PXRE Heads Towards Run-off

The Bermuda-based PXRE Group Ltd. reported its results for the second quarter of 2006, and further indicated that, barring some last minute “strategic alternative,” it is heading towards runoff.

PXRE was severely impacted by last fall’s hurricanes, and as a consequence lost its “A” rating and as of August 1 around 82 percent of its business (See IJ Website May 11 and related articles).

The Company said that on a “fully diluted basis, book value per share was $6.51 at June 30, 2006 – Net income before convertible preferred share dividends was $2.1 million compared to $43.5 million in the second quarter of 2005.”

President and CEO Jeffrey L. Radke commented: “Our Board of Directors remains focused on finding a strategic alternative that would maximize value for shareholders. PXRE’s catastrophe exposure is declining as a result of the cancellations and non-renewals in our reinsurance portfolio. As of August 1, 2006, approximately 82 percent of our in-force business that was in effect on January 1, 2006 has either been cancelled or non-renewed, and it is anticipated that this percentage will increase as additional contracts are non-renewed on a going forward basis. Despite these cancellations and non-renewals, we will continue to have significant catastrophe exposures for the balance of 2006.”

Radke stressed, however, that “we have also seen continued evidence that our loss reserves for Hurricanes Katrina, Rita and Wilma are adequate. For the second consecutive quarter, we did not experience any material development on our reserves for the 2005 hurricanes. Additionally, we engaged a nationally recognized actuarial firm to review our groupwide loss reserves as of June 30, 2006 and their loss estimates for the 2005 hurricanes, as well as for the remainder of our reserves, were consistent with the level of our carried reserves. Property loss reserves for hurricane events tend to mature more quickly than most other types of property and casualty loss reserves. While the unique causation issues surrounding Hurricane Katrina introduce more uncertainty than is usually the case for hurricane events, our industry has historically seen little change in property loss reserves associated with hurricanes after one year or more has passed since the event occurred.”

Radke also indicated: “We are hopeful that the Company will be able to achieve a strategic alternative that is attractive to our shareholders. If our Board of Directors concludes that no other alternative would be in the best interests of our shareholders, it may determine that the best option is to place PXRE’s reinsurance business into runoff and eventually commence an orderly winding up of PXRE’s operations over some period of time that is not currently determinable. We have therefore begun to take various steps to facilitate such a runoff, including the negotiation of commutations. During the second quarter, our exited lines reserves decreased by approximately 46 percent, primarily due to commutations. We have also begun discussions with a number of our largest cedents to negotiate commutations of our 2005 hurricane reserves.”

The full report can be obtained on the Company’s Website at: http://www.pxregroup.com.