Insurer Argonaut, Reinsurer PXRE to Merge, Forming Argo Group

March 15, 2007

Argonaut Group, Inc., a specialty underwriter, and PXRE Group Ltd., a Bermuda-based property reinsurer, have agreed to a merger under which the combined entity will do business as Argo Group International Holdings Limited.

Argo Group will become the Bermuda holding company for PXRE’s existing insurance subsidiaries, Argonaut Group’s U.S. operations, and a newly formed Bermuda reinsurer named Peleus Reinsurance Ltd. Argo Group will trade on The NASDAQ Stock Market under Argonaut Group Inc.’s existing ticker symbol AGII.

Mark E. Watson III, president and chief executive officer of Argonaut Group, Inc., will become the president and chief executive officer of Argo Group, subject to obtaining Bermuda regulatory approval. The Board of Directors for Argo Group will consist of the nine directors currently serving for Argonaut Group, Inc. and four directors from PXRE Group, Ltd., with a chairman elected from the resulting 13-member group.

PXRE’s newly formed Class 3 Bermuda subsidiary, Peleus Reinsurance Ltd., \ will serve as the specialty reinsurance platform for Argo Group and will be licensed to write business in Bermuda. Barbara C. Bufkin will be leaving her position as senior vice president, Corporate Business Development for Argonaut Group, Inc., to become the president of Peleus Re (subject to obtaining Bermuda regulatory approval). Peleus Re is expected to be assigned a rating by A.M. Best in the near future.

Under terms of the merger agreement, holders of Argonaut Group, Inc. common stock will receive 6.4672 shares of Argo Group (f/k/a PXRE Group, Ltd.) common stock in exchange for each share of Argonaut Group, Inc. common stock. The exchange ratio is subject to various adjustments pursuant to the terms of the merger agreement. Upon closing of the transaction, approximately 73% of Argo Group’s outstanding common stock will be owned by former holders of Argonaut Group, Inc. common stock and approximately 27% will be owned by former holders of PXRE Group’s common stock and convertible voting preferred shares. Additionally, prior to the closing of the transaction, Argonaut Group, Inc. expects to pay a dividend of approximately $60 million to its common shareholders.

In connection with the merger, the holders of PXRE’s outstanding convertible voting preferred shares and convertible common shares have agreed to convert such shares into common shares immediately prior to the closing of the transaction and to vote in favor of the transaction. In consideration of their consent to the transaction, agreement to convert and to surrender their contractual rights and protections including their receipt of dividends, PXRE has agreed to reduce the conversion price of the convertible voting preferred shares from $11.28 to $6.24, which will result in the issuance of 9.32 million PXRE common shares upon conversion.

Completion of the transaction is contingent upon customary closing conditions, including the approvals of the common shareholders of PXRE and the common shareholders of Argonaut Group, Inc., as well as various regulatory approvals and notices. The transaction is expected to close by the end of the third quarter of 2007.

Argonaut Group, Inc. and PXRE Group Ltd. will conduct a joint investor conference call to discuss the merger at 9:00 a.m. ET on Thursday, March 15, 2007. The conference call can be accessed by visiting the investor relations section of Argonaut Group’s Web page, which can be found at www.argonautgroup.com, or PXRE Group’s Web page, which can be found at www.pxre.com, or by telephone toll free at 800-659-2037, passcode 60496582.

Headquartered in San Antonio, Argonaut Group, Inc. is a national underwriter of specialty insurance products in niche areas of the property and casualty market, with $3.7 billion in assets. Argonaut Group competes in three primary segments: Excess and Surplus Lines, Select Markets, and Public Entity. Members of Argonaut Group include Colony, Argonaut Specialty, Rockwood, Great Central, Grocers Insurance, Trident, and Argonaut Insurance.

PXRE – with operations in Bermuda, Europe and the United States – provides reinsurance products and services worldwide. PXRE’s primary focus is providing property catastrophe reinsurance and retrocessional coverage. PXRE also provides marine, aviation and aerospace products and services.

Source: Argonaut Group
www.argonautgroup.com.

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