 | Safe Harbor Statement |
Cautionary Statement under “Safe Harbor,” Provision of the Private Securities Litigation Act of 1995: This presentation contains various forward-looking statements and includes assumptions concerning our operations, future results and prospects. Statements included herein, as well as statements made by or on our behalf in press releases, written statements or other documents filed with the Securities and Exchange Commission (the “SEC”), or in our communications and discussions with investors and analysts at this conference or in the normal course of business through meetings, phone calls and conference calls, which are not historical in nature are intended to be, and are hereby identified as, “forward-looking statements” for purposes of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934 as amended. These forward-looking statements, identified by words such as “intend,” “believe,” “anticipate,” or “expects” or variations of such words or similar expressions are based on current expectations and are subject to risk and uncertainties. In light of the risks and uncertainties inherent in all future projections, the inclusion of forward-looking statements in this presentation should not be considered as a representation by us or any other person that our objectives or plans will be achieved. We caution investors and analysts that actual results or events could differ materially from those set forth or implied by the forward-looking statements. For further information regarding cautionary statements and factors affecting future operating results, please refer to PXRE Group’s public filings with the SEC.
| Non-GAAP Financial Measures |
In certain instances when presenting PXRE’s results, management has included and discussed certain “non- GAAP” financial measures. For example, operating income excludes after-tax realized investment gains and losses and foreign exchange gains and losses, as well as other non-recurring items. These excluded items may be material in a period. Management believes that providing non-GAAP financial measures such as operating income provides useful information regarding PXRE’s results of operations consistent with industry practices which enables investors, security analysts and rating agencies to make performance comparisons with PXRE’s competitors. The reconciliation of such non-GAAP financial measures to the applicable GAAP financial measures is included in PXRE’s press releases.
| Agenda |
 | History and strategy | |
| Underwriting | |
| • | Approach | |
| • | Book of business | |
| • | Risk management | |
| • | Loss reserves | |
| Financial review | |
| • | Capital structure | |
| • | Operating metrics | |
| • | Investments | |
| Highlights |
 | High quality franchise with longstanding market presence |
| “A” ratings from S&P and A.M. Best |
| Market fundamentals remain attractive |
| Experienced and proven management team |
| Sound balance sheet, over $800 million of capital |
| Strategy |
| Focus on core profitable short-tail segments |
| Leverage status as “lead” reinsurer |
| Maintain strict risk controls |
| Apply extensive technical analysis to underwriting |
| Continue disciplined use of capital across underwriting cycles |
| A proven strategy generating long-term profits |
| Long Term Performance |
| Cumulative Cat & Risk Loss Ratio 1987 to Present Present = 45% |
| Recent Results |
| Strong 2003 results, especially in core cat and risk excess business: | |
| • | NPW growth in this core business of 46% | |
| • | Cat and risk excess loss ratio of 27% | |
| • | Overall ROE of 19.2% for 2003 | |
| First half of 2004 shows further improvement: | |
| • | Annualized ROE of 22% | |
| • | Net income increased 40% | |
| • | Combined ratio of 55.8% | |
| Outperformed in recent hurricane losses | |
| Experienced Management Team |
| Officer | Title / Responsibility | Years of Experience | |||
| Jeffrey Radke | CEO and President | 16 | |||
| Gerald Radke | Chairman | 35 | |||
| �� | Guy Hengesbaugh | Chief Operating Officer | 19 | ||
| John Modin | EVP, CFO | 17 | |||
| John Daly | EVP, International Operations | 27 | |||
| Peter Kiernan | SVP, North America Operations | 15 | |||
| Andrew Stapleton | SVP, Marine and Aerospace | 16 | |||
| Bruce Byrnes | General Counsel | 11 |
| Underwriters average 21 years of underwriting experience |
| Composition of Business |
| By Segment | Cat & Risk By Geography | ||||
| 2003 NPW = $278 million | |||||
 |  | ||||
| Property Catastrophe | 47% | ||||
| Property Retrocession | 30% | ||||
| Property Risk Excess | 9% | ||||
| Specialty Risk | 14% | ||||
| 2004 YTD NPW = $141 million1 | |||||
 |  | ||||
| Property Catastrophe | 52% | ||||
| Property Retrocession | 30% | ||||
| Property Risk Excess | 9% | ||||
| Specialty Risk | 9% | ||||
1. Through June 30, 2004
| Industry Perspective |
| Liability | | Marsh lawsuit | |||
| • | Excess liability | |||||
| • | Professional liability | | Hurricane losses | |||
| Property | |||||
| • | Property risk excess | | Increasing casualty competition | |||
| • | Property catastrophe | |||||
| • | Property retrocession | |||||
| Specialty | | Impact of Class of ‘01 | |||
| • | Aviation | |||||
| • | Satellite | |||||
| • | Terrorism/War | |||||
| • | Marine | |||||
| Risk Management |
| Closely monitor and manage risk profile in order to maintain financial strength |
| Aggregate exposure control system utilizing third party and proprietary information systems |
| Measure impact of each program on overall portfolio through Crucible, our proprietary risk management system |
| Model each and every transaction to determine appropriate risk adjusted pricing |
| Apply experienced underwriting judgment through team approach |
| Adjust underwriting commitments to reflect underwriting cycle |
| Hurricane Update |
($ in millions)
| Company | Catastrophe Premium | High | High | |||
| ACE | 321 | 480 | 150% | |||
| Arch | 99 | 140 | 141% | |||
| Aspen | 270 | 135 | 50% | |||
| AXIS | 560 | 210 | 38% | |||
| Endurance | 250 | 115 | 46% | |||
| IPC | 349 | 100 | 29% | |||
| Max Re | N/A | 20 | N/A | |||
| Montpelier | 316 | 235 | 74% | |||
| Partner Re | 347 | 235 | 68% | |||
| Platinum | 140 | 130 | 93% | |||
| PXRE | 257 | 111 | 43% |
| Quanta | N/A | 46 | N/A | |||
| Ren Re | 610 | 425 | 70% | |||
| XL Capital | 482 | 445 | 92% |
Source: Dowling & Partners, except updated public loss figures.
| Accounting for Hurricanes |
In accordance with the Financial Accounting Standards Board’s Statement No. 128 “Earnings per Share,” PXRE will not include dilutive potential common shares, such as those related to the mandatory conversion of the convertible preferred shares, in its diluted earnings per share calculation.
As a result of these accounting rules, the EPS loss for the third quarter will appear approximately double the decrease in fully diluted book value per share.
| Crucible |
| Crucible is PXRE’s risk management system developed internally | |
| Used for two main business functions: | |
| • | Planning | |
| • | Underwriting | |
| “Attractiveness” of submissions is a function of: | |
| • | Return | |
| • | Risk | |
| • | Correlation with portfolio | |
| PXRE’s proprietary risk measure defines risk in terms of standard deviation and skewness | |
| Capital Structure |
| Raised $27 million (including shoe) in common equity during 2003/2004 |
| Issued $62.5 million of trust-preferred securities during 2003 |
| Weighted average after-tax cost of debt is 6.67% |
| Capital has grown 103% since year end 2001 |
| Growth and Composition of Capital (in $ millions) |
| Key Operating Metrics |
| Combined Ratio | Return on Equity | |||
Reported 
Excluding Exited Lines
| Total Investment Portfolio |
AS OF JUNE 30, 2004
| ST Investments and Bonds | $902.6 million |
| Average Credit Rating | AA+ |
| Duration | 2.3 years |
| Manager | GR NEAM |
| Hedge Funds | $124.7 million |
| Number of Strategies | 23 |
| Sub-Managers | 18 |
| Manager | Mariner |
$1.04 BILLION
Diversified, high-quality, liquid investments |
| Summary |
| Completed transition to a pure short tail company | ||
| Produced strong operating results | ||
| • | Outperformed in hurricanes | ||
| • | First half of 2004 ROE 22% | ||
| Dramatic growth demonstrates quality of the franchise | ||
| Balance sheet is strong and transparent | ||
| Risks are limited in scope, size and coverage | ||