, and that are not held for sale, for impairment by comparing the carrying value of the assets to their estimated future undiscounted cash flows. For the three and nine-month periods ended September 30, 2021 and 2020, there were no impairments in property and equipment.

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OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

September 30, 2021

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

Allowance for uncollectible receivables: Management evaluates credit quality by evaluating the exposure to individual counterparties; where warranted management also considers the credit rating or financial position, operating results and/or payment history of the counterparty. Management establishes an allowance for amounts for which collection is considered doubtful. Adjustments to previous assessments are recognized in operations in the year in which they are determined. At September 30, 2021, no receivables were determined to be overdue or impaired, and accordingly, no allowance for uncollectable receivables has been established.

Reserves for losses and loss adjustment expenses: The Company determines its reserves for losses and loss adjustment expenses, if any, on the basis of the claims reported by the Company’s ceding insurers and for losses incurred but not reported (“IBNR”), management uses the assistance of an independent actuary. The reserves for losses and loss adjustment expenses represent management’s best estimate of the ultimate settlement costs of all losses and loss adjustment expenses. Management believes that the amounts are adequate; however, the inherent impossibility of predicting future events with precision, results in uncertainty as to the amount which will ultimately be required for the settlement of losses and loss expenses, and the differences could be material. Adjustments are reflected in the consolidated statements of operations in the period in which they are determined.

Loss experience refund payable: Certain contracts may include retrospective provisions that adjust premiums or result in profit commissions in the event losses are minimal or zero. In accordance with GAAP, the Company will recognize a liability in the period in which the absence of loss experience obligates the Company to pay cash or other consideration under the contracts. On the contrary, the Company will derecognize such liability in the period in which a loss experience arises. Such adjustments to the liability, which accrue throughout the contract terms, will reduce the liability should a catastrophic loss event covered by the Company occur.

Premiums assumed: The Company records premiums assumed, net of loss experience refunds, as earned pro-rata over the terms of the reinsurance agreements, or period of risk, where applicable, and the unearned portion at the consolidated balance sheet date is recorded as unearned premiums reserve. A reserve is made for estimated premium deficiencies to the extent that estimated losses and loss adjustment expenses exceed related unearned premiums. Investment income is not considered in determining whether or not a deficiency exists. Subsequent adjustments of premiums assumed, based on reports of actual premium by the ceding companies, or revisions in estimates of ultimate premium, are recorded in the period in which they are determined. Such adjustments are generally determined after the associated risk periods have expired, in which case the premium adjustments are fully earned when assumed.

Certain contracts may allow for reinstatement premiums in the event of a full limit loss prior to the expiration of the contract. A reinstatement premium is not due until there is a full limit loss event and therefore, in accordance with GAAP, the Company records a reinstatement premium as written only in the event that the reinsured incurs a full limit loss on the contract and the contract allows for a reinstatement of coverage upon payment of an additional premium. For catastrophe contracts which contractually require the payment of a reinstatement premium equal to or greater than the original premium upon the occurrence of a full limit loss, the reinstatement premiums are earned over the original contract period. Reinstatement premiums that are contractually calculated on a pro-rata basis of the original premiums are earned over the remaining coverage period.

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OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

September 30, 2021

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

Unearned Premiums Ceded: The Company from time to time reduces the risk of future losses on business assumed by reinsuring certain risks and exposures with other reinsurers (retrocessionaires). The Company remains liable to the extent that any retrocessionaire fails to meet its obligations and to the extent that the Company does not hold sufficient security for their unpaid obligations.

Ceded premiums are written during the period in which the risk incept and are expensed over the contract period in proportion to the period of protection. Unearned premiums ceded consist of the unexpired portion of the reinsurance obtained.

Uncertain income tax positions: The authoritative GAAP guidance on accounting for, and disclosure of, uncertainty in income tax positions requires the Company to determine whether an income tax position of the Company is more likely than not to be sustained upon examination by the relevant tax authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. For income tax positions meeting the more likely than not threshold, the tax amount recognized in the consolidated financial statements, if any, is reduced by the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant taxing authority. The application of this authoritative guidance has had no effect on the Company’s consolidated financial statements because the Company had no uncertain tax positions at September 30, 2021.

Earnings (Loss) Per Share: Basic earnings (loss) per share has been computed on the basis of the weighted-average number of ordinary shares outstanding during the periods presented. Diluted earnings (loss) per share is computed based on the weighted-average number of ordinary shares outstanding and reflects the assumed exercise or conversion of diluted securities, such as stock options and warrants, computed using the treasury stock method.

Stock-Based Compensation: The Company accounts for stock-based compensation under the fair value recognition provisions of GAAP which requires the measurement and recognition of compensation for all stock-based awards made to employees and directors, including stock options and restricted stock issuances based on estimated fair values. The Company measures compensation for restricted stock based on the price of the Company’s ordinary shares at the grant date. Determining the fair value of stock options at the grant date requires significant estimation and judgment. The Company uses an option-pricing model (Black-Scholes option pricing model) to assist in the calculation of fair value for stock options. When estimating the expected volatility, the Company takes into consideration the historical volatility of entities similar to itself. The Company considers factors such as an entity’s industry, stage of life cycle, size and financial leverage when selecting similar entities. The Company may use a sample peer group of companies in the reinsurance industry and/or the Company’s own historical volatility in determining the expected volatility. Additionally, the Company uses the guidance in the SEC’s Staff Accounting Bulletin No. 107 to determine the estimated life of options issued and has assumed no forfeitures during the life of the options.

The Company uses the straight-line attribution method for all grants that include only a service condition. Compensation expense related to all awards is included in general and administrative expenses.

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OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

September 30, 2021

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

Pending Accounting Updates:

Accounting Standards Update No. 2016-13. In June 2016, the FASB issued ASU 2016-13, ”Financial Instruments - Credit Losses (Topic 326): Measurements of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 amends the guidance on reporting credits losses and affects loans, debt securities, trade receivables, reinsurance recoverable and other financial assets that have the contractual right to receive cash. The amendments are effective for annual periods beginning after December 15, 2022 (as amended), and interim periods within those annual periods. The Company is in the process of evaluating the impact of the requirements of ASU 2016-13 on the Company’s consolidated financial statements.

Segment Information: Under GAAP, operating segments are based on the internal information that management uses for allocating resources and assessing performance as the source of the Company’s reportable segments. The Company manages its business on the basis of one operating segment, Property and Casualty Reinsurance, in accordance with the qualitative and quantitative criteria established under GAAP.

Reclassifications: Any reclassifications of prior period amounts have been made to conform to the current period presentation.

3. CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AND CASH EQUIVALENTS

	At September 30,		At December 31,
	2021		2020
	(in thousands)

Cash on deposit	$	2,749	$	2,253
Cash held with custodians		999		3,309
Restricted cash held in trust		1,816		1,914
Total	$	5,564	$	7,476

Cash and cash equivalents are held by large and reputable counterparties in the United States of America and in the Cayman Islands. Restricted cash held in trust is custodied with Truist Bank, f/k/a SunTrust Bank and is held in accordance with the Company’s trust agreements with the ceding insurers and trustees, which require that the Company provide collateral having a market value greater than or equal to the limit of liability, less unpaid premium.

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OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

September 30, 2021

4. INVESTMENTS

The Company from time to time invests in fixed-maturity securities and equity securities. At September 30, 2021 and December 31, 2020, the Company did not hold any available-for-sale debt securities.

Proceeds received, and the gross realized gains and losses from sales of equity securities, for the three and nine months ended September 30, 2021 and 2020 were as follows:

	Gross proceeds from sales		Gross Realized Gains		Gross Realized Losses
	($ in thousands)

Three Months Ended September 30, 2021
Equity securities	$	-	$	-	$	-

Nine Months Ended September 30, 2021
Equity securities	$	1,346	$	755	$	-

Three Months Ended September 30, 2020
Equity securities	$	294	$	-	$	(2	)

Nine Months Ended September 30, 2020
Equity securities	$	2,429	$	327	$	(2	)

Other Investments

In connection with Oxbridge Acquisition Corp. (“OXAC”) initial public offering (“IPO”) in August 2021, the Company’s affiliate OAC Sponsor Ltd. (“Sponsor”) purchased an aggregate 4,897,500 private placement warrants from OXAC (“Private Placement Warrants”) at a price of $1.00 per warrant. Each Private Placement Warrant is exercisable for one of OXAC’s Class A ordinary share at a price of $11.50 per share, and as such meets the definition of a derivative as outlined within ASC 815, Derivatives and Hedging. The Sponsor also purchased an aggregate of 2,875,000 of OXAC’s Class B ordinary shares (the “Class B shares”) par value $0.0001 per share for $25,000. The Class B shares and Private Placement Warrants were issued to and are held by Sponsor. The Class B shares of OXAC held by Sponsor will automatically convert into shares of OXAC’s Class A ordinary shares on a one-for-one basis at the time of OXAC’s initial business combination and are subject to certain transfer restrictions.

On August 11, 2021, the Company acquired an aggregate of 1,500,000 ordinary shares and 3,094,999 preferred shares of Sponsor for an aggregate purchase price of $2,000,000. In connection with the organization of Sponsor, the Company placed approximately 34.7% of the risk capital and owns approximately 49.6% and 63.1% of the ordinary shares and preferred shares, respectively, of the Sponsor (the “Sponsor Equity Interest”). The preferred shares of Sponsor are nonvoting shares and entitle the holders thereof to receive the net proceeds, if any, received by Sponsor from the sale, exchange, or disposition of the Private Placement Warrants or the shares issuable upon the exercise thereof, and the ordinary shares of Sponsor (which are voting shares in Sponsor) are equivalent to the value of the Class B Shares of OXAC held by Sponsor.

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OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

September 30, 2021

4. INVESTMENTS (cont’d)

Other Investments (continued)

The registration statement for OXAC’s IPO was declared effective on August 11, 2021 and on August 16, 2021, OXAC consummated the IPO with the sale of 11,500,000 units (the “Units”) at $10.00 per Unit, generating gross proceeds of $115,000,000. The Units trade on the NASDAQ Capital Market under the ticker symbol “OXACU”. After the securities comprising the units began separate trading on October 1, 2021, the Class A ordinary shares and public warrants were listed on NASDAQ under the symbols “OXAC” and “OXACW,” respectively.

The Company’s beneficial interests in OXAC’s Class B shares and the Private Placement Warrants are recorded at fair value and are classified in “Other Investments” on the consolidated balance sheets. The fair value calculation of the Company’s beneficial interest in OXAC’s Class B shares and Private Placement Warrants is dependent on company-specific adjustments applied to the observable trading prices of OXAC Class A shares and public warrants. The Company’s management estimates that a specific discount range of 20% to 40% sufficiently captures the risk or profit that a market participant would require as compensation for assuming the inherent risk of forfeiture if a business combination doesn’t occur and the lack of marketability of the Company’s beneficial interests in the OXAC. The Company has selected a discount of 40%, and due to the unobservable nature of the company-specific adjustment, the Company classifies the Other Investment as Level 3 in the fair value hierarchy. Subsequent changes in fair value will be recorded in the consolidated statement of operations during the period of the change.

As a result of the re-measurement of our investment in OXAC, we recognize for the three and nine months ended September 30, 2021, an unrealized gain on securities of $7,145,857 within our consolidated statement of operations.

Other investments as of September 30, 2021 consist of the following:

	September 30, 2021
	(Unaudited)
Oxbridge Acquisition Corp. Private Placement Warrants	$	742,800
Oxbridge Acquisition Corp. Class B Ordinary Shares		8,403,057
End of period	$	9,145,857

	June 30, 2021
	(Unaudited)
Beginning of year	$	-
Investments in affiliate		2,000,000
Unrealized gain on investment in affiliate		7,145,857
End of period	$	9,145,857

If OXAC does not complete a business combination within 15 months from the closing of the IPO (or up to 21 months from the closing of the IPO if OXAC extends the period of time to consummate a business), the proceeds from the sale of the Private Placement Warrants (after OXAC IPO transaction costs) will be used to fund the redemption of the shares sold in the OXAC IPO (subject to the requirements of applicable law), and the Private Placement Warrants will expire without value. The Sponsor holds approximately 20% of the total ordinary shares (Class A and Class B) in OXAC along with the 4,897,500 Private Placement Warrants, and OXAC is managed by the Company’s executive officers.

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OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

September 30, 2021

4. INVESTMENTS (continued)

Assets Measured at Estimated Fair Value on a Recurring Basis

The following table presents information about the Company’s financial assets measured at estimated fair value on a recurring basis that is reflected in the consolidated balance sheets at carrying value. The table indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value as of September 30, 2021 and December 31, 2020:

	Fair Value Measurements Using
	(Level 1)		(Level 2)		(Level 3)		Total
*As of September 30, 2021*	($ in thousands)
Financial Assets:
Cash and cash equivalents	$	3,748	$	-	$	-	$	3,748

Restricted cash and cash equivalents	$	1,816	$	-	$	-	$	1,816

Other investments	$	-	$	-	$	9,146	$	9,146

Total equity securities		778		-		-		778

Total	$	6,342	$	-	$	9,146	$	15,488

	Fair Value Measurements Using
	(Level 1)		(Level 2)		(Level 3)		Total
*As of December 31, 2020*	($ in thousands)
Financial Assets:
Cash and cash equivalents	$	5,562	$	-	$	-	$	5,562

Restricted cash and cash equivalents	$	1,914	$	-	$	-	$	1,914

Total equity securities		787		-		-		787

Total	$	8,263	$	-	$	-	$	8,263

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OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

September 30, 2021

5. TAXATION

Under current Cayman Islands law, no corporate entity, including the Company and the subsidiaries, is obligated to pay taxes in the Cayman Islands on either income or capital gains. The Company and its subsidiaries have an undertaking from the Governor-in-Cabinet of the Cayman Islands, pursuant to the provisions of the Tax Concessions Law, as amended, that, in the event that the Cayman Islands enacts any legislation that imposes tax on profits, income, gains or appreciations, or any tax in the nature of estate duty or inheritance tax, such tax will not be applicable to the Company and its subsidiaries or their operations, or to the ordinary shares or related obligations, until April 23, 2033 and May 17, 2033, respectively.

The Company and its subsidiaries intend to conduct substantially all of their operations in the Cayman Islands in a manner such that they will not be engaged in a trade or business in the U.S. However, because there is no definitive authority regarding activities that constitute being engaged in a trade or business in the U.S. for federal income tax purposes, the Company cannot assure that the U.S. Internal Revenue Service will not contend, perhaps successfully, that the Company or its subsidiary is engaged in a trade or business in the U.S. A foreign corporation deemed to be so engaged would be subject to U.S. federal income tax, as well as branch profits tax, on its income that is treated as effectively connected with the conduct of that trade or business unless the corporation is entitled to relief under an applicable tax treaty.

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OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

September 30, 2021

6. VARIABLE INTEREST ENTITIES

Oxbridge Re NS. On December 22, 2017, the Company established Oxbridge Re NS, a Cayman domiciled and licensed special purpose insurer, formed to provide additional collateralized capacity to support Oxbridge Reinsurance Limited’s reinsurance business. In respect of the debt issued by Oxbridge Re NS to investors, Oxbridge Re NS has entered into a retrocession agreement with Oxbridge Reinsurance Limited effective June 1, 2020. Under this agreement, Oxbridge Re NS receives a quota share of Oxbridge Reinsurance Limited’s catastrophe business. Oxbridge Re NS is a non-rated insurer and the risks have been fully collateralized by way of funds held in trust for the benefit of Oxbridge Reinsurance Limited. Oxbridge Re NS is able to provide investors with access to natural catastrophe risk backed by the distribution, underwriting, analysis and research expertise of Oxbridge Re.

The Company has determined that Oxbridge Re NS meets the definition of a VIE as it does not have sufficient equity capital to finance its activities. The Company concluded that it is the primary beneficiary and has consolidated the subsidiary upon its formation, as it owns 100% of the voting shares, 100% of the issued share capital and has a significant financial interest and the power to control the activities of Oxbridge Re NS that most significantly impacts its economic performance. The Company has no other obligation to provide financial support to Oxbridge Re NS. Neither the creditors nor beneficial interest holders of Oxbridge Re NS have recourse to the Company’s general credit.

Upon issuance of a series of participating notes by Oxbridge Re NS, all of the proceeds from the issuance are deposited into collateral accounts, to fund any potential obligation under the reinsurance agreements entered into with Oxbridge Reinsurance Limited underlying such series of notes. The outstanding principal amount of each series of notes generally is expected to be returned to holders of such notes upon the expiration of the risk period underlying such notes, unless an event occurs which causes a loss under the applicable series of notes, in which case the amount returned is expected to be reduced by such noteholder’s pro rata share of such loss, as specified in the applicable governing documents of such notes.

In addition, holders of such notes are generally entitled to interest payments, payable annually, as determined by the applicable governing documents of each series of notes. Oxbridge Re Holdings Limited receives an origination and structuring fee in connection with the formation, operation and management of Oxbridge Re NS.

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OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

September 30, 2021

6. VARIABLE INTEREST ENTITIES (continued)

Notes Payable to Series 2020-1 noteholders

Oxbridge Re NS entered into a retrocession agreement with Oxbridge Reinsurance Ltd on June 1, 2020 and issued $216 thousand of participating notes which provides quota share support for Oxbridge Re’s global property catastrophe excess of loss reinsurance business. The participating notes have been assigned Series 2020-1 and are due to mature on June 1, 2023. None of the participating notes were redeemed during the three and nine-month periods ending September 30, 2021.

The income from Oxbridge Re NS operations that are attributable to the participating notes noteholders for the three and nine months ended September 30, 2021 was $24,000 and $66,000, respectively, and are included within accounts payable and other liabilities as at September 30, 2021. The income from Oxbridge Re NS operations that are attributable to the participating notes noteholders for the three and nine months ended September 30, 2020 was $26,000 and $112,000, respectively, and are included within accounts payable and other liabilities as at September 30, 2020.

7. RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES

The following table summarizes the Company’s loss and loss adjustment expenses (“LAE”) and the reserve for loss and LAE reserve movements for the three and nine-month periods ending September 30, 2021 and 2020:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2021			2020		2021			2020
	($ in thousands)					($ in thousands)

Balance, beginning of period	$	-			-	$	-			-
Incurred related to:
Current period		158			-		158			-
Prior period		-			-		-			-
Total incurred		158			-		158			-
Paid related to:
Current period		(158	)		-		(158	)		-
Prior period		-			-		-			-
Total paid		(158	)		-		(158	)		-
Balance, end of period	$	-			-	$	-			-

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OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

September 30, 2021

7. RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES (continued)

When losses occur, the reserves for losses and LAE are typically comprised of case reserves (which are based on claims that have been reported) and IBNR reserves (which are based on losses that are believed to have occurred but for which claims have not yet been reported and include a provision for expected future development on existing case reserves). The Company uses the assistance of an independent actuary in the determination of IBNR and expected future development of existing case reserves.

The uncertainties inherent in the reserving process and potential delays by cedants and brokers in the reporting of loss information, together with the potential for unforeseen adverse developments, may result in the reserve for losses and LAE ultimately being significantly greater or less than the reserve provided at the end of any given reporting period. The degree of uncertainty is further increased when a significant loss event takes place near the end of a reporting period. Reserve for losses and LAE estimates are reviewed periodically on a contract by contract basis and updated as new information becomes known. Any resulting adjustments are reflected in income in the period in which they become known.

The Company’s reserving process is highly dependent on the timing of loss information received from its cedants and related brokers.

The losses incurred during the three and nine-month period ended September 30, 2021 related to the a first limit loss suffered by the Company as a result of underwriting exposure to Hurricane Ida, which made landfall in Louisiana on August 29, 2021.

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OXBRIDGE RE HOLDINGS LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial Statements (unaudited)

September 30, 2021

8. EARNINGS (LOSS) PER SHARE

A summary of the numerator and denominator of the basic and diluted loss per share is presented below (dollars in thousands except per share amounts):

Three Months Ended

Nine Months Ended

September 30,

2021

2020

2021

2020

Numerator:

SEC Form 10-Q filed by Oxbridge Re Holdings Limited