A.M. Best Affirms Ratings of PXRE

A.M. Best Co. has affirmed the financial strength rating of A (Excellent) for PXRE Group Ltd.’s reinsurance subsidiaries, Bermuda.
The outlook remains negative.

The rating action applies to PXRE Reinsurance Company, Hartford, Connecticut and PXRE Reinsurance Ltd., Bermuda. Additionally, A.M. Best has affirmed a debt rating of “bb+” relative to PXRE Capital Trust I’s trust preferred securities.

The ratings reflect PXRE’s strong capitalization and improved underwriting performance. The company refocused its business strategy in 2001 to concentrate on its core competencies in the property catastrophe reinsurance market where it historically had generated favorable returns. PXRE produced a 77.8 percent combined ratio in 2002 which, along with investment returns, generated a return on equity of 16.5 percent for the year. These earnings, augmented by the group’s raising $150 million in equity capital through private investors in early 2002, has increased shareholder’s equity to $478 million at March 2003, with total capitalization now being in excess of $580 million.

Offsetting these favorable rating factors has been slippage in the group’s risk adjusted capital due to increased premium writings which has also resulted in significantly greater aggregate loss exposures in the group’s peak zones. As a global property catastrophe reinsurer, the group is exposed to low frequency, high impact losses associated with catastrophic events on a worldwide basis. The group manages these exposures to a maximum threshold for any single event and, for the most part, has excluded coverages related to terrorism.

PXRE Bermuda continues to be afforded an A (Excellent) rating based on its core importance within the group. Through quota share reinsurance, this company is assuming half of PXRE Reinsurance Company’s business. However, to sustain this rating, A.M. Best expects PXRE to maintain capital within this Bermudian entity at a level commensurate with its rating.

The negative outlook reflects A.M. Best’s concerns with regard to the group’s ability to sustain earnings over the longer term, as the level of hardening in the property catastrophe reinsurance market begins to decline due to increased competition.

The sustainability of the current rating is contingent upon PXRE’s demonstrated success in maintaining its current earnings trend and its ability to execute its business strategy in accordance with expectations.