Fitch Ratings announced that the ratings of PXRE Group Ltd. remain on Rating Watch Negative, following the reinsurer’s second quarter earnings announcement (See IJ Website Aug. 9).
Fitch cited the following factors in support of its decision:
— Continued uncertainty related to PXRE’s future viability and business direction as the company continues to explore strategic alternatives and negotiate commutations. Fitch believes such actions often signal a distressed situation and potential run-off. Additionally, the company is in the process of replacing its current advisor, Lazard Ltd., with a new firm due to Lazard’s expiring engagement and staffing changes.
— Concerns regarding the company’s ability to continue to operate profitably given its increased expenses, reduced premium base, and the potential for inadequately set reserves. Roughly 82 percent of PXRE’s in-force business as of Jan. 1, 2006 has either been non-renewed or cancelled. PXRE expects nearly all remaining business will expire by Jan. 1, 2007.
— Senior management changes previously announced, which include the resignation of the company’s Chief Operating Officer effective July 17, 2006.
— Shareholder lawsuits previously announced, with their ultimate financial impact unknown.
— Fitch’s belief that PXRE has limited financial flexibility going forward.
The rating agency noted that it had “originally placed the ratings on Rating Watch Negative on Feb. 17, 2006, following PXRE’s announcement that the company had increased its pre-tax net loss estimates for hurricanes Katrina, Rita, and Wilma by $281 million-$311 million and decided to explore strategic alternatives. Fitch concurrently downgraded the Insurer Financial Strength (IFS) rating on PXRE’s lead operating subsidiaries, PXRE Reinsurance Ltd. and PXRE Reinsurance Company, to ‘BB+’ from ‘BBB+’.”
The announcement did find some positive elements in the second quarter, notably: “PXRE did not experience material adverse loss reserve development related to its 2005 hurricane losses, and its catastrophe risk continues to be reduced since a large amount of its premium base has non-renewed or cancelled.”
Fitch said it “expects this will continue to be the trend.” Additionally, Fitch noted that capital has increased slightly since year-end Dec. 31, 2005. Shareholders’ equity was $504.5 million at June 30, 2006 versus $465.3 million at year-end. Surplus at the two primary insurance subsidiaries was also stable.
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