The New York-based Tower Group, Inc. announced that it has concluded, through commutation agreements, PXRE Reinsurance Company’s participation under various reinsurance agreements with Tower Insurance Company of New York covering the 2001, 2002 and a portion of the 2003 policy periods.
“Ceded loss and loss adjustment expense reserve liabilities of $20.5 million, ceded paid losses of $2.4 million and ceding commission revenue of $8.6 million, totaling $31.5 million of unsecured recoverables were settled with a payment from PXRE of $26.7 million which represents an estimate of the present value of these recoverables,” said the bulletin. This resulted in a “non-recurring $4.8 million pre-tax charge to be recognized in the second quarter of 2006.”
Tower also said it has executed novation agreements with PXRE “relating to other reinsurance agreements covering business written in 2001, 2002 and 2003 by other insurance companies managed on their behalf by Tower Risk Management Corporation, Tower’s risk management subsidiary. As a result of the novations, Tower assumed liabilities of $12.0 million for which it received as consideration $11.4 million in cash and other assets. Tower incurred a non-recurring $0.6 million pre-tax charge for the difference between the assumed liabilities and the consideration received to be recognized in the second quarter of 2006. As a result of the commutation and novation agreements, which are effective as of June 29, 2006, PXRE is discharged from future obligations under the reinsurance agreements. There are no other agreements outstanding with PXRE.”
Tower President Michael Lee commented: “While PXRE has been meeting its financial obligations to Tower, credit exposure from an unrated reinsurer was inconsistent with our financial management practices. Accordingly, we negotiated what we believe to be a fair settlement to eliminate the risk of greater loss.”
Tower also announced “other significant non-recurring transactions that will affect pre-tax income. On April 5, 2006, Tower announced its $15 million investment in CastlePoint Holdings, Ltd. (“CPHL”) and the capitalization of CPHL through a private equity offering, following which Tower’s percentage ownership interest in CPHL stood at 8.6 percent of CPHL’s common shares plus a warrant to acquire an additional 3.7 percent of CPHL’s common shares.
“Relating to these transactions Tower will record a gain of $7.9 million in its second quarter pre tax-income arising from an increase in the value of its investment in CPHL’s common shares. After CPHL completed its capitalization, CPHL’s GAAP book value increased to approximately $265 million and the value of CPHL common shares held by Tower increased to $22.9 million representing a pre-tax gain of $7.9 million. Tower will also include in its second quarter pre-tax income between $3.8 and $4.6 million representing the estimated value of the warrant received.”
“On June 29, 2006 Tower completed its previously announced acquisition of MIIX Insurance Company of New York (“MIIX”), an insurance company with licenses in New York and New Jersey, after receiving approval from the New York State Department of Insurance. Tower paid $8.5 million at closing, which was equal to MIIX’s statutory surplus plus $225,000. MIIX’s assets consist of U.S. Treasury bonds and cash.”
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