We are a Cayman Islands specialty property and casualty reinsurer that provides reinsurance solutions through our reinsurance subsidiaries, Oxbridge Reinsurance Limited and Oxbridge Re NS. Our more recently organized subsidiary, Oxbridge Re NS, was incorporated on December 22, 2017 to function as a reinsurance sidecar which increases the underwriting capacity of Oxbridge Reinsurance Limited. Oxbridge Re NS commenced operations on June 1, 2018 and has since issued participating notes to third-party investors, the proceeds of which was utilized to collateralize a quota-share of Oxbridge Reinsurance Limited’s reinsurance obligations. We focus on underwriting fully-collateralized reinsurance contracts primarily for property and casualty insurance companies in the Gulf Coast region of the United States, and globally through ILW’s. We specialize in underwriting medium frequency, high severity risks, where we believe sufficient data exists to analyze effectively the risk/return profile of reinsurance contracts.
Compared to most of our competitors, we are small and have low overhead expenses. We believe that our expense efficiency, agility and existing relationships support our competitive position and allows us to profitably participate in lines of business that fit within our strategy. Over time we expect our expense advantage to erode as the industry acts to reduce frictional costs.
other fee income from management and underwriting performance of the reinsurance side-car.
Premiums from reinsurance on property and casualty business assumed are directly related to the number, type and pricing of contracts we write.
General. Net loss for the year ended December 31, 2019 was $305 thousand or ($0.05) basic and diluted loss per share compared to a net loss of $5.7 million or ($1.00) basic and diluted earnings per share for the year ended December 31, 2018. The significant decrease in net loss is wholly due to no limit losses being suffered during the year ended December 31, 2019, when compared with the reinsurance portfolio that suffered limit losses during the year ended December 31, 2018.
Premium Income. Net premiums earned typically reflects the pro-rata inclusion into income of premiums assumed (net of loss experience refund and premiums ceded) over the life of the reinsurance contracts. However, given the limit losses experienced on all our reinsurance contracts during the year ended December 31, 2018, premiums recognition has not been deferred through the remaining lives of those respective contracts and has been accelerated into the respective years, due to the fact that there is no possibility of any future treaty-year losses under such contracts.
Policy Acquisition Costs and Underwriting Expenses. Acquisition costs represent the amortization of the brokerage fees and federal excise taxes incurred on reinsurance contracts placed. Policy acquisition costs and underwriting expenses for the year ended December 31, 2019 decreased by $199 thousand, to $64 thousand from $263 thousand for the year ended December 31, 2018. The decrease is primarily due to the decrease in net premiums earned during 2019, when compared with the prior fiscal year.
Expense Ratio. The expense ratio is the ratio of policy acquisition costs, other underwriting expenses and general and administrative expenses to net premiums earned. We use the expense ratio to measure our operating performance. The expense ratio increased from 41.5% for the year ended December 31, 2018 to 183.3% for the year ended December 31, 2019. The increase is due primarily to a lower denominator in net premiums earned as recorded during the year ended December 31, 2019, when compared with the prior fiscal year.
Combined Ratio. We use the combined ratio to measure our underwriting performance. The combined ratio is the sum of the loss ratio and the expense ratio. If the combined ratio is at or above 100%, we are not underwriting profitably and may not be profitable. The combined ratio decreased from 310.1% for the year ended December 31, 2018 to 183.3% for the year ended December 31, 2019. The decrease in the combined ratio is due to a 0% loss ratio during year ended December 31, 2019 as mentioned above, when compared with the prior fiscal year.
FINANCIAL CONDITION - DECEMBER 31, 2019 COMPARED TO DECEMBER 31, 2018
Unearned Premiums Reserve. As of December 31, 2019, our unearned premiums reserve increased by $440 thousand, or 100%, to $440 thousand, from $0 at December 31, 2018. The increase is due to placement of new contract coupled with no limit losses incurred during the year in comparison to the acceleration of premium recognition due to the full limit losses in the prior year.
As of December 31, 2019, we believe we had sufficient cash flows from operations to meet our liquidity requirements. We expect that our operational needs for liquidity will be met by cash, investment income and funds generated from underwriting activities. We have no plans to issue debt and expect to fund our operations for the foreseeable future from operating cash flows, as well as from potential future equity offerings. However, we cannot provide assurances that in the future we will not incur indebtedness to implement our business strategy, pay claims or make acquisitions.
Our cash flows from operating, investing and financing activities for the years ended December 31, 2019 and 2018 are summarized below.
Reserves for Losses and Loss Adjustment Expenses. We determine our reserves for losses and loss adjustment expenses on the basis of the claims reported by our ceding insurers and for losses IBNR, we use 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.
As at December 31, 2019 we had no reserves for loss and loss adjustment expenses due to no significant events occurring during the year and no reported claims on contract in force. See Note 8 to the consolidated financial statements.
Deferred Acquisition Costs. We defer certain expenses that are directly related to and vary with producing reinsurance business, including brokerage fees on gross premiums assumed, premium taxes and certain other costs related to the acquisition of reinsurance contracts. These costs are capitalized and the resulting asset, deferred acquisition costs, is amortized and charged to expense in future periods as premiums assumed are earned. The method followed in computing deferred acquisition costs limits the amount of such deferral to its estimated realizable value. The ultimate recoverability of deferred acquisition costs is dependent on the continued profitability of our reinsurance underwriting. If our underwriting ceases to be profitable, we may have to write off a portion of our deferred acquisition costs, resulting in a further charge to income in the period in which the underwriting losses are recognized.