The following discussion and analysis is intended to help the reader understand our business, financial condition, results of operations, liquidity and capital resources. You should read this discussion in conjunction with our Consolidated Financial Statements and the related notes contained elsewhere in this Annual Report on Form 10-K for the fiscal year ended December 31, 2014.
Due to influx of new risk capital from alternative capital market participants such as hedge funds and pension funds, we believe that the reinsurance industry is currently over-capitalized, and will continue in this trend for the foreseeable future. The over-capitalization of the market is not uniform as there are a number of insurers and reinsurers that have suffered and continue to suffer from capacity issues. We continue to assess the opportunities that may be available to us with insurance and reinsurance companies with this profile. If the reinsurance market continues to soften, our strategy is to reduce premium writings rather than accept mispriced risk, and conserve our capital for a more opportune environment. Significant rate increases could occur if financial and credit markets experience adverse shocks that result in the loss of capital of insurers and reinsurers, or if there are major catastrophic events, especially in North America. The persistent low interest rate environment has reduced the earnings of many insurance and reinsurance companies and we believe that the continuation of low interest rates, coupled with the reduction of prior years’ reserve redundancies, could cause the industry to adopt overall higher pricing.
The following table summarizes our results of operations for the year ended December 31, 2014 and for the period from April 4, 2013 (date of incorporation) to December 31, 2013 (dollars in thousands, except per share amounts):
Net premiums earned for the year ended December 31, 2014 increased $3.3 million, or 225%, to $4.8 million, from $1.5 million for the period from April 4, 2013 (date of incorporation) to December 31, 2013. The growth of net premiums earned was driven by continued growth in the number and size of reinsurance contracts placed.
General and Administrative Expenses. General and administrative expenses for the year ended December 31, 2014 increased $739 thousand, or 190%, to $1.1 million, from $389 thousand for the period from April 4, 2013 (date of incorporation) to December 31, 2013. The increase is due primarily to the fact that we commenced operations in June 2013, and as such, general and administrative expenses for the period ended December 31, 2013 represent only seven months of general and administrative expenses, when compared to the year ended December 31, 2014. Additionally, following our successful initial public offering in March 2014, we saw a significant increase in our general and administrative expenses during the year ended December 31, 2014 because of an increase in business activities and operations following the initial public offering.
Expense Ratio. The expense ratio is the ratio of policy acquisition costs, other underwriting expenses and other administrative expenses to net premiums earned. We use the expense ratio to measure our operating performance. The expense ratio remained substantially the same over the year ended December 31, 2014 and period from April 4, 2013 (date of incorporation) to December 31, 2013.
** - decrease in book value per share due to dilution in book value per share as a result of the completion of our initial public offering on March 26, 2014.
FINANCIAL CONDITION - DECEMBER 31, 2014 COMPARED TO DECEMBER 31, 2013
Restricted Cash and Cash Equivalents. As of December 31, 2014, our restricted cash and cash equivalents increased by $22.7 million, or 210%, to $33.5 million, from $10.8 million as of December 31, 2013. The increase is primarily a result of our successful placement of new reinsurance contacts in June and July 2014, and the placement of cash in trust accounts as collateral under these contracts.
Premiums Receivable. There were no premiums receivable at December 31, 2013, as under the terms of our initial reinsurance contacts underwritten in June 2013, all premiums were due to be paid at contract inception. As of December 31, 2014, we had $4.1 million in premiums receivable, which represents outstanding premium installments under our new reinsurance contracts for the treaty year commencing June 1, 2014.
Loss Experience Refund Payable. As of December 31, 2014, our loss experience refund payable increased by $5.7 million, or 422%, to $7.1 million, from $1.4 million at December 31, 2013. The increase is due primarily to the recognition of a pro-rated liability over the year ended December 31, 2014, because the absence of loss experience under two of our reinsurance contracts obligates us to refund premium to two of our ceding reinsurers.
Unearned Premiums Reserve. As of December 31, 2014, our unearned premiums reserve increased by $3.7 million, or 182%, to $5.7 million, from $2 million at December 31, 2013. The increase is due primarily to the successful placement of additional and larger reinsurance contracts for the treaty year effective June 1, 2014.
We are organized as a holding company with substantially no operations of our own. Our operations are conducted through our sole reinsurance subsidiary, Oxbridge Reinsurance Limited, which underwrites risks associated with our property and casualty reinsurance programs. We have minimal continuing cash needs which are principally related to the payment of administrative expenses and shareholder dividends. There are restrictions on Oxbridge Reinsurance Limited’s ability to pay dividends which are described in more detail below.
For the year ended December 31, 2014 and period from April 4, 2013 (date of incorporation) to December 31, 2013, the net cash used in investing activities was $29.3 million and $10.1 million, respectively. The increase in cash used in investing activities was primarily driven by additional restricted cash and cash equivalents being placed in trust accounts, along with net investment purchases being made during the year ended December 31, 2014.
For the year ended December 31, 2014 and period from April 4, 2013 (date of incorporation) to December 31, 2013, the net cash provided by financing activities was $25.2 million and $6.6 million, respectively. The increase in net cash provided by financing activities was due to the proceeds we received through the initial public offering (net of offering expenses), partially offset by $1.7 million in total dividends paid to shareholders. On January 19, 2014, our Board of Directors declared a dividend of $0.12 per ordinary share for each of the third quarter and the fourth quarter of 2013. Additionally, on July 6, 2014 and November 1, 2014, our Board of Directors declared a dividend of $0.12 per ordinary share for the second and third quarter of 2014, respectively.
As of December 31, 2014, 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, funds generated from underwriting activities and investment income, together with the net proceeds of our initial public offering. We have no plans to issue debt and expect to fund our operations for the foreseeable future from operating cash flows and the net proceeds of our initial public offering, 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.
We are required to make estimates and assumptions in certain circumstances that affect amounts reported in our Consolidated Financial Statements and related notes. We evaluate these estimates and assumptions on an on-going basis based on historical developments, market conditions, industry trends and other information that we believe to be reasonable under the circumstances. These accounting policies pertain to premium revenues and risk transfer, reserve for loss and loss adjustment expenses and the reporting of deferred acquisition costs.
Under U.S. GAAP, we are not permitted to establish loss reserves until the occurrence of an actual loss event. As a result, only loss reserves applicable to losses incurred up to the reporting date may be recorded, with no allowance for the provision of a contingency reserve to account for expected future losses. Losses arising from future events, which could be substantial, are estimated and recognized at the time the loss is incurred.